[ET Net News Agency, 17 May 2018] China Tower, the national towerco in China with 97%
revenue market share, filed an application on Monday to go public in Hong Kong.
Citi Research believes that risk of switching from telco to towerco could be limited in
China, as telcos as controlling shareholders have bargaining power.
The research house said Towerco IPO could prompt investors to switch to the towerco from
the telco, attracted by the former's better growth/yield and lower regulatory risk.
However Citi expects such substitution risk is not significant in China, due to telcos'
pricing power, China Tower's potential cash return issue, and the currently trough
valuations of Chinese telcos.
Chinese telcos have a track record of good price bargaining power, and reduced tower
rental price twice in the past, which is positive for Chinese telcos by improving their
cash flow, and also urging China Tower to improve operation efficiency.
Chinese telcos each revised down effective tower rental price by 4-9% in February 2018,
and by 7-10% in July 2016 under their formal and amendment lease agreements with China
Tower. Net debt of Rmb148bn as of 2017, low net margins, and relatively high capex
indicate China Tower may not be a good dividend yield play within two years post IPO. (KL)