China telecoms Report Interpretation

Overview

This sector earnings review assesses China Mobile, China Telecom and China Unicom after 1H26. Nomura argues that saturated mobile and broadband markets, falling ARPU, price competition and higher VAT will weigh on their core businesses, while AI computing, cloud, IDC and token services should gradually become more important growth engines.

Core views

Nomura characterises 1H26 as weak for China telecoms. Sector service revenue declined 2.1% year-on-year to CNY887.3bn, compared with 1.0% growth in 1H25. The report attributes this to slower core-business activity and moderating emerging-business growth. Network adoption continues to deepen—5G subscribers reached 1.288bn at end-June, a 69.8% penetration rate versus 61.8% a year earlier; 95.6% of users had access to broadband of at least 100Mbps and 36.8% had access to 1,000Mbps or more—but this maturity reinforces Nomura's concern that the market is saturated. Price competition, lower ARPU and the higher VAT rate are expected to keep revenue and earnings under pressure. For FY26F, Nomura forecasts service-revenue changes of -0.4% for China Mobile, -1.5% for China Telecom and -1.2% for China Unicom, with earnings declines of 6.5%, 3.7% and 7.9%, respectively. The operators are expected to tighten cost control and redirect investment from traditional network spending toward AI-related services. Total capex is forecast to fall 9% year-on-year for each operator, but computing investment is projected to increase 62% for China Mobile, 27% for China Telecom and 55% for China Unicom, reaching CNY80.85bn in aggregate and 31% of total capex, up from 19% in FY25. Nomura estimates FY26-28F computing-investment CAGRs of 27%, 17% and 9%, respectively. The report sees AI cloud, IDC and token services as the offsetting growth drivers. In 1H26, computing-service revenue was CNY52.9bn for China Mobile, CNY31.1bn for China Telecom and CNY41.9bn for China Unicom, growing 14%, 7% and 13% year-on-year. China Mobile's and China Telecom's AI data-centre revenue rose 486% and 9.3%, respectively. All three operators launched token plans for individual and enterprise customers in May 2026. Nomura argues that rising inference demand from agent-based AI applications, improving domestic large-language and multimodal models, and continued infrastructure and R&D investment can support a cloud-growth recovery. It forecasts FY26-28F cloud-revenue growth ranges of 9-15% for China Mobile, 9-16% for China Telecom and 8-15% for China Unicom; cloud is projected to contribute 13%, 28% and 23% of their FY26F service revenue, respectively. China Mobile is Nomura's preferred sector name and retains a Buy rating. The company reported a 1.1% year-on-year decline in 1H26 service revenue and a 6.3% earnings decline; 2Q26 declines were 3.0% and 7.5%. Mobile ARPU fell 8.9% to CNY45.1, while Nomura expects broadband to remain a steadier contributor, supported by upgrades and smart-home value-added services. The report cut FY26-27F service-revenue forecasts by 1.3-2.2% but raised earnings forecasts by 0.1-1.3% on tighter cost control. China Mobile's intelligent-computing capacity reached 112,700 PFLOPS (FP16) in 1H26, with in-service resource utilisation above 90%; Nomura forecasts a 14% FY26-28F revenue CAGR for Mobile Cloud. Its DCF-based target price is reduced to HKD95 from HKD96, implying 18.5% upside from the 25 August close of HKD80.15. China Telecom retains a Neutral rating, with its target price reduced to HKD5.0 from HKD5.5. Its 1H26 service revenue fell 2.0% year-on-year and earnings fell 14.9%, while communication-service revenue declined 3.3% to CNY213.0bn. Mobile ARPU fell 5.4% to CNY43.5 and blended broadband ARPU fell 5.2% to CNY45.8. Nomura cut FY26-27F service-revenue and earnings forecasts by 2.9-3.8% and 3.4-5.9%, respectively, to reflect VAT effects. Against this, Telecom Cloud revenue grew 7.8% to CNY61.8bn in 1H26 and intelligent-computing capacity reached 118.8 EFLOPS, up 30.5% year-on-year. Nomura expects 9.0% cloud-revenue growth in FY26F and forecasts FY26-28F CAGRs of 14% for Cloud and 6% for Industrial Digitalization. It expects FY26F capex of CNY73bn, down 9% year-on-year, and at least a 75% dividend payout ratio. China Unicom also retains a Neutral rating, and Nomura cuts its target price to HKD6.1 from HKD8.0. Its 1H26 service revenue declined only 0.2% year-on-year, better than the sector's 2.1% decline, but earnings dropped 34.6% because of VAT and higher staff costs. Nomura lowers FY26-27F service-revenue forecasts by 2.7-3.4% and earnings forecasts by 4.4% in each year. Computing-power revenue rose 13% to CNY41.9bn in 1H26, including 11% IDC-revenue growth and 9% computing-service growth. Nomura expects cloud and IDC momentum to continue, sees token services as a major 2H26F focus, and forecasts 8.0% cloud-revenue growth in FY26F and a 14.0% FY26-28F CAGR. It notes that operating cash flow improved 13.6% to CNY32.9bn, but no interim dividend was declared, which it believes could weaken shareholder confidence without a competitive FY26F dividend plan. Nomura views the three operators as defensive because of their dividend characteristics, but says slowing fundamentals and tighter VAT policy could reduce their appeal as high-yield plays. It therefore prefers China Mobile, whose strong cash reserves are expected to support a more stable dividend outlook, while taking a more cautious view on China Telecom and China Unicom.

