|作者：||Kevin CHEN,Clint SU|
|摘要：||Report title:China Telecom Sector - 5G license issuance: Kicking off 5G era in China
Analyst:Kevin CHEN,Clint SU
■ MIIT granted permits for operating 5G telecom services, marking the commencement of 5G era in China
■ 5G network deployment will accelerate from 2H19, while maintaining capex discipline at telcos
■ Investor took profit following 5G license announcement, which we view as BUY opportunities; prefer Telecom amid rising uncertainties
5G licenses issued: China enters 5G era
China’s MIIT today (June 6, 2019) granted 5G licenses to China Mobile (CM), China Unicom (CU), China Telecom (CT), and China Broadcast Network, thereby permitting the telcos to start providing 5G commercial services in China. This is in line with our/ market expectations of a mid-2019 license issuance. We view the 5G license grant a clear signal that China’s 5G progress remains on track, and expect Chinese telcos to begin 5G commercial services in select cities in a few months of time.
5G rollout to accelerate from 2H19, with capex disciplines
We believe Chinese telcos will achieve their 5G targets for 2019, installing a total of 70-100k base stations (BTS) this year. With only ~10k BTS deployed in 1Q19, we expect the 5G rollout in China will gather speed from 2H19. The recent US sanctions on Huawei (see our May 28 report) raised uncertainties, which could lead to a more conservative 5G outlook versus some of street’s optimistic scenarios. We expect a disciplined 5G capex cycle, with 360k 5G BTS installs in 2020. We view a moderate 5G capex ramp to be positive for the Chinese telcos, as it helps lower capex burden before telcos expanding their revenue streams from new business models.
Prefer Telecom amid uncertainties; BUY on shares pull-back
Share prices of many 5G-related stocks sank today after MIIT announced 5G license issuance. We believe this is due to investors “buy on rumor, sell on fact”. Most of the positives have been priced-in since news of 5G licenses came out on June 3 (link), boosting shares of China Tower (788 HK, +13%), Comba (2342 HK, +12%), and ZTE (763 HK, +12%) in the last 3 days (see Figure 1). We view the share pull-back as buying opportunities for Telecom names, whom we prefer given their: 1) defensive nature amid tech uncertainties, 2) lower capex burden from a more conservative 5G outlook. The next catalyst could be 5G commercial services launch (expected 3Q19).
Our call and stock picks
China Unicom (762 HK, BUY, TP: HK$12.00): Our top-pick in telecom space. A value stock with earnings recovery story, 3.5GHz 5G advantages & 4G market share gain, attractive valuation (2.2x 2019E EV/EBITDA).
China Telecom (728 HK, BUY, TP: HK$5.00): 3.5GHz 5G value chain lead network co-building potentials, 4G market share gain, extensive wireline subscriber base. Shares trade at 2.9x 2019E EV/EBITDA.
China Tower (788 HK, BUY, TP: HK$2.35): A key 5G beneficiary in China as 5G accelerates from 2020, improving tower sharing and business diversification. Shares corrected 16% since recent peak in April (8.2x 2019E EV/EBITDA).