00728 Overview

US-China Leaders' Meeting: Ahead of the US-China leaders' meeting in April, the US has paused several national security measures aimed at key Chinese technologies.

Suspended Bans: The US government has put on hold bans affecting CHINA TELECOM, TP-Link routers, and the internet operations of CHINA UNICOM and CHINA MOBILE, as well as restrictions on Chinese electric trucks and buses.

Telecom Industry Performance: The Chinese telecom industry experienced a significant slowdown in service revenue growth, dropping from 3.2% YoY to 0.7% in 2025, attributed to market saturation, competition, and a weak macro environment.

Broker Ratings and Target Prices: Nomura maintained a Buy rating on China Mobile while downgrading China Telecom and China Unicom to Neutral, with target prices adjusted downwards for both companies.

Tax Adjustment Announcement: Starting January 1, 2026, the tax for 'value-added telecommunication services' will be adjusted, increasing the VAT rate from 6% to 9% for services like mobile data, SMS, and internet broadband.

Impact on Revenue: Citi Research estimates that the tax change could lead to a 3% potential impact on service revenue for major telecom operators, as they may not pass the increased tax burden onto consumers due to market competition.

VAT Increase on Telecom Services: China's Ministry of Finance and State Administration of Taxation have raised the VAT on telecommunication services, which is expected to impact operators' profits without passing the tax burden onto customers by 2026.

CICC's Earnings Forecasts: CICC has revised its earnings forecasts for China Mobile and China Telecom, maintaining 2025 estimates but lowering revenue and net profit projections for 2026 due to the VAT changes.

Market Impact: The share prices of Chinese telecom companies may experience short-term pressure as the market adjusts to the new tax policy and the lowered earnings outlook.

Target Price Adjustments: While CICC has kept its original ratings for the telecom companies, it has reduced its target prices in light of the anticipated financial impacts from the VAT increase.

VAT Adjustment Announcement: Chinese telecom companies are increasing the value-added tax (VAT) on mobile data, SMS/MMS, and internet broadband services from 6% to 9%, which is expected to affect their net profits.

Impact on Net Profits: JPMorgan estimates that the profit impacts for CHINA MOBILE, CHINA TELECOM, and CHINA UNICOM will be 7.1%, 12.6%, and 11.9% respectively by 2026, with CHINA MOBILE likely facing the least damage due to its higher gross profit margin.

Dividend Yield Forecasts: JPMorgan predicts that the dividend yields for CHINA MOBILE, CHINA TELECOM, and CHINA UNICOM will be 7%, 5.7%, and 6.8% respectively in 2026, maintaining their attractiveness compared to the Hang Seng Index (HSI).

Investment Rating: Despite the VAT increase, JPMorgan has maintained an Overweight rating on the three telecom companies, indicating a positive outlook for their stock performance.

Market Decline: Hong Kong stocks experienced significant losses, with the HSI dropping 611 points (2.2%) to close at 26,775, influenced by a volatile commodity market and declining resource stocks.

Precious Metals and Resource Stocks: Gold and silver prices fell sharply, with major companies like SD GOLD and ZHAOJIN MINING seeing declines of over 8%, while resource stocks like JIANGXI COPPER and CHALCO also reported significant losses.

Telecom Sector Impact: Telecom companies faced declines due to an increase in VAT from 6% to 9%, with CHINA UNICOM and CHINA TELECOM dropping over 6%, and CHINA MOBILE falling by 2.3%.

Automotive and Chip Sector Struggles: Automakers reported substantial sales declines, with BYD COMPANY and XPENG-W experiencing drops of 30% YoY and 34% YoY respectively, while the chip sector also faced losses, particularly for SMIC and HUA HONG SEMI.