中國鐵塔力量之塔

1、<p>　　China Tower Corporation Limited [0788.HK]</p><p>　　Towering strength. Initiate with BUY</p><p>　　China Tower Corporation Limited (China Tower) is the world’s largest telecommunication

2、s tower infrastructure service provider. According to an F&S Report, as at 31 Dec 2017, China Tower ranked first among global telecommunications tower infrastructure service providers in terms of the number of sites,

3、 the number of tenants, and revenue; and China Tower’s market share in the tele- communications tower infrastructure industry in China was 96.3% in terms of the number of sites and 97.3% in terms of</p><p>　

4、　Proxy for rising data traffic. According to the F&S Report, from 2017 to 2022, the size of the telecommunications tower infrastructure market China is expected to increase steadily from RMB70.6b to RMB109.1bn, repre

5、senting a CAGR of 9.1%. In addition, the number of tenants in the telecommunications tower infrastructure market in China is expected to increase from 2.8m in 2017 to 4.9m in 2022, representing a CAGR of 11.9%. The numbe

6、r of TSP tenants is expected to increase from 2.8m in 2017 to 4.5</p><p>　　Non-telecom business expected to drive growth. China Tower is expanding its customer base to reduce reliance on telecommunications s

7、ervices providers, so we expect to see wider application of its towers, given the development of new technologies such as IoV and IoT. China Tower is actively pursuing DAS projects in commercial buildings, large venues,

8、sub- ways and high-speed railways, covering a cumulative length of more than 13,000km of high- speed railways and 1,900km of subways, as well as lar</p><p>　　Manageable risk of industry restructuring. We sha

9、re the view that news flow on industry restructuring at the telecom operator level might create concerns about China Tower. Howev- er, at this stage, there is no confirmation of the news flow. If this is the case, it wil

10、l take time for the deal to be completed, and China Tower should have enough time to mitigate the im- pact.</p><p>　　Not expensive compared with its overseas peers. China Tower is valued at 6.1x 2018 EV/ EBI

11、TDA, which doesn’t look particular expensive compared to that of its global peers. The Chinese government is taking the lead in 5G development, and China Tower will be one of the main 5G development names in the global t

12、ower industry. After listing, China Tower is a siza- ble telecommunications name with a growth angle, trading at a discount to its global peers. We share the view that investors might take a</p><p>　　Revenue

13、55,997.068,665.072,441.377,090.782,146.2</p><p>　　Change (YoY %)536.222.65.56.46.6</p><p>　　EBITDA32,743.840,567.842,717.644,556.247,344.5</p><p>　　EBITDA Margin %58

14、.559.159.057.857.6</p><p>　　Net Profit76.01,943.02,336.93,226.94,059.0</p><p>　　Net Margin %0.12.83.24.24.9</p><p>　　EPS (Basic)0.000.010.010.020.02</p>&l

15、t;p>　　Change (YoY %)(102.1)2,456.620.336.225.8</p><p>　　DPS$0.000$0.000$0.000$0.007$0.009</p><p>　　ROE (%)0.11.51.51.82.2</p><p>　　Dividend Yield (%)---0.740.

16、93</p><p>　　PER (x)2,265.288.673.754.143.0</p><p>　　PBR (x)1.41.31.01.00.9</p><p>　　FCF Yield (%)-21.16%-5.73%-3.53%1.21%3.44%</p><p>　　Capex (m)(70,156

17、.0)(46,364.0)(41,961.2)(34,180.6)(31,940.3)</p><p>　　Free cash flow per share(0.25)(0.07)(0.04)0.010.04</p><p>　　Net Gearing (%)25.7102.948.146.642.8 </p><p>　　Sourc

18、es: Company, CGIS Research estimates2</p><p>　　Investment positives</p><p>　　A leading player with a visible business model</p><p>　　China Tower is the world’s</p><p>

19、　　largest telecommunications tower infrastructure service provider</p><p>　　Visible business model</p><p>　　Overcoming the impact of pric- ing pressure</p><p>　　China Tower operates

20、 in China and faces no competition from foreign telecommunications tower infrastructure companies. China Tower competes only in the telecommunications tower infrastructure industry in China. According to an F&S Repor

21、t, China Tower is in the leading position in China’s telecommunications tower infrastructure industry. As at 31 Dec 2017, China Tower’s market share in the telecommunications tower infrastructure industry in China was 96

22、.3% in terms of the number of sites. The Com</p><p>　　Like other utilities, tower companies in the telecom industry operate a simple business mod- el, leasing tower assets (macro cell and small cell) to serv

23、ices providers (telecom and non- telecom). Compared with their customers, tower companies face fewer operating risks, such as network management, technology upgrades (such as 4G to 5G) and monetization of services. The v

