China Tower Corporation Limited (788) Earnings Call Transcript

Present at today's event, we have the following management team: Mr. Zhang Zhiyong, Executive Director and Chairman of the company; Mr. Chen Li, Executive Director and General Manager of the company; Mr. Yin Wenkai, Executive Director; and our Chief Accountant, Mr. Hu Shaofeng. Today's event will be divided into two parts. Firstly, the management team will give you a presentation on the overall operating performance of the company, and we are going to have the Q&A session. Now first of all, I'm going to give the floor to our Chairman, Mr. Zhang Zhiyong, to tell you the overall performance of the company in the first half of the year of 2026. Thank you.

Ladies and gentlemen, good afternoon. Welcome to China Tower's 2026 Interim Results Announcement. Here, I'd like to express our gratitude to you for your long-term support and interest in China Tower. Today's presentation will be divided into three parts. First, I will report on the company's overall performance for the first half of 2026. Mr. Chen Li and Mr. Hu Shaofeng will then walk you through the business performance and financial performance, respectively. Lastly, we will take your questions during the Q&A session. The PPT has already been uploaded to the official website of the company at noon. For the first half of the year, the highlights of the company's performance are mainly reflected in the following four aspects. First, net profit increased by 30.1% year-on-year. Second, revenue contribution from the Two Wings business increased to 16.3%. Third, we've made remarkable progress in the commercialization of technological achievements. Fourth, interim dividend increased by 44.3% year-on-year due to our very proactive dividend policy. You can have a clearer idea of all these indicators on this slide. In terms of key indicators, the company recorded operating revenue of RMB 48.69 billion in the first half, down by 1.8% year-on-year. Net profit was RMB 7.49 billion, up 30% year-on-year. Operating cash flow amounted to RMB 7.14 billion. As at the end of June 2026, number of sites was 2.172 million, up by 2.5% year-on-year. Number of tenants reached 3.871 million, up by 0.7% year-on-year. The tower tenancy ratio stood at 1.78 tenants per site. In the first half, the company actively seized the development opportunities brought by the strategies of Cyberpower, Digital China and Dual Carbon. Revenue from the TSP business reached RMB 40.36 billion, accounting for 82.9% of total revenue, as you can see from this pie chart and the bar chart. Revenue from the Two Wings business was RMB 7.92 billion, up by 14.2% year-on-year, with its share of total revenue further increasing to 16.3%. The One Core and Two Wings strategy continued to deepen. For the TSP business, the company further implemented a national dual gigabit network joint entry campaign. In the first half of the year, revenue from the TSP business amounted to RMB 40.36 billion, down by 5% year-on-year, specifically driven by customers' network deployment, optimization adjustments, simplified base station upgrades and the continued developments of the 4G single network for China Telecom and China Unicom. Revenue from our Tower business amounted to RMB 35.26 billion. So there is a decrease of 6.7% in our Tower business. Revenue from our DAS business amounted to RMB 5.09 billion, up by 9.2% year-on-year. So if we add these 2 together, we have a 5% decrease in terms of TSP business year-on-year. We're going to talk about this later. And I'd say the impact is just temporary. Regarding the Smart Tower business, the company continued to cultivate key industries and key scenarios, supporting national strategies and major projects while steadily building growth momentum. First, digital governance was strengthened. Second, the company continued to build innovative business models with strengthened product R&D, accelerated the development of low-altitude economy business and foster new growth drivers. Third, overall capabilities were enhanced. The company strengthened the resource sharing capabilities of its nationwide distributed platform and developed large models across seven industry segments. And we try to empower the digital governance of our customers. Fourth, we consolidated the foundation for development. The company enhanced product iteration development, strengthened the development of localized technical support teams and built a full chain network and information security system. In the first half, the Smart Tower business recorded revenue of RMB 5.33 billion, up 12.8% year-on-year. As for the energy business, the company focused on its core businesses such as battery exchange and power backup and enhanced its market competitiveness by leveraging its key strengths in products, services and platforms. First, the company accelerated product iteration and enhanced the performance of battery exchange and charging products, optimized the standardized power backup product metrics and promoted the application of integrated solutions. Second, the company strengthened refined operations. It optimized the battery scheduling and recovery of degraded batteries, continued to enrich service options and improve user experience. Third, the company promoted platform upgrades. It optimized the online marketing and asset management modules for battery exchange and charging, strengthened support capabilities, such as independent customer acquisition and intelligent scheduling and iterated and upgraded the energy butler platform to support the expansion of various integrated energy application scenarios in hospitals, campuses and others. Fourth, the company enhanced its service capabilities. It upgraded its intelligent customer service, enhanced the customer service perception mass market, and continuously improve customer satisfaction. In the first half, the energy business generated revenue of RMB 2.59 billion, up 17.3% year-on-year. In the first half of the year, the company continued to deepen reform to improve quality and efficiency, fully unleashed its organic growth potential and consolidated the foundation for high-quality development. First, we focus on optimizing the business layout. The company leveraged its resources strength in