China and Korea stand out in Q2 telecom outlook

Stable competitive environments and attractive valuations supported both markets.

China and Korea emerged as the preferred markets for telecom investment in Asia in the second quarter (Q2), supported by stable competitive environments and attractive valuations, according to Morningstar Equity Research.

Its Asia Telecom: 2026 Q2 report said that China offers the lowest average price-to-fair value estimate (P/FVE) in the region at 0.76 and the lowest forward price-to-earnings (P/E) ratio at 10.8 times.

Chinese telecom operators also provide the highest average forward dividend yield at 6.8%, supported by net cash positions.

The report said Chinese telecom stocks remained "the best value in Asia", although share price gains over the past two years had narrowed the valuation gap. Average P/FVE rose to 0.76 from 0.62 at the start of 2024.

China's telecom industry faced pressure from economic weakness and a value-added tax increase on mobile data and broadband revenue from 6% to 9% in 2026.

March-quarter services revenue fell 1.2% year on year, whilst industry net profit declined 8.5%, and services revenue fell 1.8% during the first five months of 2026.

Telecom operators held about 55% of China's cloud services market at the end of 2025. Cloud revenue growth slowed to 9% in 2025 from annual growth of more than 100% between 2019 and 2022 as operators shifted their focus towards profitability.

The report identified China Telecom and China Unicom as five-star stocks and China Mobile as a four-star stock.

It said China Telecom remained strong in data centres and artificial intelligence (AI), with government ownership helping it secure state contracts. Its mobile market revenue share increased from 12.3% in 2022 to 21.1% in 2025.

China Unicom generated average annual free cash flow of about $4.14b (CNY28b) between 2016 and 2025, whilst China Mobile offered a forward dividend yield of 6.4%.

Korea ranked as the second-most attractive telecom market in Asia, with an average P/FVE of 0.80, a forward P/E ratio of 11.1 times and an average forward dividend yield of 4%.

The report said Korea's stable three-player market had faced disruption following data breaches at SK Telecom in April 2025 and Korea Telecom in November 2025.

The incidents helped LG Uplus gain mobile market share after it reported 3% growth in first-quarter (Q1) mobile service revenue, whilst SK Telecom and Korea Telecom recorded declines of 0.4% and 0.7%, respectively.

LG Uplus also posted 17% growth in Q1 operating profit.

The report said all three Korean operators continued to expand into cloud services, data centres, and AI.

It noted that SK Telecom's $100m investment in Anthropic in 2023 had increased in value to about $3b by May 2026.

(US$1 = CNY6.77)