We upgrade the TP to HK$5.15 and maintain the investment rating as "Buy". We forecast FY23-FY25 EPS to be RMB0.372/ RMB0.414/ RMB0.457, respectively. Due to remarkable results in digital transformation, we upgrade the TP and maintain the investment rating as "Buy".
We expect the Company's earnings and dividend payout to increase continuously. China Telecom’s FY22 results were in line with expectations.
　　Service revenue increased by 8.0% yoy while shareholders' net profit was up by 12.5% yoy on a comparable basis. Meanwhile, the Company proposed to increase the whole year dividend payout ratio of 2022 by 5 ppt yoy to 65%. We expect mobile service and fixed-line broadband business to increase steadily, while shareholders’ net profit to achieve double-digit percentage yoy growth in 2023. We expect dividend payout ratio to reach about 70% in 2023.
We expect the development of cloud business to exceed market expectations. In 2022, China Telecom cloud revenue increased by 108% yoy to RMB57.9 billion. The Company aims to expand its cloud business to reach RMB100 billion in 2023, higher than market expectations. We expect the Company to invest heavily in research and development of core technologies, coupled with strong market demand, huge customer base, advantages in cloud-network integration, advantages in data security, as well as the large scale investments （the Company plans to invest RMB19.5 billion in cloud resources in 2023）； we expect that cloud business may exceed market expectations.
Catalysts: Increase in dividend payout ratio; promotion of business data-related business.
Risk warning: Slower-than-expected growth of industry internet business; mismatch between investments and benefits.