24、isibility of tower companies’ business is much higher than that of their customers. We also believe that China Tower’s position</p><p>　　We believe that China Tower’s Jan-Sep 2018 results were solid, showing

25、 that the Company overcame the impact of price cuts in early 2018 and reported turnover growth. Despite its small size, the DAS and TASSI business is a growth driver for China Tower. The Compa- ny’s Jan-Sep 2018 YoY turn

26、over growth was 6.1%, higher than our original expectations for 2018, and the EBITDA margin of 59.1% in Jan-Sep 2018 was higher than our full-year fore- cast of 58.1%. The Company’s Jan-Sep 2018 net profit grow</p>

27、<p>　　Figure 1: China wireless communications market vs. selected major global wireless communi-</p><p>　　cations markets in 2017</p><p>　　China still has room to grow despite high penet

28、ration rate</p><p><b>　　140%80</b></p><p><b>　　120%70</b></p><p><b>　　100%60</b></p><p><b>　　50</b></p><p&

29、gt;<b>　　80%</b></p><p><b>　　40</b></p><p><b>　　60%</b></p><p><b>　　30</b></p><p><b>　　40%20</b></p>

30、<p><b>　　20%10</b></p><p><b>　　0%0</b></p><p>　　ChinaUSJapanSouth Korea</p><p>　　Penetration rate of wireless communications users Penetration rate

31、 of 4G users</p><p>　　Average annual wireless communications data traffic per user (GB; RHS)</p><p>　　Sources: F&S Report, CGIS Research</p><p>　　Next stage of the telecommunica

32、tions industry cycle</p><p>　　Non-telco businesses will drive future growth</p><p>　　Increasing data traffic will cre- ate demand for tower infra- structure</p><p>　　China Tower wil

33、l benefit from opportunities arising from the sustainable and rapid develop- ment of China’s wireless communications industry, as well as favorable policy support from the government. Given the growth prospects of the te

34、lecommunications tower infrastructure service industry, China Tower’s compelling market position, the increasing demand from TSPs, in line with the further enhancement of the 4G network and the future roll-out of the 5G

35、network, China Tower’s durable and reliable r</p><p>　　Sharing-oriented business model: This allows China Tower to enhance its profitability by increasing its tenancy ratio and marginal profit.</p>&l

36、t;p>　　Stable and predictable sources of operating revenue and cash flow: China Tower’s major customers are globally leading TSPs, with whom China Tower has signed long-term agreements.</p><p>　　Outstandin

37、g capability to provide comprehensive services: China Tower has a broad service scope in China, offering integrated services, which strengthens its market leading position and expands its customer base across sectors.<

38、;/p><p>　　Great potential for business with customers from different industries: Based on its unparalleled site resources and outstanding capability in providing integrated services, Chi- na Tower is exploring

39、new business growth areas.</p><p>　　Leading operational efficiency: An efficient, innovative and sophisticated management model allows China Tower to achieve operational efficiency and optimize operating cos

40、ts.</p><p>　　China Tower is promoting its non-telco business to diversify its revenue sources by provid- ing site resources services, such as infrastructure, maintenance services and site-based information s

41、ervices for data collection, backhaul, aggregation, analysis and application, to meet demand from clients in government and different industries. China’s national strate- gies of “Cyber Power”, “Digital China”, and “Smar

42、t Society” promote the rapid development of IoT, big data, and artificial intelligence</p><p>　　Partly because of government policies, wireless data traffic has increased significantly in China, tripling YoY

43、, from 5.1m TB in 2H16 to 15.5m TB in 2H17. This growth in data volume is translating into higher demand for network capacity, which results in more demand for tower infrastructure, either through the installation of new

44、 towers or co-sharing of existing macro tower sites. We still expect China Tower to benefit from improvement in coverage of China Telecom and Unicom, which lag behind Ch</p><p>　　Penetration of other industr

45、ies</p><p>　　Developing high-profile cus- tomers and partners</p><p>　　Through a more proactive approach to the sharing of existing and new site resources, Chi- na Tower has effectively met mark

46、et demand, while achieving reasonable savings in con- struction costs. By the end of June 2018, 71% of the new leases from the big three TSPs were based on co-location, which had a significant positive impact on overall

47、performance. The Company is actively pursuing DAS projects in commercial buildings, large venues, subways and high-speed railways, covering a cumulative leng</p><p>　　China Tower started to engage in TSSAI b

48、usiness in 2016 to diversify its business lines and revenue sources by providing site resources services, such as infrastructure, maintenance services and power services, and site-based information services for data coll

49、ection, back- haul, aggregation, analysis and application to meet the diverse needs of customers from different industries for information technology build-up. China Tower’s service offerings cov- er more than 16 industr

50、y applications, incl</p><p>　　In its TSSAI business, China Tower has customers from different industries, such as envi- ronmental protection, broadcasting and digital television, satellite positioning, energ

