We see the impact of the implementation of further tariff reduction and completely remove roaming charges directed by the Chinese government are marginal to the telecom sector. While investors keep tracking the impact of the new measures, China’s three major telecommunications network operators have both released better-than-expected Q1 earnings. The market remains focused on US-China Trade war. The US export ban on ZTE could disrupt ZTE’s supply chains as we think the firm cannot find new suppliers to supply key components that banned by US government in near term. The disruption could also drag down the development of 5G networks in mainland China and telecom operators may slow down their capex on networks infrastructure, which should encourage them to provide a higher dividend payout ratio this year. Besides, we see better growth prospects and a chance of revaluation for telecom operators as China Tower could have its IPO at the end of this year. The valuations of Chinese telecom operators look cheap in terms of EV/EBITDA and at the lower end when compared with other defensive sectors. There are two companies, China Unicom (762) and China Telecom (728), with stronger fundamentals in the Telecom sector.

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