China Telecom: Zacks’ Bull of the Day Play

As China liberalizes its capital markets, wealthy domestic investors have rushed to buy Chinese stocks listed on the Hong Kong exchange, which are not available in the mainland.

China Telecom (CHA) is an integrated telecom service operator providing basic telecom services such as wireline and value-added survices such as internet access in China. It is the world’s largest wireline telecom operator as well as the world’s largest CDMA mobile network
operator.  The Company’s H shares are listed in Hong Kong and ADRs are listed on the NYSE.

China opens up its Capital Markets–Shanghai-Hong Kong Stock Connect

In a major step towards liberalizing its capital markets, China launched “Shanghai-Hong Kong Stock Connect” program last week. This program allows foreign investors to invest in Chinese companies listed on the Shanghai stock exchange. Earlier foreign investors could invest in these shares only through a quota system available to qualified institutional investors.

This program also provides investors in mainland China access to stocks listed on the Hong Kong stock exchange and specifically to stocks in sectors like Telecom, which are not listed on the Shanghai stock exchange. China Telecom has been one of major beneficiaries of the move.

Excellent Results & Positive Earnings Estimates Revisions

The company reported its Q3 results last month. Net income for the quarter grew 5.2% over the same period last year and was ahead of the street estimates. 3G subscriber base expanded to 112.5 million with 5.3 million net adds during the quarter.

After impressive earnings, Zacks Consensus Estimates for the current year and next year have increased to 3.56 per share and $4.13 per share respectively from $3.48 per share and $3.92 per share, 60 days ago.

Rising estimates sent the stock to Zacks Rank #1 (Strong Buy) last month.

Focus on Growth Businesses

The company launched its 4G handset service in July in 16 cities. They plan to launch more than 100 4G models by the end of this year.

They plan to continue investing in high growth businesses including 4G and broadband, which is likely to result in strong profit growth going forward. At the end of H1 2014, growth businesses accounted for almost 90% of the revenue.

Partnership with Akamai

On October 7, the company entered into a strategic partnership with Akamai Technologies. China Telecom’s cloud division, CT Cloud is one of the largest cloud computing service providers in China. As part of the strategic partnership, CT Cloud will offer Akamai’s web performance and cloud security offerings with its own Cloud services to Chinese businesses,

The Bottom Line

With its focus on high growth businesses in the Chinese telecom industry, this stock is likely to
reward its investors nicely in the coming months.

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