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<Research>M Stanley Downgrades CN Telecoms to In-Line as Drivers of Upcycle Over Past Yrs End
Recommend 24 Positive 37 Negative 18 |
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Morgan Stanley opined that the industry beta of the Greater China telecom operators has largely passed, thus downgrading the industry from Attractive to In-Line. The outlook for internet data centers remains strong, with potential relief on the supply side in the future. The broker noted that the drivers of the upcycle for Chinese telecoms over the years, including regulatory relaxation, reduced competition, increased cloud business share, and shareholder returns, have ended. The macro environment and ongoing deflationary pressures persistently impacted mobile, while AI is not yet sufficient to drive business revenue growth. The broker downgraded Chinese telecom H-shares to Equalweight, preferring fixed over mobile and H-shares over A-shares due to the strengthening RMB and potential A-share premium narrowing. The broker forecast industry service revenue to grow by 1.7% in 2026 (slightly higher than 0.9% in 2025), with total net profit growth of 3%, thanks to efficiency improvements. The broker believed that AI adoption by SOEs/ government could be an upside potential for the three major telecoms (CHINA MOBILE (00941.HK), CHINA TELECOM (00728.HK), and CHINA UNICOM (00762.HK)). There are limited re-rating drivers for Chinese telecoms: (1) Chinese yields are unlikely to decline further; (2) growth has significantly decelerated to low single-digit profit growth, and the room for increasing payout ratios has also narrowed. Morgan Stanley expected the target dividend yield for Chinese telecom H-shares in 2026 to be 6-7%, with a continued preference order: CHINA TELECOM > CHINA UNICOM > CHINA MOBILE. AASTOCKS Financial News Wevsite: www.aastocks.com |
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