20210420-招银国际-中国铁塔-00788.HK-1Q21_in-line__tower_business_remains_slow_5页_1mb

China Tower (788 HK) Company Update Summary

Core Content

China Tower released its 1Q21 financial results, reporting revenue of RMB21.2 billion (+7% YoY) and net profit of RMB1.7 billion (+17% YoY). The results were largely in line with CMB International Securities' estimates but slightly below the market consensus. The company's revenue was primarily driven by its TSSAI and Energy segments, while the tower business, which constitutes 89% of total revenue, showed slower growth at +3.9% YoY compared to 4.5% in 4Q20. This is attributed to the continued strict budget control by telecommunications companies on their operational expenditures.

Key Financial Metrics

• Revenue (RMB mn): FY19A: 76,428 | FY20A: 81,099 | FY21E: 85,903 | FY22E: 91,681 | FY23E: 97,590
• YoY growth (%): FY19A: 6.4 | FY20A: 6.1 | FY21E: 5.9 | FY22E: 6.7 | FY23E: 6.4
• EBITDA (RMB mn): FY19A: 56,696 | FY20A: 59,527 | FY21E: 63,139 | FY22E: 66,285 | FY23E: 70,167
• Net profit (RMB mn): FY19A: 5,222 | FY20A: 6,428 | FY21E: 8,326 | FY22E: 9,529 | FY23E: 10,519
• EPS (RMB): FY19A: 0.030 | FY20A: 0.037 | FY21E: 0.048 | FY22E: 0.054 | FY23E: 0.060
• YoY growth (EPS): FY19A: 66.6% | FY20A: 23.6% | FY21E: 29.5% | FY22E: 14.5% | FY23E: 10.4%
• P/E (x): FY19A: 32.9 | FY20A: 26.6 | FY21E: 20.6 | FY22E: 18.0 | FY23E: 16.3
• EV/EBITDA (x): FY19A: 4.8 | FY20A: 4.5 | FY21E: 4.3 | FY22E: 4.1 | FY23E: 3.8
• Dividend Yield (%): FY19A: 1.5 | FY20A: 2.3 | FY21E: 2.6 | FY22E: 3.0 | FY23E: 3.3
• ROE (%): FY19A: 2.9 | FY20A: 3.5 | FY21E: 4.4 | FY22E: 4.9 | FY23E: 5.2
• Gearing ratio (%): FY19A: 38 | FY20A: 37 | FY21E: 34 | FY22E: 30 | FY23E: 27

Main Points

• Tower Business Performance: The tower business grew by only 3.9% YoY in 1Q21, continuing the slow growth trend due to telcos' tight budget control on operational expenses.
• Non-Tower Business Growth: DAS, TSSAI, and Energy segments showed strong growth, with TSSAI and Energy growing by 55% and 225% YoY, respectively. This growth is attributed to the push towards informatization, digitalization, and new energy applications.
• EBITDA and Net Profit Margins: EBITDA margin remained at 73.5% in 1Q21, slightly lower than FY20's 73.4%, while net profit margin improved to 8.0% from 7.9% in FY20.
• Tower Tenancy Ratio: Increased to 1.68 in 1Q21 from 1.66 in FY20, indicating better occupancy and utilization.
• Revenue per TSP Tower: Rose to RMB9.3k in 1Q21, up 2.8% YoY.
• TSP Tenants: Reached 3.277 million in 1Q21, with a 3% YoY increase.
• Tower Sites: Increased to 2.061 million in 1Q21, with a 2% YoY increase.

Key Risks and Outlook

• Telco Opex Pressure: Telcos are maintaining strict control over operational expenses, which continues to put pressure on China Tower's core tower business.
• 5G Deployment Uncertainty: The company's 5G revenue growth is uncertain, as the announced 5G BTS rollout for FY21E is lower than previous estimates.
• Valuation Adjustments: The target price (TP) was adjusted to HK$1.33, based on a lower EV/EBITDA multiple (4.6x) due to near-term revenue and opex pressures.
• Share Performance: The stock has underperformed in the short term, with a 1-month return of -2.5% and a 6-month return of -15.4%.
• Earnings Revisions: CMBIS revised its earnings estimates downward for FY21E to FY23E, particularly in operating and net profit, due to more conservative assumptions about EBITDA margins and telco spending.

Valuation Adjustments

• Maintain HOLD: The analyst recommends maintaining a HOLD rating due to near-term uncertainties and the continued impact of the co-build co-share strategy on telcos.
• Target Price: Adjusted to HK$1.33, down from the previous TP of HK$1.40.
• Valuation Bands: The 12-month forward EV/EBITDA band was adjusted to reflect lower multiples and cautious outlook.

Financial Summary

• Operating Profit: FY19A: 11,281 | FY20A: 12,012 | FY21E: 15,129 | FY22E: 16,426 | FY23E: 17,572
• Net Profit: FY19A: 5,222 | FY20A: 6,428 | FY21E: 8,326 | FY22E: 9,529 | FY23E: 10,519
• Net Profit Margin: Improved to 9.7% in FY21E from 6.8% in FY19A.
• Cash Flow: Operating cash flow increased in FY21E, but investing and financing cash flows show mixed trends, with net cash increase in FY21E and FY23E.

Key Ratios

• Operating Margin: Increased to 17.6% in FY21E from 14.8% in FY19A.
• EBITDA Margin: Remained stable at 73.5% in FY21E.
• Net Profit Margin: Improved to 9.7% in FY21E.
• Net Debt/Total Equity (%): Decreased to 33.9% in FY21E from 38.5% in FY19A.
• Current Ratio: Increased to 0.5 in FY21E from 0.3 in FY19A.
• Receivable Turnover Days: Increased to 112.4 in FY21E from 82.2 in FY19A.

Analyst Ratings

• HOLD: Stock with potential return of +15% to -10% over the next 12 months.
• BUY: Stock with potential return of over 15% over the next 12 months.
• SELL: Stock with potential loss of over 10% over the next 12 months.
• NOT RATED: Stock is not rated by CMBIS.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Summary

China Tower's 1Q21 results show moderate growth in revenue and net profit, with the tower business still under pressure. The non-tower segments, particularly TSSAI and Energy, have shown strong growth. The analyst has adjusted the target price to HK$1.33 due to near-term uncertainties and lower EV/EBITDA multiples. The company's financials indicate improving margins and cash flow, but the overall outlook remains cautious due to telco opex constraints and uncertain 5G adoption. The HOLD rating is maintained, reflecting the need for patience in the face of these challenges.