DBS: Raises China Telecom Corporation (00728) target price to HKD 7.1, maintains "buy" rating.

DBS released a research report stating that due to the rapid expansion of the industrial digital business of China Telecom Corporation (00728) and a stable dividend yield of about 5%, it maintains a "buy" rating on the telecom sector and raises the target price from 6.1 Hong Kong dollars to 7.1 Hong Kong dollars, equivalent to a P/E ratio of 17 times for the 2025 fiscal year, which is 15% higher than regional telecom peers, as its AI and data center revenue contributes about 5%, benefiting from China's national AI development. The report states that China Telecom Corporation is the second largest operator in China, with 352 million 5G users as of December 2024, accounting for about 30% of the market. The company has jointly built and shared a 5G network with China United Network Communications to narrow its competitive disadvantage in network quality and coverage compared to China Mobile Limited. As of December 2024, the number of cable broadband users reached 197 million, accounting for about 32% of the market. The bank stated that the industrial digital business (including IDC, cloud computing, etc.) is a key driver of revenue growth for China Telecom Corporation, increasing by 6% yoy to 146.6 billion RMB, with this business accounting for 30.4% of service revenue in the 2024 fiscal year (up from 29.9% in 2023), the highest among peers. Among them, cloud business and IDC revenue increased by 17.1% and 7.3% respectively. With the accelerating growth of cloud business, the bank predicts that the industrial digital business will further grow by 5% to reach 153.9 billion RMB, accounting for approximately 31% of total revenue. The bank expects that due to the increase in contributions from industrial digital business, China Telecom Corporation's revenue and profit in the 2025 fiscal year will increase by 3% and 8% respectively. In addition, the bank expects the dividend payout ratio for the 2026 fiscal year to rise to 75%, supporting a dividend yield of about 5%, with an estimated compound annual growth rate of profit from 2024 to 2027 of 8%, benefiting from stable business and reduced depreciation and amortization expenses.