China Telecom Earnings: Solid, With Working Capital Increase the Only Concern

China Telecom’s first-quarter 2024 results were broadly in line with our expectations and China Unicom’s first quarter but were better than China Mobile’s first quarter. China Telecom reported first-quarter services revenue growth of 5.0% compared with China Mobile’s 4.5% and China Unicom’s 3.4%. China Telecom’s first-quarter EBITDA growth was 3.6% compared with 3.4% for China Unicom and a 2.3% decline for China Mobile. China Telecom's net profit growth was 7.7% compared with China Unicom’s 8.9% and China Mobile’s 5.5%, although China Mobile’s net profit after tax would have declined without reduced depreciation and amortization charges. China Telecom and China Mobile reported significant reductions in operating cash flow (28% for China Telecom and 24% for China Mobile), while China Unicom did not disclose first-quarter cash flow. We suspect this operating cash flow reduction is partly due to a mix shift toward corporate and government clients for IT services. Still, the recent economic conditions could also be affecting it.