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Edited Transcript of 0788.HK earnings conference call or presentation 7-Aug-19 6:30am GMT

Half Year 2019 China Tower Corp Ltd Earnings Presentation (Chinese, English)

HK Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of China Tower Corp Ltd earnings conference call or presentation Wednesday, August 7, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chunlei Gao

China Tower Corporation Limited - Chief Accountant

* Jilu Tong

China Tower Corporation Limited - Chairman

* Xiaomin Gu

China Tower Corporation Limited - GM & Executive Director

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Presentation

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Operator [1]

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Ladies and gentlemen, good afternoon. I would like to extend my warmest greeting to all of you for attending China Tower 2019 Interim Results Announcement.

At today's event, we have Mr. Tong Jilu, the Chairman of China Tower Corporation; Mr. Gu Xiaomin, our Executive Director and General Manager; Mr. Gao Chunlei, the Chief Accountant; and Mr. Liu Guofeng, Deputy General Manager.

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Jilu Tong, China Tower Corporation Limited - Chairman [2]

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Good afternoon, ladies and gentlemen. I'm Tong Jilu, the Chairman of China Tower. I would like to extend my warmest greetings to all of you who are attending China Tower 2019 Interim Results Announcement. Tomorrow marks the first anniversary of China Towers' listing. Since listing, the company's efficiently promoted production operations and maintained steady growth in overall performance. It has been widely recognized by investor, shareholders, customers and the community.

Here's the agenda of today's meeting. First, I will verbally introduce the overall performance in the first half of the 2019. Then Mr. Gu Xiaomin and Mr. Gao Chunlei will introduce the operational and financial performance, respectively. We will take the answer your question during Q&A session, which will happen at the end of the announcement.

Since 2019, we've been implementing the sharing in One Core and Two Wings strategy. We maintained stable operation development, improved the efficiency and quality of development. The vitality of the company has been constantly enhanced, laying a solid foundation for sustainable growth in the first half of the 2019.

First, overall performance remains stable. Business results improved steadily. Second, optimizing business structure, consolidated competitive advantage. Third, implementing One Core and Two Wings strategy, promoting resource sharing philosophy. Fourth, innovating institutional systems and mechanism, strengthening delicacy management.

We maintained a stable and healthy growth in the first half of 2019, recording an operating revenue of RMB 37,980 million, up by 7.5% year-on-year. Our operating efficiency enhanced steadily, with EBITDA reaching RMB 27,815 million. On a comparable basis, EBITDA increased by 5.3% over the same period last year. Net profit reached RMB 2,550 million, up by 110.6% year-on-year. Driven by effective cost control and stable growth with EBITDA, net cash generated from operating activities amounted to RMB 20,800 million. On a comparable basis, net cash generated from operating activities increased by 5.2% over the same period last year. Further implemented sharing strategy, average tenants per tower site increased to 1.58, showing further improvement in the level of colocation.

The earning per share is RMB 0.0145, after the raw consideration. Taking into account the profit, cash flow and capital needs for the future development, the Board of Directors decided that we wouldn't pay an interim dividend. We promoted resource sharing and win-win philosophy within the industry under the One Core and Two Wings strategy, building on the solid foundation of our tower communication service provider business. Through leveraging the scale of our resources, we continue to nurture our Two Wing business, leading to the continuous optimizing of our business structure.

Tower business revenue contribute 94.3% of total revenue, while revenue from nontower business contributed 5.7% of total revenue, representing an increase of 2.1 PP, demonstrating optimized revenue structure. As for 30th June, the total number of tower tenants increased to 3,082, of which 2,931 are TSP tower tenants, representing a year-on-year growth of 8.6%. The total number of TSSAI tower tenants amount to 151,000, up by 165% year-on-year. The key TSSAI tenants accounted for 4.9% of total tenants, increased by 2.8 PP.

