How Has China Telecom Fared Thus Far In 2016?

+30.92%
Upside
26.45
Market
34.63
Trefis
CHA: China Telecom logo
CHA
China Telecom

China Telecom (NYSE:CHA), China’s third-largest mobile operator and largest broadband provider, recently published its financial and operational results for the first nine months of 2016, posting relatively strong growth amid an expanding wireless customer base, a growing mix of 4G subscribers and accelerating broadband net additions. Below we provide a brief overview of the factors that influenced the carrier’s earnings for the quarter.

Trefis has a $60 price estimate for China Telecom, which is about 20% ahead of the current market price.

See our complete analysis for China Mobile | China Unicom | China Telecom

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CHA_Q3_1

  • Revenues for the first nine months expanded by 2% versus last year, amid wireless and wireline broadband subscriber growth, a higher mix of 4G customers and soaring mobile data consumption. That said, growth in USD terms was impacted by the depreciation of the RMB (about -5% y-o-y).
  • EBITDA margins have come under pressure, largely due to higher tower leasing costs, post the transfer of the firm’s wireless tower assets to the China Tower JV last year. Higher marketing expenses as well as personnel expenses were also partly responsible for the margin contraction. That said, things should improve going into next year, as sharing ratio improves, with more base stations (from the 3 participating carriers in the JV) being housed on each tower.

CHA_Q3_2

  • China Telecom’s wireless subscriber base expanded by about 9% compared to last year, driven by strong uptake for its 4G services and some weakness at China Unicom, which lost customers over 2015. The momentum could continue in the near term, as the firm benefits from expanding 4G coverage and promotional activity.
  • China Telecom’s 4G user mix rose by about 28% year-over-year to 51%. This is an encouraging trend, as the firm’s 4G ARPUs are typically about 35% higher compared to its blended total ARPU. Handset data traffic also rose by 127% year-over-year, aided by 4G adoption.
  • The wireline broadband business also expanded amid stronger penetration of its fiber-to-the home (FTTH) technology (81% of total connections), tariff adjustments and a move to upgrade broadband speeds for mainstream customers. However, access line subscriber base trended lower, amid attrition of residential customers.

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