China Telecom (00728.HK): VAT Tax Impact in Line with Expectations

In the first quarter of 2026, $CHINA TELECOM(00728.HK) achieved operating revenue of RMB 1,320 billion, of which service revenue was RMB 1,227 billion. It is worth noting that despite the continuous expansion of the user base, with the number of mobile users reaching 441 million, operating revenue did not grow accordingly due to factors such as the increase in VAT (Value-Added Tax). Instead, it decreased by 2.6% year-on-year. The profit attributable to shareholders of the company for the period was RMB 74 billion, a decrease of 17.1% year-on-year; EBITDA was RMB 339 billion, with the EBITDA margin maintained at 27.6%.

In terms of business highlights, the number of 5G network users reached 314 million, with the penetration rate increasing to 71.3%, driving a 17.7% growth in total mobile internet traffic. Under the "Cloud Transformation and Digital Shift" strategy, strategic emerging businesses performed strongly: Tianyi Cloud revenue grew by 6.8% year-on-year, while smart revenue saw a more significant increase of 39.4%. At the same time, the company leveraged AI to strengthen precise cost control, resulting in a 1.5% year-on-year decrease in network operation and support costs, demonstrating good results in cost reduction and efficiency improvement.

Looking ahead, the company will fully implement the "Cloud Transformation, Digital Shift, and AI for Benefit" strategy, aiming to transform into a leading AI service provider, with Token services as its main business focus. Although short-term profitability is under pressure, the company's total assets have grown steadily to RMB 8,791 billion. In summary, the company will continue to deepen the "AI+" initiative, continuously enhance its core competitiveness, actively reward shareholders based on stable operations, and move towards becoming a world-class enterprise.

Source: KGI Securities