Citibank: The slowdown in growth of Chinese telecommunications stocks in the third quarter reflects maintaining the “buy” ratings of the three major operators H shares

The Zhitong Finance App learned that Citibank released a research report saying that the slowdown in growth of China Telecom in the third quarter has been reflected, and the focus has turned to AI infrastructure monetization and dividend support. The bank maintains the “buy” ratings of the three major Chinese telecom companies China Mobile (00941), China Telecom (00728), and Unicom (00762) H shares. H shares are still attractive in terms of valuation, with an average dividend rate of about 7%.

Citibank pointed out that revenue from the telecommunications industry in mainland China may still be under pressure in the third quarter. The industry's revenue fell 2.2% year on year in the first eight months of 2026, mainly reflecting a value-added tax-driven reset rather than a similar deterioration in basic demand. The bank believes that this slowdown has largely been reflected in prices, with investors' focus shifting to AI infrastructure monetization and dividend support. Despite the decline in total capital expenditure, more than one-third of operators' investment in 2026 is being redirected towards computing infrastructure. The bank estimates that the total data center production capacity of the three major operators can double from 8.7 GW in 2024 to 17.5 GW by 2028.

Citi believes that as the impact of VAT is broadly reflected, investors' focus should shift to post-VAT trends, ARPU resilience, and cost discipline. In terms of AI infrastructure, operators are reallocating more than one-third of capital expenditure in 2026 to computing infrastructure. The bank expects the combined production capacity of the three data centers to double from 8.7 GW in 2024 to 17.5 GW by 2028, supporting long-term AI infrastructure growth and potential valuation revaluation. In terms of valuation, H shares are still attractive. The average dividend rate is about 7%, and the valuation is relatively low; the dividend ratio of A-shares is less attractive, but the interest rate difference with the yield on Chinese treasury bonds is generally stable.

In terms of individual stocks, the bank lowered China Mobile's target price for H shares from HK$102 to HK$97, and the target price for China Mobile (600941.SH) A shares was reduced from RMB 120 to RMB 118 to reflect value-added tax policy adjustments that reduced effective service revenue and a more cautious view on AI-driven revenue contributions during the transition period. The target prices for China Telecom (00728) H shares and China Telecom (601728.SH) A shares remained unchanged at HK$5.7 and RMB 7.7, respectively. China Unicom's (00762) H share target price was lowered from HK$8.3 to HK$7 to reflect the impact of the suspension of the interim dividend.