Reviewing China Telecom’s Q1 Results

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China Telecom (NYSE:CHA) published its Q1 2016 results on Thursday, reporting revenue growth that was driven by its expanding subscriber base, increasing 4G user mix and higher terminal sales. The carrier’s performance in the wireline segment was also fairly good, as data services continued their robust growth, effectively offsetting the decline in voice services. However, operating profits declined, on account of higher selling general and administrative costs and higher network costs, which were driven by the tower usage fees that the carrier now incurs following the transfer of its tower assets to the China Tower joint venture. Below, we take a look at some of the key takeaways from China Telecom’s earnings. We note that the below tables translate the company’s results into U.S. dollars for all periods; accordingly, growth figures will differ from reported numbers as the RMB has depreciated around 4.5% vs. the U.S. dollar over the last year.

We have a $59 price estimate for China Telecom, which is roughly 20% ahead of the current market price.

See our complete analysis of China MobileChina UnicomChina Telecom

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Other Key Takeaways

  • The wireless subscriber base trended higher, driven by strong 4G additions. Expect net additions to remain strong going forward as the carrier teams up with China Unicom to build out a shared 4G network in rural areas.
  • Q1 ARPU remained relatively flat compared to the full year 2015 figure. However, the metric could come under pressure amid the government’s speed upgrade and tariff reduction policies as well as the recently instituted unused mobile data carry-forward policy.
  • Aggregate handset data traffic soared 21% sequentially to 228 kTB. However, usage per 4G subscriber came in at just about 875 MB per month, leaving plenty of room for growth. [1] For perspective, the average U.S. smartphone user consumed 2.9 GB/month in 2015 per the NPD Group.

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Notes:
  1. China Telecom Press Release []