The current situation of the company
On December 13, China Tower Corporation announced the signing of a 2022 service framework agreement with telecom operators for a total of five years from 2023 to 2027. This agreement has several amendments compared with the previous five-year service framework agreement signed in 2018, mainly focusing on the increase in the shared discount on the price of shared towers. We believe that the newly signed framework agreement has a limited impact on China Tower Corporation's performance, and in the long run, it will continue to promote the co-construction and sharing of iron towers among telecom operators, which will help to increase revenue.
Comment
The main change is the increase of 2.4ppt in the benchmark price sharing discount of shared towers. For the new tower: 1) if shared by two tenants, the sharing discount for anchor tenants and other tenants will be adjusted from 35% to 37.4% and from 30% to 32.4% respectively. 2) if shared by three tenants, the sharing discount for anchor tenants and other tenants will be adjusted from 45% to 47.4% and from 40% to 42.4%, respectively. For the stock tower: 1) the benchmark price of the existing sharing party is adjusted from 30% to 27.6%. 2) the shared discount of the benchmark price of the original owner is adjusted as follows: if shared by two tenants, it will be adjusted from 30% to 32.4%; if shared by three tenants, it will be adjusted from 40% to 42.4% 3) clarify that existing parties and original property party orders that enjoy shared discounts will no longer enjoy other discounts.
The discount increase of the newly signed agreement is moderate, which has a better impact on the company's performance than the market expected. Previously, the market was more worried about the price discount for the company's newly signed contract, and the company's share price was under pressure under pessimism. In the newly signed contract, the benchmark price discount for sharing towers has been increased by 2.4 percentage points, with a modest increase and a limited reduction in product prices. We expect that the contribution income of tower business and office business will remain stable in 2023, Zhaopin business and energy business will maintain rapid growth, and the net interest rate in 2023 will be basically the same as that in 2022.
The increase in the discount rate of shared towers will help to promote the co-construction and sharing of operators' base stations. The adjustment of this agreement focuses on the increase of the benchmark price discount of the shared tower, and the price of the single tenant tower remains unchanged. The average number of rental households in the company's tower stations has continued to increase since 2020, and by the end of 9M22, the average number of rental households in the company's tower stations has reached 1.72. We believe that the adjustment of this agreement will promote telecom operators to continue to deepen the co-construction and sharing of communication towers, and in the long run, the company is expected to obtain more orders from operator shareholders to boost revenue.
Profit forecast and valuation
Taking into account the increase in the company's shared discounts to the operator tower, we keep our revenue and profit forecasts unchanged in 2022, slightly reducing 2023 revenue by 0.8% to 99.552 billion yuan and 2023E profit by 4.0% to 8.966 billion yuan. The current share price corresponds to the 2022 EV/EBITDA 3.0Compact 2.6x 2023. Maintain an outperform industry rating and a target price of HK $1.20, corresponding to 3.7 times 2022 EV/EBITDA and 3.1 times 2023 EV/EBITDA, with 29.0% upside compared with current share prices.
Risk.
The promotion of 5G is not as expected, and the development of new business is not as expected.