Reiterate BUY with target price unchanged at HK$15.02. We see improved valuation attractiveness compared to its telco peers, and expect higher cloud and AI service revenue growth with relatively lower base which will benefit from the expanded AI/Cloud investment in 2H25. Our current telco preference order changed to China Telecom, Unicom and China Mobile. 机构：中银国际 研究员：Michael MENG We attended China Unicom's NDR in Beijing and had a site visit to Tianjin Wuqing Intelligent Computing Centre. From the reverse r ...

Summary of China Telecom Conference Call Company Overview - **Company**: China Telecom (0728.HK) - **Industry**: Telecommunications and Cloud Services Key Points Financial Performance - China Telecom's revenue decreased by 1% year-over-year to Rmb125.5 billion in Q3 2025, compared to a 3% increase in Q2 2025 [1][4] - The company is expected to maintain steady free cash flow (FCF) growth, supporting its dividend payout ratio [1] - Earnings for 2026 and 2027 have been revised upwards by 3% and 5% respectively, while near-term revenues have been lowered due to a focus on higher quality projects [4] Business Strategy - The company is shifting its focus towards computing infrastructure and integrated services, including AI and cloud solutions [1][2] - Management emphasized the importance of project quality, with operating cash flow and profitability as core KPIs [3] - China Telecom has a strong emphasis on serving government clients, which may slow down AI project deployment due to security and scale requirements [3] Market Position and Risks - The company has high exposure to government clients, which presents both opportunities and challenges in project deployment [3] - Key risks identified include intensified industry competition affecting mobile average revenue per user (ARPU), lower returns on 5G investments, and potential loss of market share in the wireline broadband sector [13] Valuation and Price Target - The 12-month target price for China Telecom is set at HK$7.9, reflecting a 33% upside from the current price of HK$5.94 [14] - The target price is based on a 2026E EV/EBITDA multiple of 3.5x, consistent with the company's historical trading range since 2017 [8][13] Operational Metrics - The operating margin is projected to improve from 7.7% in 2025E to 8.5% in 2027E, driven by disciplined capital expenditure [4][12] - The company aims to enhance its gross margin from 69.2% in 2025E to 68.5% in 2027E [12] Dividend Policy - The dividend payout ratio is expected to increase from 73% in 2025E to 75% in 2027E, indicating a commitment to returning value to shareholders [12][14] Conclusion - China Telecom is positioned for long-term growth in the cloud and AI sectors, with a focus on quality projects and government contracts. However, it faces challenges from competition and market dynamics. The revised earnings outlook and target price reflect a positive sentiment towards the company's strategic direction and operational efficiency [1][4][13]

I'm a passionate investor with a strong foundation in fundamental analysis and a keen eye for identifying undervalued companies with long-term growth potential. My investment approach is a blend of value investing principles and a focus on long-term growth. I believe in buying quality companies at a discount to their intrinsic value and holding them for the long haul, allowing them to compound their earnings and shareholder returns.Analyst’s Disclosure: I/we have no stock, option or similar derivative posit ...