Earnings supported by D&A roll-off while growth remained limited

Earningssupported by D&A roll-off while growthremainedlimited Target PriceHK$12.10(Previous TPHK$13.10)Up/Downside13.2%Current PriceHK$10.69 China Tower’s FY25revenue went up by 2.7% YoY to RMB100.4bn, in-line withour estimate of RMB101.4bn and Bloomberg consensus of RMB100.87bn. Netprofitrose8.4%YoYto RMB11.6bn, 1.0% above our estimate and 3.5% belowBloomberg consensus. Net margin improved 0.6ppt to 11.6%, primarily driven bya lower D&A expense ratio (48.3% of revenue in FY25 vs. 51.4% in FY24), astower assets acquired in2015rolledoffdepreciation in Nov 2025 (two monthsrecognized in FY25),whilecertain DAS equipment saw useful life extensions.EBITDA declined 1.1% YoY to RMB65.8bn (margin-2.6ppt to 65.5%),as otherOpExwent up by23.5% YoY onhigher bad debt provisions and lower assetdisposal gains. In 4Q25, quarterly revenue was RMB26.1bn (+3.0% YoY, +5.6%QoQ), showing a typical seasonal pick-up. The Company declared a full-yearDPSof RMB0.458(+9.8%YoY),with a payout ratio of 77%(vs.70%/72%/75%/76% during FY21-24).Maintain HOLD, with TPadjusted toHK$12.1(prev. HK$13.1). China Semiconductors Kevin ZHANG(852) 3761 8727kevinzhang@cmbi.com.hk Aaron GUO(852) 3916 3715aaronguo@cmbi.com.hk Tower business remained under pressure as we expected;telcocapexto continuedeclining.Tower revenue (75% of totalsales) was RMB75.5bn,down 0.3% YoY.In 2025, three domestic telcos' combined capex declinedby10.5%YoYto RMB285.5bn, and the guided 2026budget was furtherreduced by8.4%YoYto RMB261.4bn (CM/CU/CT: RMB136.6bn/50.0bn/74.84bn), with spending increasingly directed towards computing/AI insteadof network buildout (e.g., ChinaUnicomguides35%of its 2026capex forcomputing). We expect tower-related spending from the telcos to remainunder structural pressure as 5G matures,whilethe lack of aclear roadmapfor commercial 6G deploymentat presentmaylimitnear-term visibility onthenext round of network investment.We project China Tower’s Towerrevenue to decline 1.5% YoY in 2026E, reflecting flattish site counts andongoing pricing pressure. DAS and Two Wingssegmentsmaintained solid growth.DAS revenuegrew 9.5% YoY,benefiting from signal upgrade and indoor/undergroundcoverage demand.Within the Two Wings segment, Smart Tower revenuegrew 14.2%YoY to RMB10.2bn,and Energy grew 7.5% to RMB4.8bn.Together, DAS and Two Wings accountedfor 24% of total revenuein FY25,up from22.3%/19.8% inFY24/FY23, further diversifying therevenuemix.Weforecast DAS/Two Wings to grow 11.6%/13.4% YoY in 2026E. Maintain HOLD, with TP adjusted to HK$12.1(previously HK$13.1 on4.0x2025E EV/EBITDA),corresponding to 3.6x 2026E EV/EBITDA,equivalent to1-SD aboveits 5-year average forward EV/EBITDA,giventheD&A tailwind is significant but could be partially offset by risingmaintenance costs.The Company continues to enhance shareholder returnswith payout ratio increasing to 77% in FY25, implying a forward dividend yieldof~6.0%per our estimate,which is still lower thanthethreetelcos’ (CM(941HK):6.8%;CU(762 HK):6.7%;andCT(728 HK):6.3%,perBloombergdata).Upside risks:better-than-expected telco capex recovery, favorablepricingagreement renewal in 2027E,further shareholder returnenhancement, etc.;downside risks:continued cost optimization fromthreetelcos, unfavorable pricing agreement,deteriorating dividend payout ratio,etc.. Source: FactSet Source: Company data, CMBIGM estimates Source: Company data, CMBIGM estimates Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the HongKong listed companies covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10%over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with therelevant broad market benchmark over next 12 months: