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0788.HK - China Tower Corporation Limited


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China Tower is a state-owned monopoly that owns the railroads of the 21st century (two million steel towers).

 

  • IPO in 2018 at 7.1 EBITDA
  • Trading at ~6x EV/EBITDA. American Tower Corp. (AMT) trades at ~25x.
  • Revenue growth ~6-7%
  • Increasing gross and operating margins
  • Increasing ROE and ROIC

 

"Two Wings Business" is an important driver of revenue growth:

 

  • "Two Wings Business"revenue +89.4%
  • Energy operations revenue +384.5%
  • DAS business revenue +33%

 

DAS:

 

  • Subway coverage: 5881 kilometers
  • High-speed railway tunnel: 6821 kilometers
  • Buildings: 4 million m2

 

VIC write-up:

https://www.valueinvestorsclub.com/idea/China_Tower/4618660596

 

Koyfin link:

https://app.koyfin.com/fa/fa.fh/eq-l8dzab

 

Presentation:

https://doc.irasia.com/listco/hk/chinatower/cpresent/pre210308.pdf

 

No position, unless someone convinces me that owning Chinese instead of American towers is a great idea.

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It's cheap relative to AMT but --

 

1. EBITDA is overstated because of IFRS accounting changes related to leases. See below:

 

Due to the application of IFRS 16 on 1 January 2019, the depreciation of right-of-use assets was presented in the “Depreciation and amortisation”, and lease payment relating to short-term leases and low-value leases was primarily presented in the “Site operating lease charges”; while in the year ended 31 December 2018, all of such operating lease payment made under IAS 17 was presented as “Site operating lease charges” 

 

2. The operating margins will increase or decrease based on the direction/ policy of the State, rather than as a natural consequence of its monopoly status (such is the reality in China for the largest companies).

 

3. Maintenance capex may not ever be as low as AMT's, because of their social responsibility to the country as an SOE.

 

None of these points are deal-breakers, but I think they should be incorporated into the analysis one way or another.   

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Yes, those lease liabilities went from 0 to 11.2B in one year and capex seems to be increasing.

 

There's also one page in the presentation that says:

 

"Strategic cooperation with government units...Visible monitoring, digital service and intelligent management."

 

Those towers are definitely used for more "business scenarios" than "Straw burning, Hill fire prevention, Petroleum pipeline monitoring".

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