Credit Suisse Maintains Overweight Chinese Telecoms Ahead Of Half-Year Earnings

In a report published Friday, Credit Suisse analyst Colin McCallum maintained an Overweight rating on the Chinese Telecoms, ahead of the 1H15 results. China Unicom (Hong Kong) Limited CHU (HKG: 0762), China Mobile Ltd. CHL (HKG: 0941) and China Telecom Corporation Limited CHA (HKG: 0728) are scheduled to report their 1H15 results in August. Analyst Colin McCallum expects the 1H15 results to continue to be affected by VAT, which was implemented on June 1, 2014, and the 2Q15 results to be affected by seasonality, following the Chinese New Year. China Mobile is expected to report a 9.2 percent y/y decline in earnings. Unicom is expected to report 4.3 percent y/y growth in EBITDA, while its net profit is expected to decline 3.2 percent y/y. China Telecom is expected to report flat earnings. In the report Credit Suisse noted, "China Mobile already announced in March that the FY15 capex budget has been set 6.5% lower than the FY14 capital expenditure, and that the capex budget will decline further into FY16. For FY15 as a whole, we expect a recovery in revenue growth to be driven by an ARPU uplift from 4G penetration rising throughout the 816mn-strong subscriber base." McCallum commented that there were expectations that China Mobile's launch of 4G would severely impact Unicom's ability to grow revenue, and "a step downwards in the rate of 3G/4G net additions since August 2014, and continuing across 1H15, appears to suggest this bearish thesis is playing out." "Our overall point of view continues to be that the China data market as a whole can grow, and does not represent a 'zero sum game'. Unfortunately, the imposition of VAT and the shift from handset subsidies to tariff discounts will make assessing relative YoY revenue growth difficult, but we note that Unicom was able to grow revenue QoQ into 1Q15, and we do expect some further growth QoQ into 2Q15," McCallum explained. China Telecom has witnessed solid 4G net add numbers, averaging 2.1 mn per month. Taking this into consideration, the Credit Suisse report added, "…we expect an ARPU uplift as customers shift to 4G, the market will be looking for ongoing growth in revenue and EBITDA from China Telecom, together with stable YoY earnings."