3Q earnings declined 12.4% YoY to RMB27.3bn, with service revenue down 5.1% to RMB205bn, mainly due to the VAT impact, while resilient traffic growth supports underlying stability with clearer earnings recovery in FY27. Computing service revenue grew 14% YoY, led by AIDC and intelligent computing as prior investment starts to translate into growth. Reiterate BUY with TP revised to HK$93.0, We now rank CM > CT > CU, favouring CM for its sector-leading dividend yield of c.7.2%, underpinned by management’s stable-to-rising FY26 payout guidance.
Key Factors for Rating
3Q earnings declined 12.4% YoY to RMB27.3bn, with service revenue down 5.1% to RMB205bn, mainly due to the VAT rate increase effective from 2026. We revise down FY26E revenue and earnings growth rate forecasts to -1.5%/-6% YoY, with service revenue broadly tracking industry trends (MIIT: -2.2% YoY in 8M26) amid persistent VAT headwinds before rebounding in 4Q from a low base.
Computing service revenue grew 14% YoY in 1H26, with computing and AI services accounted for 22.6% of principal business revenue, up 2.2ppts YoY. We expect AI computing to emerge as a key new growth engine as deployment and monetisation scale up, though near-term margins may face some dilution.
3Q EBITDA declined 7.0% YoY to RMB73.9bn, with margin decline narrowing to 0.7ppt, mainly due to weak top-line growth. Opex down 1.8% YoY, suggesting proactive disciplined cost control.
3Q26 depreciation declined 0.4% YoY, as rising depreciation from AI computing infrastructure gradually offset the decline in legacy 5G assets. We maintain our FY26E capex forecast +1% YoY at RMB152.4bn, reflecting continued investment in AI computing capacity.
Key Risks for Rating
US sanctions may weigh on share performance.
Valuation
Reiterate BUY, with DCF-based TP revised down to HK$93.0 as we lower FY26E-28E earnings to -6.0%/0.6%/1.8%, reflecting continued VAT pressure and AI computing scale-up , with a clearer recovery expected in 2027.Interim DPS rose 0.3% YoY to RMB2.51. Mgmt. previously guided for a stable-to-rising FY26 payout ratio, supporting a sector-leading dividend yield of c.7.2%. We now rank China Mobile > China Telecom > China Unicom, favoring China Mobile for its resilient earnings base, scale advantages and stronger shareholder returns.