中国电信服务盈利风险分析(英文 24 页)

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 中国电信服务盈利风险分析

Valuations appear tempting, especially for CU and CT, given our forecasts

incorporate healthy earnings growth as well. However, two clear risks are persisting

– potential VAT implementation and intense 4G competition. Until these subside, we

struggle to see a sustainable rerating case for the stocks. The cheap valuation case

tempers our cautious stance, but we continue to see little reason for investors to get

involved in the sector right away. Thus, our order of preference remains CU, CT

(both rated EW) and then CM (rated UW).

We see two risks to earnings on a six-month view: (1) VAT – we think implementation

is likely into the year. Timing and specifics are unclear but the potential impact to sector

profitability appears negative. Associated impacts are not in our or, we think, consensus

estimates as yet. (2) potential aggression on 4G: we see CM as incentivised to push TDLTE

at the cost of (rather than with) profits – its aggressive network build-out plan and

terminal sales targets are reflections of that. Against this background, we think CT and CU

have no choice but to speed up on 4G network build-out and spend more on handset

subsidies and marketing costs to defend against an aggressive CM.

Key takeaways from the results: (1) CT and CU surprised positively on (lower-thanexpected)

capex guidance into the year but both caveated views with potential escalation if

FDD-LTE licensing were to come earlier; (2) We see flattish margin profiles into 2014 for CU

and CT and margin shrinkage as continuing for CM – this is despite healthy top-line growth

– overspending continues to be a risk into 2014 estimates, in our view; (3) Wireless data

growth is still in its infancy and should see rapid development in 2014 – solid monetisation

platforms augur well as a potential longer- term value driver, in our view.

Inexpensive valuations, but for a reason: CU and CT are both trading below book

value, but with worsening competitive stress and a consequent overhang on 2014 profit

estimates, we struggle to see the stocks performing till earnings risks subside and we

think we are not there as yet. Our HK$4.10 PT for CT and HK$11.50 PT for CU reflect

0.9x P/B (2014E) – we think appropriate in a historical context into a period of

intensifying competition. Our HK$61 PT for CM is based on 10x P/E.

Our pecking order in China – CU, CT then CM: We see FCF inflexion as a positive for

CU – Rmb5bn of FCF generation in 2013 was after many years of negative FCF and we

see this expanding into 2014; CU’s estimated 50% profit growth into 2014 is also the

highest in its peer group in China. CT’s valuation looks attractive as well with 17% profit

growth in 2014, on our estimates. We just see it as unfortunate that concerns around

intensifying competition and VAT impacts are material enough overhangs to offset these

positives. For CM, it is 2016E before we expect EBITDA to be back at 2013E levels and

2017E for profits. We struggle to recommend the stock till profit focus returns.