CHINA TELECOM (00728) reported moderate growth in revenue and profit for the first three quarters of 2025, though Q3 earnings growth showed a slight deceleration. The company's Tianyi Cloud business is undergoing a transition between traditional and new growth drivers, with general cloud computing revenue growth slowing while AI-driven computing revenue surged 62.3% year-on-year in the first nine months. Looking ahead, government policies promoting technological innovation may encourage enterprise clients to adopt AI-related cloud services, presenting opportunities for Tianyi Cloud. Cinda Securities maintains a "Buy" rating.
Key highlights from the report: 1. **Q3 2025 Earnings Growth Moderates** - Group revenue rose 0.6% YoY in the first three quarters, with service revenue up 0.9%. EBITDA increased 4.2%, while net profit attributable to shareholders grew 5.0%. - In Q3 alone, group revenue dipped 0.9% YoY, though service revenue edged up 0.5%. EBITDA and net profit rose 2.4% and 3.6%, respectively, reflecting macroeconomic headwinds.
2. **Tianyi Cloud in Transition Phase** - Tianyi Cloud revenue reached RMB 57.3 billion in H1 2025, up 3.8% YoY, marking slower growth. Management attributed this to a broader industry shift from general-purpose computing to AI-driven demand. - Smart computing revenue (including AI and intelligent computing services) soared 62.3% YoY in the first three quarters, signaling Tianyi Cloud’s pivot toward AI-enabled solutions.
3. **Policy Tailwinds for AI Cloud Adoption** - Government-related enterprises, a key client segment for CHINA TELECOM, have been cautious in adopting AI cloud services due to security concerns. However, China’s 15th Five-Year Plan and recent economic policy meetings emphasize technological self-reliance and innovation, potentially accelerating public-sector AI cloud adoption—a positive for Tianyi Cloud.
4. **Attractive Dividend Profile** - While rising Chinese bond yields have dampened the appeal of high-dividend stocks, Cinda expects limited further increases given the U.S. rate-cut cycle and domestic macroeconomic conditions. - Stable mobile and broadband operations, healthy free cash flow, and growth potential in AI cloud services position CHINA TELECOM as a high-quality dividend stock.