Weak Revenue but Strong Profit and Dividend Growth; Maintain Buy

Overview

China Tower's 1H26 results showed a clear divergence between revenue and profit: overall revenue declined 1.9% year over year, mainly due to shrinking demand from the three telecom operator customers, with the traditional tower business continuing to decline; meanwhile, depreciation and amortization savings from fully depreciated tower assets drove profit growth of 30.1% year over year. Emerging businesses such as indoor DAS, smart connection, and energy maintained relatively rapid growth, partially easing pressure on the traditional business. The company also announced an interim dividend of CNY 0.1912 per share, up 44.3% year over year.

Core views

Nomura believes that traditional tower demand remains weak and revenue recovery will still take time, but growth in emerging businesses, cost savings, and stable or improving dividend capacity provide key support. Management expects the core tower business to improve in 2H26, revenue to achieve single-digit growth in 2026, and the declining trend in the telecom operator business to stabilize by the end of 2027. Based on profit and dividend growth as well as low valuation, the report maintains a Buy rating.

Analysis framework

The report combines 1H26 and inferred 2Q26 year-over-year performance to break down revenue, margins, capital expenditure, dividends, and each business segment; on valuation, it uses discounted cash flow to determine the target price and cross-checks with FY26F EV/EBITDA and P/E.

Methodology notes

• Absolute valuationDiscounted cash flow method

  Evaluates the company's intrinsic value based on the discounted value of future free cash flows.

  The main text maintains the DCF-based target price at HKD 12.50. The appendix valuation disclosure separately shows HKD 1.25 and a 2025F basis, which are inconsistent with the current main text and rating table; interpretation should primarily rely on the current main text and target price table.

• Relative valuationEV/EBITDA and P/E cross-check

  Uses enterprise value multiples and earnings multiples to assess the target price and current valuation level.

  The HKD 12.50 target price corresponds to 2.8x FY26F EV/EBITDA and 8.9x FY26F P/E; the current share price corresponds to 2.2x FY26F EV/EBITDA and 6.9x FY26F P/E.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Tower (0788.HK)

  Hong Kong-listed company directly covered by the report

  Strengths

  Relatively fast profit growth, profit release from depreciation and amortization savings, continued growth in emerging businesses, significant year-over-year dividend increase, and low current valuation.

  Weaknesses

  The traditional tower business continues to contract, overall revenue and 2Q26 revenue declined, and demand from telecom operator customers is insufficient.

  Comparison

  The target price corresponds to 2.8x FY26F EV/EBITDA and 8.9x FY26F P/E, higher than the current 2.2x and 6.9x, but still based on expectations of a gradual revenue stabilization.

  Risks

  5G construction or capital expenditure may fall short of expectations, tenant and sharing ratio growth may be weaker than expected, pricing may decline faster than expected, or pricing agreements may change.

Key data

• 1H26 revenue growth-1.9% YoYOverall revenue was affected by weaker demand from the traditional tower segment and telecom operators.
• 1H26 profit growth+30.1% YoYMainly driven by depreciation and amortization savings from fully depreciated tower assets.
• 1H26 EBITDA margin62.1%Down 6.8 percentage points year over year.
• 1H26 net margin15.4%Up 3.8 percentage points year over year.
• 2Q26 operating performanceRevenue -5.2%, profit +28.2%Revenue decline was mainly due to weak demand from telecom operators.
• 1H26 capital expenditureCNY 11.65bnDown 6.0% year over year; the report believes new tower deployment has slowed.
• 1H26 DPSCNY 0.1912Up 44.3% year over year.
• 1H26 tower business revenue growth-6.7% YoYDown 11.7% year over year in 2Q26, further highlighting pressure on the core business.
• 1H26 emerging business revenue growthIndoor DAS +9.2%, smart connection +12.8%, energy +17.3%The corresponding 2Q26 growth rates were 10.7%, 11.4%, and 20.7%, respectively.
• Rating and target priceBuy; HKD 12.50Implies potential upside of approximately 28.2% versus the HKD 9.75 closing price.

Impact & implications

Strong profit growth and a substantial increase in the interim dividend are expected to strengthen the stock's defensive qualities and income appeal, while the low FY26F valuation also provides some margin of safety. However, further near-term share price re-rating will still depend on whether traditional tower revenue stabilizes in 2H26 as scheduled, and whether emerging businesses can continue to offset the impact of declining demand from telecom operators.

Risks

• Delays in 5G deployment or lower-than-expected 5G capital expenditure.
• Growth in tenant numbers and sharing ratios below expectations.
• Price declines faster than expected or adverse changes in pricing agreements.
• Persistently weak demand from the three telecom operators, causing recovery in the traditional tower business to occur later than expected.
• Emerging business growth is insufficient to offset the decline in core tower business revenue.

What to watch

• Whether the core tower business can achieve the recovery expected by management in 2H26.
• Whether tower-related revenue can achieve single-digit growth in 2026.
• Whether the declining trend in the telecom operator business can stabilize by the end of 2027.
• The extent of improvement in operating cash flow in 2H26.
• Whether indoor DAS, smart connection, and energy businesses can continue to maintain double-digit growth.
• Whether the dividend payout ratio can be maintained at no lower than the previous year's level.