The company enhanced the core competitive advantage of low cost, high-efficiency and excellent service to fully meet construction needs of the customers. As of the 30th June 2019, we managed a total of 1,954 thousand tower sites, holding a dominant market position, with our market share exists 97%. Besides, we reserved the tens of millions of social resources, which helped us meet the customers' construction need and effective control construction costs. The company has always been committed to creating a favorable external development environment by actively pursuing policy support. The strategy position of mobile communication infrastructure is increasingly prominent. With the acceleration of the 5G rollout, local governments has successively issued policy to support the company in coordinating 5G set planning. In the meantime, the company enhanced cross-industry cooperation with grid and railway companies, real estate enterprise, internet, logistic and transportation companies to constantly extend new business.

The company has always adhered to the internet-based management model, achieving intensive and delicacy management of excess resources, and the per capital management efficiency is higher than that of the international peers. Making the best use of our existing site resources, the company focus on customers' needs and further promotes colocation. Prioritized colocation of a new construction, better coordinating of tower and a site construction demand to award individual construction proactively promotes single-tenant sites to further enhance level of colocation. Average tenants per tower sites increased to 1.58 from 1.47. In the meantime, the company adopted innovative construction model, continue to optimize sharing of existing resources, while stepping up our efforts to acquire and utilize social resources and promoted the implementation of integrated wireless network coverage solutions and present more than 80% of the company's newly built microstation demand and is satisfied by social resources. And the new macro station is gradually being met with social resources, which effectively reduced construction costs.

With rigid demand on 4G further deployment and the increasing demand of 5G rollout, the company committed to meet the construction needs of TSPs and increased tenants. As of 30th June, the net increase of TSP tenants amount to 94,000. Accelerated reforms of various fuels, innovative institutional systems and mechanism, the vitality of the economy has been constantly enhanced, laying a solid foundation for sustainable growth.

Attaching equal importance to our TSSAI and energy operation businesses, we set up a Smart Tower Corporation Limited and Energy Tower Corporation Limited in June 2019 to implement sharing strategy and accelerate the deployment of our Two Wings business.

Improved incentive scheme. We implemented the restricted incentive scheme in general, a total of approximately 1.21 billion shares to our core management team and the key technical personnel for the first time. Continuously strengthened delicacy management and improved operating efficiency by improved organizational structure and management process, promoting standardization of financial management and improving the level of information management, the company will develop in a more healthy and a high-quality way.

Since 2019, the internal and external environment has undergone significant changes, which has provided the company with good development opportunities and put forward higher requirements for us. At present, the state have vigorously implemented the strategy of cyberpower and Digital China strategy. The 5G license have been issued, and the network construction have been fully launched, which will bring valuable opportunities for the company. At the same time, the application of information technology has accelerated in various fields of society, and the demand for energy services such as backup and power exchange in the society is strong. This has provided a broad business opportunity for the company to expand its Two Wings business. At the same time, the evolution of network technology has changed the form of network construction, and the site selection is more flexible and diverse, which puts higher requirements on the company's demand satisfaction and market-oriented service capabilities.

The Two Wings business is still in a development and calibration period, which puts forward higher requirements for the rapid formation of the company's diversified development pattern. In next step, the company will focus on its core strengths and implements on the One Core and Two Wings strategy in a dips manner to continuously improve its development capabilities and value-creation capabilities to achieve development with higher quality effectiveness and sustainability.

With regard to core business, we will continue to implement a sharing strategy and reinforce our leading position in a TSP market. With regard to Two Wings business, we will give full play to our advantages in resources and capabilities and achieve breakthrough in scale of Two Wings business. With regard to core competitiveness, we will strengthen our ability in resource integration and delicacy management. 2019 is the first year of 5G development and also the first year for the company to carry out its One Core Two Wings development strategy. The company will maintain steady growth in operating revenue, profit growth rate with out-paced revenue growth rate, strive to achieve new breakthroughs in the development scale and the comprehensive improvement of overall strengths and continue to create greater value for shareholders.

So next, our General Manager, Mr. Gu Xiaomin, will introduce our operational performance.

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Xiaomin Gu, China Tower Corporation Limited - GM & Executive Director [3]

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Thank you, Chairman Tong. I will introduce the company's business performance in the first half of 2019. The company's business revenue are listed in this table as well as the main business data, which I will specify next.

