1H earnings increased 14.6% YoY to RMB46.5bn, beating BOCI estimate and market consensus, although tower revenue was affected by tariff adjustment while strong DAS and Energy businesses made up for the change. CAPEX continued to increase by 41.1% YoY or 28% of sales.
　　Key Factors for Rating
　　1H23 revenue increased by 2.2% YoY to RMB46.5bn, with net profit up by 14.6% YoY to RMB2.5bn, beating BOCI estimate and market consensus; topline was weaker due to a new rental agreement with tariff adjustment. Instead of dipping 1.1% YoY, tower business revenue would have increased by 3.4% YoY if tariff remained the same as in 2022. Two Wings business increased by 33.7% YoY to Rmb5.36Bn, that include 31% YoY increase in smart tower business and 38.5% YoY increase in energy business. Total number of tenants from tower business increased by 3.7% to 3.4mn, while smart tower business tenants increased by 1.8% to 223,000.
　　Two-wing business surged 33.7% YoY to RMB5.36bn, which included 31% YoY increase in smart tower business and 38.5% YoY rise in energy business. The total number of tenants from tower business increased by 3.7% YoY to 3.4m, while smart tower business tenants grew 1.8% YoY to 223,000.
　　CAPEX increased by 41.1% YoY to RMB12.8bn in 1H23, with 53% used on new site construction and augmentation, and 29% on site replacement and improvement. Management expects full-year CAPEX budget of RMB32bn will likely be maintained.
　　As to future dividend after 2025, since a large volume of fixed assets will reach the end of their lifecycles by then, management indicates possible investment may be required to extend the usable life of fixed assets.
　　Key Risks for Rating
　　Tower rental revenues contribute the majority of the company’s earnings, and therefore hinges on telco’s network expansion plan.
　　Valuation
　　Reiterate BUY. We largely keep our FY23-25 revenue and earnings estimates unchanged and maintain our DCF based target price at HK$1.34.