China Tower released its FY24 results. Revenue went up by 4.0% YoY to RMB97.8bn, in-line with our estimate and Bloomberg consensus. Net profit went up by 10.0% to RMB10.7bn, 1.8% above our estimate but 2.2% below Bloomberg consensus. By segment, Tower revenue (77% of total revenue) was RMB75.7bn, up 0.9% YoY, while DAS (9%) and Two Wings (14%) business continued to grow at double-digits, reaching RMB8.4bn (18% YoY) and RMB13.4bn (16% YoY). The company announced a stock consolidation (1 for 10) in Feb 2025 to optimize its capital structure and potentially enhance shareholders’ value. We maintain our HOLD rating, with new TP at HK$13.7, based on 4.0x rollover FY25E EV/EBITDA, from 3.1x FY24 EV/EBITDA previously.
　　Legacy business to remain stable. Tower business was flattish QoQ in 4Q24, with a quarterly revenue at RMB19bn. China telcos’ sales are projected to grow by a low single-digit during 2025-27E per Bloomberg consensus. We think China Tower’s legacy business will face ongoing headwinds, considering continuous cost optimization pressures from China telcos.
　　DAS (distributed antenna system) and Two Wings (smart tower and energy) to maintain double-digit growth. We expect DAS revenue to grow 14.0%/11.6% YoY in 2025/26E, seizing market opportunities such as signal strength upgrade projects. Within the Two Wings segment, Smart Tower business had a record revenue of RMB2.8bn in 4Q24 (vs. ~RMB2bn in 1Q-3Q/24), mainly due to an incremental revenue from the national disaster alert and farmland protection project, which was all recognized in 4Q. Looking forward, we forecast Two Wings business to grow 17.5%/16.2% YoY in 2025/26E.
　　Maintain HOLD, as we think the overall growth upside for China Tower is limited. Our new TP is HK$13.7, based on 4.0x FY25 EV/EBITDA (vs. previously 3.1x), which is equivalent to its 5-year average forward EV/EBITDA. We adopt a higher valuation as we see the company is aiming to enhance shareholders’ return. In 2024, China Tower’s total dividends declared was RMB0.42 per share (including an interim DPS of RMB0.11), implying a payout ratio of 76% (vs 70%/72%/75% during 2021-23). Upside risks include better-than-expected macroeconomic recovery, increased spending from the domestic telcos, etc. Downside risks include continued cost optimization from domestic telcos, and decreased dividend payout ratio.