CHINA TELECOM(00728.HK)：STEADY 1Q2024 EARNINGS GROWTH;HIGH QUALITY DEVELOPMENT IS IN PROGRESS-格隆汇

机构：国泰君安国际
研究员：Gin Yu

We maintain China Telecom's (the "Company") TP at HK$5.00 and the investment rating as "Buy". Considering the steady improvement of its earnings and dividends, as well as the opportunities brought about by the rapid development of cloud business, we maintain the TP at HK$5.00 and the investment rating as "Buy". The TP represents 12.7x/ 11.7x/ 10.8x 2024-2026 PER. The corresponding dividend yield will be 5.7%/ 6.3%/ 7.0% in FY2024-FY2026.
China Telecom recorded steady earnings growth. In 1Q2024, the Company recorded service revenue and net profit of RMB124,347 million (+5.0% yoy) and RMB8,597 million (+7.7% yoy), respectively, in line with market expectations. In 1Q2024, number of mobile subscribers and wireline broadband subscribers increased by 3.88 million and 2.06 million, while mobile ARPU and broadband blended ARPU slightly rose by 0.9% and 2.1% yoy, respectively. Besides, due to its continuous investment in industrial digitalization, industrial digitalization revenue further increased by 10.6% yoy.
We expect that dividend payout will steadily grow over the next few years. Due to the steady growth of the main businesses and good control of operating expenses, we believe that the Company's net profit will continue to grow steadily in the coming years. The Company proposed to raise dividend payout ratio to over 75% within three years from 2024. Thus, we believe the dividend payout will steadily grow over the next few years. Based on the closing price as of 23 April 2024, the dividend yield for China Telecom in 2023 was 5.8%. Combined with stable profit growth, we expect that operators will continue to increase their dividend payout levels. Based on the closing price as of 23 April 2024, the estimated dividend yield for China Telecom in 2024/ 2025/ 2026 is expected to be 6.5%, 7.2%, and 8.0%, respectively.
Catalysts: Increase in dividend payout and dividend payout ratio; promotion of cloud business.
Risks: Slower-than-expected growth of industrial digitalization business, mismatch between investments and benefits of industrial digitalization business.