location plus computing plus power plus security to actively explore emerging businesses such as low-altitude economy and edge computing. It improved the One Core and Two Wings entire product life cycle management system, strengthened the deep integration of technological innovation and business operations, enhanced product iteration development and supply capabilities and increased the supply of high-quality products. Second, it strengthened frontline regional development. The resource support -- the company continuing to improve tiered management and resource support empower regional operations. Third, it improved operational management efficiency. The company promoted the implementation of the One Core and Two Wings business system for large-scale construction and maintenance and realized intensive operation management, expanded One Code for All Applications, promoted intelligent operations and maintenance to achieve lean asset management. It also focused on key scenarios such as construction, maintenance and billing and revenue generation and strengthened the comprehensive coverage of AI+ to accelerate the digital intelligent transformation of production operations. In the first half of the year, the company centered its efforts on the One Core and Two Wings business areas, concentrating achieving breakthroughs in technologies, accelerating the commercialization of research outcomes, and empowering the development of new quality productive forces, thereby delivering significant results in technological innovation. First, we achieved breakthroughs in core technologies with a focus on next-generation mobile communication, AI and low-altitude economy. The number of granted patents increased by 132% year-on-year. Two new international standards were approved for project initiations. One of the projects won the second prize of the State Science and Technology Progress Award. Altogether, 133 awards were given out, and we got one of them. Second, we accelerated the commercialization of our research outcomes and achieved the large-scale application of innovative products such as the new 5G leaky Coaxial cables, the Tower monitoring platform, and mid-high Point Video AI Algorithm and integrated energy service platforms. The Monitoring Spatial governance Data Set was selected as an outstanding achievement in the high-quality data sets for industrial applications from SOEs, while the Digital Intelligence and IoT Comprehensive Governance Scenario was selected as a strategic high-value AI application scenario for SOEs. Third, we accelerated the upgrading of the innovation system. The company continued to advance the high-quality development of the 6 scientific technological innovation centers and actively participated in the development of Key Labs, Innovation Consortium and Consortium for the industrialization of technological achievements. The company has always attached great importance to shareholders' returns maintained an active dividend policy and remained committed to sharing the benefits of its business development with all shareholders. So the Board of Directors has decided to distribute an interim dividend of RMB 0.19122 per share before tax, representing a year-on-year increase of 44.3%. The cash flow was temporarily under pressure in the first half of the year. With our continuous effort, the situation is going to improve in the second half of the year. And that is why we are able to achieve a 44% increase in our dividend payout. In the future, the company will actively enhance corporate value and continue to deliver greater returns to all shareholders. The company placed great emphasis on sustainable development and actively fulfill ESG responsibilities. Firstly, we implemented green development. We coordinated advanced the co-building and co-sharing of digital infrastructure and expanded the application of clean energy such as PV at base stations. We also deepened the application of digital intelligence technologies. Second, we strengthened our sense of responsibility. We improved network coverage in rural remote areas. And we provided emergency communication support for disaster prevention, response and relief. And safeguarding smooth rescue operation on-site command and communication security. Third, we improved our corporate governance. We strictly complied with listing regulations and consistently maintain a high standard of corporate governance. We are committed to advancing the development of legal and operational compliance management systems and enhanced early risk warning and prevention capabilities. We also continue to improve the quality of our information disclosure, strengthen communication engagement with the capital markets and improve the transparency of the listed company. Going forward, the company will remain committed to its One Core and Two Wings positioning focused on enhancing its core capabilities, raising our core competitiveness continue to deepen resource sharing, improve operational efficiency and create greater value for shareholders, customers and societies because China Tower is based on sharing. So that's where we're going to work on in the future. On the TSP business front, the expansion of 5G and 5G coverage in both breadth and depth continued. We will fully capitalize on the development opportunities brought by national policies, including the upgrade the signal strength, expanding broadband coverage to border areas, forest and grasslands and upgrading saving action plan for 5G applications and high-quality urban development. The super position of national policies such as the construction of Six Networks brings broad opportunities for the company. The company will seize these opportunities to fully meet customer demands and help consolidate and enhance the competitive advantage and leading position of the telecom industry. As for the Two Wings business, we will actively support digital intelligence governance and the transformation to green low-carbon development. We will continue to strengthen product innovation and optimize our business layout to drive the sustained and rapid development of the Two Wings business. And that wraps up my part. Next, Mr. Chen Li, our General Manager, will present the details of the company's business performance. Thank you.

