Earnings boost for ‘big three’ telecoms operators as tower lease fees reduced
Nomura calculates savings for China Mobile, Unicom and China Telecom this year of 2.4 billion yuan, 1.9 billion yuan and 1.8 billion yuan, respectively.
China’s “big three” telecommunications network operators have wrapped up separate agreements for lower tower leasing fees, which analysts predict will boost their earnings this year.
China Mobile, China Unicom and China Telecom Corp disclosed the five-year lease deals for telecommunications towers and related assets from China Tower Corp, the infrastructure-sharing joint venture they formed two years ago, in separate filings on Friday with the Hong Kong Stock Exchange.
According to analysts, the impact on all three companies will be an increase in annual earnings before interest, tax, depreciation and amortisation – a measure of corporate operating performance – as lease costs are reduced, based on the pricing formula adopted by all the parties concerned.
The rates paid on each tower take into account the cost of the site and other factors, including depreciation and maintenance expenses, co-sharing discount and mark-up cost.
Nomura analyst Huang Leping has calculated the savings for China Mobile, Unicom and China Telecom this year of 2.4 billion yuan, 1.9 billion yuan and 1.8 billion yuan, respectively.
In terms of ebitda, Huang estimated China Mobile would record a 1 per cent year-on-year increase while both Unicom and China Telecom could see a 2 per cent gain.
The end result is an average site lease fee of roughly 26,000 yuan per tower
Chris Lane, a senior analyst at Bernstein, said in a report that China Tower agreed to “a slightly lower rate”, compared to what was being accrued by the three operators since November.
“China Telecom indicated the rate was reduced by about 10 per cent while Unicom said it was between 10 and 15 per cent,” Lane said.
“The end result is an average site lease fee of roughly 26,000 yuan per tower.”
China Tower was created by China Mobile, Unicom and China Telecom in July 2014 to handle all the construction, maintenance and operations of these service providers’ telecommunications network towers and auxiliary infrastructure across the country.
That massive asset infusion was expected to advance the venture’s goal of reducing duplication and redundant construction of telecommunications towers and related infrastructure across the country.
Lane said the impact of the recent lease agreements would likely be seen in the final valuation of China Tower, which is slated to pursue an initial public offering next year.
“The reduction in lease fees will negatively affect the profitability of China Tower,” he said.
Bernstein’s estimates predict this year’s profit for the venture to reach 3.9 billion yuan, down from the earlier forecast of 8.4 billion yuan.
“With reduced profitability will come a lower valuation. We expect the eventual [listing] to be either very late 2017 or early 2018,” Lane said.
Shares in China Mobile rose 1.43 per cent to end at HK$88.70 on Monday. Unicom shed 1.25 per cent to HK$7.88 while China Telecom advanced 2.57 per cent to HK$3.59.
