CICC has released a research report noting that China Telecom's (00728) first-half revenue aligned with its expectations, while net profit exceeded forecasts. The firm has maintained its 2026 and 2027 earnings projections and reiterated an "Outperform" rating for the industry, setting an H-share target price of HK$6.30.
The report highlights that while penetration rates for connectivity-based services have reached elevated levels, the company saw modest subscriber growth but faced pressure on average revenue per user. Additionally, adjustments to value-added tax categories have weighed on its core telecommunications operations.
Management has indicated a renewed focus on preserving the value of its existing customer base, aiming to achieve higher-value growth with minimal incremental investment. Meanwhile, intelligent business segments are expanding rapidly, with AIDC infrastructure under accelerated construction and already beginning to contribute meaningfully to revenue growth.
CICC believes China Telecom possesses strong capabilities for rapid AIDC deployment, with improving resource reserves and bidding expertise, positioning it well to continuously secure key clients. The firm also views the company's capital expenditure structure as well-aligned with its business growth trajectory.
In the first half, capital expenditure totaled RMB 32.4 billion, a 5.3% year-on-year decline. Operating cash flow and free cash flow delivered robust results, driven by improved working capital movements and reduced capital spending.
The company has provided a solid outlook, with management announcing an increase in the interim dividend payout ratio to 75%, underscoring its commitment to shareholder returns, and maintaining this level for the 2026 interim dividend. CICC calculates that if the full-year payout ratio reaches 75% in 2026 and net profit declines 13% year-on-year, the current dividend yields for China Telecom's H-shares and A-shares would be 5.8% and 3.6%, respectively, presenting an attractive proposition for investors.