Incident: The company released its 2023 annual report and achieved annual revenue of 1009.3 billion yuan, an increase of 7.7% year on year; main business revenue of 863.5 billion yuan, up 6.3% year on year, higher than the average increase in the industry. Net profit attributable to shareholders of the parent company was 131.8 billion yuan, up 5.0% year on year, and EBITDA was 341.5 billion yuan, up 3.7% year on year. The annual dividend payout was HK$4.83 per share, up 9.5% year over year. The performance was in line with expectations.
CHBN's four business segments grew across the board. In terms of the individual market, annual revenue was 490.2 billion yuan, up 0.3% year on year; the number of users increased by a net of 15.99 million; and ARPU was 49.3 yuan, up 0.6% year on year. In the household market, revenue was 131.9 billion yuan, up 13.1% year on year; broadband users increased net by 2012 million households; comprehensive ARPU was 43.1 yuan, up 2.4% year on year. In the government and enterprise market, revenue was 192.1 billion yuan, up 14.2% year on year; mobile cloud revenue was 83.3 billion yuan, up 65.6% year on year. In emerging markets, revenue was 49.3 billion yuan, up 28.2% year over year. The share of digital transformation revenue in main revenue increased further to 29.4%, which is the number one driving force for the company's revenue growth.
Network capabilities stay ahead of the curve. In terms of 5G, the company opened a total of 1.94 million 5G base stations in 2023, including 620,000 700MHz 5G base stations, and the system deployed the world's largest REDCap commercial network. In terms of computing power, the scale of general computing power reached 8 EFLOPS, and the scale of intelligent computing power reached 10.1 EFLOPS. The company led 60 5G-A international standards, ranking first among global operators; the number of 6G innovations has steadily ranked first among global operators.
CAPEX continues to decline, further increasing cash dividends. The company's actual capital expenditure in 2023 was 1803 billion yuan (lower than the 183.2 billion yuan planned at the beginning of the year), and the planned capital expenditure for 24 years was 1,730 yuan, a year-on-year decrease of 4%, and the decline was further expanded. The company's free cash flow in 2023 was $123.5 billion, up 29.2% year over year. We believe that in the future, driven by the decline in 5G capex, operators' capital expenditure is expected to continue to decrease, which will drive continuous improvement in free cash flow and lay the foundation for increasing cash dividends. The company said that starting in 2024, the cash dividend ratio will increase to over 75% within three years.
Maintaining an A/H “buy” rating: We believe that in the context of the communications industry cycle moving from network construction to network application, operators have a long-term positive logic. Through continuous expansion of the network's application in the industry, operators' innovative business has maintained rapid growth. As capital expenditure enters a downward cycle, increasing cash dividends is a long-term trend.
Considering that the personal mobile business is becoming saturated and industry growth is slowing down, we lowered net profit to mother in 24-25 from 1418/1522 to 1384 (-2%) /1456 (-4%) billion yuan, and forecast net profit of 153.1 billion yuan for 26, corresponding to PE 16X/16X/15X for A shares and PE 9X/8X/8X for H shares. The current stock price corresponds to the 23-year dividend rate of 4.2% for A shares and 7.2% for H shares. Both A/H shares maintain a “buy” rating.
Risk warning: policy risks of speeding up and reducing fees, risk of increased competition, risk of 5G applications falling short of expectations, risk of stock price fluctuations.