中国电信业：横在前方的是什 么

1、ChinaEquitiesTelecomsWhat lies aheadChina telcosChinaEquitiesTelecomsWhat lies aheadChina telcosbe on5G to We outline sensitivity to the pace and magnitude of 5G rollout, with our base case modelling a similar rollout toLift target prices on higher valuation of China Tower, with minor changes to est

2、imates Buy rating on all three 5G: how much and how fast is the question. China telco results briefings will be scrutinised for indicators of the pace and scale of 5G investment, with China Mobiles guidance critical, as it is likely to set the pace that the industry will follow. However, due to a c3

3、-month delay in the 5G standardisation process, it is possible that the telcos will be unable to give clear guidance for 5G rollout beyond 2019.to in In in a of in We TP by and in the taxonthetheinthe We be due to in So a 20% the of is the The be to the new The to view are 5G and 7 March 2019Neale A

4、nderson*Head of Telecoms Research, Asia PacificThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:neale.anderson.hk neale.anderson.hk+852 2996 6716Colin Liu*Analyst, Telecom ResearchThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:colin1.r.liu.hk colin1.r.li

5、u.hk+852 2822 3165Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRAregulations HYPERLINK /regform.php?id=aTdlZjE6N21kazVgM2A HYPERLINK /regform.php?id=aTdlZjE6N21kazVgM2A Register now HYPERLINK /regform.php?id=aTdlZjE6N21kazVgM2A China te

6、lcos: key valuation dataOld TPNew TPOldNewCPUpside/McapADTEV/EBITDAPETickerCompanyHKDHKD%changeratingHKDdownsideUSDmUSDm2019e2019e0941.HKMobile88.0091.003.4%BuyBuy81.0012.4%221,7851802.712.10762.HKUnicom11.5012.105.2%BuyBuy9.8023.5%37,003382.019.60728.HKTelecom4.605.1010.9%BuyBuy4.3716.7%45,585262.5

7、13.1Source: HSBC estimates, Bloomberg. Priced at close on 5 March 2019Disclosures & DisclaimerThis report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.Issuer of report: The Hongkong and Shanghai Banking C

8、orporation LimitedView HSBC Global Researchat: HYPERLINK / 5G in focusThe main focus at the results briefings will be commentary around 5G particularly for 2020 andbeyondGiven that Release 16 will not be finalized until March 2020, telcos are unlikely to provide much clarity on overall 5GcapexWe pro

9、vide a sensitivity analysis based on 5G base station rollout, using 4G rollout as our starting pointLooking for the first indicators of the magnitude of 5G capex5G commercialisation in China is well in progress. After the 5G spectrum allocation award in December 2018, 5G licenses are likely to be re

10、warded to operators by the end of 2019. Despite a c3-month delay in the standardisation process (for both the Release 15 and Release 16 versions), China is on its track to meet its target for large-scale commercial launch in 2020.The big question for telco investors is what that means for near-term

11、and long-run capex. China telcos normally provide one-year forward capex guidance during their annual result briefings.We expect each operator to provide FY19 capex guidance, including 5G-related spending for 5G pre-commercialisation (large-scale trial) in FY19. There is also the possibility that Ch

12、inese operators will disclose the number of 5G base stations to be deployed in 2019.However, given the relatively early stage of Release 16 standardisation, we expect only limited visibility into 5G spending plans for 2020 and beyond. Key focus areas to gauge the level of cost include:Network strate

13、gy: operators choices between 5G SA (standalone) vs NSA (non- standalone) will determine future spending in 5G network to a certain extent. Standalone network deployments much higher cost is arguably more critical for China Unicom and ChinaTelecom.Focus areas for 5G services and applications. All th

14、ree operators have been conducting trial tests in various areas of 5G business applications including 4K/8K video streaming, autonomous driving, “Smart Power Plant”, “Smart Manufacturing”, remote surgery and so on. We may get an early indication of where the operators intend to focus at thebriefing.

