China Telecom Sector: Attractive shareholder returns, profit to resume growth in 2027E

China telecom operators' share price performance has been unexciting in 2026 (YTD CM-H +5% on its defensiveness, CT-H/CU-H -9%/-26% vs HSI -5%), mainly due to investor concerns regarding: 1) the VAT policy impact on net profit (all three companies delivered profit declines in 1H26), 2) potential hikes in AI/6G investment to weigh on profitability, and 3) the decline of legacy telecom revenue. We discuss these topics in this report, and we believe now is a good time to bottom-fish the sector: 1) we expect the big 3 telco operators to return to YoY positive profit growth in 2027E, driven by an acceleration of intelligence services (supported by AI), resilient legacy telco services (especially after anti-involution actions in 2026), and conservative opex & capex spending (total capex of the big 3 +4% in 1H26; we expect YoY capex declines in 2H26);