Morgan Stanley lowered its target price for China Communication Service (CCS) (00552) to HK$4.8 from HK$6.5 and maintained its "overweight" rating.
The research house forecasted CCS's 2H 2020 revenue to recover to Rmb67.9bn (up 10.6%), largely in-line with 2H 2019 growth. ACO (applications, content and other services) business continues to outgrow at 16%. The gross margin declined by 0.4ppt to 11.6% due to a change in revenue mix. Morgan estimated a net profit of Rmb1.6bn (+18%).
Morgan sees CCS as one of the key beneficiaries of the 5G capex cycle. It forecasted Chinese telcos' capex to pick up from 2020, and then enter a three-year upcycle, driving CCS's earnings growth.
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