Event: the company released its 2021 interim results, and the overall performance exceeded our expectations. The company's 1H21 revenue was 64.1 billion yuan, an increase of 19% over the same period last year, due to the company's active expansion of the domestic non-operator customer gathering market. The business revenue increased by 34% over the same period last year, and the market revenue of domestic operators increased by 10% over the same period last year, mainly due to the influence of the low base of 1H20. The company's customer structure continued to be optimized, with domestic operator business, domestic non-operator business and overseas business accounting for 52%, 46% and 2% respectively; gross profit increased by 16% year-on-year corresponding to gross profit margin of 10.7%, slightly lower than 1H20's 11%, mainly due to the strengthening of cost control by downstream operators and the increase in group cost rigidity; net profit was 1.8 billion yuan, an increase of 14% over the same period last year and 2.8% corresponding to net interest rate.

Non-operator business continues to maintain the momentum of rapid growth and has become the main driver of the company's performance: the domestic non-operator customer gathering market is still in the market introduction period, and the market still has a lot of room for growth in the context of digital transformation opportunities. 1H21 business in this sector has rapidly increased by 34% compared with the same period last year, accounting for a rapid increase in revenue from 41% of 1H20 to 46% of 1H21. It is expected that the growth momentum of 2H21 business will continue. Operator business is subject to the strong bargaining power of downstream operators and the pressure of continuous decline in gross profit margin. The improvement of overall profit margin in the future depends on the improvement of gross profit margin of non-operator business. In the short term, the gross profit margin of non-operator business will be affected by the market stage is still on the low side. In the long run, as the market gradually matures, the company will increase the proportion of total contract integration projects and high-value business volume, and the opportunity to improve the gross profit margin of non-operator business will become clearer, which in turn drives the overall profit margin of the company to be stable.

Actively introduce strategic investors to accelerate the transformation of non-operator business: on June 18, 21, the company's 100% holding supply chain company introduced strategic investors Tianjin COSCO Shipping, Smart chain Shenzhen International, Shuangbai Fund and Dongzhengsucheng. The company's shareholding is reduced to 74%. After the introduction of war investment, it will help to enhance the company's supply chain business professional operation capacity and competitiveness, and build the company's digital infrastructure general contracting capacity. On June 25, 2001, China Telecom Corporation, the company's controlling shareholder, freely transferred 2.5% of the issued shares of the company to the State Network ICT Industry Group, and the company signed a framework agreement on strategic cooperation in digital infrastructure with the State Network ICT Industry Group. in order to strengthen the strategic cooperation between the two sides in the fields of informatization and intelligence in the power industry.

Profit forecast, valuation and rating: considering that the company's profit improved more than we expected in the first half of the year, we raised 21-year net profit by 0.3% to 3.3 billion yuan, maintained 22-year net profit forecast of 3.6 billion yuan, and increased 23-year net profit forecast of 3.9 billion yuan. Year-on-year growth of 8.1%, 9.4% and 6.9%, respectively. In the 5G era, operators and non-operator markets have invested one after another, and the company's 21-year performance is expected to achieve a big rebound, taking into account the future performance with sustainable and steady growth opportunities and a stable dividend level, maintaining the target price of HK $4.50 (corresponding to 7 times the PE of the 82ppm in 21 / 22) and maintaining the "buy" rating.

Risk tips: 5G construction slows; operator business gross profit margin pressure increases; non-operator business slows down