HSBC Global Research lowered its target price for China Tower (CTC)(00788) to HK$1.3 from HK$1.97 and downgraded its rating to "reduce" from "hold".
China Unicom (00762) and China Telecom (00728) yesterday entered into a framework agreement to cooperate on building and sharing a 5G network. The research house said the deal offers synergies to CU and CT; however, in a zero-sum world, upstream providers should see less business, of which CTC is one.
In spite of all efforts to diversify, the tower should remain the key business driver for CTC going forward, with revenue contributions to remain over 90%, HSBC noted.
HSBC thinks that for the tower business to see a margin expansion, it needs to either: (1) increase revenue per tenant via equipment additions onto towers by existing tenants, or 2) increase tenants per tower (aka tenancy ratio).
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