With the implementation of One Core Two Wings strategy, our multi-stream revenue structure has gradually formed. In the first half of the 2019, the operating revenue increased RMB 2.65 billion compared with the same period last year. Accounted for 65.9% of total operating revenue increase, revenue from tower business contributed most. In the meantime, the revenue from nontower business increased gradually to 34.1%, of which DAS accounted for 16.3%. TSSAI and other accounted for 17.8%, demonstrating optimizing revenue structure.

In the first half 2019, the group continued to implement the transformation of its construction model to satisfy the wireless network coverage need of TSPs. TSPs business developed steadily and recorded a revenue of RMB 1.25 billion, up by 6.2% year-on-year. Tower business maintained a steady growth. The tower business recorded revenue of RMB 35.18 billion, representing an increase of 5.1% year-on-year. As of 30th June, we achieved a net addition of [94,000] TSP tower tenants, bringing the total to 2,931 thousand TSP tower tenants. We saw boosted growth in our DAS business. Our DAS revenue for the first half of the 2019 amount to RMB 1.25 billion, representing an increase of 52.2% year-on-year. By the end of June 2019, we had covered buildings with accumulated area of approximately 1,910 million square meters, with an additional coverage of 2 -- 450 million square meters. We had also covered high-speed railways and subways with cumulative length of approximately 18,218 kilometers and 3,110 kilometers, respectively, representing an increase of 572 kilometers and 223 kilometers, respectively.

Following the issue of 5G commercial licenses, construction of 5G network has been fully launched. The company fully undertakes the 5G construction needs and helps TSPs carry out 5G network construction in many cities across the country. Firstly, strengthening 5G coordination and planning, proactively coordinated with government department for policy support. Many provinces designated the company as key coordinating for 5G site planning. Secondly, accelerate acquiring of 5G resources, continue to deepen cooperation with key areas such as power grids, manageable transportation units and railway companies and actively reserve social poll resources and tunnel resources to prepare for satisfying the 5G construction demand of TSPs. Thirdly, enhanced 5G technical innovation, promote DAS colocation for 5G to reduce the construction cost of the industry. Provide innovative energy solution to solve the power supply problem in 5G.

In view of the booming demand of informatization, we leverage our advantages in cyber resources, continue to pursue our sharing strategy, extend service scope from site device to higher value-added information integration service. In the first half of the 2019, we set up Smart Tower Corporation Limited and launched the 3 brand of the business: smart sharing, smart connection and smart control, a focus on developing key sectors and key customers and made progress in launching pilot products in ecological and environmental conservation.

Emergency response satellite position in China to drive high-quality growth in the TSSAI business. In the first half of the 2019, the TSSAI business generated revenue of RMB 843 million, up by 125% year-on-year. As of 30th June, tenants of TSSAI business amounted to 151,000, increased by 165% year-on-year.

In view of the demand across society for Reliable Energy Services and reading our experience in ensuring base station power supply in the battery power backup. Large scale battery procurement advantage, professional maintenance capability and a visible, manageable and controllable intelligent moderators -- monitoring system, we expanded our sharing philosophy to entering related services and proactively explore and formulated plans to scale up our energy business for a society-wide operation.

We set up Energy Tower Corporation Limited on June. We deployed the social operation of energy business and conduct some useful explorations. We provided power supply solution to financial branches, medical institutions, schools and the commerce pilot project in 50 cities to provide power battery exchange service to low-speed electric vehicle users, gaining valuable experience in forming a sound business model and product portfolio for the business.

Looking into the second half of 2019, we will -- to accelerate our progress toward high-quality development we will continue to pursue our sharing strategy, satisfy the construction demand for in-depth 4G network coverage and the scaling of 5G infrastructure, improve level of colocation and maintain steady growth in the TSP business. We will give full play to the setting up of subsidiaries operating Two Wings business. Leveraging up our professional operation procedures, we will focus on key business and the sectors, driving the rapid scaling of the TSSAI and Energy Operation business. We strongly believe in innovation-driven development to enhance efficiency operation and the delicacy management and achieve high-quality development. The company will, as always, give a full play to the advantages of site resources, strengthening resource coordination capabilities, deepen sharing strategy, continuously create value for customers, shareholders and achieve the growth in value-oriented corporate development goals.

Thank you. So now our Chief Accountant, Mr. Gao Chunlei will introduce our financial performance.

