中国电信业：网络共享-这次可能会有所不同

1、ChinaEquitiesTelecommunicationsChina telcosNetwork sharing this time might be differentChinaEquitiesTelecommunicationsChina telcosNetwork sharing this time might be different4G network sharing between Unicom and Telecom didnt amount to much 5G might bedifferentHigher capital intensity of 5G means sh

2、aring makes more sense expect policy support for two strong 5GnetworksDowngrade China Tower from Buy to Hold on lower tenancy ratio estimates; remain Buy China Mobile / Unicom /Telecom5G network sharing the logic of a Unicom / Telecom merger without the complexity. China Unicoms network sharing plan

3、 (see our 15 August report HYPERLINK /R/10/RWGkwQQWZ7fj?docid=1127015 5G co- HYPERLINK /R/10/RWGkwQQWZ7fj?docid=1127015 build, co-share strategy offers promise) could enable two high-quality 5G networks in China. It would accelerate 5G speed of deployment and potentially improve quality both importa

4、nt to policy makers. And it would maintain price competition, with the sharing entities offering completely separate prices and services.This time looks different downgrade China Tower to Hold from Buy. Unicom attempted to share 4G rollout costs with Telecom, but with little tangible impact. With 5G

5、 the potential investment is larger, and the benefits would be less skewed to Unicom. There is less potential for active sharing with China Mobile, but a near-term roaming agreement is possible, as is more active sharing later on. We adjust our tenancy ratio forecast to reflect our view that some fo

6、rm of sharing is likely we now model a medium-term tenancy ratio of 1.55x (our prior estimate of 1.72x becomes our bull case), and downgrade to Hold.Minor changes to China telco estimates lower 5G capex risk and improving earnings momentum. Lower China Tower estimates and valuation results in slight

7、 declines in our China telco estimates and target prices. Our bull case analysis implies substantial valuation upside in the scenario of full network sharing between Unicom and Telecom. This is an additional positive after better dividend support from China Mobile last week. We look to China Telecom

8、 results on 22 August for additional colour, as well as further telco announcements on network sharing agreements.This report replaces that of the same title and date to correct the tenancy ratio figures on the front page for our base and bull case.16 August 2019Neale Anderson*Head of Telecoms Resea

9、rch, Asia PacificThe Hongkong and Shanghai Banking Corporation Limited HYPERLINK mailto:neale.anderson.hk neale.anderson.hk+852 2996 6716Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andis not registered/ qualified pursuant to FINRAregulationsChina telcos - key dataTickerCompanyOldTPNew TP % ch

10、ange Old RatingRatingCPUpside/McapADT EV/EBITDAPEDiv YieldHKDHKDHKD DownsideUSDmUSDm2019e2019e2019e0941.HKMobile81.0079.00-2.5%BuyBuy66.10172,4871382.311.44.6%0762.HKUnicom11.2010.90-2.7%BuyBuy7.8230,495252.021.11.9%0728.HKTelecom5.004.80-4.0%BuyBuy3.6037,132192.412.83.2%0788.HKTower2.361.97-16.5%Bu

11、yHold1.8441,2741289.158.00.9Source: Company data, HSBC estimates. Prices as of close on 15 Aug 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 Ho

12、ngkong and Shanghai Banking Corporation LimitedView HSBC Global Researchat: HYPERLINK / 5G sharing makes senseThe increased capital intensity of deploying 5G at higherfrequencies and the uncertain business model means sharing makes senseNear-term beneficiaries are Unicom and Telecom, because of thei

13、r adjacent spectrum holdings but Mobile can benefitmedium-termDowngrade China Tower to Hold; remain Buy on China Mobile, China Telecom and China UnicomChina Tower: scenario analysisWe outline our scenario analysis for China Tower below:wetoisWe a Base case. In our base case we assume 1.55x in the me

14、dium-term, compared to the 1.5x reportedat1Hresults.Webelieveitispossiblethatthetenancyratiogoeshigherthanthis in the near term, as telcos deploy 5G kit and keep 3G and 4G equipment. Long term however, we expect 5G sharing and decommissioning of legacy equipment to result in a lower tenancyratio.Bul

