Key points of investment
The company is the largest telecommunications infrastructure service provider in China. It has benefited from improved revenue structure and good cost and expense control, and the overall operating efficiency is improving. Under the wave of the digital economy, the company has transformed into a new digital infrastructure force and a new generation of integrated smart service providers. It is expected to directly benefit from new computing power infrastructure and the digital transformation of the industry. The company maintains a high dividend ratio and has good investment appeal.
Backed by the shareholders of the three major operators, collaborative development helps improve
The company originated from the restructuring of China's telecom industry and is backed by shareholders of the three major operators. China Telecom/Mobile/Unicom holds 48.99%/8.78%/3.41% of the shares respectively. The company's senior management team mostly comes from the three major operators and has rich management experience in the telecommunications industry, which helps the company to forward-look strategic planning and layout, form deeper collaborative development with the three major operators, and help improve the company's overall business capabilities.
Focusing on strategic emerging industries, it has shown strong growth momentum
The company's main business is telecommunications infrastructure services (TIS), business process outsourcing (BPO), application/content and others (ACO). Under the wave of the digital economy, the company is gradually shifting from a traditional communication network builder and maintainer to a major force in new digital infrastructure and an enabler of the digital transformation of the industry. In the first half of 2023, the company's TIS business grew 7.5% year on year, accounting for 51.5%, and became the ballast stone driving revenue growth; the BPO business grew 0.9% year on year, accounting for 29.7%; ACO business grew 8.6% year on year and continued to maintain a good growth trend, accounting for 18.8%.
The company's main customer groups include telecom operators, non-operator group customers, and overseas markets. In the first half of 2023, the telecom operator and non-operator customer acquisition market grew steadily by two-wheel drive. Telecom operator revenue grew 7.5% year on year, accounting for 54.6%; non-operator customer attracting market revenue grew 3.6% year on year, accounting for 43.2%; overseas markets progressed steadily, with revenue growth rate of 1.2% year on year, accounting for 2.1%.
The State Council's State-owned Assets Administration Commission stated at the Central Enterprise and Local State-owned Assets Administration Commission assessment and allocation work meeting held on January 29 that in the future, it will strengthen the assessment of the revenue and value added share of strategic emerging industries, and make every effort to develop strategic emerging industries and future industries. The company forwardly lays out strategic emerging industries such as digital infrastructure, smart cities, emergency safety, and green and low-carbon industries. In the first half of 2023, the amount of new contracts signed by the company's strategic emerging business increased by more than 30%, far higher than the growth rate of 6% of the total number of new contracts signed. At the same time, the share continued to rise to over 27%, showing strong development momentum.
TIS business: upgrading from traditional networks to new infrastructure such as computing power
The company dominates the market in the field of communication network construction and is the largest telecommunications infrastructure service group in China.
Under the steady progress of domestic public network 5G base station construction, the release of 5G private network investment potential, and overseas Belt and Road development plans, the company's network infrastructure business is expected to remain steady.
Domestic computing power construction continues to increase. The company has successfully transformed into the main computing power infrastructure force, and the data centers participating in the construction have created many of the largest in the country. Furthermore, under the guidance of the “dual carbon” strategy, new energy infrastructure will open up new space, and the company's active layout in this field is expected to fully benefit. Taken together, the company actively transforms and lays out computing power infrastructure and new energy infrastructure on the basis of solid promotion of traditional network infrastructure, which will contribute to the steady growth of the TIS business sector.
BPO business: Smart operation and maintenance, and mixed supply chain transformation bring new opportunities. The company is the largest comprehensive BPO provider in the domestic communications field, and has leading advantages in the fields of network operation and maintenance services and supply chain logistics. In the field of network operation and maintenance services, centralized procurement and integrated service outsourcing are gradually becoming a trend. Market share is expected to be concentrated in leading enterprises, and the national deployment capacity to sink to the county level is expected to help the company further develop in this field. In terms of supply chain business, the company is actively implementing mixed reforms, introducing 4 companies from Tianjin COSCO SHIPPING, Smart Chain Shenzhen International, Double Hundred Fund, and Eastern Stock Exchange Sucheng as combat investments. It is expected to become a leading smart supply chain enterprise in the domestic ICT industry in the future.
ACO business: Facing the trend of industrial digitalization, the domestic digital economy is booming. In 2022, the scale of the digital economy reached 50.2 trillion yuan, accounting for 41.5% of GDP, and continued to maintain a high growth rate of 10%. Among them, industrial digitalization dominates, accounting for more than 80% of the digital economy. As an enabler of the digital economy, the company focuses on improving software development and service capabilities. It has a broad layout in the field of industrial digitalization. Currently, it has set multiple industry application benchmarks, and is expected to continue to meet the digital transformation needs of government and enterprise customers with its deep accumulation in the future.
Maintain a high dividend ratio and have good investment appeal
Since its listing, the company has maintained a high dividend ratio. The 2022 dividend payment rate reached 40.41%. According to the closing price on February 16, 2024, the 2022 dividend rate is around 6.5%. The company attaches great importance to shareholder returns, optimizes dividend policies, and comprehensively considers attributes such as steady growth in performance and improved profits. The company's dividend returns will be attractive for a long time.
Profit forecasting and valuation
As the main force in new infrastructure in the digital economy era, the leading smart city service leader, a leading enterprise in production and data services, and a trusted expert in smart operation, the company will achieve steady growth in various main businesses. We expect the company's revenue for 2023-2025 to be 1494, 1582, and 167.3 billion yuan, up 6.2%, 5.9%, and 5.7% year on year; net profit to mother will be 36, 3.9, 4.2 billion yuan, up 7.7%, 7.5%, and 7.2% year on year. The current market value (February 16, 2024) corresponds to the 23-25 PE of 5.67, 5.27, 4.92 times, covered for the first time, giving it a “buy” rating.
Risk warning
The digital economy fell short of expectations, operators Capex and Opex fell short of expectations, industry competition intensified, dividend payments fell short of expectations, etc.