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.