Thank you, Chairman. I will now present the company's operational performance for the first half of the year. This table outlines the revenue of our businesses and the relevant changes as well as the key operating data, which I will elaborate on. Regarding the Tower business, first, we provided embedded services that fully integrate with TSP's network planning, focusing on key scenarios such as capacity expansion and hotspot coverage enhancement in urban areas as well as broad rural coverage to support extensive and deep 5G network coverage. Second, we proactively conducted coverage analysis, enhanced network optimization capabilities focused on solving customers' urgent and pressing concerns, leveraged our strength in resource coordination, tackled difficult site selection issues and strive to improve construction delivery efficiency. Third, we improved support for the needs of key industries by fully implementing an integrated resources plus demand coordination approach and actively capturing the network coverage demand from key industries such as culture and tourism, education and transportation. In the first half of the year, the company constructed 187,000 5G base stations during the period, bringing the cumulative total to 3.31 million base stations with over 95% of 5G stations being built through the sharing existing sites. At the end of June, the number of TSP tenants stood at 3.565 million and the TSP tower tenancy ratio was 1.69. As for the DAS business, First, we strengthened coordination with major project construction, accelerated demand acquisition, leveraged our advantages of coordinated site entry, promoted the implementation of mandatory regulations for telecom infrastructure acceptance and enhanced market service support. Second, we stepped up innovation in DAS technologies, products and solutions, strengthened the implementation of new products and solutions such as active and passive DAS integration and shared model repeaters to unlock additional growth opportunities in DAS market. Third, we focus on launches special campaigns targeting coverage elevators and underground parking garages as well as 5G upgrades for high-speed railways. We utilize shared low-power repeaters to reduce investment in signal resources and transmission infrastructure. While continuously improving the level of professional services. In the first half of the year, revenue from the DAS business reached RMB 5.09 billion, representing a year-on-year increase of 9.2%. A total of 1.02 billion square meters of building floor areas was added, bringing the total coverage to 16.17 billion square meters. We also added 2,450 kilometers of coverage in subways and railway tunnels with total coverage reaching 36,111 kilometers. The scale of the DAS business continued to expand. Regarding the Smart Tower business, the company focuses on special digital intelligence governance and continues to deepen its presence in key industries and scenarios. More than 260,000 digital towers are widely serving over 10 industries, including land resources, emergency response water conservancy and environmental protection with market share steadily increasing in key areas such as on Straw burning provision, Farmland protection, Disaster alert. In the first half of the year, Smart Tower business maintained its growth momentum. Revenue from the monitoring business reached RMB 3.2 billion, representing a year-on-year increase of 13.5% (sic) [ 13.4% ] and accounting for 60% of the Smart Tower business revenue. Revenue from the sharing business reached RMB 2.13 billion, representing a year-on-year increase of 12.1% (sic) [ 12.0% ]. In the first half of the year, the company will leverage its advantages in mid- and high point site resources and continue to strengthen the operating capabilities of the Smart Tower business. In terms of the platform capabilities, we strengthened nationwide platform sharing, established a tiered platform architecture system and developed flexible support capabilities for multiple scenarios and differentiated needs. Enabling rapid and precise adaptation to customers' needs. In terms of algorithm capability, we leverage the data advantages of our sample library of more than 1.1 billion mid-to high point samples to improve the efficiency of algorithm R&D iteration, thereby continuously consolidate our competitive edge in this area. In terms of product capabilities, we continue to deepen our capabilities in industry application and proactively explore new business products. In terms of service capabilities, we implemented a major infrastructure framework to enhance delivery capabilities. In terms of innovation capabilities, we deepened the commercialization of large models and intelligent agents and fully unleashed innovation momentum by leveraging the nation innovation platform for industry-education integration post doctoral workshops. As for the development of the battery exchange business, first, the company continued to strengthen user operations and enhance the user experience through measures such as expanding the VIP user base, enriching user rights and benefits, resulting in a further expansion of the customer base for its battery exchange and charging business. As of 30th June 2026, the company had 1.493 million battery exchange users, further consolidating its market leadership. Second, the company accelerated network construction and continuously optimized the layout of the battery exchange and charging network and battery algorithms, effectively improving user convenience and expanding the user base. As of 30th June 2026, the company had launched battery exchange and charging services in more than 340 cities. Revenue from the battery exchange business reached RMB 1.6 billion in the first half of the year, up 20.6% year-on-year, maintaining sound growth momentum. As for the power backup business, the company continued to strengthen product promotion by launching multiple high-performance power supply security products for key scenarios. It developed multiple PV and energy consumption management products to meet customers' needs for power supply security, carbon reduction and energy conservation. The company continued to enhance service support by strengthening the development of the companion service system for corporate customers and continuously improving capabilities in demand response, project delivery and maintenance support. The company also continued to advance platform upgrades by iterating and upgrading application modules for various scenarios to address customers' diverse needs, enhancing digital operational capabilities and promoting visualization and refine control throughout the entire process. In the first half of the year, revenue from the power backup business reached RMB 1 billion, up 12.4% year-on-year, continuing its robust growth momentum. Next, Mr. Hu Shaofeng will present the financial performance for the first half of the year. Thank you.

