Incident: The company released the “2023 Annual Report” on the afternoon of March 21. In 2023, the company achieved operating revenue of 1,093 billion yuan, up 7.7% year on year, of which main business revenue was 863.5 billion yuan, up 6.3% year on year; net profit to mother was 131.8 billion yuan, up 5.0% year on year, and achieved EBITDA of 341.5 billion yuan, up 3.7% year on year.
The performance was in line with expectations, creating a trillion-dollar revenue milestone, and the profit scale reached a new high. According to the company's announcement, in 2023, the company achieved revenue of 1,093 billion yuan, an increase of 7.7% over the previous year, of which the express business revenue reached 863.5 billion yuan, an increase of 6.3% over the previous year, which is higher than the average growth rate of the industry. It achieved net profit of 131.8 billion yuan, an increase of 5.0% year on year, and achieved an EBITDA of 341.5 billion yuan, an increase of 3.7% year on year, accounting for 39.5% of the revenue from the Express Service business. Profitability continued to maintain the leading level of world-class operators. According to the company's guidelines, the company will forge ahead in 2024 to continue to achieve good growth in the company's revenue and net profit.
CHBN grew across the board, and HBN's revenue accounted for 43.2% of Express revenue, an increase of 3.4 pcts over the previous year.
Deepen the integration of operations and smart upgrades, and steady growth in mobile and fixed network ARPU. 1) On the individual market side:
In 2023, we achieved revenue of 490.2 billion yuan, an increase of 0.3% year over year. The total number of mobile users reached 991 million, a net increase of 15.99 million, of which the number of 5G package customers reached 795 million, a net increase of 180 million. The 5G package penetration rate reached 80.2%, an increase of 17.2 pcts over the previous year, and mobile ARPU reached 49.3 yuan, an increase of 0.6% over the previous year. 2) Household market: In 2023, we achieved revenue of 131.9 billion yuan, up 13.1% year on year, and the total number of cable broadband customers reached 298 million, with a net increase of 26.08 million, including 264 million household broadband customers, a net increase of 20.12 million households, a gigabit household broadband penetration rate of 30.0%, an increase of 14.3 pcts year on year, and the comprehensive ARPU for home customers reached 43.1 yuan, an increase of 2.4% year on year.
Consolidate the “Net+Cloud+DICT” expansion capabilities, and gradually increase the contribution of emerging markets. 1) In terms of government and enterprise markets:
In 2023, it achieved revenue of 192.1 billion yuan, an increase of 14.2% over the previous year. In 2023, the company's share of winning tenders in the public bidding market reached 14.3%, an increase of 3.0 pct over the previous year, ranking first in the industry. In 2024, the company will continue to promote commercialization, standardization and platform-based operation systems, increase the government and enterprise market expansion efforts, and raise the profit level of the government and enterprise market. 2) Emerging markets: In 2023, we achieved revenue of 49.3 billion yuan, a year-on-year increase of 28.2%. The growth rate increased by 1.3 pct, and the contribution of the international business, equity investment, digital content, and fintech sectors increased steadily.
Capital expenditure as a share of general service revenue fell 1.9 pct in 2023, and is expected to fall below 20% in 2024.
In 2023, the company achieved capital expenditure of 1803 billion yuan, accounting for 20.9% of consolidated revenue, a year-on-year decrease of 1.9 pct. The estimated capital expenditure in 2024 is 173 billion yuan, a year-on-year decrease of 4.0%. It is mainly used to promote leading connectivity perception, accelerated computing power development, intensive capacity efficiency, basic expansion layout and support for CHBN's business development. It is estimated that the computing power investment in 2024 will reach 47.5 billion yuan, an increase of 21.48% year on year (the actual completion cost growth rate of computing power is 16.72% year on year).
