M UpdateChina Telecoms | Asia PacificRevising Price Targets and Earnings EstimatesMorgan Stanley Asia Limited+Gary YuEquity Analyst Gary.Yu@morganstanley.com +852 2848-6918 Andy HuangEquity Analyst Andy.Huang@morganstanley.com +852 2848-7320 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Request your ballot here. Greater China TelecomsAsia PacificIndustry ViewAttractive What’s Changed China Unicom (0762.HK)FromToPrice TargetHK$6.50HK$6.00China United Network Communications (600050.SS)FromToPrice TargetRmb3.70Rmb3.60China Mobile Limited (600941.SS)FromToPrice TargetRmb99.00Rmb100.00China Telecom (601728.SS)FromToPrice TargetRmb5.40Rmb6.00 Exhibit 1 : China Telecoms coverage summaryCompanyTickerRatingPTCM-HChina Mobile-Red chip0941.HKOW75.0CT-HChina Telecom-H0728.HKOW4.5CU-HChina Unicom0762.HKOW6.0CTCChina Tower0788.HKEW0.9CCSChina Communication Service0552.HKEW3.5CM-AChina Mobile-A600941.SSEW100.0CT-AChina Telecom-A601728.SSEW6.0CU-AChina United Network Communications600050.SSUW3.6 Source: Morgan Stanley ResearchWe fine-tune our earnings forecasts and price targets for our China Telecoms coverage. Maintain Attractive industry view – improving returns and peaking policy rates to drive re-rating: (Please see Greater China Telecoms: 2024 Outlook: Improving Returns & Valuation Re-rating.) We expect the Big Three operators' healthy growth to be sustained in 2024, with service revenue +6.3% and net profit +7.7%. The growth is fueled by a combination of stable competition, benign regulation, and robust market share gains in Industrial Internet (such as cloud), despite a weak macro outlook amid China's '3D' (deflation, demographics and debt) problems. In addition, as we are at the end of peak 5G investment cycle, improving cash flows should continue to enhance shareholder returns. We stay OW on all three HK-listed operators and prefer CT-H; we stay EW on CTC, CCS, CT-A and CM-A; and we stay UW on CU-A. In this report, we revise our price targets and earnings estimates for our China Telecoms coverage. Key changes are:• For operators, we fine-tune our earnings forecasts and keep them largely unchanged. Our CU-H price target falls to HK$6.0 (from HK$6.5), mainly reflecting weaker near-term cash flow due to worse working capital. Our CU-A price target falls to Rmb3.6 (from Rmb3.7), accordingly. Our CM-H and CT-H price targets and scenario values are unchanged. Our CM-A price target rises to Rmb100 (from Rmb99), and our CT-A price target rises to Rmb6.0 (from Rmb5.4), on new FX forecasts. • For CTC, we raise our 2023-24 earnings forecasts slightly, due to better EBITDA margins, but we lower earnings slightly in 2025, reflecting margin contraction as revenue growth slows. We also factor in the one-time depreciation expense saving in 2026 as the previously acquired towers become fully depreciated. Our price target and scenario values are unchanged....