15、Guidance on 5G handsets and devices: During the early stage of a technology cycle, operators normally closely engage with end terminal manufacturers in designing and marketing devices compatible with the new generation of telecommunicationtechnology. The development progress of 5G devices will parti

16、ally determine the final commercial launch timeline. Operator strategies in 5G device pricing and subsidies could affect the market appetite for 5G services during the early stage of 5Gcommercialisation.2Stay cautious on 5G related revenue growthWe continue to be cautious regarding new revenue growt

17、h opportunities from 5G (see our thematic reports: HYPERLINK /R/10/TxLmxkkjTQjf 5G in Asia: Generation Gap, 30 May 2018, and HYPERLINK /R/10/v6tqbcjjTQjf 5G: whats the use?, 29 March 2018). Without any change in the application landscape, we continue to assume no large inflection in revenue as a res

18、ult of 5G, and our forecasts for revenue are slightly below consensus estimates (see table below). In the first three quarters of 2019, revenues and profitability will continue to be affected by the cuts in data roaming implemented from July 2018.The main changes we make to our estimates and target

19、prices reflect the increase in our valuation for China Tower, which is 28.5% owned by China Mobile, 21.1% owned by China Unicom, and 20.9% by China Telecom. Reflecting the higher valuation for China Tower is the main driver of the increase in our target prices, partially offset by our new end-2019 R

20、MB/USD forecast of 6.95.Sensitivity of our estimates to 5G rolloutIn this report, we provide a sensitivity analysis of our forecasts and target price to bull and bear case estimates for 5G base transceiver stations (BTS) deployment (see table overleaf). Our base case (as we outlined in our 11 Septem

21、ber 2018 report HYPERLINK /R/10/Tsrvxtsc7CH2 5G risk is overblown) is based on the pace of 4G rollout in China. While the coverage radius of 5G sites will be smaller than 4G, China Mobile was aggressive in rolling out 4G coverage in order to match its TD-SCDMA coverage. We see no such urgency at thi

22、s stage with 5G. We highlight the following:Our sensitivity analysis focusses on 5G BTS. In practice, fixed line and support systems capex will also vary as a result of 5G, but we believe 5G base stations are the best proxy. We also expect some visibility into the number of base stations that the te

23、lcos intend to deploy at the March and August earnings briefings in 2019. We define FCF here as EBITDA minus capex, tax and interest expenses but before working capitalchanges.Similar rollout pace to 4G. Our base case assumes a similar pace of 5G BTS deployment to 4G, with c4.3m base stations deploy

24、ed by end 2024. In our base case, we assume a big pickup in capex in 2020, and then a moderation in capitalintensity.China Mobile stays FCF positive. China Mobile stays FCF positive in each of our scenarios. We believe the companys cash position and balance sheet should continue to improve, despite

25、the higher capital intensity of 5Grollout.HSBCe vs consensus and previous estimates HSBCevsconsensus HSBCe vsprevious 2018e2019e2020e2018e2019e2020eChina MobileChina MobileSales0.1%-2.5%-3.5%Sales0.0%0.0%0.0%EBITDA-0.2%-5.0%-5.8%EBITDA0.0%0.0%0.0%OP-1.3%-6.3%0.8%OP0.0%0.1%0.7%Net Income0.0%-1.3%4.7%

26、Net Income-0.1%-0.2%0.2%EPSChina UnicomSales-0.1%0.6%-1.1%-0.9%4.8%-4.4%EPSChina UnicomSales-3.1%0.0%-4.1%0.0%-0.4%0.0%EBITDA2.2%-0.1%-3.7%EBITDA0.0%0.0%0.0%OP20.1%7.5%-4.2%OP0.0%-0.1%-0.3%Net Income6.0%-2.4%-9.6%Net Income5.2%7.3%9.7%EPSChina TelecomSales-0.6%-1.0%-2.7%-3.2%-9.0%-3.7%EPSChina Telec

27、omSales5.2%0.0%7.3%0.0%9.7%0.0%EBITDA0.1%1.8%-2.0%EBITDA0.0%0.0%0.0%OP2.4%0.4%-0.7%OP0.0%0.0%0.0%Net Income-0.7%4.7%5.1%Net Income0.4%0.5%0.2%EPS-1.3%4.1%4.8%EPS-0.1%1.5%-0.3%Source: Bloomberg, HSBC estimates3Equities Equities Telecoms7 March20194China telcos FCF, EPS and valuation sensitivity to pa

