CLSA Slashes Forecasts as Revenue Growth Stalls at 0.2%
Following a disappointing second-half 2025 financial report, CLSA has reduced its price target for China Telecom (00728.HK) to $6 from $6.2. The downgrade was driven by a significant deceleration in growth, with the company's service revenue increasing by only 0.2% year-over-year to RMB236.3 billion. The weakness was broad-based, as mobile service revenue growth slowed to just 0.7% YoY.
The investment bank responded by lowering its adjusted net profit forecasts for China Telecom by 6% for 2026 and 9% for 2027. Despite the cuts and a bearish outlook on revenue, CLSA maintained its "Outperform" rating on the stock, suggesting some underlying value remains even as growth prospects dim.
Strategic Shift to Cloud Fails to Offset Macro Headwinds
A key factor in the weak performance was a 0.5% year-over-year decline in industrial digitalization revenue. According to CLSA's analysis, this drop was a direct result of a strategic decision by China Telecom to prioritize cloud computing projects that generate superior cash returns. This pivot, however, was not enough to counter the wider economic pressures facing the company.
Looking ahead, CLSA anticipates that China Telecom's revenue will remain constrained through 2026 by the challenging macroeconomic environment. While the bank noted that ongoing cuts to capital expenditures should help bolster profits and support dividend payments, it also warned that the pace of dividend growth is likely to slow. This presents a mixed picture for investors, where operational discipline may preserve profitability at the expense of top-line expansion.
