20210309-招银国际-中国铁塔-00788.HK-FY20_in-line__5G_revenue_growth_remains_uncertain_5页_1mb

China Tower (788 HK) Company Update Summary

Core Content

China Tower released its FY20 results, showing revenue and net profit growth of 6.1% and 23.1% YoY, respectively, which were largely in line with expectations. The company's performance was driven by growth in the DAS/TSSAI & Energy business segments, which grew 33% and 89% YoY. However, the Tower business only saw a 3% YoY increase. The EBITDA margin slightly declined to 73.4% from 74.2% in FY19 due to higher operating expenses and new accounting standards. The payout ratio increased to 68%, which is a positive sign compared to 60% in FY19.

For FY21, management guided for steady growth in the Tower business and rapid growth in non-telco segments, with a lower CAPEX of RMB30bn compared to RMB37bn in FY19. The company also expects a stable EBITDA margin due to increased tower sharing. However, the slower rollout of 5G in China and telco cost control measures are expected to offset potential 5G revenue growth for China Tower, as telco operators can reduce costs through network sharing, particularly in the 700MHz band, which may lead to less revenue upside for the company.

Main Points

• FY20 Performance:

  • Revenue: RMB81,099 million, up 6.1% YoY.
  • Net profit: RMB6,428 million, up 23.1% YoY.
  • EBITDA margin: 73.4%, slightly lower than FY19.
  • Payout ratio: 68%, up from 60% in FY19.

• 2021 Guidance:

  • Steady growth expected in Tower business.
  • Rapid growth anticipated in non-telco segments.
  • Lower CAPEX and D&A expenses due to more network sharing.
  • Stable EBITDA margin expected with increased tower sharing.

• Analyst Outlook:

  • Maintain HOLD rating.
  • Adjust target price (TP) to HK$1.40, a +14% increase from the previous TP of HK$1.31.
  • Current stock price is HK$1.23.
  • The TP adjustment is based on a lower 4.75x FY21E EV/EBITDA compared to the previous 4.9x.

Key Financials

Revenue

• FY19A: RMB76,428 million
• FY20A: RMB81,099 million
• FY21E: RMB86,489 million
• FY22E: RMB92,261 million
• FY23E: RMB98,164 million
• YoY growth: 6.4% / 6.1% / 6.6% / 6.7% / 6.4%

EBITDA

• FY19A: RMB56,696 million
• FY20A: RMB59,527 million
• FY21E: RMB63,310 million
• FY22E: RMB67,258 million
• FY23E: RMB71,365 million
• EBITDA margin: 74.2% / 73.4% / 73.2% / 72.9% / 72.7%

Net Profit

• FY19A: RMB5,222 million
• FY20A: RMB6,428 million
• FY21E: RMB8,441 million
• FY22E: RMB10,921 million
• FY23E: RMB12,851 million
• Net profit margin: 6.8% / 7.9% / 9.8% / 11.8% / 13.1%

EPS

• FY19A: RMB0.030
• FY20A: RMB0.037
• FY21E: RMB0.048
• FY22E: RMB0.062
• FY23E: RMB0.073
• YoY growth: 24% / 23.1% / 31.3% / 29.4% / 17.7%

Valuation Metrics

• P/E: 34.3 / 27.8 / 21.1 / 16.3 / 13.9
• P/B: 1.0 / 1.0 / 0.9 / 0.9 / 0.9
• EV/EBITDA: 4.9 / 4.6 / 4.4 / 4.1 / 3.9

Key Risks

• Slower 5G rollout in China may limit revenue growth.
• Telco cost control and network sharing could reduce demand for China Tower's services.
• Uncertainty around 5G revenue upside and new use cases.
• Near-term revenue and opex pressure could lead to stock price overhang.

Share Performance

• Market Cap: RMB216,490 million
• Avg. 3mths t/o: RMB722 million
• 52W High/Low: HK$1.93 / HK$1.03
• Total Issued Shares: 46,663.9 million

Shareholding Structure

• Citigroup: 8.98%
• GIC: 7.11%
• Hillhouse Capital: 7.02%

Analyst Certification & Disclaimer

• The analyst certifies that the views expressed in the report reflect personal opinions and not related to compensation.
• CMBIS has investment banking relationships with the issuers covered in the report.
• The report is not an offer or solicitation to buy or sell any securities.
• The information is not guaranteed and may be subject to change.

CMBIS Ratings

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

Important Disclosures

• This report is intended for CMBIS clients only.
• No individual investment advice is provided.
• Past performance is not indicative of future results.
• Investors are advised to consult a professional financial advisor before making investment decisions.
• The report may not be reproduced, reprinted, sold, or published without prior written consent from CMBIS.

Regulatory Information

• UK: Only for persons falling within Article 19(5) or Article 49(2)(a) to (d) of the Financial Promotion Order.
• US: Only for major US institutional investors; not for retail investors.
• Singapore: Distributed by CMBI (Singapore) Pte. Limited, an Exempt Financial Adviser.