中國(guó)電信行業(yè)財(cái)年展望

1、GlobalResearch22 January2019EquitiesChina TelecommunicationsEquitiesChina TelecommunicationsJamesWangAnalyst HYPERLINK mailto:james-zb.wang +852-37122557RyanJin Associate Analyst HYPERLINK mailto:ryan.jin ryan.ji HYPERLINK mailto:n n+852-29717454Navin KillaAnalyst HYPERLINK mailto:navin.killa +852-2

2、9717594FY19Outlook:somepotentialreliefonFY19but conditions remainchallengingChallenging conditions make material sector re-rating difficultTheChinesetelcossharepricesoutperformedthebroaderHSIin2018,declining1%in 2018 (vs the HSI: -14%). That said operating conditions for the telcos remain challengin

3、ginFY19withthefullyearimpactofdomesticdataroamingremovalcoming through and competition remaining fierce (based on our January store visits). Whilea lower than expected FY19 capex guidance at the FY18 results may provide some reprieve, the prospect of a new entrant and the introduction of mobile numb

4、er portability later in the year are likely to limit any significant sector re-rating. CM is our onlyBUYwithinthesectorduetolowexpectationsandcheapvaluation.Slight delay in 5G capex in 2019 may provide some reliefThe5GspectrumallocationinDec2018waslaterthanpriorexpectationsandassuch we now expect la

5、rge scale 5G deployment to be delayed until Q419 vs Q319 previously.Thishasresultedina10%reductioninourFY195Gcapexforecastswhich arenowbelowconsensus.Thatsaidouroverall5Gcapexforecasts(i.e.from2020to 2030) remain broadly unchanged and we continue to expect a sharp acceleration in telco capex in 2020

6、 and 2021 as the government pushes for large scale commercial deployment.CMisbestpositionedon5Ggiventheallocationofthe2.6GHzspectrum.Regulatory issues outside of tariff reduction to weigh on sentimentGiven the looming 5G capex and with the telcos still digesting the impact of domestic dataroamingrem

7、oval,weexpectthisyearstariffreductionmeasurestobelessheavy- handed than in 2018. However the potential of a new entrant (i.e. the national cable TV operator (CNCATV) and the introduction of mobile number portability are likely to negatively impact investor sentiment on the sector in2019.Valuation: u

8、ndemanding but the broader market has also correctedThe Chinese telcos are trading 1 st. dev. below the long-run average on a 12mth fwd EV/EBITDAbasis.HoweverrelativetotheHSI(trailingPE),CTandCMarebroadlyin-line withthehistoricalaverage(CUisirrelevant)despiteweakeroperatingconditionsvsthe past.Assuc

9、hwebelievesomedefensivepremiumhasbeenbuiltintotheirshareprices. We value the Chinese telcos using a combination of SOTP and market PE-based valuationswithcorebusinessesvaluedusingDCFandWACCof8-9%.Figure 1: forecast changesShare price2019E valuation (x)Price target(HK$/share)NPAT changeEBITDA change(

10、HK$)PEEV/EBITDAOldNewChange2018E2019E2020E2018E2019E2020ECM80.8511.63.292942%-1%-1%-1%-1%-1%-1%CT4.094.259%-1%0%1%0%0%0%CU8.679.3-1%1%2%-7%0%0%-2%Source: UBS estimates, priced as of Jan 18, 2019 HYPERLINK /investmentresearch /investmentresearchThisreporthasbeenpreparedbyUBSSecuritiesAsiaLimited. ANA

11、LYSTCERTIFICATIONANDREQUIREDDISCLOSURESBEGIN ONPAGE29. UBSdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a

12、 single factor in making their investment decision.China Telecom SectorChina Telecom SectorUBS Research THESIS MAPa guide to our thinking and whats where in this report HYPERLINK l _bookmark1 OURTHESISIN HYPERLINK l _bookmark1 PICTURESMOST FAVOREDLEAST FAVOREDChina MobileChina TelecomPIVOTAL QUESTIO

