China Unicom (600050): 5G co-construction and sharing solution landing company relatively benefited
On the evening of September 9th, the company announced that the company and China Telecom will jointly build a shared signature agreement on 5G, and will jointly build a 5G access network nationwide.
The two sides will demarcate the area and construct it by district, and each will be responsible for building a 5G access network within the demarcated area. Who will construct, invest, maintain, and bear the network operating costs.
Brief comment 1. The pace of landing on 5G co-construction and sharing has exceeded expectations.
In August 2019, the company explicitly cited the 5G co-construction and sharing scheme at its interim results conference.
However, there are opinions 杭州桑拿网 in the market that the co-construction and sharing scheme involves a wide range and it is expected that implementation will still be difficult.
In our opinion, the plan itself is similar to the presentation of the performance conference, so the content is generally in line with expectations, but the pace of landing is accelerating and exceeds market expectations.
2. The joint construction and sharing scheme is relatively more favorable to China Unicom.
According to the “5G Network Co-construction and Sharing Framework Cooperation Agreement” signed by the company and China Telecom, the company will cooperate with China Telecom to build a 5G access network nationwide, with the core network being constructed separately.
The construction method of 5G access network is divided into zones: among them, 5G networks 淡水桑拿网 will be constructed in 15 cities (Beijing, Tianjin, Zhengzhou, Qingdao, Shijiazhuang, 5 cities in the north). The construction area ratio between Unicom operation company and China Telecom is 6:4; Shanghai, Chongqing, Guangzhou, Shenzhen, Hangzhou, Nanjing, Suzhou, Changsha, Wuhan, and southern Chengdu 10 cities. The ratio of China Unicom’s operating company to China Telecom’s construction area is 4: 6).
China Unicom’s operating company will independently build 9 cities in Guangdong Province, 5 cities in Zhejiang Province, and 8 provinces in the north (Hebei, Henan, Heilongjiang, Jilin, Liaoning, Inner Mongolia, Shandong, Shanxi); China TelecomIt will independently build 10 prefectures and cities in Guangdong Province, 5 prefectures and cities in Zhejiang Province, and 17 southern provinces outside the succession area.
We believe that 5G co-construction and sharing will reduce the size of both parties’ capital expenditures. However, since co-construction and sharing can bring about construction speedup, it is expected that the respective capital expenditures of the two sides will need to increase from 2019 to 2021, but it may decline rapidly in the future.
Overall, China Unicom is more favorable.
First, from the perspective of the region, the company’s construction area is relatively small, so the overall control of the future capital scale will help improve the company’s cash flow and reduce future depreciation.
Second, the two parties made it clear that they do not use settlement as a means of profit, so although the company’s network construction area is relatively small, there should not be too much pressure on settlement.
3. Co-construction and sharing can accelerate the pace of 5G network construction and is expected to inject new development momentum.
5G has the characteristics of “high speed, high reliability, large connection, and low latency”, which is expected to empower the industry and bring prosperity to the industrial Internet.
The company and China Telecom jointly build and share 5G. The two parties can leverage each other to complete the 5G network construction as soon as possible, which will help the company not be at least disadvantaged in the 5G competition.
Then merged the company to change and date many heavy strategic investors to accelerate the landing of 5G networks and application scenarios. The company is conducive to the development of the industrial Internet and the development of B-side business has become a new driving force for the company’s performance growth.
4. The effect of the company’s mixed reforms appeared, and its performance stabilized and rebounded.
As a pioneer in the reform of state-owned enterprises, since 2017, strategic investors such as Tencent, Baidu, JD.com, and Alibaba have cooperated intensively to actively promote the innovative operation of the telecommunications business, improve the corporate governance structure, and promote the establishment of a model of mixed reform of central enterprises.
At present, the effect of the company’s mixed reform has begun to appear. From 2018 to 2019, H1’s innovative business performed strongly, reducing costs and increasing efficiency, and leading the industry in profit growth.
During the mixed reform process, the company launched a period of equity incentives, clarified performance commitments, and provided a margin of safety.
5. The company is expected to benefit from the four major industry trends, and the performance has been upwardly flexible.
First, the mixed reform has been pushed forward in depth. Yunnan Unicom has achieved significant benefits in the mixed reform. The revenue increase in 2018 increased by 17%.
7%, profit reduced by 2.
500 million US dollars, “Yunnan model” is expected to promote replication in other provincial subsidiaries, and further release the mixed reform bonus.
Second, the company and China Telecom have reached a consensus on 5G co-construction and sharing. It has entered the substantive operation stage and is expected to reduce the company’s future capital expenditures and depreciation amortization. At the same time, it will accelerate the construction and application of 5G networks and promote cost reduction and efficiency.
Third, the company expects to build 410,000 new 4G base stations in 2019, more than 40,000 5G base stations, 4G capacity expansion and 5G commercial use, which is expected to drive the company’s B-side business to accelerate the development and the company is conducive to the development of industrial Internet.
Fourth, the unlimited package (up to speed limit) will be gradually phased out. It is expected that the company’s tariff reduction will be generally controllable in the future, and the company’s performance is expected to usher in improvement.
6. Profit forecast and grade: We estimate that the company’s net profit attributable to the parent from 2019 to 2020 will be 61 trillion, 85 trillion, and EPS will be 0 respectively.
20 yuan, 0.
27 yuan, corresponding PE is 32X, 23X, PB is 1.
27. Maintain the “overweight” rating.
Risk warning: increased competition, accelerated customer churn; speeding up and reducing fees, leading to a rapid decline in ARPU for users; 5G co-construction and sharing solutions fell short of expectations.