51、y, ma- rine and agriculture. To develop its TSSAI business, China Tower plans to explore the growth potential for serving the informatization demands of customers from various indus- tries. In the next two to three years

52、, China Tower will focus on the government and enter- prise private communications network market, vide</p><p>　　China Tower signed a strategic cooperation agreement with Alibaba on 17 Aug 2018, ac- cording

53、to Sina.com. According to news reports, China Tower and Alibaba will have deep cooperation in areas such as cloud computing, edge computing, and big data. China Tower will provide site resources for Alibaba to deploy its

54、 IoT network. In Apr 2018, China Tower also signed agreements with China's two major power grid operators, State Grid Corp of China and China Southern Power Grid Co Ltd, to share their p</p><p>　　China T

55、ower signed a strategic cooperation agreement with China Post on 20 Aug 2018. According to news flow, China Tower will consolidate China Post’s public service facilities, such as offices and business premises, into site

56、resources. China Tower will provide ser- vices such as video surveillance, smart IoT, multi-domain data information and advertising to China Post. The two parties will also explore cooperation in new business areas, such

57、 as smart societies, digital China, and e-commerce.</p><p>　　Comparable to peers</p><p>　　Reasonable asset structure compared to that of its peers</p><p>　　The tower industry is cap

58、ital intensive, requiring a large investment and usually a lot of fi- nancial leverage. Compared to its international peers, China Tower has a relatively low liability-to-asset ratio. China Tower’s high gearing ratio is

59、due to the fact that the Company acquired its tower assets from the telecom operators, mainly China Mobile, China Telecom and China Unicom. However, China Tower’s net gearing ratio is still lower than that of its global

60、peers. The high ROE achieved by Chi</p><p>　　China Tower raised HK$58,796.46m in Aug 2018 by issuing 43,114,800,000 H-shares in an IPO and 3,549,056,000 H Shares as an over-allotment shares, at HK$1.26 per H

61、 share. According to the prospectus, approximately 60% is expected to be used to fund capital ex- penditure: a) 51% to 54% is expected to be used for new site construction and augmenta- tion; and b) 6% to 9% is expected

62、to be used for ancillary facilities replacement and im- provement; approximately 30% is expected to be used to repay b</p><p>　　The gearing ratio will be improved because China Tower will use nearly 30% of t

63、he funds from the IPO to pay off bank loans. After the IPO, China Tower’s gearing will be reduced from over 100% in 2017 over 48% in 2018. The improvement in gearing ratio offers China Tower the capacity to raise CAPEX f

64、or the 5G era, which is coming in the next two years.</p><p><b>　　70,000</b></p><p><b>　　60,000</b></p><p><b>　　50,000</b></p><p>&l

65、t;b>　　40,000</b></p><p><b>　　30,000</b></p><p><b>　　20,000</b></p><p><b>　　0</b></p><p><b>　　Business</b></p

66、><p>　　Tower business</p><p>　　China Tower is a leading player</p><p>　　Using its sites, China Tower carries out macro-cell and small-cell business with telecommu- nications service pr

67、oviders (TSPs).</p><p>　　Macro-cell business: China Tower provides site space, including towers and shelters or cabinets, to TSPs and hosts their antennas and other macro-cell equipment. Through its macro-ce

68、ll business, China Tower supports TSPs by providing extensive coverage of their wireless communications networks in China.</p><p>　　Small-cell business: China Tower provides site space, including towers, pol

69、es, and other infrastructure resources and cabinets, to TSPs and hosts their small-cell equipment. Through its small-cell business, China Tower supports TSPs to densify the coverage and increase the capacity of the wirel

70、ess communications networks built up by macro-cell equipment, particularly in urban areas with a high density of people and buildings, and in certain non-urban areas.</p><p>　　In 2015, 2016, 2017, 1Q18 and 1

71、H18, China Tower’s revenue from its macro-cell business accounted for 99.5%, 99.2%, 97.3%, 96.5% and 95.5% of total revenue, respectively. China Tower commenced its small-cell business in 2017. In 2017, 1Q18 and 1H18, re

72、venue de- rived from its small-cell business was RMB257m, RMB84m and RMB176m, respectively. As at 30 Jun 2018, China Tower had 21,045 TSP tenants for its small-cell business. In Jan- Sep 2018, revenue derived from tower

73、business was RMB51,535m, up 3</p><p>　　China Tower aims to strengthen its leading position in the tower business indus- try. Development goals for macro-cell business: China Tower aims to grow together with

74、the TSPs and reinforce its leading position in macro-cell business. China Tower will: a)</p><p>　　leverage its strength in coordinating site planning with the TSPs’ network planning, and fully</p><

