＜Research＞JPM Upgrades ZTE (00763.HK) to Neutral, Top Picks CHINA MOBILE (00941.HK) Among CN Telecoms

　　JPMorgan reported that it expected weak revenues but solid earnings from mainland telecoms stocks in 2Q24, while revenues and earnings from ZTE (00763.HK) -0.300 (-1.623%) Short selling $6.82M; Ratio 4.062% and CHINA TOWER (00788.HK) -0.020 (-1.980%) Short selling $17.34M; Ratio 8.522% may remain solid.

　　According to the broker, the YoY service revenue growths of CHINA MOBILE (00941.HK) -1.350 (-1.758%) Short selling $354.20M; Ratio 24.654% , CHINA TELECOM (00728.HK) -0.250 (-5.030%) Short selling $17.90M; Ratio 4.993% and CHINA UNICOM (00762.HK) -0.270 (-3.673%) Short selling $63.53M; Ratio 24.353% are expected to slow down to 2%/3%/3% respectively in 2Q from 5%/4%/3% in 1Q, as the weakening macro-economy put pressure on the new digital business, such as the cloud and data centre (IDC) business. Believing that the telecoms will offset the pressure on revenue growth through stringent cost control, the broker expected CHINA MOBILE and CHINA UNICOM's earnings growth to stabilise at 5% and 10% YoY respectively, while CHINA TELECOM's net profit growth is expected to slow to 6% YoY in 2Q from 8% YoY in 1Q.

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　　The broker reiterated its Overweight rating on the top three telecoms stocks in China, with CHINA MOBILE as its top pick, followed by CHINA UNICOM and finally CHINA TELECOM. The broker is optimistic that CHINA MOBILE, with its 7% yield and 7% compound annual growth rate for dividends, is highly defensive in a volatile market. Compared to CHINA UNICOM and CHINA TELECOM, CHINA MOBILE's share price has underperformed and possessed the potential to catch up.

　　In addition, the broker upgraded its rating on ZTE H-shares from Underweight to Neutral, believing that the company's government, enterprise and consumer businesses may Outperform expectations, possibly offset the weakness in the Mainland base station business, thus driving steady revenue and earnings growth in 2Q. As for CHINA TOWER, the broker expected the company's results for 2Q to remain solid, and maintained a Neutral rating on the company as management's guidance on financial arrangements beyond 2026 is expected to be minimal.

　　(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-07-16 16:25.)

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