15、l case. Our prior medium-term estimate of 1.72x becomes our new bull caseestimate.Bear case. This assumes the tenancy ratio falls to 1.3x. The tenancy ratio was 1.28x at end-2015 when China Tower wasestablished.China Tower scenario analysisChina Tower Base2019 2020 20212022 Bull 2019202020212022 Bea

16、r2019 2020 20212022Capex, RMBm28,37447,76844,34338,43128,374 41,577 38,48533,13328,37457,26554,01147,723Revenue YoY growth6.5%7.0%7.9%7.5%6.5%6.3%6.5%6.5%8.1%10.2%9.3%Net Profit YoY growth88.7%46.3%11.4%23.7%88.7%42.0%26.5%88.7%53.0%6.2%19.1%Leveraged FCF (RMBm)15,097(1,756)5,12414,42015,0974,22018,

17、01715,097(10,922)(2,926)7,870SoTP DCF target price, HKD1.972.031.79Source: HSBC estimatesChina telcos scenario analysisOur China telco forecasts are substantially unchanged. We lower our target prices and net income forecasts slightly, reflecting our more cautious view of China Tower. Otherwise we m

18、ake no changes to estimates:China Mobile. China Mobiles commentary at results was positive (see our 9 August report Upgrade to Buy: change dividend, 5G reassurance). It has less near-term potential to sharewithpeersduetodifferentspectrum.WesuspectalsothatChinaMobilehas theleast need to share rollout

19、, given its strong balance sheet. However, when 5G is deployed in spectrum that it has in common with Unicom and Telecom (such as 900MHz and 2.1GHz), sharing becomes more feasible.China Unicom. Having failed to secure a meaningful sharing deal with 4G, Unicom looks to be better positioned with 5G. I

20、n our bull case we halve the number of 5G base stations deployed by Unicom relative to our base case. In practice this is likely to be partly offset by higher spending on other areas, such as fixedline.China Telecom. We will watch China Telecoms tone at half-year results on 22nd August with interest

21、. It was less interested with 4G in sharing, but may be keener to share with5G.China telcos - scenario analysis Base Bull Bear China Mobile2019e2020e2021e2022e2019e2020e2021e2022e2019e2020e2021e2022eCapex, RMBm166,000197,805202,715207,223166,000180,555188,915194,803166,000232,305230,315232,063Revenu

22、e YoY growth3.5%3.3%3.9%3.2%3.5%3.3%3.9%3.2%3.5%3.3%3.9%3.2%Net Profit YoY growth-9.5%8.0%-0.5%2.6%-9.5%8.5%1.8%4.3%-9.5%6.9%-5.2%-1.2%Leveraged FCF (RMBm)70,20643,80448,47350,86670,20660,86461,21961,53870,2069,69122,97129,504SoTP DCF target price, HKD79.0081.0076.00China Unicom201920202021202220192

23、020202120222019202020212022Capex, RMBm58,00076,32174,36765,91758,00057,34657,11753,49758,000102,19695,06784,547Revenue YoY growth-1.2%4.8%2.2%1.6%-1.2%4.8%2.2%1.6%-1.2%4.8%2.2%1.6%Net Profit YoY growth-0.4%36.6%-4.0%-1.5%-0.4%45.3%9.9%12.6%-0.4%25.0%-26.0%-30.1%Leveraged FCF (RMBm)35,32520,20121,065

24、28,17735,32538,88437,35238,88335,325(5,278)1,67611,735SoTP DCF target price, HKD10.9012.209.10China Telecom201920202021202220192020202120222019202020212022Capex, RMBm78,00092,29792,98183,29878,00066,42268,83164,66878,000118,172113,681101,928Revenue YoY growth1.6%2.7%1.0%0.6%1.6%2.7%1.0%0.6%1.6%2.7%1

