According to the Zhitong Finance APP, China International Capital Corporation released a research report stating that looking ahead to 2025, the valuation of the Telecommunication Services Sector is attractive in a low interest rate environment. Currently, 5G is starting to enter the return period, and capital expenditures are expected to decrease, supporting free cash flow performance. Cost and expense control supports profit stability; in the tower business, free cash flow is significantly higher than the dividend amount, indicating great potential for dividend increases, with existing tower depreciation completing and releasing profits imminently. There is room for valuation improvement in the Datacenter Sector; the capital expenditure of cloud vendors is recovering, with a bullish outlook for datacenter performance in 2025; rapid delivery engineering capabilities, electrical utilities, and location matching may become core competitive factors.

China International Capital Corporation's main views are as follows:

5G is starting to enter the investment return period; in a low interest rate environment, the valuation of symbols in the Telecommunication Services Sector is attractive.

Telecommunication operators: dividend returns are stable, and the technology transformation provides medium to long-term growth momentum.

1) In 2019, 5G was commercially launched in China. Referring to the past and the development patterns of overseas operators, capital expenditures from operators are currently stabilizing with a downward trend, supporting free cash flow performance.

2) External environmental impacts, combined with the mid-to-later stage of technological iterations, have weakened the ARPU uplift momentum brought by the upgrade from 4G to 5G. Additionally, operators proactively implement quality control for toB projects; a slowdown in revenue growth is a normal phenomenon. If the cost and expense control strategy continues, it is expected to support stable growth in net income.

3) The transformation towards technology brings long-term revenue growth momentum. Operators are actively laying out their strategies in cloud, AI, Satellite communication, and quantum technology. In recent years, telecommunication operators have increased their focus on accounts receivable, and the bad debt risk in the toB Business is relatively controllable.

CHINA TOWER: There is significant potential for dividend increase, and valuation catalysts are gradually emerging.

Tower-related Business capital expenditures are stable, and free cash flow is abundant, resulting in a strong potential for dividend increases. In the fourth quarter of 2025, as the depreciation of existing towers expires, profit is expected to increase significantly, opening up space for higher dividends, and shareholder returns are likely to improve.

Datacenters: The sector's valuation has room for improvement, and capital expenditures from cloud providers are recovering. There is optimism for continued performance recovery in datacenters in 2025.

Rapid delivery engineering capabilities, electrical utilities, and locational matching may become core competitive factors.

1) After years of adjustment, the datacenter sector's valuation is attractive. In 2024, the sector's valuation is expected to have a slight recovery, and with AI driving further industry recovery trends, there is room for further valuation uplift.

2) There is optimism for the performance recovery trend of third-party datacenter providers in 2025. If domestic cloud providers stabilize or continue to increase their investments related to AI, it is expected to boost the growth rate of datacenters further.

3) In this process, datacenter providers with rapid delivery capabilities, actively exploring electrical utilities computing collaboration models, and matching AIDC demands in different scenarios with their own resources are likely to gain a higher market share.

Profit forecasts and valuation: Maintain the profit forecasts and ratings for companies covered in the Industry unchanged.

Telecommunication Services: Stable dividend returns from operators CHINA MOBILE (600941.SH,00941) and CHINA TELECOM (601728.SH,00728); greater potential for dividend increases, with catalysts approaching for CHINA TOWER (00788); rapid expansion in new areas for CHINACOMSERVICE (00552).

IDC Sector: Datacenter vendors GDS-SW (09698) and 21Vianet (VNET.US) have the potential for order release and valuation elasticity.

Related companies in the Datacenter Sector also include Shanghai Baosight Software (600845.SH), Range Intelligent Computing Technology Group (300442.SZ), Guangdong Aofei Data Technology (300738.SZ), etc.

Risk Warning: Operator capital expenditures exceed expectations; cloud vendor capital expenditures are below expectations.