BOCI has issued a research report maintaining its "Buy" rating on China Telecom (00728) H-shares with a target price of HK$6.96, while keeping its revenue and earnings forecasts for fiscal 2026 unchanged.
The bank expects the company's third-quarter 2026 net profit to reach RMB 6.6 billion, representing a year-on-year decline of 13.5%, with fourth-quarter net profit returning to year-on-year growth of 33.3% thanks to a low base effect. It anticipates service revenue trends will remain broadly in line with the industry, with persistent value-added tax pressure.
BOCI projects China Telecom's third-quarter 2026 EBITDA margin at 28.5%, as depreciation and amortization from newly added computing infrastructure narrows the year-on-year decline by 1 percentage point from the previous quarter to 0.5%.
BOCI forecasts China Telecom's fiscal 2026 AIDC revenue to grow 10% year-on-year to RMB 38 billion, with second-half growth accelerating to 10.8%. Management maintained its full-year total capital expenditure guidance of RMB 73 billion. Given that computing investment accounted for 48% of the total in the first half of 2026, the bank believes the full-year proportion could exceed the original target of 35%. The company's intelligent computing capacity has reached 118.8 EFLOPS with a utilization rate of 94%, which helps capture growing AI demand and supports infrastructure capital returns.
On valuation, the target price is based on 1.5 times price-to-sales for the cloud business and 2.1 times EV/EBITDA, the latter representing a 60% discount to the three-year historical average to reflect value-added tax pressure. The company's interim dividend payout ratio for 2026 is 75%.
BOCI maintains its operator investment preference order of China Telecom, China Mobile (00941) and China Unicom (00762), mainly based on higher earnings visibility and shareholder returns.
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