China Telecom's Q1 revenue and net profit both declined, while smart revenue grew nearly 40% year-on-year. AI and cloud business become new engines | Earnings Report Insights

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China Telecom’s first quarter revenue and profits both came under pressure, reflecting the reality that growth in traditional telecommunications business is approaching saturation and industry competition continues to intensify.

On Thursday, China Telecom released its Q1 2026 report. During the reporting period, the company achieved an operating revenue of 131.4 billion yuan, down 2.32% year-on-year; net profit attributable to shareholders of listed companies was 7.4 billion yuan, down 17.08% year-on-year.

However, beneath the surface of profit decline, the company's operating quality showed a bright signal—the net cash flow generated from operating activities reached 23.2 billion yuan, up 114.44% year-on-year, nearly doubled. The company explained that this was mainly due to increased collection efforts for accounts receivable and strictly paying suppliers on schedule according to contracts, reflecting management's proactive approach in cash management.

Meanwhile, the company’s strategic emerging businesses maintained strong momentum. Tianyi Cloud revenue grew 6.8% year-on-year, smart revenue grew 39.4% year-on-year, the number of 5G network users surpassed 310 million, and penetration rate increased to 71.3%. These figures indicate that China Telecom is accelerating its transformation from a traditional operator to an "AI service provider," with the outline of the switch from old to new growth drivers becoming clearer. The company explicitly stated in the report that "becoming a leading AI service provider, with Token services as the main business line," is its future strategic direction.

Revenue and Profits: Both Under Pressure, Declines Worth Noting

In Q1 2026, China Telecom achieved operating revenue of 131.4 billion yuan, a 2.32% decrease year-on-year; service revenue was 122.7 billion yuan.

Pressure on the profit side is even more evident: total profits were 9.3 billion yuan, down 17.62% year-on-year; net profit attributable to shareholders of listed companies was 7.4 billion yuan, down 17.08% year-on-year; net profit after excluding non-recurring gains and losses was 6.6 billion yuan, with a year-on-year decrease of as much as 25.28%.

Basic earnings per share was 0.08 yuan, down 20% from 0.10 yuan in the same period last year. The weighted average return on net assets was 1.58%, down 0.36 percentage points year-on-year.

In terms of non-recurring gains and losses, the total for this period was about 776 million yuan, with cash-settled share-based payment fair value changes contributing about 671 million yuan, government subsidies contributing about 268 million yuan, but disposal losses of non-current assets dragging down about 381 million yuan. The gap of about 776 million yuan between net profit after excluding non-recurring gains and losses and net profit means the decline in the company’s core operating profitability is actually larger, requiring special attention from investors.

Cost Control: Multiple Expenses Reduced Simultaneously, R&D Investment Grows Against the Trend

Against a backdrop of revenue pressure, the company demonstrated strong cost management on the expense side.

Operating costs: 94.4 billion yuan, down 0.5% year-on-year;
Sales expenses: 13.4 billion yuan, down 1.6% year-on-year;
Management expenses: 10.1 billion yuan, down 2.6% year-on-year;
Financial expenses: 17 million yuan, down sharply by 80.4% year-on-year, with significant effects from reduced interest payments;
R&D expenses: 1.8 billion yuan, up 1.7% year-on-year, the only expense item that grew against the trend, reflecting the company’s intention to accelerate its transformation into a technology-leading enterprise and continue intensifying its focus on key core technologies.

It is noteworthy that credit impairment losses reached 3.737 billion yuan, a sharp increase of about 1.07 billion yuan year-on-year (2.665 billion yuan in the same period last year), an increase of about 40%. The rapid rise in this category is a major factor dragging down profits and is consistent with the company’s increased efforts to collect accounts receivable—the expansion of accounts receivable scale brings higher impairment provisioning pressure.

Operating Cash Flow: Eye-catching Doubled Growth, Minor Asset-Liability Structure Adjustments

Net cash flow generated from operating activities was 23.2 billion yuan, up 114.44% year-on-year, the biggest highlight of the season’s report. From the cash flow statement details, cash paid for purchasing goods and services dropped significantly from 65.1 billion yuan last year to 51.4 billion yuan, a decrease of about 21%, which is the core driving force for improved cash flow.

On the asset side, total assets reached 879.1 billion yuan, up 0.97% from the end of last year. Accounts receivable increased from 50.1 billion yuan to 67.3 billion yuan, an increase of about 34%, echoing the sharp rise in credit impairment losses. Trading financial assets rose from 11.7 billion yuan to 27.3 billion yuan, showing more active short-term capital utilization. Fixed assets dropped from 415.7 billion yuan to 401.4 billion yuan, while construction in progress increased from 56.5 billion yuan to 63.6 billion yuan, with capital expenditure continuing to advance.

On the liability side, total current liabilities reached 329 billion yuan, a minor increase from the end of last year. Employee compensation payable rose from 20 billion yuan to 27.6 billion yuan, showing a clear seasonal characteristic (the first quarter is typically the peak for salary accrual). Lease liabilities dropped from 25.1 billion yuan to 20.8 billion yuan, with the de-leveraging trend continuing. Net assets attributable to shareholders of listed companies were 468.3 billion yuan, up 1.63% from last year.

User Data: 5G Penetration Rate Rises, Growth Slows Down

As of March 31, 2026, China Telecom had 441 million mobile users, up about 11.08 million year-on-year, but net increase in the first quarter was only 1.9 million, a significant slowdown compared to the net increase of 4.95 million in the same period last year, indicating the mobile user market is approaching saturation.

5G network users reached 314 million, up about 47.92 million year-on-year, with a net increase of 12.32 million in the first quarter, also somewhat lower than the net increase of 15.48 million in the same period last year, but penetration rate has risen to 71.3%, a relatively high level. Total mobile internet data volume grew 17.7% year-on-year, mobile internet DOU reached 23GB, up 12.6% year-on-year, with sustained value release from data usage.

Wired broadband users reached 202 million, with a net increase of 440,000 in the first quarter, lower than the 670,000 net increase in the same period last year. Gigabit broadband user penetration is about 34%, still with room for improvement.

Strategic Emerging Businesses: Tianyi Cloud and Smart Revenue as Core Growth Engines

Against the backdrop of slowing growth in traditional business, the company’s strategic emerging businesses performed strongly.

Tianyi Cloud revenue grew 6.8% year-on-year, smart revenue grew 39.4% year-on-year, becoming the core drivers optimizing overall business structure.

The company continues to deepen the integrated intelligent cloud system of "computing power, platform, data, model, application," comprehensively advancing the "Artificial Intelligence+" initiative. Notably, the company for the first time explicitly proposed "Token services as the main business line" in the report, making the commercial path for AI services more specific. This strategic statement means China Telecom is managing large model inference services as a new income source, gradually aligning with domestic internet giants’ AI commercialization logic.

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