UBS: Downgrades CHINA TOWER (00788) target price to HKD 10, maintains "Neutral" rating

UBS has released a research report indicating that it has lowered the target price for CHINA TOWER (00788) by 14%, from HKD 11.6 to HKD 10, while maintaining a "Neutral" rating. The bank has also reduced its forecasts for the company's net profit and earnings per share for 2026-2028 by 10-14%, primarily due to the decline in tower revenues caused by telecom operators optimizing mobile networks. According to the bank's new profit forecasts and a payout ratio of 77%, CHINA TOWER's expected dividend yield for 2026 is currently 6%, which should support its valuation. CHINA TOWER's revenue for the second quarter of 2026 was RMB 23.55 billion, a year-on-year decrease of 5.2%; EBITDA was RMB 14.89 billion, down 12.1% year-on-year, due to declining tower revenues, which fell short of market expectations by 9%-16%. The net profit was RMB 3.5 billion, an increase of 28.2% year-on-year, exceeding market expectations by 15%, primarily due to depreciation savings from the completion of tower asset depreciation starting in October 2025. Revenue from towers, DAS, TSSAI, and energy businesses in the second quarter increased by 11.7%, 10.7%, 11.4%, and 20.7%, respectively, compared to the same period last year. As operators continue to optimize traditional 4G networks, tower revenues remain under pressure. The co-building and sharing strategies of China United Network Communications (00762) and China Telecom Corporation (00728) further reduce the demand for base stations. In addition, the new generation of base stations requires less supporting infrastructure, leading to a decrease in rental income per site. Management believes that these adverse factors are primarily transitional rather than structural, and expects that by 2027, the negative impact on tower revenues will be alleviated and essentially absorbed. Subsequently, driven by the ongoing construction of 5G, the company is expected to return to a more stable growth trajectory.