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2026-10-15 14:30:18 Citi published a report stating that revenue in China's telecom sector may remain under pressure in 3Q, with industry revenue for the first eight months of 2026 falling 2.2% YoY, mainly reflecting VAT-driven resets rather than a similar deterioration in underlying demand. The broker believes the slowdown has largely been priced in, with investor focus shifting to monetization of AI infrastructure and dividend support. Despite a decline in total capital expenditure, more than one-third of operators' 2026 investments are being redirected toward computing infrastructure. Citi estimated that the combined data center capacity of the three major operators could double from 8.7GW in 2024 to a forecast 17.5GW by 2028. H shares remain relatively attractive in valuation terms, with an average dividend yield of about 7%. The broker maintained Buy ratings on the H shares of the three major Chinese telecom operators, namely CHINA MOBILE (00941.HK), CHINA TELECOM (00728.HK), and CHINA UNICOM (00762.HK). Citi said that as the VAT impact has largely been reflected, investor attention should shift toward post-VAT trends, ARPU resilience and cost discipline. In terms of AI infrastructure, operators are reallocating more than one-third of their 2026 capital expenditure toward computing infrastructure. The broker expects the combined data center capacity of the three operators to double from 8.7GW in 2024 to a forecast 17.5GW by 2028, supporting long-term AI infrastructure growth and potential valuation re-rating. On valuation, H shares remain more attractive, with an average dividend yield of about 7% and relatively undemanding valuations. A shares offer lower dividend yield appeal, but the yield spread against Chinese government bonds remains broadly stable. For individual stocks, Citi lowered the TP for CHINA MOBILE (00941.HK) H shares from the previous HKD102 to HKD97, while the TP for CHINA MOBILE (600941.SH) A shares was cut from RMB120 to RMB118, reflecting the compression of effective service revenue caused by VAT policy adjustments and a more cautious view on AI-driven revenue contribution during the transition period. The TP for CHINA TELECOM (00728.HK) H shares and CHINA TELECOM (601728.SH) A shares were maintained at HKD5.7 and RMB7.7 respectively. The TP for CHINA UNICOM (00762.HK) H shares was lowered from the previous HKD8.3 to HKD7 to reflect the impact of suspending the interim dividend. (da/j)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |