G Sachs Lowers CHINA MOBILE's Rating to Neutral and Reduces Target Price to HKD88

Goldman Sachs Report: Goldman Sachs has a positive outlook on China Mobile (00941.HK) despite recent challenges in the telecom sector.

5G Growth Concerns: The growth of 5G telecom services is slowing, with new base station estimates for 2025 being 8,000 lower than expected, and projected decreases in new base stations for 2026-27.

Target Price Adjustment: Goldman Sachs has lowered China Mobile's target price from HKD 105 to HKD 88 and downgraded its rating from Buy to Neutral.

Market Activity: As of February 6, 2026, short selling activity for China Mobile was reported at $429.21 million, with a short selling ratio of 26.126%.

Tax Adjustment Announcement: Starting January 1, 2026, the tax for 'value-added telecommunication services' will be adjusted, increasing the VAT rate from 6% to 9% for services like mobile data, SMS, and internet broadband.

Impact on Revenue: Citi Research estimates that the tax change could lead to a 3% potential impact on service revenue for major telecom operators, as they may not pass the increased tax burden onto consumers due to market competition.

VAT Increase on Telecom Services: China's Ministry of Finance and State Administration of Taxation have raised the VAT on telecommunication services, which is expected to impact operators' profits without passing the tax burden onto customers by 2026.

CICC's Earnings Forecasts: CICC has revised its earnings forecasts for China Mobile and China Telecom, maintaining 2025 estimates but lowering revenue and net profit projections for 2026 due to the VAT changes.

Market Impact: The share prices of Chinese telecom companies may experience short-term pressure as the market adjusts to the new tax policy and the lowered earnings outlook.

Target Price Adjustments: While CICC has kept its original ratings for the telecom companies, it has reduced its target prices in light of the anticipated financial impacts from the VAT increase.

VAT Adjustment Announcement: Chinese telecom companies are increasing the value-added tax (VAT) on mobile data, SMS/MMS, and internet broadband services from 6% to 9%, which is expected to affect their net profits.

Impact on Net Profits: JPMorgan estimates that the profit impacts for CHINA MOBILE, CHINA TELECOM, and CHINA UNICOM will be 7.1%, 12.6%, and 11.9% respectively by 2026, with CHINA MOBILE likely facing the least damage due to its higher gross profit margin.

Dividend Yield Forecasts: JPMorgan predicts that the dividend yields for CHINA MOBILE, CHINA TELECOM, and CHINA UNICOM will be 7%, 5.7%, and 6.8% respectively in 2026, maintaining their attractiveness compared to the Hang Seng Index (HSI).

Investment Rating: Despite the VAT increase, JPMorgan has maintained an Overweight rating on the three telecom companies, indicating a positive outlook for their stock performance.

Market Decline: Hong Kong stocks experienced significant losses, with the HSI dropping 611 points (2.2%) to close at 26,775, influenced by a volatile commodity market and declining resource stocks.

Precious Metals and Resource Stocks: Gold and silver prices fell sharply, with major companies like SD GOLD and ZHAOJIN MINING seeing declines of over 8%, while resource stocks like JIANGXI COPPER and CHALCO also reported significant losses.

Telecom Sector Impact: Telecom companies faced declines due to an increase in VAT from 6% to 9%, with CHINA UNICOM and CHINA TELECOM dropping over 6%, and CHINA MOBILE falling by 2.3%.

Automotive and Chip Sector Struggles: Automakers reported substantial sales declines, with BYD COMPANY and XPENG-W experiencing drops of 30% YoY and 34% YoY respectively, while the chip sector also faced losses, particularly for SMIC and HUA HONG SEMI.

VAT Rate Increase: China's Ministry of Finance and State Administration of Taxation have raised the VAT rate on basic telecom services, including mobile data and broadband, from 6% to 9%, which is expected to negatively impact the revenue and profits of major telecom companies.

Impact on Telecom Companies: Morgan Stanley estimates that China Telecom and China Unicom could see their earnings per share (EPS) affected by 14.1% and 15.2%, respectively, while China Mobile may experience a 7.8% impact due to its higher profit margin.

Future Earnings Forecast: The current earnings per share (EPS) and dividend per share (DPS) forecasts for Chinese telecoms do not account for the new tax rate, suggesting potential declines in EPS and DPS by 2026 if dividend payout ratios remain unchanged.

Industry Rating Downgrade: Morgan Stanley has downgraded the industry rating for Chinese telecoms to Neutral and adjusted the H-share ratings for the three major telecom companies to Equalweight in light of the VAT increase.