Citibank analyst Bin Liu predicts positive surprises are in the cards for the fixed-line telecom sector in China. Ben Liu says it’s a good time to buy optical vendors and China Mobile:

…CM’s earnings could benefit more than those of rivals as it combats intensified 4G competition by promoting fixed/mobile bundling services. Our FY18-19E earnings are raised 1-2% for CM and CT on higher fixed-line revenue assumptions. We maintain Buy ratings on CM (top pick among Chinese telcos) and CU, and a Neutral on CT.

Liu notes that fiber broadband penetration is just 50% as of last year, versus 96% mobile penetration – something investors have largely overlooked.

Optical vendors such as Accelink and Fiberhome could be key beneficiaries of growing capex in the area. Fixed line has been a cash-cow for China Telecom and China Unicom, with EBITDA contributions of 70% to CT and 41% to CU in FY17E.

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world's first benchmark cross sector Chinese Bond Indices. Read ATF now.