The 2022 full-year results are basically in line with our expectations
The company announced its 2022 results: operating income of 140.7 billion yuan, +5.0% year on year; net profit of the mother was 3.36 billion yuan, +6.4% year on year, which is basically in line with our expectations.
Development trends
Benefiting from the expansion of production and business, the company's overall revenue grew steadily. By customer, revenue from operators, customer collection, and overseas markets in 2022 reached 77.2 billion yuan/60.6 billion yuan/3 billion yuan, respectively; by business, revenue from TIS/BPO/ACO1 business reached 72.9 billion yuan/43.1 billion yuan/24.8 billion yuan year-on-year. We believe that on the one hand, the company's scientific and technological innovation capabilities continue to increase; on the other hand, the digital transformation of operators and attracting customers continues to deepen, and the demand for overseas investment from Chinese enterprises is increasing. Under the influence of the above factors, the company's revenue is expected to maintain a good growth trend.
Gross margin increased positively for the first time in recent years, and the dividend rate increased steadily. 1) Gross margin in 2022 was +0.4ppt to 11.4% year-on-year. The company insists on high-quality development, efficiently controls project quality, and increases the proportion of high-value, high-margin projects. Operating costs in 2022 were +4.7% year-on-year to 124.8 billion yuan, and labor costs were -2.8% year-on-year, thanks to the company's control of the number of employees. 2) The company continues to increase investment in R&D, with annual R&D expenses of about 5 billion yuan, about +17% over the previous year. 3) In 2022, the company's ROE increased by 0.1ppt to 8.5%, and in addition, the dividend rate increased by 2ppt to 40% year over year, continuing to increase shareholder returns.
Industrial digitalization helps increase value, and the layout of strategic emerging industries has broad prospects. The customer acquisition market developed rapidly in 2022, with the amount of new contracts signed exceeding 82.2 billion yuan, about +8% over the previous year. In addition, the company seizes digital development opportunities and focuses on the expansion of the four strategic emerging industries of digital infrastructure, smart cities, green low-carbon, and emergency safety. The amount of new contracts signed in the smart city, data center, and dual carbon (power +) fields in 2022 all exceeded 10 billion yuan, +35/23/ 39%, respectively. We believe that digital business development has the potential to create a second growth engine for the company.
Profit forecasting and valuation
Considering the slowdown in telecom operators' capital expenditure investment, we lowered our 2023 revenue forecast by 4.0% to 149.2 billion yuan, but considering the company's cost control and efficiency improvements, we raised the 2023 profit forecast by 1.1% to 3.56 billion yuan; for the first time, we introduced the 2024 revenue forecast of 158.1 billion yuan, and the profit forecast was 3.77 billion yuan. Maintaining an outperforming industry rating, considering the company's increased profitability and the increase in ACO business revenue share under the digital China construction trend, we raised the target price 7.6% to HK$4.70, corresponding to 7.7 times the 2023 price-earnings ratio and 7.1 times the 2024 price-earnings ratio. The current stock price corresponds to the 2023/2024 6.2/ 5.7 times price-earnings ratio. The target price has 24.7% upward compared to the current stock price.
risks
The digital transformation of the customer industry fell short of expectations, and the implementation progress of Eastern and Western Computing was uncertain.