Chinese Telecom Sector:Sector revenue grew close to 9%YoY in Oct and Nov

MIIT data shows revenue growth continued to pick up

    MIIT data showed that revenue growth continued to rise with sector servicerevenue up 6.5% in the year to November. Compared with revenue growth of6.0% in the first 9months of the year, this implies service revenue grew 8.8%YoY in October and November. The acceleration in revenue growth camemainly from the wireless segment which we estimate saw growth of 8.5% YoYin October and November, while fixed broadband growth was similar to priormonths at ~8% YoY. It appears that consumers are embracing the large dataplans on offer by increasing overall spending and this should hopefully dispelfears that the recent wave of large data plans would hurt revenue growth.

    Net adds lower but YoY growth still solid

    Mobile net adds were seasonally lower in November: total net adds were 8.2m,2.3m lower than the average seen in the previous three months. That said, thedrop in net adds was not inconsistent with the experience in prior years andoverall mobile subscribers grew 6.7% YoY in November, faster than the runrateseen in prior months. Among the telcos, CM and CT both saw around 3mnet adds while CU saw a 2m increase; 4G penetration is now similar at CM andCT at 72% with CU lower at 61%.

    Top pick China Unicom

    We continue to favour China Unicom with the current revenue environmentlikely to lead to a strong earnings recovery for the company. Coupled withbetter capex discipline vs the peers, we expect CU to re-rate closer towardsthe regional peer average of 6-7x EV/EBITDA. Furthermore, given theimportance of the task at hand, we expect the chairman to see through thecompany’s turnaround although he is approaching the retirement age of 60.