Research from Quam Securities, Quam Securities

Quam Securities Research

Research from Quam Securities

Quam Securities

Since its inception in 1986, Quam Securities Limited (Quam Securities) has grown to become one of the few mid-tier securities brokerages in Hong Kong with global execution capabilities for both private and institutional clients. It boasts a well-established network in Greater China including Taiwan and in major world markets through the Global Alliance Partners (GAP). Quam Securities is well-positioned not only to harness and drive business within the China Tonghai International Financial Limited but also between China and the world markets.

Thematic (Sector/Industry)

<ul><li>The three Chinese telcos will report 2022 results in the coming weeks with China Unicom kicks starting next week on 8 Mar.</li><li>Although their avg. 2023 P/E has recovered markedly to the current level of 9.2x, we believe resilient growth in revenue for industrial internet (or its equivalent), which mainly incl. cloud, internet data center (IDC), IoT, big data, AI, etc., will continue to drive overall revenue and earnings growth and, together with growing payout, their share price performance is expected to be sustained.</li><li>We reiterate our BUY calls on China Mobile / China Unicom / China Telecom with upgraded TPs of HK$75.5 / HK$4.90 / HK$6.90.</li></ul>

The three Chinese telcos will report 2022 results in the coming weeks with China Unicom kicks starting next week on 8 Mar.Although their avg. 2023 P/E has recovered markedly to the current level of 9.2x, we believe resilient growth in revenue for industrial internet (or its equivalent), which mainly incl. cloud, internet data center (IDC), IoT, big data, AI, etc., will continue to drive overall revenue and earnings growth and, together with growing payout, their share price performance is expected to be sustained.We reiterate our BUY calls on China Mobile / China Unicom / China Telecom with upgraded TPs of HK$75.5 / HK$4.90 / HK$6.90.

TMT – Chinese Telcos Resilient Growth to Continue

Equity Bottom-Up

<ul><li>China Mobile delivered resilient growth on all key revenue lines in 3Q22.</li><li>Although cost pressure came in slightly higher than expected, it could be caused by timing of some of the expense items.</li><li>The relatively muted competitive pressure form the 4th mobile operator in China should alleviate investors’ concern.</li></ul>

China Mobile delivered resilient growth on all key revenue lines in 3Q22.Although cost pressure came in slightly higher than expected, it could be caused by timing of some of the expense items.The relatively muted competitive pressure form the 4th mobile operator in China should alleviate investors’ concern.

China Mobile (941 HK) - Earnings Revision - Resilient Growth on All Fronts

<ul><li>MIIT recently released Aug operating data for the telecoms industry in China. On items related to revenues, MIIT reported on YTD basis and, for 8M22, telecoms industry revenue grew 8.2% y/y, which slowed marginally from 8.3% for 7M22.</li><li>Mobile data traffic revenue, which is the single biggest item and accounted for 40.9% of total industry revenue in 8M22, edged up 0.5% y/y.</li><li>Revenue of new businesses, which include IPTV, IDC, big data, cloud and IoT, continued to be the star performer with YTD y/y growth of 34.1%.</li></ul>

MIIT recently released Aug operating data for the telecoms industry in China. On items related to revenues, MIIT reported on YTD basis and, for 8M22, telecoms industry revenue grew 8.2% y/y, which slowed marginally from 8.3% for 7M22.Mobile data traffic revenue, which is the single biggest item and accounted for 40.9% of total industry revenue in 8M22, edged up 0.5% y/y.Revenue of new businesses, which include IPTV, IDC, big data, cloud and IoT, continued to be the star performer with YTD y/y growth of 34.1%.

Tactical Trade Ideas – Telecoms-A Small Step in Revenue Growth, a Giant Leap in Sentiment

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

<div><div><div><div><ul><li>We regard the domestic telecom sector as a defensive play amid macro- economic pressure, consumer weakness, rising uncertainties, etc.</li><li>We expect China telcos to be the most favorable defensive picks with ample FCF, high dividend yield and potential share repo opportunities.</li><li>China Mobile’s (600941 CH/941 HK) share price grew 12.5%/8.3% YTD. The investors’ appetite seems to confirm our previous prediction “Good compound returns (dividends, share repo) in an environment of uncertainty will become more valued by investors.” </li></ul></div></div></div></div><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

We regard the domestic telecom sector as a defensive play amid macro- economic pressure, consumer weakness, rising uncertainties, etc.We expect China telcos to be the most favorable defensive picks with ample FCF, high dividend yield and potential share repo opportunities.China Mobile’s (600941 CH/941 HK) share price grew 12.5%/8.3% YTD. The investors’ appetite seems to confirm our previous prediction “Good compound returns (dividends, share repo) in an environment of uncertainty will become more valued by investors.” Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China 5G Sector – Expect telecom names continue to show strength in broad market weakness

<ul><li>We initiate coverage on the three Chinese telcos following their impressive 1H22 results.</li><li>We rate all three as BUYs with China Unicom (762 HK, BUY) and China Telecom (728 HK, BUY) as our top picks.</li><li>Despite their outperformance YTD, all three are still attractive in PE valuation with a range of 5.6-7.5x FY23 earnings and div yld of 9.5- 9.9%.</li></ul>

We initiate coverage on the three Chinese telcos following their impressive 1H22 results.We rate all three as BUYs with China Unicom (762 HK, BUY) and China Telecom (728 HK, BUY) as our top picks.Despite their outperformance YTD, all three are still attractive in PE valuation with a range of 5.6-7.5x FY23 earnings and div yld of 9.5- 9.9%.

TMT – Chinese Telcos - Growth Momentum Sustained

Hong Kong

China Mobile Limited, through its subsidiaries, provides cellular telecommunications and related services in the People's Republic of China and Hong Kong SAR.

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