China Tower: The world's leading tower service provider. The company is the world's largest tower service provider, and currently has resources of more than 2.1 million tower sites across the country. The company has now formed a “integrated two-wing” business layout, namely operator business for the communications industry, as well as intelligent connectivity business and energy business for society. In 2022, the company achieved revenue of 92.17 billion yuan, an increase of 6.5% over the previous year, of which the operator business revenue was 83 billion yuan (90% of revenue) and the two wing business revenue was 8.9 billion yuan (9.7%).
Operator business: The cornerstone of 5G construction, new agreements signed and implemented, and the impact is manageable. The price of the company's tower business products is determined by agreement with the operator. In December 2022, the company and the three major operators completed the determination of a new round of 2023-2027 cooperation agreements. Although the price sharing discount was increased compared to the previous round of agreement prices, the impact was manageable. The room division provides deep indoor coverage of 5G networks, which can effectively improve network quality, and demand is rising. Since the agreed price mainly affects Tower revenue, according to the company's estimates, the overall operator business is expected to remain stable in 2023 compared to 2022, and has since entered a stage of steady growth.
Cost side: Depreciation pressure is gradually decreasing, which is expected to accelerate profit release. Depreciation and amortization account for the highest proportion of the company's costs. The company's greatest depreciation pressure comes from the tower assets worth about 200 billion yuan purchased from the three major operators when it was first established, corresponding to the completion of depreciation in 2022-2025. Considering that the company's current capital expenditure is actively manageable, depreciation pressure is expected to continue to decrease as the original depreciation is completed.
Intelligent networking of two-wing businesses: Digitalization empowers value growth, and there is obvious room for increased penetration. The company's intelligent connectivity business mainly uses existing tower site resources and installs various sensors, which can provide many digital services such as resource sharing, smart fire protection, environmental inspection, and forest monitoring. In 2022, the company's intelligent connectivity business achieved revenue of 5.704 billion yuan, an increase of 40% over the previous year. Currently, the intelligent connection service uses only 210,000 tower stations, and there is still room for significant improvement in single-site user value development and site utilization.
The energy business of the two-wing business: The power exchange industry is in a stage of rapid development. The potential market size exceeds 100 billion yuan, and the company has the highest market share in the industry. The company's energy business includes power backup and power exchange. Among them, the power exchange business targets the light electric vehicle power exchange market. China's light electric vehicle market stocks exceed 300 million vehicles. It is expected that the B-side will become the standard for takeaways and couriers while extending to ordinary residents on the C-side, with potential market space exceeding 100 billion yuan. The company now accounts for more than 50% of the industry market, which is expected to fully benefit from the rapid development of the industry.
Profit forecast and valuation: Optimistic about the company's profit growth and valuation recovery, the company's net profit for 22-24 is estimated to be 87.87/88.08/10.477 billion yuan respectively. The corresponding PE is 17/17/14x respectively, and the corresponding EV/EBITDA is 4.45/4.43/4.38 respectively. Through multi-angle valuation, the company's stock price is within a reasonable range of 1.39-1.55 Hong Kong dollars. There is room for a premium of 20% or more compared to the current stock price, giving it a “buy” rating.
Risk warning: the risk of downstream customers being too concentrated, the risk of the division business falling short of expectations, and the risk of the two-wing business falling short of expectations.