Expense control results have been shown, R&D investment has focused on “BASIC6,” and free cash flow has increased steadily. 1) Cost aspect: In 2023, the company's depreciation and amortization/network operation and support costs/other business costs/sales expenses accounted for 22.82%/30.21%/16.54%/6.08% of common service revenue, respectively, -0.68pct/-0.01pct/+1.42pct/-0.03pct. The subsequent depreciation and amortization ratio is expected to be similar to that of capital expenditure. Overall, it remains stable and continues to decline. In 2023, the company's R&D expenses increased 58.7% year-on-year to 28.7 billion yuan. The main reason is that the company focused on investing in “BASIC6” (the six major fields of cloud and computing power networks, AI, 6G, big data, capacity center, and security) to make greater efforts to cultivate strategic emerging industries and future industries. 2) In terms of free cash flow: The company's free cash flow in 2023 was $123.5 billion, up 29.2% year on year (down 27.2% year over year in 2022).
Comprehensively promote the “AI+” strategic layout to help the company transform and upgrade. 1) Build a new intelligent computing infrastructure:
In 2023, the company's data center capacity covered all of the country's “East Digital and Western Computing” hubs. The general computing power scale reached 8 EFLOPS, and is expected to reach 9 EFLOPS by the end of 2024; accelerate the formation of an “N+X” multi-level, full-coverage intelligent computing capacity layout, and start construction of the Hohhot hyperscale single intelligent computing center and 12 computing power center regional nodes in 11 provinces. The intelligent computing power scale will reach 10.1EFLOPS, an increase of 206% over the previous year. It is expected to exceed 17EFLOPS by the end of 2024. Additional intelligent computing power will be added within 2024 Deliveries are being made one after another, and the first batch will be put into operation in April-May. 2) Build a “1+N” communication model system: In 2023, the company independently developed the “Nine Day Series” general model, released a large base model and 5 major industry models, and accumulated more than 450 AI capabilities. 3) Gather excellent data resources and build data element circulation facilities:
The company accumulates 6.5 PB of data per day, and released a digital networking platform in 2023 to promote data accumulation and circulation, and lay the foundation for subsequent high-quality application of AI. 4) Promote the full injection of AI into products and improve our own management level. Externally, in 2024, the company will fully inject AI into products to provide high-level intelligent applications; internally, in 2024, the company will promote the AI upgrading of its own operation and management model.
Mobile Cloud has reached a new level and has become a key engine for increasing the company's performance. In 2023, mobile cloud revenue reached 83.3 billion yuan, up 65.6% year on year, accounting for 9.65% of cloud service revenue, up 3.45 pct year on year, accounting for 8.26% of revenue, up 2.89pct year on year. Mobile cloud revenue growth accounted for 45.81% of China's mobile revenue growth, up 16.48 pcts year on year. In 2023, Mobile Cloud's self-capable revenue increased by more than 100% year on year, and ranked fifth in the 2023Q3 Chinese public cloud (IaaS+PaaS) market share, reaching 8.3%, up 2.8 pcts year over year, steadily ranking first among domestic cloud service providers and accelerating towards “industry-leading”. According to company guidelines, considering the mobile cloud revenue base, we aim to maintain a mobile cloud revenue growth rate of at least 30% in 2024.
Using various means to convey confidence, we attach great importance to shareholder returns, and the dividend payout rate will reach 75% or more within three years from 2024. 1) In terms of actual controller holdings, from January 2022 to December 2023, the company's actual controllers increased their holdings of A shares by 42 million shares, accounting for about 4.69% of the total number of A-shares issued, and the cumulative increase in holdings reached 3 billion yuan. 2) In terms of share repurchases, China Mobile Hong Kong shares were repurchased 8 times from January 15 to 24, 2024. The total number of shares repurchased reached 2.377 million shares, at a cumulative cost of HK$155 million. 3) In terms of dividends, the company's total annual dividend for 2023 was HK$4.83, up 9.5% from 2022, and the annual dividend payout rate reached 71%. Starting in 2024, the dividend payout rate will gradually increase to over 75% within three years, creating greater value for shareholders.
Investment advice: The company's net profit for 2024-2026 is expected to be 138.419 billion yuan, 145.217 billion yuan, and 152,549 billion yuan respectively, corresponding to 2024-2026 PE of 16.3, 15.5 and 14.8, respectively, and PB of 1.6, 1.5 and 1.4 times, respectively, maintaining a “highly recommended” rating.
Risk warning: market competition intensifies, innovative business development falls short of expectations, cost control falls short of expectations.