25、.0%0.6%Net Profit YoY growth-3.7%7.0%4.8%-2.4%-3.7%12.0%14.9%8.1%-3.7%2.4%-9.0%-17.2%Leveraged FCF (RMBm)28,05512,96812,40222,39328,05538,50835,42939,00228,055(12,593)(7,004)5,959SoTP DCF target price, HKD4.805.604.00Source: HSBC estimates5G base station estimate - scenario analysis Base Bull Bear 2

26、019e2020e2021e2022e2019e2020e2021e2022e2019e2020e2021e 2022eMobile655151,0651,665654158651,365657151,465 2,265Unicom412615117114115127637641411811 1,161Telecom413416919914119136651641491991 1,441Total1471,1172,2673,3671477571,5072,2571471,6173,267 4,867Source: HSBC estimatesOur 5G base station forec

27、ast is outlined in the table above. Our base case capex estimate is outlined in the chart below.5G capex higher for longer. In our base case we assume that capital intensity remains high for a number of years, rather than surging in one or two years. This is backed upby China Mobile comments at its

28、1H19 briefing, to the effect that capex will not be substantially increased as a result of5G.4Gcapexspikehadreasons.ChinaMobilewantedtoaccelerate4Gnetworkrolloutasits TD-SCDMA 3G technology was not supported by global handset vendors, such asApple.Wealsonotethatcapexwas higher inpriorperiodsastelcos

29、wereconstructingtheirown towers, compared to the current model of leasing sites from ChinaTower.Total capex - 2010-2025e, RMBm450,000400,000350,000300,000250,000200,000150,000100,00050,000-2010201120122013201420152016201720182019202020212022202320242025Source: Company data, HSBC estimatesValuation,

30、rating, risksCut tenancy ratio forecast at China Tower downgrade to Hold from Buy, and cut DCF-based TP by16.5%This drives small reductions in net profit and target price in our China telcomodelsBuy rating on China Mobile, Unicom and Telecom confirmation of network sharing a potentialcatalystChina T

31、ower (788 HK, HKD1.84, downgrade to Hold, TP HKD1.97 from HKD2.36)Weinaofa1inaWeaa 15 We a 5G We a a Downside risks to our view include:RiskfromapossiblefullmergerofChinaUnicomandChinaTelecom:Thepotentialfull mergerofChinaUnicomandChinaTelecomcouldcreateabettercapitalisedcompetitor.Slower-than-expec

32、ted 5G rollout in China: From 2020 and onwards, 5G rollout will be a majorgrowthdriverforChinaTowerasreflectedintheacceleratinggrowthinthenumberof tower site net additions. Slower-than-expected 5G network rollout would lead to lower-than- expected revenue growth from the tower leasingbusiness.Lower-

33、than-expected lease rentals at the time of lease renewal: If renewals are done at lower-than-expected lease rentals, there is risk to our revenue and margin estimates. For China Tower, if the renewal rental rate per tenant is 1% lower than our estimate, our DCF- based fair value would be negatively

34、impacted by1.3%.in Unfavourable 5G infrastructure leasing terms: Customers may sign new leasing contracts with China Tower coming into 5G deployment that are different from existing contracts and potentially with worseeconomics.Unexpected changes in regulations that materially affect China Towers co

35、mpetitive environment: Any unexpected changes to regulations and the competitive landscape could significantly change China Towers operational and competitionenvironment.Upside risks to our view includeFaster-than-expected growth in new businessareas.Faster-than-expected increase in dividend to offs

36、et earningspressure.Better-than-expected 5G leasing terms. Changes to our estimates are outlinedbelow:China Tower: HSBCe vs consensus, prior estimatesRMBm2018a2019e2020e2021e18-21e CAGRConsensusRevenues71,81978,27685,66294,6009.6% chg YoY4.6%9.0%9.4%10.4%Operating Expense(30,046)(30,614)(33,069)(35,

37、800)6.0% chg YoY6.1%1.9%8.0%126.5%EBITDA41,77347,66252,59358,80012.1% chg YoY3.5%14.1%10.3%11.8% margin58.2%60.9%61.4%62.2%Operating Profit9,08112,09615,75019,37828.7% chg YoY17.7%33.2%30.2%23.0% margin12.6%15.5%18.4%20.5%Net Income2,6505,5748,66212,28366.7% chg YoY36.4%110.3%55.4%108.1%EPS, RMB0.02