13、NSQ: With competition on the rise, what will growth look like for the Chinese telcos?While the hope is that the operators will start to back down on their competitive intensity as networkutilizationratesstarttopeak,wehaveseenlimitedevidencethatthisishappeningonour recent store visits. Our base case

14、is that competition does not worsen from here on, however revenue growth in 2019 will remain challenging (+3.5%) due to the full year impact of domestic dataroamingremoval. HYPERLINK l _bookmark2 Q: What is our expectation for 5G capex and which operator is better positioned?We have reduced our FY19

15、 5G capex forecasts by 10% due to the delay in the 5G spectrum allocation which will likely see large scale 5G deployment starting in Q419 vs our previous expectation of Q319. That said our overall 5G capex forecasts (i.e. from 2020 to 2030) remain broadlyunchangedandwecontinuetoexpectasharpaccelera

16、tionintelcocapexin2020and2021 as the government pushes for large scale commercial deployment. We continue to see CM best positionedheadinginto5Ggiventheallocationofthe2.6GHzspectrum. HYPERLINK l _bookmark3 Q: Could regulatory issues come to haunt the Chinese telcos again this year?In 2019 we expect

17、a less heavy-handed approach on tariff reduction speed upgrade by the governmentgiventhelooming5Gcapexburdenandthesignificantreductionindataunitratethat wehaveseenin2018.Howeverweseeotherregulatoryrisksaround:1)anearlierthanexpected introductionofmobilenumberportability,2)thecableTVoperatorreceiving

18、the4thmobilelicense. HYPERLINK l _bookmark4 moreUBS VIEWWehaveaneutralstanceonChinastelecomsectorduetocompetition-inducedgrowthslowdown and5Gcapex.Whilevaluationisattractiveversushistory,webelieverisksremainweightedtothe downside due to the potential for a new wireless entrant and mobile numberporta

19、bility.EVIDENCEWe conducted: 1) store visits and checked with industry participants; 2) review of experiences in other regions and; 3) detailed bottom-up analyses to gauge wireless capex requirements.WHATS PRICED IN?Chinese telcos are trading broadly inline to the HSI versus history and we believe t

20、here is some defensivepremiumpricedincurrently.However,wethinkthemarkethasnotfullypricedinfurther deteriorationincompetitionnorrisksaroundMNPorthenewentrant. HYPERLINK l _bookmark5 moreFY19 capex may come in below consensusA number of potential regulatory issues this yearSector capex forecasts - UBS

21、 vs Cons.500RMBbn440450400350291295308319250200150375421376EventsTariff reductionMobile number portability New entrantTiming OperationalMarchLimitedQ3/Q4NegativeQ3/Q4LimitedShareLimited 100502018E2019E2020E2021ESource:Companydata,ThomsonReuters.UBSestimates,Source: UBS, MIIT-UBSConsensusStock view:

22、CM still preferredWhile the Chinese telcos may see some reprieve on a less than expected FY19 capex guidance at the FY18 results, we continue to see challenges facing the sectorincludingheatedcompetition,uncertaintyonthelooming5Gspendaswell as the possibilities of mobile number portability and a new

23、 mobile entrant. Our stock preferences are unchanged: CM CU CT.Against this drop, we have a NEUTRAL view on the sector with China Mobilethe only BUY on the following basis:MarketexpectationsremaintoopessimisticonCMscapexburdenandits share price has not factored in the long term benefit of CM receivi

24、ng the 2.6GHz 5G spectrum band;ValuationforCMremainsmoreappealingvsothersinthesectorwiththe stock trading on 11.6x FY19PE;Earnings expectations are low with consensus expecting 0-1% p.a. net profit growth over the next 2 years;LoweroperatingleveragemakesCMmoreresilienttomarketdisruptions (e.g. from

