China Tower Corp

(Sept 11: HK$1.83)

MAINTAIN OUTPERFORM. While Unicom and China Telecom’s formalisation of “co-build co-share” plans for a 5G network has been negative for sentiment towards China Tower Corp (CTC), we have always expected a coordinated rollout by the two operators. Our model still suggests that 5G rollout will drive 5.9% growth in CTC’s macro tower revenue in FY2020, in an acceleration versus the 5.4% we project in FY2019. Where CTC has disappointed is in the development of non-telco revenues, and we lower our FY2019 revenue forecast by 0.7% as a result. Given CTC’s high operational gearing, this leads us to trim our FY2019 net profit forecast by 5.1%. However, our revised forecast of 8.4% of total revenue growth still lies within CTC’s guidance range, and we maintain our price target of HK$2.55. Given its structural top-line growth, operational gearing is still more of a help than a hindrance for CTC and we forecast 118.3% earnings growth in FY2019. Our three-year FY2019-FY2022 earnings CAGR of 47.6% far exceeds the growth we expect from the telcos. —