China Tower released 1Q21 results with revenue of RMB21.2bn (+7% YoY) and net profit of RMB1.7bn (+17% YoY). The result is largely in-line with our estimate but lower than consensus, as net profit accounted for 23%/17% of our/consensus FY21E NP forecasts. 1Q21 revenue was mainly driven by its two wing segments, TSSAI and Energy; however, its tower business (89% of revenue) remains slow (+3.9% YoY, vs 4.5% in 4Q20) as we believe telcos’ opex is within strict budget control. Our new TP is HK$1.33 based on lower 4.6x FY21E EV/EBITDA (vs 4.75x prior) due to near-term revenue/opex pressure. Maintain HOLD.
- 1Q21 largely in-line; slower tower business and strong TSSAI/Energy as expected. 1Q20 tower business grew at 3.9% YoY, reflecting continued pressure as a result of telcos’ co-build co-share strategy. By 1Q21, there are 3.4mn TSP and 2.0mn tower sites, up 3.7%/1.0% YoY. Tower tenancy ratio reached 1.68 (vs. 1.66 in FY20) and avg. revenue per TSP tower grew 2.8% YoY to RMB9.3k in 1Q21. Non-tower businesses, DAS/TSSAI/Energy, delivered strong growth of 20%/55%/225% YoY, driven by informatization, digitalization and new energy applications. 1Q21 EBITDA/NP margin remained at 73.5%/8.0% (vs 73.4%/7.9% in FY20).
- Muted tower outlook as telcos’ opex is under strict budget control. China telcos’ FY21E capex budget is RMB340.6bn (+1.7% YoY), of which 54.2% is 5G-related. FY21E 5G BTS rollout announced is 640k (CM: 120k 2.6GHz; CM/CBN: 400k 700MHz for 2 yrs; CU/CT: 320k 2.1GHz/3.5GHz), which is lower than our previous est. of 800k. Meanwhile, CM announced that they would strictly control the growth of tower leasing expense. Although we are positive on China' 5G deployment and we believe China Tower will be a key beneficiary in the long run, we think slower core business will drag overall revenue growth in the near term.
- Maintain HOLD; adjust TP to HK$1.33. We trimmed our estimates to reflect more conservative EBITDA margin, and reduced our TP to HK$1.33 (lower 4.6x FY21E EV/EBITDA) for 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.
