China Telecom Earnings: Despite Slower Industry Growth, China Telecom Beats Other Chinese Telcos

China Telecom produced the best second-quarter result of the Chinese telcos, with service revenue growth of 3.7% compared with the 1.8% industry growth, EBITDA growth of 5.6% versus the industry average growth of 2.0%, and net profit growth of 9.9% compared with the 6.9% industry average. Industry services revenue growth slowed from an average of 7% from 2021-23, which we attribute mainly to services provided to businesses and local government being negatively affected by the economy. Basic telecom services such as mobile, broadband, and pay TV, had revenue rise in the low single digits, broadly in line with recent trends. However, the business-focused revenue streams, such as cloud, system integration, data services, and cybersecurity and data centers, slowed. For example, telecom industry cloud services revenue—which increased at an average of 100% per year from 2020-22 and 60% in 2023—rose by only 21% in the first half of 2024. This was still greater than the 4.6% growth reported by Alibaba Cloud, and China Telecom and China Mobile now report cloud service revenue that is similar to Alibaba's. We retain our HKD 5.60 per share fair value estimate for China Telecom and our no-moat rating.