Incident: China Mobile released its 2023 annual report. During the reporting period, the company achieved revenue of 1009.309 billion yuan, an increase of 7.69%, and achieved net profit of 131,766 billion yuan, an increase of 5.03% over the same period, achieving a gross profit margin of 28.23% and a net profit margin of 13.07%.
The performance was in line with expectations, and the development of the computing power network exceeded expectations. The company's revenue surpassed trillion dollars for the first time, and its profit reached a new high. In 2023, it became the world's number one operator in terms of customer size, revenue scale, and network scale. In 2023, the company's second curve had strong momentum. Revenue from digital transformation achieved revenue of 253.8 billion yuan, an increase of 22%, which contributed greatly to the increase in main revenue; the company's strategic layout of CHBN performed well in the four major markets and achieved overall growth. HBN accounted for 43.2% of revenue, and the revenue structure continued to be optimized. In terms of new infrastructure computing power, the company's “dual gigabit” maintained its leading position in the industry, improving quality and efficiency. It initially built a nationwide computing power network with leading scale and technology. The total calculation scale increased by 14% and the intelligent computing scale by 10.1 Flops, or 206%; mobile cloud achieved revenue of 83.349 billion yuan in 2023, an increase of 65.6%, the top five in the IaaS+PaaS market share industry. The development trend of the company's computing power network related business was good in 2023. It is expected that in 2024, in the context of capital expenditure increasing to the cloud, the second growth curve of the cloud business will maintain a good growth trend, driving a steady improvement in the company's revenue quality.
Depreciation times have changed, and cloud business will develop or accelerate in the future era of intelligent computing. The company's depreciation and amortization scale continued to decline as a share of revenue. In 2023, depreciation amortization and amortization amounted to 19.5% of revenue of 19.5%, down 0.9 pct. The company's cloud business is developing rapidly, and the scale of intelligent computing will increase in 2023. It is expected that in 2024, with the continuous implementation of artificial intelligence applications, the company's intelligent computing market share is expected to increase. Considering that GPU servers are more expensive than traditional servers, and the higher stand-alone value and industry demand make intelligent computing centers generally more expensive than traditional data centers, the initial investment will increase the entry threshold for the industry. The company has sufficient cash on hand, and the cloud business is heavily resource-skewed as a key development direction in the company's second growth curve. The company is expected to use scale advantages to continue to grow in scale in the intelligent computing era, and the cumulative depreciation ratio of revenue will gradually decrease.
The dividend rate continues to rise, and the responsibility of central and state-owned enterprises highlights the ability to operate core assets. In terms of Hong Kong stocks, the company's board of directors recommended a dividend payout rate of 71% for the full year of 2023, an increase of 4 pcts. The final dividend of HK$2.40 per share was distributed to all shareholders for the year ended December 31, 2023. Together with the interim dividend already paid, the total dividend for the full year of 2023 was HK$4.83 per share, an increase of 9.5% over HK$4.41 in 2022. Starting in 2024, the company decided to gradually increase the profit distributed by cash within three years to more than 75% of the profit due to shareholders. The high dividend rate makes the company's shareholder return one of the highest in the industry.
Investment advice: We believe that the company is benefiting from the gradual expansion of the HBN business share, the rapid growth of new businesses such as cloud computing, the gradual decline in combined depreciation and amortization, and the reduction in capital expenditure as a share of revenue, and the company's performance is expected to continue to grow steadily. We predict that in 2024/2025/2026, the company will achieve revenue of 10875.30/11729.02/12657.95 billion yuan, an increase of 7.75%/7.85%/7.92%; EPS will be 6.57/7.01/7.48 yuan respectively, corresponding to 2024/2025/2026 PE 15.63/14.65/13.73 times, respectively. Considering the company's leading position in the operator industry and high dividend rate, the company will maintain the “recommended” rating for the company.
Risk warning: the risk that AI will fall short of expectations, the risk that the second curve will fall short of expectations, the risk of increased competition in the industry, etc.