China Railway Tower Co., Ltd. (referred to as China Railway Tower) is under the background of implementing the "network power" strategy.
China's 5G upstream and downstream procurement will reach CNY 500 billion in 2020. Revenue from network equipment and terminal equipment is expected to total about CNY 450 billion in 2020, and Telecom operators will invest more than CNY 220 billion in 5G network equipment.
China tower released its 2019 financial results, with revenue of CNY 76.428 billion, up 6.4% year on year. The company made a profit of CNY 5.222 billion, up 97.1% year on year.
Of course, the most beneficial is the investment in the base station, which accounts for about 60% of the total investment in the network. During the 5G construction period, the number of base stations will increase in scale. Currently, according to the operator's planned capital expenditure estimates, China is expected to build more than 100,000 acer stations in 2019, and the total construction of 5G acer stations is expected to be around 5 million, with about 9 million micro base stations, which will far exceed the construction intensity of base stations in the 4G era.
It is expected that the growth of China tower will remain stable, and the opportunity of future valuation improvement will come from the increase of dividend yield. Considering the expansion of dividend proportion in 2019 and the gradual realization of the stable dividend mechanism, the "buy" rating will be maintained. Based on the DCF valuation method, the target price will be maintained at hk $2.2 (corresponding to 7.7/7.0 EV/EBITDA in 20/21 year).
It is estimated that the company's EBITDA (under comparable caliber) in 2019-2021 is CNY 455.9/514.9/57.35 billion, and the corresponding EV/EBITDA is 8.6/7.6/6.8 times.