Goldman Sachs: Downgraded China Telecom (00728) and China Unicom (00762) to “neutral” innovative business growth under pressure in the short term

The Zhitong Finance App learned that Goldman Sachs released a research report saying that it has a positive view on the transfer of capital expenses of Chinese telecommunications companies from traditional telecommunications networks to artificial intelligence computing infrastructure and new business expansion, but it is seen that the short-term service business and innovative business growth of the mainland telecommunications industry is under pressure in the short term.

In terms of telecommunications services, future growth is expected to stagnate. As the slowdown in 5G applications affects the growth of paying users and average revenue per user, there are positive views on the increase in value-added services. However, it is believed that the expansion of average revenue per user will depend on breakthroughs in artificial intelligence applications and functions to drive user traffic. In terms of innovative business, we maintain a positive view of the revenue contribution and computational capital expenditure growth of long-term artificial intelligence-related solutions, but based on macroeconomic uncertainty, it is expected that companies will prioritize quality projects or affect short-term growth.

Goldman Sachs downgraded the investment ratings of China Telecom (00728) and China Unicom (00762) from “buy” to “neutral”, reducing China Telecom's target price from HK$7.9 to HK$6 and Unicom's target price from HK$11.5 to HK$8.8 based on the stagnant growth of telecommunications services and the need to accelerate innovative business. The bank also lowered the two companies' profit forecasts for this year and next two years by 6% to 7%.