25、MNP and new entrant).Figure 2: CM NPAT expectations lowervspeersFigure 3: CMs PE valuation more appealing vspeersConsensus Net Profit YoY growth11%8.4%8.3%8.4%8.3%4.1%1.0%0.3%9%8%7%6%5%4%3%2%1%0%9.8%25 x20.115.420.115.413.813.311.611.0151050FY19EFY20E2018E2019ECM CTCMCTCUSource:ThomsonReutersSource:

26、 UBS estimatesWeremainNEUTRALonCUandCT.WhileoperationallyCUislikelytofareworse than CT, its valuation is cheaper and our discussions with investors suggest expectations are also low for CU. Furthermore should SARFT be forced to exchange some of its 700MHz spectrum for the mobile license, there is a

27、high likelihood that the MIIT may allocate the 700MHz to CU which could serve as a positive catalyst. However the likelihood of the 700MHz spectrum being handed back to MIIT appears low at this stage and hence we remain cautious overall on CU.ChinaTelecomSectorUBSResearchOURTHESISINPICTURES HYPERLIN

28、K l _bookmark0 return Sector capexforecasts500 RMBbn455440421421291338291308Expect 5G spend to be slightly delayed due to later than expected spectrum allocation.10002018E2019E2020E2021EPreviousNewSector capex forecasts - UBS vs Cons.RMBbn440RMBbn440421375376291295308319400300200100Our FY19 capex fo

29、recasts are below consensus which may positively surprise some investors. However we continue to be cautious on 5G capex in 2020 and 2021.-2018E2019E2020E2021EEventsTimingEventsTimingSharepriceTariff reductionMarchLimitedLimitedMobile number portabilityQ3/Q4NegativeNegativeNew entrantQ3/Q4LimitedNeg

30、ativePriceDataPriceDataallowanceVoice (min)FixedbroadbandDatasharingCT13010GB100NoCT29910GB300Yes2 simsCU1496GB100No4 simsCU212920GB500Yes4 simsCM1585GB0NoCM29820GB150YesWhile competition has not eased visiblySources: Company data, UBS estimates, Thomson Reuters, Plan pricing based on store visit in

31、 Shanghai in JanChina Telecom SectorUBS ResearchPIVOTAL QUESTIONS HYPERLINK l _bookmark0 return Q: With competition on the rise, what will growth look like for the Chinese telcos?UBS VIEWWhile the hope is that the operators will start to back down on their competitive intensity as network utilizatio

32、n rates start to peak, we have seen limitedevidencethatthisishappeningonourrecentstorevisits.Ourbasecase isthatcompetitiondoesnotworsenfromhereon,howeverrevenuegrowthin 2019 will remain challenging (+3.5%) due to the full year impact of domestic data roaming removal.EVIDENCEOurstorevisitsinShanghaii

33、nJanuaryshowthatindustrypricingremainslow with CT offering plans priced as low as RMB38 for 10GB of national data. Discussionswiththeoperatorsalsosuggestthatmarketshareremainsakey focus for the operators with no operator looking likely to back down any time soon.WHATS PRICED IN?The market is most li

34、kely extrapolating status quo with consensusestimating revenue to grow 3.3% in FY19, broadly in-line with our forecasts. Our discussions with investors also do not suggest an expectation of further deterioration in competitive intensity with some questioning whether the market is at a turning point

35、on pricing.DataFixedDataPriceallowanceVoice (min) broadband sharing3.5%2.5%2018E2019EFigure4:StorevisitssuggestDataFixedDataPriceallowanceVoice (min) broadband sharing3.5%2.5%2018E2019E7%CT13010GB100CT29910GB300Yes2sims496GB100No4sims12920GB500Yes4sims585GB09820GB150Yes6%5%4%3%2%1%0%-1%CMCTCUSectorS

36、ource: Companydata,UBSSource: UBS estimatesResults from store visit suggest competition remains fierceWe visited stores in Shanghai and the promotional plans that weve seen suggest competition remains fierce though on balance no worse than 4-5 months ago.Asshownbelow,CTisofferingRMB30/mthplanswith10

