[ET Net News Agency, 6 September 2018] A newswire reported that Chinese government is
reviewing a potential "merger" of China Unicom (00762) and China Telecom (00941). Credit
Suisse sees such a scenario as positive for the Chinese telcos, and negative for tower
company CTC (00788), if it were to happen.
However, it said the positive impact for the telcos would likely be limited, given: (1)
the importance of government policies, rather than competition, in driving revenue; (2)
the lack of flexibility in reducing costs (particularly staff costs); and (3) an
expectation that the merged entity would be required to spend more on 5G.
Credit Suisse said its "first cut" modelling of a consolidation scenario would see the
DCF value of China Mobile (00941), Unicom and China Telecom rising by 3.6%, 16.2% and
14.4%, respectively, to HK$95.4, HK$13.25 and HK$4.85.
The impact on China Tower Corporation (CTC)(00788) could be "manageable". CTC has signed
five-year contracts with the operators and would likely negotiate a faster 5G rollout to
offset any removal of any surplus legacy base stations.
Credit Suisse said its DCF value for CTC under the consolidation scenario would decline,
but only by 16.2% to HK$1.45. (KL)