UBS released a research report stating it has reduced the target price for CHINA TOWER (00788) by 14%, from HK$11.6 to HK$10, while maintaining a "Neutral" rating. The bank lowered its net profit and earnings per share estimates for the company for 2026-2028 by 10-14%, primarily due to a decline in tower revenue caused by telecom operators optimizing their mobile networks.

Based on the bank's new earnings forecasts and a 77% dividend payout ratio, CHINA TOWER's current expected dividend yield for 2026 is 6%, which should provide support for its valuation. In the second quarter of 2026, CHINA TOWER reported revenue of RMB 23.55 billion, a year-on-year decrease of 5.2%, and EBITDA of RMB 14.89 billion, down 12.1% year-on-year due to declining tower revenue, falling 9%-16% below market expectations. Net profit reached RMB 3.5 billion, an increase of 28.2% year-on-year, exceeding market expectations by 15%, primarily benefiting from depreciation savings as tower asset depreciation concluded starting in October 2025.

In the second quarter, revenue from the tower, DAS, TSSAI, and energy businesses grew by 11.7%, 10.7%, 11.4%, and 20.7% year-on-year, respectively. Tower revenue continues to face pressure as operators persistently optimize their traditional 4G networks. The co-construction and sharing strategy of China Unicom and China Telecom further reduces the demand for base stations. Additionally, new-generation base stations require less supporting infrastructure, leading to lower rental income per site. Management believes these headwinds are primarily transitional rather than structural and expects the negative impact on tower revenue to ease and be largely absorbed by 2027, after which the company will return to a more stable growth trajectory driven by the ongoing rollout of 5G.