Policy, not profit, is driving
management decisions as the
government pushes operators to
expand capex and subscribers
􀀗 We focus on sensitivity of earnings to
handset subsidies; smaller operators’
earnings are more at risk
􀀗 Downgrade China Telecom to UW(V).
China Mobile still our preferred pick, but
slowing growth offers limited upside
2009 is likely to be a difficult year for the Chinese telecom
operators as intensifying competition hurts margins. We
prefer China Mobile as its balance sheet strength makes it
the most defensive stock.
􀀗 China Mobile (maintain Neutral (V), TP: HKD72)
We raise 09e and 10e EPS by 1.1% and 0.3% on higher
subscriber estimates. We are 8% and 12% below
consensus for 2009 and 2010 after the revision. Our
target price rises 6%; potential return 6.1%.
􀀗 China Telecom (downgrade to UW(V), TP: HKD2.5)
We cut 09e and 10e earnings by 23.3% and 24.9% on
higher amortization expense and handset subsidy. We
are now 15% and 19.2% below consensus for 2009 and
2010. Our target price comes down 17% to HKD2.5;
potential return -10.9%.
􀀗 China Unicom (maintain UW(V), TP: HKD6.4)
We cut 09e and 10e earnings by 13.6% and 3% on
decline in GSM ARPU and higher handset subsidy. Our
09e and 10e EPS are now 16.9% and 18.5% below
consensus. Our target price comes down 28%; potential
return -9.5%.
Telecoms
China
China Telcos
Policy, not profit
3 February 2009
Tucker Grinnan*
Analyst
The Hongkong and Shanghai Banking Corporation Limited
+852 2822 4686 tuckergrinnan@hsbc.com.hk
Walden Shing*
Analyst
The Hongkong and Shanghai Banking Corporation Limited
+852 2996 6751 waldenshing@hsbc.com.hk
View HSBC Global Research at: http://www.research.hsbc.com
*Employed by a non-US affiliate of HSBC Securities (USA) Inc,
and is not registered/qualified pursuant to NYSE and/or NASD
regulations
Issuer of report: The Hongkong and Shanghai Banking
Corporation Limited
Disclaimer & Disclosures
This report must be read with the
disclosures and the analyst certifications
in the Disclosure appendix, and with the
Disclaimer, which forms part of it
Valuation summary
(HKD) Price __ Rating ___ Target Price __ PE ___
Stock Ticker 30-Jan Old New Old New 2008 2009
China Mobile 941 HK 70.5 N (V) N (V) 68 72 11.1 10.9
China Telecom 728 HK 2.88 N (V) UW (V) 3.0 2.5 10.0 13.0
China Unicom 762 HK 7.32 UW (V) UW (V) 8.9 6.4 8.6 12.7
Source: HSBC

目录

Post 3G era 3
3G rollout schedule 3
How big is 3G demand? 3
3G subscriber assumption 4
Sensitivity analysis on 3G subscriber assumption 4
Handset subsidy – the key to profitability 6
3G license likely to spur another round of capex 8
3G spectrum 9
Bundling helps lower fixed-line subscriber loss 9
China Mobile 12
Solid fundamentals, potential upside of dividend 12
Capex likely to be revised up to support
domestic economy 12
Slowing growth may result in de-rating 13
Maintain Neutral (V), target price up 6% to HKD72 14
Risks to our view 14
Financials & valuation: 16
China Telecom 17
First-mover advantage in launching 3G services 17
CDMA unprofitable in 2009-10 due to handset subsidy 17
Broadband competition 17
Bundling helps to lower fixed line subscriber loss 18
Downgrade to UW (V): Too early to buy 18
Risks to our view 18
Financials & valuation: 21
China Unicom 22
More vulnerable to downside surprise 22
More difficulties ahead 22
Maintain Underweight (V), cut target price to HKD6.4 22
Risks to our view 23
Financials & valuation: 26
Disclosure appendix 27
Disclaimer 31