28、ce of 5G network rolloutBASECASEBULLCASEBEAR CASEChinaMobile5G BTS,000s155159651,3651,7152,015154157651,0651,3151,515115815ChinaMobile5G BTS,000s155159651,3651,7152,015154157651,0651,3151,5151158151,4652,0652,6153,1155G BTS net adds, 000s1050045040035030010400350300250200110700650600550500Capex, RMB

29、 bn154205188174175176154187174164165165178239216195196196% chg YoY-7%33%-8%-7%1%0%-7%22%-7%-6%1%0%7%34%-10%-10%1%0% of total sales21%27%24%22%22%22%21%25%22%21%21%20%24%31%28%25%25%24%Depreciation, % chg0%-3%4%1%0%0%0%-3%2%0%-1%-1%1%0%8%3%0%0%YoYEPS, % chg YoY1%9%-4%-1%1%2%1%9%-1%0%2%2%0%6%-8%-4%0%1

30、%FCF, RMB bn10660779190901067791101100100822650706969% chg YoY0%-43%28%18%-1%0%0%-27%17%11%-1%0%0%-68%92%41%-2%0%DCF SoTP target price, HKD919384China Unicom5G BTS, 000s53055557559051,0055255455605705755555059051,2551,5551,805China Unicom5G BTS, 000s53055557559051,0055255455605705755555059051,2551,5

31、551,8055G BTS net adds, 000s430025020015010042502001501005054450400350300250Capex, RMB bn5393766358535384695753486511897787369% chg YoY7%74%-18%-17%-7%-8%7%57%-18%-17%-8%-9%31%81%-18%-19%-6%-6% of total sales18%30%24%20%18%16%18%27%22%18%16%15%22%39%31%25%23%21%Depreciation, % chg-3%-1%-1%1%-3%-3%-3

32、%-1%-3%0%-3%-4%-2%1%4%5%-1%-2%YoYEPS, % chg YoY53%29%9%5%8%14%53%29%17%9%10%14%46%20%-13%-10%5%17%FCF, RMB bn33(5)122631363341931354021(30)(7)131722% chg YoY0%-114%-361%122%16%16%0%-88%357%68%14%13%0%-243%-75%-275%35%28%DCF SoTP target price, HKD12.1012.6010.20China Telecom5G BTS, 000s53556559051,10

33、51,25553055557559051,005555551,0051,4051,7552,055China Telecom5G BTS, 000s53556559051,1051,25553055557559051,005555551,0051,4051,7552,0555G BTS net adds, 000s4350300250200150430025020015010054500450400350300Capex, RMB bn66989682787366908976726878124116979389% chg YoY12%-48%3%15%5%5%12%-35%1%14%5%6%-

34、4%-59%6%16%4%4% of total sales-17%-25%-24%-20%-19%-18%-17%-23%-22%-19%-18%-17%-20%-31%-29%-24%-23%-22%Depreciation, % chg-5%2%-2%-1%2%2%-5%2%0%0%2%3%-6%1%-7%-4%0%1%YoYEPS, % chg YoY-14%-9%-3%-2%-6%-7%-14%-9%-8%-5%-7%-6%-11%-5%12%8%-5%-9%FCF, RMB bn352621263035111326303423(23)(13)71116% chg YoY0%-93%

35、184%231%19%15%0%-69%21%99%15%12%0%-200%-42%-151%65%42%DCF SoTP target price, HKD5.105.304.20Source: HSBC estimatesWe note the following assumptions: Base case 5G BTS of c4.3m deployed by 2024; bull case - 5G BTS of c3.3m deployed by 2024; and bear case - 5G BTS of c7m deployed by 20242H18 results fo

36、cus2H18 results will be soft, reflecting the cancellation of data roaming charges from July2018a We believe the NPC requirement for unit cost reductions of 20% is manageable tariff competition has resulted in much larger Unit cost reductions 20% in 2019 should be fineAs illustrated in the table belo

