CHA: Buy China Telecom as Capital Markets Open Up

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-stock-logo-185China Telecom Corporation Limited (ADR) (CHA) is an integrated telecom service operator providing basic telecom services such as wireline and value-added services such as internet access in China. China Telecom is the world’s largest wire-line telecom operator as well as the world’s largest CDMA mobile network operator.

China Telecom’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.

The Shanghai-Hong Kong Stock Connect 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

China Telecom 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 cents per share and $4.13 per share respectively from $3.48 per share and $3.92 per share, 60 days ago.

Rising estimates sent China Telecom stock to “Zacks Rank #1 (Strong Buy)” last month.

Focus on Growth Businesses

China Telecom launched its 4G handset service in July in 16 cities. China Telecom plans to launch more than 100 4G models by the end of this year.

China Telecom plans 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.

China Telecom’s Partnership With Akamai

On Oct. 7, China Telecom entered into a strategic partnership with Akamai Technologies, Inc. (AKAM). 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, China Telecom stock is likely to reward its investors nicely in the coming months.

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