What’s The Outlook Like For China Telecom?

China Telecom (NYSE:CHA) has been performing reasonably well over the last few quarters, driven by its expanding wireless and broadband subscriber base. In this note, we take a look at China Telecom’s recent performance and our outlook for the company over 2018.

We have also created an interactive dashboard analysis that allows users to modify key drivers and arrive at their own price estimate for China Telecom.

China Telecom’s wireless subscriber net adds accelerated over the first quarter, coming in at 15.3 million subscribers, compared to just about 10.7 million in the year-ago period. We expect the growth to continue over 2018, driven by the company’s improving 4G coverage and its promotion of larger data traffic products, which are increasingly popular with subscribers. We also expect the company’s wireless ARPU to see some improvement, despite the government’s move to restrict data tariffs, as the company’s 4G mix has been improving (~75.5% in Q1’18 up from just about 70% in the year-ago period). As 4G ARPU is about 20% higher compared to overall ARPU, it could help push the overall metric higher. China Telecom’s handset data traffic has also more than doubled to levels of around 2,178 MB per device during the first quarter, and this could also be a lever of ARPU growth.

We expect the carrier’s Landline business to see continued declines, as users migrate to mobile and over the top voice services. However, other revenues such as Integrated Communication Technologies (ICT) and wireline broadband could trend higher. The company added 3.76 million wireline broadband subscribers over Q1, compared to 3.21 million in the year-ago period and we expect this momentum to continue in the near term.

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