How much impact will the VAT hike have on operators' profits? JPMorgan: China Mobile < China Telecom < China Unicom

2 February 1, China Mobile, China Unicom, and China Telecom—the three major telecom operators—jointly issued an announcement stating that the applicable scope of value-added tax (VAT) on telecom services has been adjusted, with the tax rate increased from 6% to 9%, which will affect company revenue and profits. According to news from the Chasing Wind Trading Desk, JPMorgan’s Chen Qi team stated in a research report on the 2nd that estimates show the three major telecom operators will face varying degrees of profit pressure. China Mobile will be least affected due to its higher profit margin, while the impact on net profit for China Telecom and China Unicom will be more significant. The bank maintains an “overweight” rating for all three operators, seeing their dividend yields as still attractive. JPMorgan believes that, if no countermeasures are taken, the VAT adjustment will affect the 2026 net profits of China Mobile, China Telecom, and China Unicom by 7.1%, 12.6%, and 11.9% respectively. Nevertheless, the report notes that the actual profit impact may be lower than these estimates. Amid ongoing state-owned enterprise reform, the State-owned Assets Supervision and Administration Commission emphasizes financial performance indicators such as profit growth and return on net assets, which will prompt operators to adopt measures like optimizing operating expenses, raising prices for traditional services, increasing AI investment to drive cloud business growth, and more prudent capital expenditure to offset the tax rate hike. Although the VAT adjustment will weigh on 2026 earnings per share, the H shares of all three operators have sharply corrected since Q4 2025; compared with their highs in November 2025, share prices have fallen 12% for China Mobile, 15% for China Telecom, and 24% for China Unicom. JPMorgan estimates that, based on current share prices, the forecasted dividend yields for 2026 will be 7.0%, 5.7%, and 6.8%, respectively—significantly higher than the Hang Seng Index’s 2.9%. Degree of Impact Varies: Profit Margin Is Key Recently, the Ministry of Finance and the State Administration of Taxation issued the “Announcement on Specific Matters Regarding the Scope of VAT Collection” (Ministry of Finance and State Administration of Taxation Announcement No. 9 of 2026), stipulating that, from January 1, 2026, in the territory of the People's Republic of China, business activities using fixed networks, mobile networks, satellite, and the Internet to provide mobile data services, SMS and MMS services, and internet broadband access will be classified from value-added telecom services to basic telecom services for tax purposes, with the VAT rate adjusted from 6% to 9%. At the same time, all three operators stated in their announcements that this adjustment of the VAT applicable scope will affect company revenue and profits. Based on the three operators’ financial disclosures for the first half of 2025, JPMorgan’s estimates show that applying the new VAT regulations, the impact on China Mobile, China Telecom, and China Unicom’s revenues would be 1.1%-1.4%. Without proactive countermeasures, the impact on net profit would be 7%-13%. JPMorgan points out that China Mobile is least affected among the three, mainly because its profit margin is higher than those of China Telecom and China Unicom. A higher profit margin means that when the same proportional impact is borne on revenues, the hit to net profit is relatively smaller. In contrast, both China Telecom and China Unicom face net profit impact rates exceeding 11%, significantly higher than China Mobile’s 7.1%. Response Strategies: Multi-Dimensional Measures to Offset Negative Impact JPMorgan believes that, amid deepening state-owned enterprise reform, the three operators have the potential to reduce the actual impact of the VAT adjustment through multiple measures. The State-owned Assets Supervision and Administration Commission emphasizes financial metrics including profit growth, improvement in returns on net assets, and robust cash flow, which will encourage operators to take active steps. Specific measures mentioned by JPMorgan include: first, optimizing operating expenses to lower costs by enhancing operational efficiency; second, raising prices for traditional telecom businesses like mobile and broadband services to boost revenue growth; third, increasing investment in artificial intelligence to drive enterprise digital transformation and accelerate cloud business revenue growth; and fourth, adopting more prudent capital expenditure strategies. JPMorgan expects that from 2027, after resetting profit baselines starting in 2026, the three operators’ profit growth will return to normal levels. JPMorgan maintains its “overweight” rating for the three operators. The bank notes that sector rotation towards the artificial intelligence theme and investor concerns over traditional telecom business slowdown have triggered significant corrections in the H shares of the three operators since Q4 2025. Based on current share prices, the forecasted dividend yields for China Mobile, China Telecom, and China Unicom’s H shares in 2026 are 7.0%, 5.7%, and 6.8%, respectively—which remain clearly attractive compared to the Hang Seng Index’s 2.9% yield. JPMorgan says the Q4 2025 earnings conference calls for the three major telecom operators will be important observation windows. At that time, management will provide specific guidance on 2026 profit and dividend prospects, which will help the market more accurately assess the actual impact of the VAT adjustment. ~~~~~~~~~~~~~~~~~~~~~~~~ The above highlights are from Chasing Wind Trading Desk. For a more detailed analysis, including real-time interpretations and frontline research, please join [Chasing Wind Trading Desk Annual Membership]. Risk Warning and Disclaimer The market has risks; investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at your own risk.