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Chunlei Gao, China Tower Corporation Limited - Chief Accountant [4]

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Okay. Thank you, Mr. Gu. I will introduce our financial performance in the first half of 2019. The key financial indicators are listed in this table. As Chairman Tong mentioned, in the first half of 2019, the overall performance of the company was in line with expectation, and its financial performance was good. To sum up, the company's core financial performance is reflected in the company's continued improvement in profitability.

Steadily increase in cash flow and a stable capital structure, we have laid solid foundation for the company's sustainable and healthy development. In the first half of the year, the company managed and controlled cost reasonably. Excluding the impact of leasing standards and operating cost increased by 7.5% over the same period of the previous year, among them, depreciation and amortization. With the continuous advancement of the comprehensive solution for wireless network coverage, the overall sharing of existing resources and the social resources, the construction costs were effectively controlled. The depreciation and amortization in the first half of the year was RMB 22.19 billion. On comparable basis, it increased by 4.6% year-on-year.

Site operating lease charges. Through low-cost access to social resources, we continued to deepen the level of colocation and effectively controlled the increase in renewal of rents. The rental fee for the first half of the year was RMB 580 million, representing an increase of 3.5% year-on-year on comparable basis.

Repairs and maintenance. Thanks to the internet-based intelligent monitoring system and intensive and efficient maintenance operation mode, the maintenance, quality and the efficiency continued to improve. The maintenance and repair costs in the first half of the year were RMB 3.10 billion, an increase of 3.5% year-on-year.

Employee benefits and expenses. In the first half of the year, labor cost totaled RMB 3.06 billion, an increase of RMB 580 million over the same period of the previous year, mainly because implementation of the One Core Two Wings strategy. And the company has recreated the professional and technical talents required for business development since the second half of the last year and implemented the share incentive scheme with the core management team and the key technical personnel.

Other operating expenses. Other operating expenses for the first half of the year were RMB 3.43 billion, an increase of RMB 490 million year-on-year, mainly due to the increase of RMB 160 million cost of TSSAI business and a provision of bad debt of RMB 215 million in accordance with the principal of prudence. In the second half of 2019, we will continue to strengthen delicacy management and efficient operations, effectively control costs and promote profitability.

Benefiting from steadily growth in operating income and reasonable control of costs, the company operating profit and EBITDA achieved steady growth. In the first half of the 2019, the company achieved operating profit of RMB 5.63 billion, increased by 7.7% on comparable basis. In the first half of 2019, the company's EBITDA achieved RMB 27.82 billion. On a comparable basis, EBITDA increased by 5.3% year-on-year, and the EBITDA margin was 58%, which continued to maintain at a high level.

Profitability has increased rapidly. In the first half of 2019, the company achieved a net profit of RMB 2.55 billion, an increase of 110.6% year-on-year. The net profit margin was 6.7%, an increase of 3.3 percentage point year-on-year.

Benefiting from the steady growth of operating revenue, effective control of investment and cost, the company's cash flow level continued to increase. In the first half of 2019, the company's operating cash flow reached RMB 20.8 billion, a year-on-year 5.2% increase. Capital revenue expenditure was RMB 8.91 billion. And the free cash flow was RMB 11.89 billion, which was steady and increase on a comparable basis.

The EBITDA maintenance capital expenditure indicators was yet to improve, reaching RMB 26.23 billion, a year-on-year 4% increase on comparable basis. In the second half of the 2019, we will continue to adhere to the sharing-centered business model, make full use of social resources and control capital expenditures reasonably and effectively.

The company's overall capital structure remains stable and effectively supports the sustainable and healthy development of the company. As of the first half of the 2019, the company's asset/liability ratio was 46.1%, down 1.0 PP from the beginning of the year. The gearing ratio fell from the 39.9% at the beginning of the 2019 to 39.4%. Leverage level was further reduced, and the financial cost was effectively controlled, which was beneficial to the company profitability and shareholder return.

From the financial performance in the first half of the 2019, the company's value-creation capability continued to improve, with the steady improvement of the sharing level of towers and DAS business and the largest scale development of TSSAI and Energy Operation business. We believe that the company's profitability and cash flow will be further enhanced to create great value for shareholders.

Thank you, all.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]