Key Takeaways:
Bank of China International (BOCI) cut its price target for China Unicom (00762.HK) by nearly 20 percent to HKD 9.55 after the telecommunications firm reported a significant profit decline caused by a higher tax rate.
Despite the lower target, the bank reiterated its “Buy” rating on the company. BOCI believes that China Unicom’s strong free cash flow and a projected 61 percent dividend payout ratio in 2025 will provide solid valuation support for the stock.
The analyst action followed China Unicom’s announcement that its net profit for the first quarter of 2026 fell 17.6 percent year-over-year to RMB 4.9 billion. The company’s service revenue also slipped 0.9 percent to RMB 90.1 billion. The primary cause for the profit erosion was an increase in the value-added tax (VAT) rate for relevant telecom services, which rose from six percent to nine percent. The first quarter was the first period to fully reflect the impact of this government-mandated tax hike.
In response to the results, BOCI lowered its earnings forecasts for China Unicom for the years 2026 to 2028 by 11.8 percent, 9.1 percent, and 5.5 percent, respectively. The new price target of HKD 9.55 is down from the previous HKD 11.93.
The profit decline highlights the challenges faced by Chinese telecom operators from policy changes, even as they grow their core businesses. The development suggests that investors will be closely watching the impact of tax adjustments on the sector's profitability. China Unicom's next earnings report will be a key indicator of its ability to absorb the higher tax burden.
This article is for informational purposes only and does not constitute investment advice.