Analysis framework

Nomura first reviews industry service revenue, network penetration and data usage to assess the state of the core telecom market. It then compares each operator's 1H26 revenue, earnings, ARPU, capex, computing capacity and cloud activity, revises FY26-28F forecasts, and values each stock using DCF with cross-checks against earnings, book value, EV/EBITDA and dividend-yield metrics.

Methodology notes

• Industry AnalysisSupply-demand framework

  Assessment of saturated telecom demand, subscriber penetration, ARPU pressure and competition against emerging AI-related demand.

  The report uses core-market maturity and pricing pressure to explain declining legacy-service growth, then contrasts this with demand for AI computing, cloud, IDC and token services.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  AI application and inference demand driving cloud, token and computing-infrastructure investment.

  Nomura links consumer and enterprise AI applications to rising token consumption and inference demand, which it expects to support operators' cloud and AI data-centre businesses.

• Valuation methodsDCF (Discounted Cash Flow)

  Discounted-cash-flow target-price valuation.

  Nomura derives target prices from projected cash flows, using WACC and terminal-growth assumptions, and presents implied valuation multiples and dividend yields as reference points.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Mobile (941 HK)

  Preferred defensive China telecom operator and the report's sole Buy-rated stock.

  Strengths

  Strong cash reserves, stable dividend outlook, computing capacity of 112,700 PFLOPS and expected Mobile Cloud revenue CAGR of 14% for FY26-28F.

  Weaknesses

  1H26 service revenue and earnings declined 1.1% and 6.3% year-on-year; mobile ARPU fell 8.9%.

  Comparison

  Preferred over China Telecom and China Unicom, both rated Neutral.

  Risks

  Intensified competition, higher-than-expected 5G capex or faster rollout, and asymmetric regulatory risk.

• China Telecom (728 HK)

  Covered telecom operator rated Neutral.

  Strengths

  Telecom Cloud revenue grew 7.8% to CNY61.8bn in 1H26; intelligent-computing capacity rose 30.5% year-on-year to 118.8 EFLOPS.

  Weaknesses

  1H26 service revenue fell 2.0%, earnings fell 14.9%, and both mobile and broadband ARPU declined.

  Comparison

  Its expected cloud recovery and dividend payout are offset by more pressured core-business growth than China Mobile's preferred profile.

  Risks

  Tariff and handset-subsidy competition, broadband competition from China Mobile, and slower new-business development.

• China Unicom (762 HK)

  Covered telecom operator rated Neutral.

  Strengths

  1H26 service-revenue decline of 0.2% outperformed the sector; computing-power revenue grew 13% to CNY41.9bn and operating cash flow rose 13.6% to CNY32.9bn.

  Weaknesses

  1H26 earnings declined 34.6%; the company did not declare an interim dividend for 2026.

  Comparison

  It has accelerating computing and token-service momentum but less dividend visibility and greater earnings pressure than the preferred China Mobile.

  Risks

  Tariff and handset-subsidy competition, broadband competition from China Mobile, and slower-than-expected new-business progress.

Key data

• China telecom sector 1H26 service revenueCNY887.3bn, -2.1% y-yCompared with +1.0% y-y growth in 1H25.
• 5G subscribers at end-June 20261.288bn; 69.8% penetrationVersus 1.118bn and 61.8% in 1H25.
• FY26F aggregate computing investmentCNY80.85bn31% of total capex versus 19% in FY25.
• China Mobile 1H26 resultsService revenue -1.1% y-y; earnings -6.3% y-yMobile ARPU fell 8.9% y-y to CNY45.1.
• China Telecom 1H26 resultsService revenue -2.0% y-y; earnings -14.9% y-yTelecom Cloud revenue rose 7.8% y-y to CNY61.8bn.
• China Unicom 1H26 resultsService revenue -0.2% y-y; earnings -34.6% y-yComputing-power revenue rose 13% y-y to CNY41.9bn.

Impact & implications

The report expects the sector's investment case to shift further from mature mobile and broadband services toward AI infrastructure, cloud, IDC and token monetisation. Stronger cash generation and dividend resilience support Nomura's preference for China Mobile, while China Telecom and China Unicom face greater pressure from weaker fundamentals, valuation changes and, for China Unicom, dividend uncertainty.

Risks

• Further tariff and handset-subsidy competition could pressure pricing, margins and market share.
• Higher-than-expected 5G capex or a faster-than-expected 5G rollout could weigh on China Mobile.
• Slower-than-expected development of cloud, IDC, token and other emerging businesses could weaken the expected growth offset.
• Potential asymmetric regulatory risk is identified for China Mobile.
• China Unicom's lack of an interim dividend could reduce shareholder confidence if it does not present a competitive FY26F dividend plan.

What to watch

• Core-service revenue, mobile and broadband ARPU trends, and the impact of the higher VAT rate.
• Growth in cloud, IDC, computing services and AI data-centre revenue.
• Execution and monetisation of token plans, including inference demand from AI applications.
• The pace and mix of capex shifting toward computing infrastructure.
• Dividend payout decisions, especially China Unicom's FY26F dividend plan.