We lower China Tower's (the "Company") investment rating from "Buy" to "Accumulate" and increase the target price from HK$1.20 to HK$1.35. Our target price corresponds to 16.1x 2025 PER and 14.3x 2026 PER, and reflects 3.3%, 4.4% and 5.1% 2024-2026 forecasted dividend yield, respectively. Since our last company report on 19 March 2024, the Company’s share price has increased 26.6% from HK$0.94 to HK$1.19, which is near the share price’s 52 week high of HK$1.22.
　　We adjust our 2024 and 2025 EPS forecasts by -6.3% and 3.8% to RMB0.060 and RMB0.078, respectively. We forecast 2026 EPS of RMB0.088. China Tower remains an attractive infrastructure play with steady cash flow growth, increasing dividends, and potential upside from AI-driven 5G expansion.
　　We forecast 20.1% CAGR in per-share dividends from 2023 to 2026, as CAPEX requirements stabilize and cash flow improves. We expect that with steady growth in shareholders’ net profit growth, combined with solid future cash flows, the Company will increase its dividend payout ratio from 2024-2026.
We forecast higher operating efficiency and profit margins in 2024-2026, with shareholders’ net profit growth of 7.6%, 29.7% and 12.5%, respectively. China Tower’s 1-3Q2024 net profit surged by 11.3% YoY to RMB 8,153 mn, reflecting the Company's effective cost-control measures and operational efficiency. Depreciation expense for a large number of towers will terminate in November 2025, which will have a significant positive impact on 2026 net profit.
　　Catalysts: Increasing demand for AI-driven computing and cloud expansion may　drive further leasing demand from telecom and data center operators.
　　Risks: Government policy on telecom infrastructure pricing may affect leasing rates. Rollout of 5G may be slower-than-expected due to CAPEX constraints　from telecom operators. U.S.-China tensions on semiconductor restrictions could　impact AI-driven infrastructure growth.