38、0.030.050.0758.5%HSBCRevenues71,81976,48181,82788,2687.1% chg YoY4.6%6.5%7.0%7.9%Operating Expense(30,046)(32,296)(34,353)(37,117)7.3% chg YoY6.1%7.5%6.4%8.0%EBITDA41,77344,18547,47451,1517.0% chg YoY3.5%5.8%7.4%7.7% margin58.2%57.8%58.0%57.9%Operating Profit9,08110,74613,53214,64417.3% chg YoY17.7%

39、18.3%25.9%8.2% margin12.6%14.1%16.5%16.6%Net Income2,6505,0017,3188,15445.4% chg YoY36.4%88.7%46.3%11.4%EPS0.020.030.040.0537.4%HSBC vs.ConsensusSales-2.3%-4.5%-6.7%EBITDA-7.3%-9.7%-13.0%OP-11.2%-14.1%-24.4%Net Income-10.3%-15.5%-33.6%EPS-8.3%-16.8%-34.7%HSBC Aug 2019estimatesSales77,80685,38894,023

40、EBITDA44,95450,01255,550OP11,51416,07119,883Net Income5,5879,27412,379EPS0.030.050.07HSBC vs.previousSales-1.7%-4.2%-6.1%EBITDA-1.7%-5.1%-7.9%OP-6.7%-15.8%-26.3%Net Income-10.5%-21.1%-34.1%EPS-10.5%-21.1%-34.1%Source: Company data, HSBCe, BloombergChanges to our telco forecastsWe make minor changes

41、to our telco estimates, driven by changes in our associate income from China Tower.China telcos: estimates vs prior forecasts HSBCe vs prior estimates 2019e2020e2021eChina MobileSales0.0%0.0%0.0%EBITDA0.0%0.0%0.0%OP0.0%0.0%0.0%Net Income-0.1%-0.4%-0.8%EPS-0.1%-0.4%-0.8%China UnicomSales0.0%0.0%0.0%E

42、BITDA0.0%0.0%0.0%OP0.0%0.0%0.0%Net Income-0.9%-2.2%-4.8%EPS-0.9%-2.2%-4.8%China TelecomSales0.0%0.0%0.0%EBITDA0.0%0.0%0.0%OP0.0%0.0%0.0%Net Income-0.5%-1.5%-3.2%EPS-0.5%-1.5%-3.2%Source: Company data, HSBCeChina Mobile (941 HK, HKD66.10, Buy, TP HKD79 from HKD81)We use a sum-of-the-parts valuation a

43、pproach to better capture the value of China Mobiles core telecom business in China as well as its investment stakes in different entities.For the core telecom assets, we use a DCF valuation for which our assumptions remain unchanged:Ariskfreerateof3.0%,betaof1andequityriskpremium of5.0%,whichresult

44、s inacostof equity assumption of8%.A cost of debt of 19% and debt to capital ratio of0%.A terminal growth rate of1.0%.This leads to a blended WACC of 8.0%, which results in fair value of HKD47.3 per share.For its investment stakes, we apply an unchanged holding company discount of 15% to all of its

45、investments. We value CMs 28.5% stake in China Tower and CMs 15% holding in iFlytek (002230 CH, CMP RMB32.85, Buy, TP RMB32.00, covered by Sijie Ma) at our respective target prices, applying a 15% holding company discount. We value its 20% stake in Pudong Development Bank (600000 CH, CMP RMB11.87, H

46、old, TP RMB10.60; covered by Gary Lam) and its 18% stake in True Corporation (TRUE TB, Not Rated) by applying a 15% holding company discount to the three-month average of their stock prices. We value the remaining associates based on our forecasts of their book value at the end of FY19e.China Mobile

47、: SoTP valuation, RMBmDCFMethodologyStakeRMBmRMB/shHKD/shAssessed EV of telecoms assetsDCF839,91241.046.759%Add: fair value of SPDB3m avg. share20%54,5252.73.04%Add: fair value of Trueprice 3m avg. share18%5,7320.30.30%Add: fair value of IFLYTEKpriceHSBCtarget15%9,6560.50.51%Add: fair value of China

