Analyst Note| Dan Baker |
Given the New York Stock Exchange’s plan to de-list the U.S. listings of China Mobile, China Telecom and China Unicom, we cease coverage of their associated ADS. We retain our fair value estimates of HKD 82 for narrow-moat rated China Mobile, HKD 4.54 for no-moat rated China Telecom and HKD 10.90 for no-moat rated China Unicom. All three stocks are trading well below these target prices with recent share price weakness likely exacerbated by forced selling from U.S. investors. There may also still be some short-term overhang on the Hong Kong listings as the U.S. investment constraints may lead to some funds and ETFs reducing their Hong Kong exposure as well. We reiterate our view that the delisting of the ADS will have negligible impact on the operations of the Chinese telecom companies or their underlying value. Trading on 2021 price/earnings ratios of between 6 and 8 times and with dividend yields of between 5% and 8%, as well as growing earnings solidly despite heavy near-term spend on 5G infrastructure, we see each of them as very undervalued. We see the forced selling as a buying opportunity for non-U.S. investors.