Service revenue trend kept steady relative to Q2, albeit being slower than before due to macro headwinds. Yet earnings momentum continued to trend in the mid-single digits overall as we saw good cost control by China Telecom again (acceleration in EBITDA) while peers were cushioned by lower D&A costs (back by easing capex).
Despite the slowdown in service revenue trend from softer macro, Chinese operators still delivered a strong earnings growth. Interim dividends rose by 7-22% YoY as all three raised payout ratios. Despite the share prices already roughly doubling, we remain bullish on exposure to China’s structural enterprise theme, improving capital intensity and improved shareholder remuneration.
EM Telcos top line growth slowed somewhat in Q1 driven by price increases in India lapping. However, other markets stayed strong and simple average revenue growth was 9%. Our thesis remains that EM telcos are set to grow sustainably at GDP+ rates.
Chinese telcos reported high-single digit service revenue growth again, driven by Enterprise and a better mobile performance. However, EBITDA growth and margin saw some pressure, attributed to higher personnel, marketing costs and Enterprise-related technical costs.
Over the last year we have become increasingly bullish on the top line outlook for EM Telcos and in particular on their Enterprise segment, as we believe Enterprise revenues for EM Telcos are set to exceed expectations based on our view that Enterprise penetration is following an S-curve.
In a separate note published today we analyse the Data Centre opportunity for EM Telcos globally which shows that the best value opportunity for those that can invest is probably in China. The 3 Chinese Telcos are each among the top 6 providers of co-location DC capacity globally, and generate 3-9% of group revenues from IDC.
We have written numerous notes now on our view that EM Telcos are in a bull market. And in a bull market it is likely that the best performers will double. In this note, we pick out the 9 EM Telcos we think are most likely to do that on a 2-3 year time horizon. Investors who focus on these stocks we think are likely to generate outsized returns well ahead of the broader market.
2021 saw revenue growth improve materially for the telcos largely driven by Enterprise. With Enterprise penetration still in the twenties, we expect this process to continue, leading to reduced margin pressure and accelerating profit growth. Share price response to better trends was disappointing in 2021, but 2022 has started well, with a $12.6bn buyback from China Mobile, and aggressive profit targets from China Unicom.
Our thesis is that EM telcos are set to grow sustainably at GDP+ rates. One of the key questions we are repeatedly asked is whether there are any examples of this happening. This note in a single slide answers this question by showing actual reported growth rates of service revenues for the key EM Telcos.
Even if you can’t invest in Chinese telcos this note is useful as it helps to explain why we are getting so bullish about EM Enterprise revenues. For a number of reasons we think China is a lead indicator for what is likely to happen to EM telco revenue growth in coming years as Emerging Economies digitise.
In case you missed it, last week we published a deep-dive sector note analysing the Enterprise opportunity in EM and we have had a lot of investor interest in the piece. Post-Covid emerging economies are digitizing rapidly, and importantly following an S-Curve of Enterprise penetration. S-Curves are exceptionally powerful in our experience and we show in this note that Enterprise revenues could in many cases double in 4-6 years, adding 10-25% to the top line for a number of leading EM telcos. T...
We analyse the Enterprise opportunity in China, which is accelerating as it enters the steepest part of the S-curve, in common with other EM markets where we have published a note today on our more bullish outlook for EM Enterprise revenues. Overall revenue trends are likely to improve as a result, driving double digit EPS growth.
We analyse the Enterprise opportunity in EM. Post-Covid emerging economies are digitizing rapidly, and importantly following an S-Curve of Enterprise penetration. S-Curves are exceptionally powerful in our experience and we show in this note that Enterprise revenues could in many cases double in 4-6 years, adding 10-25% to the top line for a number of leading EM telcos.
We hosted a call this evening HK time with IR at China Telecom. Double digit revenue and net profit growth targeted in the next 2-3 years makes China Telecom look compelling at this stage for those allowed to invest; Target remains HK$ 6.2/share.
Full Article at IIR has reaffirmed its Recommended rating for PIA after undertaking a review post the appointment of a new Portfolio Manager, Harding Loevner. The full report can be found on the IIR website. On 26 July 2021, Pengana International Equities Limited (PIA) announced a fully franked dividend of 1.35 cents per share for the June quarter. This represents an 8% increase on the March quarter dividend and takes the total dividends declared for FY21 of 5.1 cents per share, fully franked....
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