37、w, unit prices were very high in China in the past but they have come down fast. We believe telcos should have no problem meeting the 20% reduction target this is much less than the 40% YoY declines mandated in previous years.Mobile data unit cost (RMB, USD); % chg YoYDec-15aDec-16aDec-17aDec-18eDec

38、-19eDec-20eDec-21eDec-22eCost per GB, RMBMobile78.449.928.73.93.6Telecom86.153.5Unicom120.058.5Cost per GB, USDMobile0.60.5Telecom0.30.2Unicom0.20.2% chg YoYMobile-41%-42%-42%-58%-46%-28%-16%-8%Telecom-33%-38%-53%-75%-51%-29%-18%-10%Unicom-35%-51%-75%-61%-50%-36%-23%-14%Source: Company data, HSBC es

39、timatesLooking for visibility in a tough operating environmentThe cancellation of national data roaming1 a inin5China telcos service revenue growth trend1H162H161H162H161H172H171H182H18e1H19e2H19e8.0%6.0%4.0%2.0%0.0%-2.0%Source: Company data, HSBC estimatesCompetitive intensity likely to remain high

40、We have not yet seen any signs of improvement in either the residential broadband or the mobile market. After experiencing a decrease in mobile subs base in 1Q18, China Mobile launched national unlimited data plans at the price level similar to the other two smaller operators, making it harder for i

41、ndustry ARPU to stabilise. Since then, China Mobile has accelerated its mobile user growth. On the contrary, China Unicoms mobile user growth has gradually slowed down since July 2018 as its price advantage has been eroded by China Mobiles price cuts and the cancellation of national data roaming. Ch

42、ina Telecom still managed to grow its user base by bundling with IPTV and broadband services, and clearly eased back on its selling efforts in December.China telco wireless user monthly adds (000s)14,0008,0006,0004,0002,000-Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18

43、 Nov-18Source: Company data6China telcos 4G penetration level80.0%60.0%50.0%30.0%Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18Source: Company dataIn the broadband market, China Mobile continues to increase its market share with aggressive product pricing. Its pr

44、ocurement of around 100m fkm (fibre kilometres) optical fibre cables further reveals its ambition in the broadband market. After user growth stalled in 2017, China Unicom managed to turn around the trend in 2018 by launching service plans with more flexible pricing. It managed to replicate its succe

45、ss with the “King Card” in wireless market in the broadband markets of certain provinces. China Telecoms residential broadband user growth pattern is similar to its wireless business as it continues to focus on bundle strategy. The price gap between China Mobile and China Telecom has narrowed but is

46、 still substantial. We expect China Mobile to slowly raise its residential broadband pricing.HSBC estimates vs consensusThe below tables summarise where our key forecasts are different from consensus:China Mobile: HSBC estimates vs consensus HSBC Consensus Difference% 2H18FY19FY202H18FY19FY202H18FY1

47、9FY20Revenue352,431742,732762,560352,057761,439789,9530.1%-2.5%-3.5% Chg YoY0.2%-0.2%2.7%0.1%2.4%3.7%EBITDA129,329271,854277,785129,756286,090294,978-0.3%-5.0%-5.8% Chg YoY-0.4%-1.1%2.2%-0.1%3.8%3.1% margin36.7%36.6%36.4%36.9%37.6%37.3%OP49,319115,781126,05650,683123,506125,101-2.7%-6.3%0.8% Chg YoY

48、-6.1%-2.7%8.9%-3.5%2.4%1.3% margin14.0%15.6%16.5%14.4%16.2%15.8%NP50,047116,654127,36649,778118,196121,6870.5%-1.3%4.7% Chg YoY-3.0%1.0%9.2%-3.5%2.4%3.0%Source: Bloomberg, Company data, HSBC estimates7China Telecom: HSBC estimates vs consensus HSBC Consensus %difference 2H18FY19FY202H18FY19FY202H18F

