We maintain the TP at HK$3.55 and the investment rating as "Buy". Given steadily rising profitability and strong cash position, we expect the dividend payout to exceed market expectations in the future. Thus, we maintain the TP at HK$3.55 and the investment rating as "Buy". The TP represents 10.2x/ 9.7x/ 9.5x 2022-2024 PER.
　　We expect the Company's main businesses to still grow steadily. China Telecom's (the "Company") 3Q22 results were generally in line with our expectations. Service revenue increased by 6.4% yoy to RMB107.2 billion, while sales of terminals increased by 23.9% yoy to RMB11.4 billion; the Company's total operating revenue increased by 7.9% yoy to RMB118.7 billion. Total operating expenses increased by 8.2% yoy, as a result, EBITDA as a percentage of service revenue decreased by 1.3 ppt yoy to 28.5% and EBITDA rose by 2.0% yoy. Shareholders' net profit was up by 12.0% yoy to RMB6,252 million. In 3Q22, the Company achieved net addition in mobile subscribers of 5.67 million YTD to reach 390 million. We expect the Company to add more than 20 million mobile subscribers in 2022. In 3Q22, proportion of 5G subscribers increased by 4.1 ppt QoQ to 64.4%. We expect 5G subscribers to still grow with the expanding coverage of 5G networks and to increase by about 80 million in 2022, however, we expect that the pulling effect from 5G on ARPU will not currently be significant and we expect mobile ARPU to be stable. Due to steadily rising numbers of mobile users, we expect mobile communications service revenue to grow steadily yoy in 4Q22. In 1-3Q22, revenue from broadband access and Smart Family increased yoy by 4.6%. We expect wireline broadband subscribers net additions to exceed 10 million in 2022. Due to the increase in number of wireline broadband subscribers and the value contribution brought by Smart Family, we expect wireline business to maintain steady growth. In 1-3Q22, revenue from industrial digitalization business went up by 16.5% yoy on a comparable basis, while revenue from e-Surfing Cloud doubled yoy. Due to strong demand from the government and enterprise markets, the Company's leading position in the cloud market and IDC sources and the "east-to-west computer resource transfer" project, we expect industrial digitalization business to still grow rapidly.
　　We expect the Company's future dividend payout to exceed market expectations. We expect operating expenses to still grow significantly. Overall, we expect that EBITDA as a percentage of service revenue will decrease yoy but EBITDA will increase steadily yoy, and shareholders' net profit will grow steadily. Given the expected steady cash position, we expect while the Company continues to improve its EPS, it will also raise its dividend payout ratios, and the dividend payout may exceed market expectations in the future.
　　Catalysts: Increase in dividend payout and dividend payout ratio.
　　Risk warning: Slower-than-expected growth of industrial digitalization business; pressure from increased competition on ARPU.