Nomura: Maintains "buy" rating on China Telecom Corporation (00728) with target price lowered to HK$5.5

Nomura released a research report stating that the profit forecast for China Telecom Corporation (00728) for the next two years has been slightly lowered by 0.2% to 0.5%. They maintain a "buy" rating with a target price lowered from HK$5.8 to HK$5.5, estimating a dividend yield of 5.8% for this year. The company's service revenue growth last year is expected to remain higher than the industry average, mainly due to the steady execution of its bundled services. According to data from the Ministry of Industry and Information Technology, the telecommunications industry revenue grew by 2.6% year-on-year in the first eleven months of last year, while the bank estimates that China Telecom's service revenue grew by 3.8% year-on-year last year, with a 4.1% increase in the fourth quarter. The bank estimates that the ratio of capital expenditure to sales revenue for the company from 2024 to 2026 may continue to decline, mainly due to the slowing deployment of 5G networks, with investments in artificial intelligence (AI) and cloud infrastructure remaining the main focus. The bank expects China Telecom to continue to slow down in the last quarter, but perform better than its peers. With effective cost control, the bank estimates that China Telecom's profit grew by 7.5% year-on-year last year, considering the potential for dividend growth (with a payout ratio of over 75% by 2026), the stock remains attractive.