J.P. Morgan: Weak Q2 earnings but stable profits for China's telecoms sector, pick China Mobile
Morgan Stanley published a report stating that the earnings of the telecom sector in the first half of the year would be weak but stable, while the earnings of ZTE and China Tower would be stable. The bank raised the rating of ZTE H share from "reduce" to "neutral", believing that the company's government, enterprise and consumer businesses may outperform expectations, offsetting the weakness of mainland mobile base stations business, and driving stable growth in revenue and earnings in the second half. For China Tower, the bank expects its performance in the second quarter to be stable, with little guidance on financial arrangements after 2026, and maintains its "neutral" rating. The bank expects the service revenue growth of the three major mainland telecom operators, China Mobile, China Telecom and China Unicom, to slow down from the first quarter's 5%, 4% and 3% year-on-year growth to 2%, 3% and 3% in the second quarter, respectively. The bank believes that the telecom operators will offset the pressure on revenue growth through strict cost control, and expects ZTE and China Unicom's earnings growth to stabilize at 5% and 10% year-on-year, respectively, but expects China Telecom's net profit to slow down from the first quarter's 8% year-on-year growth to 6% in the second quarter. The bank reiterates its "overweight" rating on the three major mainland telecom stocks, with China Mobile leading, followed by China Unicom and China Telecom.