M IdeaGreater China Telecoms | Asia Pacific2024 Outlook: Improving Returns and Valuation Re-ratingMorgan 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 ViewAttractiveAlso read - Global Telecom: Connecting Your Call to Higher Profits & Valuations Read China Telecoms: Revising Price Targets and Earnings Estimates, for recent changes to individual company price targets and earnings estimates for stocks featured in this this report. Exhibit 1 : Greater China Telecoms coverage summaryCompanyTickerRatingPTChinaCM-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.SSUW3.6Hong KongHKTHKT Trust6823.HKOW10.5PCCWPCCW0008.HKEW4.0HTHKHHutchinson Telecommunications HK0215.HKEW1.2SMTSmarTone0315.HKEW4.7HKBNHKBN1310.HKEW3.5TaiwanCHTChunghwa Telecom2412.TWUW105.0TWMTaiwan Mobile3045.TWEW110.0FETFar Eastone4904.TWEW85.0 Source: Morgan Stanley ResearchRe-rating, driven by improving returns and peaking rates, is the overriding theme in 2024. Solid growth to be fueled mainly by improving/stable competition and 5G upgrade, on top of robust Industrial Internet (China), lower rates (HK), and merger efficiency gains (Taiwan). Key OWs: CT, CM, CU, HKT. Reiterate our Attractive industry view in 2024 – improving returns and peaking policy rates to drive re-rating: The combined market cap of our Greater China Telecoms coverage gained 18% in 2023, outperforming MSCI China (-13%) by 31ppts. We remain constructive on 2024 growth outlook, underpinned by improving/stable competition, continuous 5G upgrade, robust Industrial Internet (particularly for China), and efficiency gain (particularly for Taiwan). In addition, peaking policy rates is a key valuation re-rating catalyst for telecoms globally. Our country order of preference is China > Hong Kong > Taiwan. China: We expect 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). Although we see macro challenges arising from China's '3D' problems (deflation, demographics and debt), we believe the aforementioned factors should alleviate the pressures and sustain growth resiliency. In addition, as we are at the end of peak 5G investment cycle, improving cash flows should continue to enhance shareholder returns. Our order of preference is CT-H > CM-H > CU-H > CTC > CT-A > CM-A > CCS > CU-A. Hong K...