75、;p>　　consolidate demand to improve its site co-location; b) lower its capital expenditure, satisfy its customers’ demands more quickly and help lower their costs in network deploy- ment by fully utilizing the resource

76、s of the public utility towers and poles and shortening the time for site construction; and c) extend the scope of its site co-location to more compre- hensive sharing by providing TSPs with integrated solutions. Develop

77、ment goals for small</p><p>　　-cell business: China Tower seeks more small-cell orders from TSPs and to enhance its market competitiveness by providing quality services in a more cost-efficient manner with c

78、ompetitive service charges. In order to achieve this, China Tower plans to: a) lower con- struction costs and enhance delivery efficiency by using public utility towers and poles for small-cell installation; b) enrich it

79、s small-cell service offerings by providing self-built sites or public utility towers and poles, or pro</p><p>　　Indoor DAS (Distributed Antenna System) business</p><p>　　China Tower provides in

80、door DASs to TSPs and to attach their telecommunications equip- ment. Through its DAS business, China Tower supports TSPs in providing in-depth cover- age of wireless communications networks in buildings and tunnels.<

81、/p><p>　　China Tower has established a track record in its DAS business, with increasing revenue and number of tenants. In 2015, 2016, 2017 and 1H18, revenue from its DAS business amounted to RMB45m, RMB42m, RM

82、B1,284m and RMB824m, respectively. As at 31 Dec, 2015, 2016 and 2017 and 30 Jun, 2018, the number of TSP tenants in China Tower’s DAS business was 3,532, 13,646, 23,615 and 26,972, respectively. In Jan-Sep 2018, revenue

83、derived from its DAS business was RMB1,325m, up 79.3% YoY.</p><p>　　Also gaining market share in the DAS segment</p><p>　　China Tower will improve its ability to satisfy its DAS customers’ deman

84、ds. According to its Development Goals for its DAS business, China Tower seeks to strategically expand the coverage of its DAS sites in key venues and promote co-location at its DAS sites with TSPs. In order to achieve t

85、his, China Tower plans to: a) coordinate demand in subways, expressways, high-speed railways, transportation hubs, large venues and other key venues to promote its DAS business; b) develop more advanced DAS p</p>

86、<p>　　China Tower builds relationships with TSPs through Tower and DAS business.</p><p>　　TSPs require sites to host telecommunications equipment and build up their wireless com- munications networks. T

87、SPs have historically acquired, constructed and maintained the sites by themselves. To alleviate the burden of capital expenditure and to systematically improving their cost position, TSPs are increasingly opting to use

88、sites and services provid- ed by telecommunications tower infrastructure service providers, which allow the TSPs to share sites and achieve network coverage and expansi</p><p>　　China Tower conducts tower an

89、d DAS business with TSPs using its extensive site re- sources and provides site space, ancillary equipment and various services to TSPs to en- sure the smooth operation of infrastructure and power, and support the contin

90、uous function- ing of TSP equipment.</p><p>　　Site space. China Tower provides towers, shelters or cabinets, and ancillary equip- ment to its TSP tenants for them to install their telecommunications equipmen

91、t.</p><p>　　Maintenance services. The maintenance services include monitoring equipment oper- ations, routine inspection, breakdown handling, property upkeep, working environment protection and operations an

92、alysis. Through its maintenance services, China Tower helps its tenants maintain the continuous functioning of their equipment.</p><p>　　Power services. China Tower provides power access, batteries or backup

93、 power gen- eration for its tenants’ telecommunications equipment. Utility electricity can be provided to its tenants through its power access. In the event of a disruption in utility electricity, China Tower offers back

94、up power assurance from its batteries. In addition, China Tow- er generates power using gasoline or diesel generators for the telecommunications equipment of its tenants in case both utility electricity is disr</p>

95、<p>　　The long-term relationships between China Tower and the Big Three TSPs are mutually beneficial and complementary. China Tower consolidates the demand from TSPs for their wireless communications coverage and

96、matches the demands with its site resources. Based on the matching results, China Tower can satisfy the demand either by augmenting its existing sites or identifying and building new sites. China Tower also offers TSPs i

97、nte- grated solutions for wireless communications coverage. As China Towe</p><p>　　Trans-sector site application and information (TSSAI) business</p><p>　　Technologies such as IoT, big data and

98、artificial intelligence have been developing rapidly in China and are driving the rapid growth in demand for informatization in all industries. In response to this trend and by expanding the scope of its services, improv

99、ing the value prop- osition of its services and addressing the needs of customers from different industries, Chi- na Tower uses its TSSAI business to increase marginal profit and develop diverse busi- ness. Using its sit

100、es dispersed nationwi</p><p>　　Non-telco business looks promising.</p><p>　　Furthermore, by integrating data-collection devices, transmission networks, data platforms and other resources, China