37、GBofdatausage.While CU appears to have pulled back somewhat, the RMB49/mth plan for 6GB with 4 data sharing sims is alsoattractive.Figure 6: Store visit Jan 19 vs Sept 18PriceData allowanceVoice (min)Fixed broadbandData sharingNotes19 Sept 18CT1305GB100CT25010GB300CT316920GB700300Mbps4 sims (3rd/4th

38、 card needs to pay Rmb5/monthCU 15030GB(+1RMB) for fixed broadbandCU 29940GB(+1RMB) for fixed broadband1 simsCM 15810GB380NoNew customerCM 29820GB15050Mbps (+1RMB)100Mbps for 10RMB, 200Mbps for 20RMB7 Jan 19CT13010GB100NoCT29910GB300Yes2 simsCU1496GB100No4 simsCU212920GB500Yes4 sims+RMB 1 for fixed

39、broadbandCM1585GB0NoCM29820GB150YesOriginal RMB128 (RMB30 discount until end 19)Source:UBS,NotetheShanghaistoresvisitedweredifferentwhichmayhaveresultedinthedifferencesinplan pricingAnecdotalevidencesuggestsoperatorsinsomecasesaregivingawaysecondfree broadband in the homes to crowd out its competito

40、rs.ChinaTelecomSectorUBSResearchPIVOTALQUESTIONS HYPERLINK l _bookmark0 return Q: What is our expectation for 5G capex and which operator is better positioned?UBS VIEWWehavereducedourFY195Gcapexforecastsby10%onthebasisthatthe spectrum allocation had been delayed until Dec 2018 which will likely see

41、large scale 5G deployment starting in Q419 vs our previous expectation of Q319. That said our overall 5G capex forecasts (i.e. from 2020 to 2030) remainbroadlyunchangedandwecontinuetoexpectasharpaccelerationin telco capex in 2020 and 2021 as the government pushes for large scale commercialdeployment

42、.WecontinuetoseeChinaMobileasbestpositioned heading into 5G given the allocation of the 2.6GHz spectrum. While we do not rule out the possibility of government subsidies to accelerate the 5G roll- outgiventhelackofinitialusecases,itisnotourbasecase.EVIDENCEOur discussions with industry participants

43、suggest that the timing of the spectrum allocation was later than expected and this has resulted in some delays in the preparation of the 5G trials. While our discussions with telecom operatorscontinuedtosuggestageneralcautionon5Ginvestmentsgiventhe limited business application scenarios, the handou

44、t of the temporary 5G license recently was seen as a signal sent by the government in pushing forward the 5G deployment. Historically when the 3G and 4G licenses were handedoutthegovernmentattachednetworkcoveragetargetsasconditions ofthelicenseandthesemayagainbethewaythegovernmentwillenforce5G deplo

45、yments in China.WHATS PRICED IN?We believe a reasonable degree of pessimism has been built into the share prices of the Chinese telcos around 5G capex. As such a less than expected 2019 capex guidance at the FY18 results could potentially be well received. Howeverconcernsaround5Gcapexinthemediumterm

46、arelikelytohamper any material sector re-rating.Figure 7: Our capex forecasts are now slightly below consensus in FY19 but significantly above in FY20+Figure 8: 5G BTS roll-out forecastsRMBbn440RMBbn440421375376291 295308 3190001,0801,0800CM:60 CT:30 CU:309501,4501,800-2018E2019E2020E2021EUBSConsens

47、us2019E2020E2021E2022E2023ECM CT CUSource: UBS estimates, ThomsonReutersconsensusSource: UBS estimatesChannel checks suggest potential delay to 5G spend in 2019Ourchannelcheckssuggestthatthe5Gspendmaybedeferredslightlyduetothe delayed allocation of the 5G spectrum and a general reluctance of the tel