Thank you, Mr. Li. This table shows our key financial indicator for the first half of 2026. In the first half of the year, the company maintained stable overall performance, effectively managed cost and expenses, further improved profitability and sustained a sound capital structure. In the first half of the year, operating expenses totaled RMB 37.58 billion, down 8.3% year-on-year. The operating expense accounted for 77.2% of operating revenue, down 5.4% year-on-year. In terms of depreciation and amortization, it amounted to RMB 19.14 billion in the first half of the year, down 25.2% year-on-year or RMB 6.46 billion. This was primarily due to the expiration of the depreciation period for the acquired tower assets and adjustment to the depreciation period for DAS assets. In terms of repairs and maintenance expenses, it totaled RMB 3.79 billion, up 19% year-on-year or RMB 600 million. This was mainly due to the company's continued strengthening of special rectifications for identifying and addressing potential asset risks. Employee benefits and expenses totaled RMB 4.84 billion in the first half of the year, up 1.6% year-on-year or RMB 80 million. This was due to the company's efforts to advance R&D innovation and regional management reform. Sites operation and support expenses totaled RMB 2.89 billion in the first half of the year, representing a year-on-year increase of 14% or RMB 350 million. This was mainly due to the company's accelerated development of site operations and digital capabilities and others. Other operating expenses totaled RMB 6.92 billion, up 41.6% year-on-year or RMB 2.03 billion. This is mainly due to various increase in our marketing expenses and costs related to integrating services increased by RMB 810 million and the provision for bad debt increased by RMB 514 million year-on-year. In the first half of the year, the company recorded operating profit of RMB 11.111 billion. Net profit attributable to owners of the company was RMB 7.49 billion, up 30.1% year-on-year. EBITDA for the first half of the year was RMB 30.25 billion, down 11.6% year-on-year, mainly due to lease terminations resulting from the network optimization adjustment by TSP customers, the impact of utra lean site upgrades and the increase in maintenance expense related to the service life expansion -- extension of Tower assets. The company made effective investments in line with its business development and building needs. Capital expenditure for the first half year was RMB 11.65 billion, down 6% year-on-year or RMB 740 million. CapEx for new site construction and augmentation totaled RMB 6.49 billion, down 1.7% year-on-year. CapEx on site replacement improvement amounted to RMB 2.09 billion (sic) [ RMB 2.07 billion ], down 12.2% year-on-year. CapEx on IT support and purchase of comprehensive product facilities amounted to RMB 450 million, down RMB 490 million. CapEx for the Two Wings business totaled RMB 2.62 billion, up 6% year-on-year. Cash flow was temporarily under pressure for the first half of the year. Operating cash flow was RMB 7.14 billion, down RMB 21.54 billion year-on-year. This was mainly attributable to longer customer payment cycles and increase in collections settled by bills. Free cash flow for the first half of the year was negative RMB 4.52 billion. As of the 30th of June 2026, the company's Total assets stood at RMB 351.24 billion. Total liabilities amounted to RMB 145.53 billion, which RMB 94.74 billion was net debt. The company's liability-to-asset ratio was 41.4%. The company will continue to deepen its One Core and Two Wings strategy, building its professional, intensive, dedicate, efficient, and digitalized operating system. It will also strengthen effective investment, enhance its lean management capabilities and drive continuous improvements in operational efficiency and effectiveness to drive the sustainable and healthy growth of the company and create greater value for shareholders. Thank you. [Statements in English on this transcript were Spoken by an interpreter present on the live call.]