According to JPMorgan's expectations, the revenue of the mainland telecommunication sector in the second quarter is weak, but the profits are stable. However, the revenue and profits of ZTE (00763) and China Tower (00788) may remain stable.
JPMorgan released a research report stating that it reiterated its “shareholding” rating for the three major telecommunication companies in mainland China, with China Mobile (00941) being the first choice, followed by China Unicom (00762), and China Telecom (00728) as the last choice. The bank is bullish about China Mobile's earnings reaching 7% and its annual compounded growth rate of dividends reaching 7%; it has high defensive properties in volatile markets; compared with China Telecom and Unicom, China Mobile's stock price has fallen behind, but has potential for catch-up. The bank expects the revenue of mainland telecommunication sector in the second quarter to be weak, but the profits of ZTE (00763) and China Tower (00788) may remain steady.
The bank believes that due to the pressure of macroeconomic weakness on new digital businesses (such as cloud and datacenter (IDC) businesses), it is estimated that the service revenue growth of China Mobile, China Telecom, and China Unicom, the three major telecom operators in mainland, will slow down, from a year-on-year increase of 5%, 4%, and 3% in the first quarter to 2%, 3%, and 3% in the second quarter. The bank believes that telecom operators will offset the revenue growth pressure through strict cost control. The bank predicts that the profit growth of China Mobile and China Unicom will remain stable at a year-on-year growth rate of 5% and 10%, respectively. However, it is expected that the net profit of China Telecom will slow down from a year-on-year increase of 8% in the first quarter to a growth of 6% in the second quarter.
In addition, the bank raised ZTE's H-share rating from "shareholding" to "neutral", believing that the performance of the company's government, enterprise, and consumer businesses may exceed expectations or offset the weakness of its domestic base station business, thus promoting stable growth in revenue and profits in the second quarter. Regarding China Tower, the bank predicts that its second-quarter performance may remain stable. Its management has provided little guidance on its financial arrangements beyond 2026, and the bank maintains its "neutral" rating.