The 2023 revenue and net profit performance is in line with our expectations. The company announced its 2023 annual results: the company achieved revenue of 94.01 billion yuan for the full year of 2023, up 2.0% year on year; net profit to mother increased 11.0% year on year to 9.75 billion yuan; and EBITDA increased 1.1% year on year to 63.6 billion yuan. In a single quarter, 4Q23's revenue increased 1.6% year over year to 23.86 billion yuan; net profit to mother increased 0.6% year over year to 2.4 billion yuan; and EBITDA increased 0.4% year on year to 15.45 billion yuan. The company's 2023 revenue and net profit performance to mother are in line with our expectations.
Development trends
Affected by the switching of pricing agreements, operators' business revenue was temporarily under pressure; the year-on-year decline in depreciation and amortization supported profit growth. In 2023, operator business revenue fell 1.0% year on year to 82.2 billion yuan. Among them, tower business revenue fell 2.8% year on year to 75 billion yuan, mainly affected by the new commercial pricing agreement switch; room division business revenue was +22.5% year over year to 7.140 billion yuan; after excluding the impact of pricing agreements, operator business revenue increased 3.4% year on year. Energy business revenue +31.7% year over year to 4.2 billion yuan; smart link business revenue +27.7% year over year to 7.3 billion yuan. Depreciation and amortization were -1.0% YoY, supporting a net profit margin of +0.9ppt to 10.4% YoY, and the quality of operations continued to improve. We believe that the company's tower business revenue is expected to resume steady year-on-year growth in 2024, with 24 performance or marginal improvements.
Capital expenditure continues to grow, driven by demand for new construction and renewal. Capital expenditure for 2023 was $31.72 billion (+21% YoY); of these, capital expenses for site construction and shared renovation were affected by 5G site construction, +16% to $17.05 billion; capital expenditure for site renewal and renovation was mainly due to increased asset usage life, +41% YoY to 8.53 billion yuan; we expect the company's capital expenditure to remain basically flat year over year in '24.
We expect cash flow from operating activities to recover in 24 years. In 2023, OCF was 32.84 billion yuan, down 49.6% from the previous year. We believe it was mainly due to the commercial pricing agreement switch involving the transformation of the contract billing system, which caused a temporary delay in receivables repayment in 23. Combined with the impact of capital expenditure growth, free cash flow was $1,125 billion in 23 years. Management said that the company's operating cash flow is expected to improve markedly in January '24 compared to the same period last year. We expect that with the normalization of payables in '24 and partial repayments from '23 will be delayed until '24, the company's operating cash flow is expected to improve markedly in '24.
Pay attention to shareholder returns; dividends are better than expected; capital structure is healthy. In 2023, in the context of temporary pressure on cash flow, the company still focused on improving shareholder returns. The disposable profit dividend ratio increased by 3ppt to 75% year-on-year, which is better than market expectations. By the end of '23, the company's net debt was RMB 90.67 billion (+16.67 billion yuan), the balance ratio was 39.4% (+2.8ppt), and the net debt leverage ratio was 31.4% (+3.7ppt). We expect that as cash flow performance recovers, the company may gradually reduce the level of interest-bearing debt.
Profit forecasting and valuation
We kept the company's revenue and net profit forecasts for 2024 basically unchanged; for the first time, we introduced revenue and net profit forecasts for 2025 of 103.2/13.6 billion yuan. The current stock price corresponds to 3.2/2.8 times 24/25 EV/EBITDA. We continue to outperform the industry rating and target price of HK$1.2. The target price corresponds to 3.6/3.2 times the 24/25 EV/EBITDA, with 28% upside compared to the current stock price.
risks
Cash flow recovery from operating activities fell short of expectations; market concerns about commercial pricing agreements intensified.