China Telecom's 1QFY22 results were in line with our expectations.
Service revenue increased by 9.9% yoy. EBITDA margin decreased by 1.6 ppt yoy, and shareholders' net profit was up by 12.1% yoy.
We expect service revenue to still grow steadily in 2022. The Company expects net additions in mobile subscribers, 5G subscribers and wireline broadband subscribers in 2022 to be 15 million/ 80 million/ 8 million, respectively. Due to steadily rising numbers of mobile users, we expect mobile communication service revenue to grow steadily. Due to the increase in number of wireline broadband subscribers and the value contribution brought by Smart Family, we expect wireline broadband business to maintain steady growth. Due to strong demand from government and enterprise markets, and the Company's leading position in cloud market and IDC sources and the promotion of the "east-to-west computer resource transfer" project, we expect industrial digitalization business to achieve double-digit percentage yoy growth in 2022.
We expect operating expenses to still grow rapidly in 2022. We expect growth of network operations and support expenses as well as personnel expenses to be higher than growth of service revenue while proportion of selling, general and administrative expenses to service revenue will be relatively stable. We expect that depreciation and amortization will have modest growth. We expect that EBITDA margin will decrease yoy but EBITDA will increase yoy in 2022.
We maintain the TP at HK$3.55 and the investment rating as "Buy". We revise up FY22-FY24 EPS forecasts by 2.1%/ 2.3%/ 1.0%, respectively. The TP represents 9.1x, 8.7x and 8.5x FY22-FY24 PER.