48、ecom operators to dive into another round of 5G capex spend with no clear business case in sight.Other key findings relating to 5G were:Theinitial5Ghandsetsarelikelytobeprohibitivelyexpensivewhichmay slow down consumer take-up of 5G;ItisuncertainwhetherNon-StandaloneorStandalone5G willbeadopted by t

49、he telcos as yet with the final decision likely to depend on the maturity of the two technology standards;Teething issues relating to the 5G technology may surface in the commercialtrialstagethatcouldresultinfurtherdelaysinthe5Glaunch.Asaresultwenowexpectcommercial5GdeploymenttostartinQ419ratherthan

50、 Q319 previously.However government support for 5G remains strongDespite the cautious tone expressed by the telecom operators, there is clear government support to push forward with 5G roll-out as evidenced by the following:The NDRC indicating that it will look to accelerate the pace of 5G commercia

51、l use as part of the basic infrastructure build-out (Sina, 15 January 2019);The Central Economic Working Group indicating an acceleration in 5G commercial use (Sohu, 25 Dec2018);A temporary licence being granted by MIIT to the telecom operators on 10January2019whichwasthefirsttimethiswasdonebythereg

52、ulator.Given the strong government support, the formal 5G license therefore is likely to include a number of network coverage requirements that may result in the telcos toacceleratetheircapexsignificantlyin2020and2021tomeettheseconditions. We expect the formal 5G license to be handed out inQ419.Figu

53、re 9: Rough 5G timeline expectationActivityCapex implicationsH119Commercial trialsLimited3Q19Resolving issuesLimited4Q19Formal 5G license given outIncreaseFY20Large scale deploymentSignificantly increaseSource: UBS estimatesChanges to UBS capex forecastsWe have updated our capex forecasts to reflect

54、 the above considerations. Our overall 5G capex remains broadly unchanged but we have pushed out the 5G capexin2019tolateryears.Keychangestoourcapexforecastsareshownbelow.Figure 10: Changes to UBS capex forecastsRMBbn2018E2019E2020E2021ECMPrevious166185223228New166168220228Change0%-9%-1%0%CTPrevious

55、7584127104New7577120104Change0%-8%-5%0%CUPrevious506810589New506210089Change0%-9%-5%0%Source: UBS estimatesChina Mobile continues to be best placed heading into 5GWe continue to think CM is best placed heading into the 5G era. Typical investor concerns have been around the maturity of the equipment

56、supply chain for the 2.6GHz spectrum band, however our channel checks confirm that:Whileintheshortterm,theequipmentsupplychainisnotmatureforthe 2.6GHz, China Mobiles scale should entice the equipment supply chain to meet its demands;Thereisnotechnicalhurdleforhandsetvendorstocatertothisspectrum band

57、 with the handset potentially being a bit more costly due to the additional antennas required;Initially internationally roaming is likely to occur on the 4G network and hence compatibility of frequency bands with international norm on 5G is unlikely to be of concern;The2.6GHzwillinthelongrunbemoreef

58、ficientforcoveragecompared with the 3.5GHz spectrum band.ChinaTelecomSectorUBSResearchPIVOTALQUESTIONS HYPERLINK l _bookmark0 return Q: Could regulatory issues come to haunt the Chinese telcos again this year?UBS VIEWThe Chinese telcos have been significantly impacted by the domestic data roaming re

59、moval which was announced by the Premier at the Two Sessions MeetinginMarch2018.In2019weexpectalessheavy-handedapproachon tariff reduction speed upgrade by the government given the looming 5G capexburdenandthesignificantreductionindataunitratethatwehaveseen in 2018. However we see other regulatory r

60、isks around: 1) an earlier than expected introduction of mobile number portability, 2) the cable TV operator receiving the fourth mobile license.EVIDENCEData unit rate declined by 60% in 2018, significantly more than the 30% required by the Premier;Consumer complaints related to tariff rates have so