BOCI: Maintains "Buy" rating on China Telecom Corporation (00728), target price HK$6.96, expects Q3 net profit to fall 13.5% year-on-year.

BOCI released a research report maintaining the "Buy" rating on China Telecom Corporation (00728) H-shares with a target price of HK$6.96, keeping its FY2026 revenue and earnings forecasts unchanged. The bank expects the company's Q3 2026 net profit to be RMB 6.6 billion, down 13.5% year-on-year, and Q4 net profit to resume growth of 33.3% year-on-year, benefiting from a low base. The bank expects service revenue trends to be broadly in line with the industry, with VAT pressure persisting. The bank expects China Telecom Corporation's Q3 2026 EBITDA margin to be 28.5%, with new computing infrastructure depreciation narrowing the year-on-year decline in depreciation and amortization by 1 percentage point from the previous quarter to 0.5%. BOCI expects China Telecom Corporation's FY2026 AIDC revenue to grow 10% year-on-year to RMB 38 billion, with year-on-year growth accelerating to 10.8% in the second half. Management maintains full-year total capital expenditure guidance of RMB 73 billion. Given that computing investment accounted for 48% in H1 2026, the bank believes the full-year proportion could exceed the original target of 35%. The company's intelligent computing scale reached 118.8 EFLOPS with a utilization rate of 94%, which helps capture growing AI demand and supports infrastructure capital returns. On valuation, the bank's target price is based on 1.5x price-to-sales (P/S) for the cloud business and 2.1x EV/EBITDA, the latter representing a 60% discount to the three-year historical average to reflect VAT pressure. The company's interim dividend payout ratio for 2026 is 75%. BOCI maintains its operator investment preference order as China Telecom Corporation, China Mobile Limited (00941), and China United Network Communications (00762), mainly based on higher earnings visibility and shareholder returns.