China Tower released FY20 results with revenue/net profit growth of 6.1%/ 23.1% YoY, largely in-line with our/consensus estimates. Tower business grew 3% YoY while DAS/TSSAI & Energy biz grew 33%/89% YoY. EBITDA margin was slightly lower at 73.4% (vs 74.2% in FY19) on higher opex. Payout ratio of 68% is a positive (vs 60% in FY19). For 2021, mgmt. guided 1) steady growth on tower biz and rapid non-telco growth, 2) stable EBITDA margin with more tower sharing, and 3) lower CAPEX of RMB30bn (vs RMB37bn in FY20) and D&A expense. Overall, we believe China slower 5G rollout, telco’s network sharing (CT/CT, 700MHz) and cost control will offset Tower’s 5G growth. We slightly adjusted our TP to HK$1.40 based on lower 4.75x FY21E EV/EBITDA (vs 4.9x prior) due to near-term revenue/opex pressure. Maintain HOLD.
- FY20 largely in-line; slower tower revenue and faster non-telco biz. Tower/DAS/TSSAI & Energy businesses grew 3%/33%/89% YoY. By 2020, there are 3.2mn TSP tenants and 2.0mn tower sites, up 4%/2% YoY. Tower tenancy ratio reached 1.67 in FY20 (vs 1.62 in FY19) and avg. revenue per TSP tower grew 1.3% YoY to RMB36.3k in FY20. EBITDA margin came in at 73.4% (vs 74.2% in FY19) with higher site lease charges (new accounting standard) and higher opex on two-wings biz promotion.
- Beneficiary of 5G network expansion, but near-term pressure on network sharing and telco cost control. For 2021, mgmt. remains positive on China 5G rollout and guided CAPEX of RMB30bn, lower than RMB37bn in FY19 due to more network sharing, in our view. Although next phase of 5G deployment is on the way, we think telco’s network sharing and cost control strategy will limit 5G revenue upside for China Tower. In particular, under CM/CBN’s agreement of 700MHz network sharing, telco operators can reduce costs of 5G network expansion to rural areas given less 5G BTS deployment, implying less 5G revenue upside for China Tower.
- Maintain HOLD; adjust TP to HK$1.40. We adjusted our estimates and slightly raised TP to HK$1.40 (lower 4.75x FY21E EV/EBITDA) to reflect near-term revenue/opex uncertainty. We expect near-term overhang on stock price due to telco opex pressure. Potential risks include less-than-expected 5G investments of telco and slower adoption of new 5G use cases.
