The Zhitong Finance App learned that CICC released a research report saying that looking ahead to 2025, sector valuations in the telecom service sector in a low interest rate environment are attractive. Currently, 5G has begun to enter a payback period, and the decline in capital expenditure is expected to support free cash flow performance, and cost control supports steady profit; in the tower business, free cash flow is significantly higher than the dividend amount, there is great potential for dividend increase, and profit is imminent after stock tower depreciation is completed. There is room for improvement in the valuation of the data center sector; capital expenditure of cloud vendors is picking up, and they are optimistic about recovering data center performance in 25 years; rapid delivery of engineering capacity, electricity, and location matching may become core competitive factors.

CICC's main views are as follows:

5G has begun to enter a payback period. In an environment with low interest rates, the telecommunications services sector's target valuation is attractive.

Telecom operators: Dividend returns are steady, and technological transformation provides medium- to long-term growth momentum.

1) 5G has been commercialized in China since 2019. Referring to the development rules of past and overseas operators, operators' capital expenditure is declining steadily at this stage, supporting free cash flow performance;

2) In the middle and late stages of external environmental impact and superposition technology, the ARPU improvement momentum brought about by 4G to 5G weakens. At the same time, operators actively carry out quality control of ToB projects, and it is normal for revenue growth to slow down. If the cost control strategy continues, it is expected to support a steady increase in net profit;

3) Technological transformation has brought momentum for medium- to long-term revenue growth. Operators are actively deploying cloud, AI, satellite communications, and quantum technology. In recent years, telecom operators have increasingly paid more attention to accounts receivable, and the risk of bad debts in the ToB business is relatively manageable.

Tower: There is great potential to increase dividends, and the valuation catalyst is gradual.

The tower business has stable capital expenditure, abundant free cash flow, and great potential to increase dividends; in the fourth quarter of 2025, as the depreciation of the existing towers expires, profits are expected to increase dramatically, opening up room for dividends to increase, and shareholder returns are expected to increase.

Data center: There is room for improvement in sector valuations. Cloud vendor capital expenditure is picking up, and we are optimistic that data center performance will continue to recover in 25 years.

Rapid delivery of engineering capabilities, electricity, location compatibility or a core competitive element.

1) After years of adjustments in the data center sector, sector valuation is attractive. The sector valuation was slightly restored in 2024. With the further strengthening of the industrial restoration trend driven by AI, there is room for further boost in sector valuation;

2) Optimistic about the performance recovery trend of third-party data center vendors in 2025. If domestic cloud vendors stabilize or continue to increase their investment in artificial intelligence, it is expected to drive the growth rate of data centers to pick up further;

3) In this process, data center vendors with high-quality engineering capabilities for rapid delivery, actively exploring power computing power cooperation models, and matching AIDC needs in different scenarios with their own resources are expected to gain a higher market share.

Profit forecasting and valuation: Keep the profit forecasts and ratings of companies already covered in the industry unchanged.

Telecom services: operators China Mobile (600941.SH,00941) and China Telecom (601728.SH,00728) with steady dividend returns; China Tower (00788), which has great potential for increasing dividends and is close to the catalyst; China Communications Services (00552), which is rapidly expanding in new fields.

IDC segment: Data center vendors with potential to release orders and flexible valuations - SW (09698), Century Internet (VNET.US).

Companies related to the data center sector also include Baoxin Software (600845.SH), Runze Technology (300442.SZ), Aofei Data (300738.SZ), etc.

Risk warning: operators' capital expenses exceed expectations; cloud vendor capital expenses fall short of expectations.