We maintain China Tower's （the "Company"） TP at HK$1.20 and the investment rating as "Buy".
　　Considering future dividend payout growth at the end of deprecation for a large number of tower assets after 2025 as well as the digital transformation opportunities brought by "Two Wings" business, we maintain the investment rating as "Buy" and TP at HK$1.20. Our TP corresponds to 19.5x/ 17.1x/ 14.6x FY23-FY25 PER.
　　The EV/EBITDA ratio corresponding to our TP is 3.5x/ 3.2x/ 2.8x in FY23-FY25, respectively.
　　China Tower recorded a solid 1HFY23 results amid the impacts of new Commercial Pricing Agreements. The Company recorded a 1HFY23 earnings of RMB4,841 mn （+14.6% yoy）， in line with market expectations. Despite the impact from additional discounts on existing orders and rising co-location discount rate on new orders, the Company still achieved a healthy 1HFY23 profit growth, due to the strong growth from “Two Wings” business, and the eased pressure on deprecation.
　　With steady growth and solid profitability, the Company’s dividend payout is expected to exceed market expectations. At present, the “Two Wings” business is still in the investment period, and more marketing expenses, research and development expenses, and platform construction expenses are needed, but with the rising scales and synergy with the TSP business, we expect margin of the “Two Wings” business to have room for development. We believe that the Company's advantages in computing power have not been seen by the market. In particular, the sites of China tower are the closest to the user end, so it has great advantages in edge computing; in the future, there will be opportunities to upgrade the communication sites to edge computing sites. When the deprecation period of towers acquired in 2015 ends in 2025, the deprecation pressure will be greatly reduced, and the towers can still be used with some maintenance and upgrade, thus we expect its profitability to be improved. We believe the Company will implement a relatively positive dividend policy; thus, it is expected that future dividend payouts will exceed market expectations.
　　Catalysts: Rising dividend payout; faster-than-expected growth of "Two Wings" business.
　　Risks: Slower-than-expected growth of "Two Wings" business; slower-than-expected 5G construction.