Citi released a research report stating that while maintaining China Telecom's (00728) “buy” rating, the industry's first choice remains unchanged, with a target price of HK$4.7.
The bank said that the company's first-quarter results slightly beat expectations. Service revenue and total revenue rose 5% and 3.8% year on year, respectively, to 124 billion yuan and 135 billion yuan respectively, better than the 4.5% year-on-year increase in the industry according to data from the Ministry of Industry and Information Technology. It is the fastest growing of the three major telecom companies in the mainland and also reflects the relative resilience of its cloud business, industrial digitalization (revenue up 11% year on year in the first quarter) and traditional business performance.
According to the report, China Telecom's operating expenses for the first quarter (excluding depreciation and amortization) increased 4% year on year to 100 billion yuan, EBITDA for the first quarter increased 4% year on year to 35 billion yuan, and EBITDA profit margin shrank 0.4 percentage points year on year to 28.2% year on year. Net profit for the first quarter rose 8% year on year to RMB 8.6 billion, in line with the company's annual target of net profit growth higher than revenue growth. 5G and broadband passenger numbers in the first quarter, as well as mobile and broadband ARPU data are also encouraging. It is expected that the service revenue of both Telecom and its peers will continue to improve, while China Telecom is expected to outperform its peers.