China Tower Corporation announced the annual results for 2021 on March 9, with good revenue growth and growing profitability. During the reporting period, the company realized operating income of 86.585 billion yuan, + 6.8% year-on-year, EBITDA 63.017 billion yuan, + 5.9% year-on-year, net profit of 7.329 billion yuan, a rapid increase of 14% over the same period last year, net interest rate of 8.46%, + 0.6 pct year-on-year, 2.038 million tower sites, a net increase of 15000 over the end of last year, and the average number of rented households per household reached 1.6, year-on-year + 1.9% In addition, the company adheres to the principle of positive return to shareholders, increases the dividend payout rate to 70%, and shares the company's development dividend with investors. In the medium and long term, with the gradual deepening of the deployment of 5G base stations, the firm implementation of the "one body and two wings" strategy and the slowdown of CAPEX, the company is expected to usher in a performance release period. Give the target price HK $1.18 and maintain the "buy" rating.

The income grew steadily and the profit level reached a new high. In 2021, the company achieved operating income of 86.585 billion yuan, an increase of 6.8% over the same period last year, benefiting from the initial effect of the "one body and two wings" strategy. The company realized EBITDA 63.017 billion yuan, with a year-on-year + 5.9% ETITDA rate of 72.8%, a year-on-year rate of-0.6pct, and a net profit of 7.329 billion yuan, a rapid increase of 14% over the same period last year. The net interest rate reached 8.46%, year-on-year + 0.6pct, and the profit level reached a new high, mainly due to the decrease of 0.3pct in the ratio of cost to income compared with the same period last year, in which: thanks to the improvement of the company's hierarchical and accurate maintenance system, the efficiency of maintenance costs was improved, and maintenance expenses were-0.2% compared with the same period last year; thanks to the effective control of capital expenditure, depreciation and amortization decreased 0.9pct compared with the same period last year. In addition, the company's financial expenses are-5.1% year-on-year, and the results of reducing costs and increasing efficiency continue to appear. During the reporting period, the company's cash flow was solid and abundant, with a free cash flow of 35.311 billion yuan, a year-on-year increase of + 72.9%. At the same time, the company's net debt leverage ratio also fell 3.3pcts to 33.4% compared with the same period last year, and business continued to improve.

5G tenants' income contribution is mainly increased, driving the steady growth of operators' business. In 2021, the company's operator business grew steadily, with revenue of 80.197 billion yuan, + 4.3% compared with the same period last year. The contribution of 5G tenant income to the revenue increment of the business continued to increase from 23.3% of 1H 2020 to 74.6% of 2H 2021. In addition, the operator business: (1) the tower business is growing steadily. Revenue from the business grew 3.4 per cent year-on-year to 75.857 billion yuan. The number of operator tenants reached 3.26 million, + 2.7% year-on-year and + 1% month-on-month. The average number of tenants of operators' tower stations has also been increased to 1.6 per household, which is + 1.9% compared with the same period last year. (2) the room business is developing rapidly. During the reporting period, the revenue of the office division business was 4.24 billion yuan, which was significantly + 23% compared with the same period last year. The company has a total building coverage area of 4.99 billion square meters, + 22.9% year-on-year; subway mileage of 8007 km, + 36.2%; and high-speed rail tunnel coverage of 8899 km, + 30.5% year-on-year.

Business relay growth momentum of the two wings. During the reporting period, the revenue of the company's two wings business reached 6.131 billion yuan, a substantial increase of 55.6% over the same period last year, and the proportion of revenue increased by 2.2pcts to 7.1% compared with the same period last year. Among them: (1) Zhaopin business (cross-industry business) to speed up the "digital tower transformation". The revenue of the business reached 4.06 billion yuan, + 25.3% compared with the same period last year. During the reporting period, the company gave full play to the advantages of medium and high site resources, constantly innovated, managed and operated actively, provided localized operation and maintenance personnel, and actively promoted the transformation from a "communication tower" to a "digital tower". At present, Zhaopin business accumulatively uses 175000 stations, + 20.7% compared with the same period last year; tenants have reached 199000, + 7% compared with the same period last year; (2) the energy business is growing rapidly and has become the leading power changer for light electric vehicles in China. The company's energy business achieved revenue of 2.071 billion yuan, a year-on-year growth of 121.5%, and + 72.5% month-on-month, making it the company's fastest-growing segment of business. Among them: the company's power exchange business achieved revenue of 1.242 billion yuan, + 239.6% compared with the same period last year. The company focuses on the takeout / express market, aims at the pain point of slow / difficult charging of light electric vehicles, and gives full play to the advantages of the company's site resources. at present, it has opened 44000 power exchange outlets in 280cities, actively expanding the cooperation of leading customers in the industry, such as Meituan and Shun Feng. accumulating 612000 users, accounting for about 50% of the national market share, is a well-deserved leader of light electric vehicles. At the same time, the company's power backup business also maintained a high growth rate, achieving revenue of 828 million yuan, + 45.5% year-on-year. It is worth mentioning that the company adopts the battery echelon utilization strategy, when the battery activity of the power battery for electric vehicle replacement decreases and the battery capacity decreases to a certain extent, the company uses the battery ladder to the base station power backup scene with lower requirements for battery charging and discharging energy, so as to maximize cost-effectiveness.

Capital expenditure is steady and manageable. The company's capital expenditure in 2021 was 25.192 billion yuan,-32.1% compared with the same period last year, mainly due to the decline in 4G construction demand and changes in construction structure of operators, as well as a decline in investment in site construction and shared renovation. During the reporting period, the company actively supported the construction of 5G base stations and business expansion of the two wings, while strengthening the control of total investment and project benefit evaluation to improve the efficiency transformation of capital expenditure.

Share the development dividend and increase the dividend payout rate of the company. In 2021, the company plans to pay a dividend of 0.02624 yuan per share, + 17.4% year-on-year, and a dividend rate of 70%, year-on-year + 2pcts. Adhering to the principle of positive return to shareholders, the company shares the development dividend with investors.

Risk factors: 5G development is not as expected; domestic co-construction and sharing scope is expanded; domestic tower construction policy is liberalized; price reduction risk; macro station, room division, cross-industry, micro-station business development is not as expected; price decline risk after price negotiations with operators.

Investment suggestion: the company's "one body and two wings" strategy has shown initial results. 5G tenants' income has begun to contribute to the main increment, the two wings business has developed rapidly, and the multi-point support business growth pattern has gradually taken shape. In addition, the company's capital expenditure has been effectively controlled, the cost reduction and efficiency effect has been shown, the profitability has been continuously enhanced, and the performance release has been accelerated. We estimate that the company's revenue in 2022 and 2023 will be 929.83 million yuan in 2024, which is + 7.4% plus 7.9% and 8.5% in 2024, respectively. The forecast net profit for 22-24 years is 84.17% 99.71% 11.744 billion yuan respectively (the original forecast for 2022-2023 net profit was 10.494 billion / 13.143 billion yuan, considering the overall stability of 5G construction, we revised down the previous profit forecast), compared with the same period last year + 14.9%, 18.5%, 17.8%. With reference to comparable companies, historical valuations and future performance growth, the company was given 22e 20xPE with a target price of HK $1.18, maintaining a "buy" rating.