48、 Towerprice HSBC target28.5%76,8653.84.35%Less: minority interestsprice(3,756)(0.2)(0.2)0%Less: (net debt) / cash441,97121.62531%Fair Equity Value1,424,90669.679Number of Shares Outstanding (m)20,475Fair value per share, RMB70Fair value per share, HKD79Source: HSBC estimatesOur sum-of-the-parts valu

49、ation approach returns our target price of HKD79 for China Mobile (previously HKD81). The reason for the change is the lower valuation of China Tower.Our target price implies upside of 19.5% from the closing price on 15 August. We apply a Buy rating rather than Hold as we see potential upside from n

50、etwork sharing in 5G.Key downside risks to our view:RMB depreciation may reduce the value of China Mobiles dividend, making it less attractive.in in a A inaMore intense competition in the mobile market. It could drive down data revenue and put more pressure on China Mobilespricing.Risk from a potent

51、ial merger of China Unicom and China Telecom: A potential merger of China Unicom and China Telecom would create a better capitalisedcompetitor.China Unicom (762 HK, HKD7.82, Buy, TP HKD10.90 from HKD11.20We continue to use a sum-of-the-parts (SOTP) approach to capture the value of China Unicoms stak

52、e in China Tower Corp.Wevaluethecoretelecom businessbyDCFvaluation.OurDCFinputs areacostofequity of 8%, cost of debt of 3.5% and debt-to-equity ratio of 40%. This results in an unchanged WACC of 5.85%. We apply a terminal growth rate of 1%(unchanged).We value Unicoms 21.1% stake in China Tower at ou

53、r target price of HKD1.97, representing 17% of our total valuation of Unicom atHKD1.90.Wevalueitsstakesinotherassociatesatcompanyreportedbookvalueofassociates excluding the value of China Towers stake.a is a China Unicom SoTP valuationSum of the parts valuation, RMBmRMBmRMBHKDAssessed EV of telecoms

54、 assets265,0018.79.3886%Add: fair value of China Tower stake53,7591.81.9017.4%Add: value of associates11,6910.40.414%Less: minority interests6710.00.020%Less: (net debt) / cash(23,011)(0.8)(0.81)-7%Fair Equity Value308,11110.110.91Number of Shares Outstanding (m)30,598Fair value per share, RMB10.1So

55、TP share price, HKD10.9Source: HSBC estimatesWe a We RisksThe key downside risks to our target price and rating include the following:Increased competition in the wireless market: China Unicom has focused on its mobile data business. It has successfully launched a series of data plans that have been

56、 well received by customers. Any increase in competition in the mobile market could compressits ARPU and significantly affect its revenue and FCFgrowth.Slower-than-expected new business rollouts: About RMB25bn of capital from the MOR funding will be used to launch new businesses, including 5G, cloud

57、 services and internet businesses,IoTandsoon.ChinaUnicomisproactivelypartneringwithstrategicpartnersto create new growth engines. We believe these new areas will be significant for China Unicom in the coming years. Slower-than-expected progress in creating new business growth could negatively impact

58、 revenuegrowth.Higher-than-expected marketing expense: China Unicom has been aggressively utilising a portfolio of marketing tools to retain and attract customers, which results in increasing marketing expenses. We believe disciplined spending is one of the keys to continue its margin recoverystory.

59、Higher-than-expected network and tower usage expenses: Given Unicoms efforts in launching unlimited data plans nationwide, we believe its network and tower usage expenses will continue toincrease.Higher-than-expected 5G capex. Higher-than-expected 5G capex is a risk that may hurt cash flow growth fo

60、r the next decade. 5G capex remains uncertain given technology standards and spectrum allocations have not been finalisedyet.The main changes are adjustments in our depreciation forecast from FY21e, driven by a higher long-term capex outlook.China Telecom (728 HK, HKD3.60, Buy, TP HKD4.80 from HKD5.