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.

Thematic (Sector/Industry)

<ul><li>Our view on China telecom sector is unchanged. We think this sector is a defensive play amid macro-economic pressure.</li><li>We expect China telcos to be the most favorable defensive picks with stable operations, strong FCF, high dividend yield and potential share repo opportunities.</li><li>China Mobile and China Telecom’s (941 HK/ 728 HK, not rated) share prices grew 25.5%/23.8% YTD.</li></ul><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>

Our view on China telecom sector is unchanged. We think this sector is a defensive play amid macro-economic pressure.We expect China telcos to be the most favorable defensive picks with stable operations, strong FCF, high dividend yield and potential share repo opportunities.China Mobile and China Telecom’s (941 HK/ 728 HK, not rated) share prices grew 25.5%/23.8% YTD.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 – China telecom sector remains as a defensive play

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.

<ul><li>According to news reports, the three Chinese telcos are cutting staff costs, which account for ~27% of service opex ex-depreciation and amortization.</li><li>Incl. D&amp;A, staff costs account for ~20% of total service opex.</li><li>While the news reports suggested that some of the staff’s total pay could be halved, we believe any adjustments would be substantially less than that.</li></ul>

According to news reports, the three Chinese telcos are cutting staff costs, which account for ~27% of service opex ex-depreciation and amortization.Incl. D&amp;A, staff costs account for ~20% of total service opex.While the news reports suggested that some of the staff’s total pay could be halved, we believe any adjustments would be substantially less than that.

TMT – Chinese Telcos Trimming Staff Costs

Equity Bottom-Up

China Unicom Hong Kong / Equity Bottom-Up

<ul><li>1Q23 results dragged by slower than expected growth in industrial internet, which has been the brightest star of Chinese telcos in the past few years with that of CU growing at a 2017-22 revenue CAGR of 35%.</li><li>A higher base and the final impact of the pandemic late last year hit growth with 1Q slowed to 15%.</li><li>While that was countered by resilient traditional connectivity services, higher cost pressure prompted us to trim FY23-25 EBITDA by ~1-2% and adj. NP forecasts by ~1-3%.</li></ul>

1Q23 results dragged by slower than expected growth in industrial internet, which has been the brightest star of Chinese telcos in the past few years with that of CU growing at a 2017-22 revenue CAGR of 35%.A higher base and the final impact of the pandemic late last year hit growth with 1Q slowed to 15%.While that was countered by resilient traditional connectivity services, higher cost pressure prompted us to trim FY23-25 EBITDA by ~1-2% and adj. NP forecasts by ~1-3%.

China Unicom (762 HK) - The Brightest Star Dimmed a Little

<div><div><div><div><ul><li>The 3 Chinese telcos may not be renamed to China Computing anytime soon but it is computing that drives them forward.</li><li>Based on our latest forecasts, cloud, which is one of the key elements of computing services they offer, would contribute 20% of their combined revenue by 2025, up from 9% in 2022.</li><li>Among them, our top BUY is China Unicom, which has the best valuation-to-growth profile with a PEG of 0.51x. Our revised TP of HK$7.20 for CU offers 25% upside. </li></ul></div></div></div></div>

The 3 Chinese telcos may not be renamed to China Computing anytime soon but it is computing that drives them forward.Based on our latest forecasts, cloud, which is one of the key elements of computing services they offer, would contribute 20% of their combined revenue by 2025, up from 9% in 2022.Among them, our top BUY is China Unicom, which has the best valuation-to-growth profile with a PEG of 0.51x. Our revised TP of HK$7.20 for CU offers 25% upside. 

<ul><li>China Unicom’s 2022 results were largely in line with our expectations with decent growth in service revenue, driven by strong growth in industrial internet and stable growth in mobile revenue.</li><li>Opex inflation has been well contained with no further material acceleration in opex growth.</li><li>On the back of China’s plan for further digitization of the country, achieving technology advancement and autonomy as well as the paramount importance of data security, we expect industrial internet remains the key top-line driver and, with further deceleration in opex growth, adjusted NP to sustain double-digit growth for FY23-25.</li></ul>

China Unicom’s 2022 results were largely in line with our expectations with decent growth in service revenue, driven by strong growth in industrial internet and stable growth in mobile revenue.Opex inflation has been well contained with no further material acceleration in opex growth.On the back of China’s plan for further digitization of the country, achieving technology advancement and autonomy as well as the paramount importance of data security, we expect industrial internet remains the key top-line driver and, with further deceleration in opex growth, adjusted NP to sustain double-digit growth for FY23-25.

China Unicom (762 HK) - In-Line Results Foster Resilient Growth Trend

Hong Kong

China Unicom (Hong Kong) Limited, through its subsidiaries, provides telecommunications services in the People's Republic of China.  The Company's services include cellular, paging, long distance, data, and Internet services.

China Unicom Hong Kong (Adr) (CHU US)

China 5G Sector – China telecom sector remains as a defensive play

We expect China telcos to be the most favorable defensive picks with stable operations, strong FCF, high dividend yield and potential share repo...

CMB International

TMT – Chinese Telcos Trimming Staff Costs

According to news reports, the three Chinese telcos are cutting staff costs, which account for ~27% of service opex ex-depreciation and amortization.

Quam Securities

China Unicom (762 HK) - The Brightest Star Dimmed a Little

1Q23 results dragged by slower than expected growth in industrial internet, which has been the brightest star of Chinese telcos in the past few years

Quam Securities

TMT – Chinese Telcos China Computing

Based on our latest forecasts, cloud, which is one of the key elements of computing services they offer, would contribute 20% of their combined...

Quam Securities

China Unicom (762 HK) - In-Line Results Foster Resilient Growth Trend

China Unicom’s 2022 results were largely in line with our expectations with decent growth in service revenue, driven by strong growth in industrial...

Quam Securities