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China Telecom

China Telecom on expansion drive after first-half earnings top market estimates

PUBLISHED : Tuesday, 23 August, 2016, 3:14pm
UPDATED : Tuesday, 23 August, 2016, 10:57pm

China Telecom Corp plans to become a “bigger, better and stronger” integrated network operator after posting higher-than-expected net profit in the first half of this year, the company said on Tuesday.

Yang Jie, the chairman and chief executive at China Telecom , said in a press conference that this new stage of development would enable the firm’s mobile and fixed-line broadband networks to support more advanced services.

He said the operator sought to “improve efficiency in order to lay down a solid foundation for accelerated transformation and upgrades” as competition in the industry further intensified.

China Telecom reported a 6.3 per cent increase in net profit to 11.67 billion yuan (HK$13.6 billion) from a year earlier on the back of stable growth at its mobile and fixed-line broadband operations as well as decreased capital spending.

That surpassed the 11.3 billion yuan median estimate from analysts in a Bloomberg survey.

Revenue rose 7.2 per cent to 176.83 billion yuan.

Yang Xiaowei, China Telecom’s chief operating officer, said turnover was lifted by the 8.3 per cent rise in mobile service revenue to 67.52 billion yuan on robust 4G data usage and a 3.3 per cent advance in fixed-line broadband revenue to 38.78 billion yuan.

Telecoms is one of the few industries with real growth in China, given a muted macroeconomic backdrop
Elaine Lai, analyst, Jefferies

The company recorded 206.94 million mobile subscribers at the end of June, including 90.1 million 4G smartphone users, and 118 million fixed-line broadband customers.

The solid interim earnings, however, failed to move the needle with investors. Shares in China Telecom fell 3.34 per cent to close at HK$4.05 on Tuesday.

Elaine Lai, an analyst at Jefferies, said the operator’s “solid performance” in the first six months of the year “would support share price appreciation in the second half”. Jefferies has a “buy” rating on the stock with a target price of HK$4.40.

“Telecommunications is one of the few industries with real growth in China, given a muted macroeconomic backdrop,” Lai said.

In January, China Unicom and China Telecom agreed to an ambitious cooperation deal that aims to promote structural reforms in the country’s telecommunications industry and help advance the government’s Internet Plus strategy for broader online access nationwide.

The two operators aim to narrow the 4G network gap with domestic market leader China Mobile and lower their capital spending by sharing costs on new rural 4G network deployments.

That cooperation resulted in the joint development and sharing of 60,000 4G base stations and 14,500 kilometres of fibre transmission network at the end of June.

The 4G network roll-out of China Telecom has also moved rapidly through its lease of about 550,000 telecommunications towers as of June 30 from China Tower Corp – the infrastructure-sharing joint venture of the three mainland telecommunications operators.

Those two initiatives have allowed China Telecom to lower capital spending to 97 billion yuan this year from 109.09 billion yuan last year.

Chris Lane, a senior analyst at Bernstein Research, said China Telecom’s efforts would see its net profit “racing ahead in the fourth quarter”.

China Telecom is set to refarm its 2G 800-megahertz spectrum to 4G from the second half to support advanced services, including voice-over 4G and internet-of-things device connections. It also has about 400 internet data centres across the country to support new online applications.