CICC: Cuts CHINA TOWER (00788) 2026/27 net profit forecasts; maintains "Outperform" rating and HK$11 target price.

CICC released a research report stating that due to pressure on CHINA TOWER's (00788) tower business revenue, combined with the fading impact of depreciation expiry, it has lowered the company's 2026 and 2027 net profit forecasts by 5.2% and 2.5% to RMB 13.8 billion and RMB 15.0 billion, maintaining an "Outperform" rating and a target price of HK$11.0, corresponding to 3.9x EV/EBITDA for 2026 and 2027, implying 20.5% upside from the current share price. The bank noted that the company's revenue for the first three quarters of 2026 was in line with expectations, while net profit was slightly below expectations, mainly due to the fading impact of depreciation expiry and slightly higher-than-expected expense growth. CICC's main views are as follows: Company Update CHINA TOWER announced its results for the first three quarters of 2026, with operating revenue of RMB 71.999 billion, down 3.1% year-on-year; net profit attributable to shareholders of RMB 10.817 billion, up 24.2% year-on-year. In the third quarter, the company achieved operating revenue of RMB 23.306 billion, down 5.7% year-on-year; net profit attributable to shareholders of RMB 3.328 billion, up 12.8% year-on-year. CICC noted that third-quarter revenue was in line with expectations, while net profit was slightly below expectations, mainly due to the fading impact of depreciation expiry and slightly higher-than-expected expense growth. Tower business revenue decline narrowed quarter-on-quarter; indoor distributed antenna system (DAS) business maintained growth In the third quarter of 2026, the company's carrier business revenue declined 8.0% year-on-year, of which tower business revenue declined 10.3% year-on-year, with the decline narrowing by 1.4 percentage points compared with the second quarter; DAS business revenue grew 10.4% year-on-year. As of the end of the third quarter, the company had 2.184 million tower sites, up 1.6% from the beginning of the year; tenants per site were 1.77, down 0.02 from the beginning of the year. The bank believes that factors such as carriers' network deployment optimization and declining demand for equipment room supporting facilities continue to put pressure on tower business revenue. Revenue contribution from the two-wing businesses increased; revenue growth slowed In the third quarter of 2026, the company's smart connectivity business and energy business revenue grew 7.2% and 5.1% year-on-year, respectively. In the smart connectivity business, the company continued to deepen its presence in key industries and actively expand new businesses such as the low-altitude economy, edge computing, and "DAS+"; in the energy business, the company continued to optimize its battery swap network layout and advance the implementation of base station photovoltaic and energy storage businesses. The bank noted that third-quarter revenue growth of the two-wing businesses slowed but remained high-quality development. EBITDA under pressure; declining depreciation and amortization supported net profit growth In the first three quarters of 2026, the company's EBITDA declined 12.0% year-on-year to RMB 44.828 billion; third-quarter EBITDA declined 12.9% year-on-year to RMB 14.576 billion, with the EBITDA margin down 5.1 percentage points year-on-year to 62.5%. During the same period, the company's net profit attributable to shareholders for the first three quarters grew 24.2% year-on-year to RMB 10.817 billion, and third-quarter net profit attributable to shareholders grew 12.8% year-on-year to RMB 3.328 billion. The bank believes that the expiry of depreciation on tower-related assets from 2015 supported net profit growth, but because the adjustment to the useful life of DAS assets took effect in the third quarter of 2025, the company no longer benefited from the year-on-year increment brought by this adjustment in the third quarter of 2026, and net profit growth slowed. Earnings Forecast and Valuation Due to pressure on tower business revenue, combined with the fading impact of depreciation expiry, the bank lowered the company's 2026 and 2027 net profit forecasts by 5.2% and 2.5% to RMB 13.8 billion and RMB 15.0 billion. The company's current share price corresponds to 3.4x and 3.4x EV/EBITDA for 2026 and 2027. The bank maintains an "Outperform" rating and a target price of HK$11.0, corresponding to 3.9x and 3.9x EV/EBITDA for 2026 and 2027, implying 20.5% upside from the current share price. Risk Factors Uncertainty regarding pricing agreement switching; revenue growth below expectations.