49、Y19FY20Revenue184,034384,789396,393187,834397,539411,804-2.0%-3.2%-3.7% Chg YoY1.1%2.0%3.0%3.1%4.4%3.6%EBITDA49,369110,897110,71449,307108,949112,9690.1%1.8%-2.0% Chg YoY-0.8%5.4%-0.2%-0.9%3.6%3.7% margin26.8%28.8%27.9%26.3%27.4%27.4%OP10,36531,22032,8689,67531,08033,0967.1%0.4%-0.7% Chg YoY12.2%5.8

50、%5.3%4.7%7.8%6.5% margin5.6%8.1%8.3%5.2%7.8%8.0%NP6,63823,00425,0166,78421,96723,796-2.2%4.7%5.1% Chg YoY9.2%13.8%8.7%11.6%7.9%8.3%Source: Bloomberg, Company data, HSBC estimatesChina Unicom: HSBC estimates vs consensus HSBC Consensus %difference 2H18FY19FY202H18FY19FY202H18FY19FY20Revenue139,518299

51、,196305,850137,865302,038319,9071.2%-0.9%-4.4% Chg YoY2.1%3.7%2.2%0.9%5.3%5.9%EBITDA42,46591,96093,81840,56992,05097,4114.7%-0.1%-3.7% Chg YoY12.1%4.3%2.0%7.1%6.7%5.8% margin30.4%30.7%30.7%29.4%30.5%30.4%OP3,41816,71719,6691,67015,54720,523104.7%7.5%-4.2% Chg YoY-554.5%60.0%17.7%-322.1%78.8%32.0% ma

52、rgin2.4%5.6%6.4%1.2%5.1%6.4%NP2,63513,04516,7812,15313,36418,56022.4%-2.4%-9.6% Chg YoY-548.9%52.6%28.6%-466.8%65.7%38.9%Source: Bloomberg, Company data, HSBC estimates8China MobileChina Mobiles top-line growth will continue to be contained; however, we believe the risk of 5G capex isoverdoneWetotoM

53、aintain Buy with TP raised to HKD91 (from HKD88) as we reflect the latest value of China Tower and otherassociatesInvestment summaryExpectations are low regarding China Mobile. Prior to March 2018, the stock had support at cHKD80 however, it fell through this level to cHKD69 after the requirement to

54、 eliminate data roaming was announced at the National Party Congress in March 2018. China Mobile looks attractive at these levels, in our view:The dividend is supportive. China Mobile stock offers a yield of c4%, and we believe the Chairman has a more shareholder-friendly approach than his predecess

55、ors (borne out by the special dividend commemorating 20 years of listing announced in August 2017). We model a 2ppt increase in the payout ratio to 50% in2018e.Solid cash position and strong balance sheet position. China Mobile had RMB382bn cash balance and no debt on its balance sheet as of 30 June

56、 2018. Its cash reserves provide a good buffer for capex hike from the 5G rollout. It has one of the lowest debt-to-capital ratio (0%) among all the stocks under our coverage. We are confident that China Mobile has a very strong financial position going into the 5G investmentphase.is and in the It a

57、 tool and in as it in and It is and in the of find as it is one in a in is out a 5G no on A be a Operating performance should be stable, with the prospect of higher wireline broadband revenues potentially offsetting some of the pressure of data roaming declines. A key focus at the briefing will be g

58、uidance from new Chairman Yang Jie (former chairman of China Telecom), who was appointed on 4 March 2019, replacing former Chairman Shang Bing.ValuationWe use a sum-of-the-parts valuation approach to better capture the value of China Mobiles stake in different entities. We apply an unchanged holding

59、 company discount of 15% to all of the investments.9China Mobile: SOTP valuationSum of the Parts ValuationRMBmRMBHKDAssessed EV of telecoms assets852,44241.646.7Add: fair value of SPDB71,1953.53.9Add: fair value of True7,8160.40.4Add: fair value of IFLYTEK9,6560.50.5Add: fair value of China Tower93,

60、6334.65.1Add: book value of other associates155,1227.68.5Less: minority interests(4,541)(0.2)(0.2)Less: (net debt) / cash483,15923.626Fair Equity Value1,668,48381.591Number of Shares Outstanding (m)20,475Fair value per share, RMB81Fair value per share, HKD91Source: Company data, HSBC estimatesThe ho