Core views
The company's net profit achieved a double-digit increase for 7 consecutive years, and the return on net assets reached 5.1%, achieving the best level in recent years and improving free cash flow. Thanks to the company's good capital expenditure management and network co-construction and sharing in recent years, the amount of depreciation and amortization has declined. The company's planned capital expenditure for 2024 fell 12% year on year. Considering that the current peak of 5G network investment has passed, and the 6G investment period is still far away, it is expected that the company's capital expenditure will remain steady and declining, which will reduce depreciation and amortization pressure and help release profits.
occurrences
On March 19, 2024, the company released its 2023 annual report. Revenue for 2023 reached 372.6 billion yuan, up 5.0% year on year; EBITDA1 reached 99.6 billion yuan; net profit to mother reached 8.2 billion yuan, up 12.0% year on year, achieving double digit growth for 7 consecutive years. The return on net assets reached 5.1%, the best level in recent years.
Brief review
1. Depreciation and amortization amounts decreased year-on-year, and free cash flow improved.
In 2023, the company achieved operating income of 372.6 billion yuan, an increase of 5.0% over the previous year; achieved net profit of 335.2 billion yuan, an increase of 5% over the previous year; achieved net profit of 8.2 billion yuan, an increase of 12.0% over the previous year, achieving a double-digit increase for 7 consecutive years. The return on net assets reached 5.1%, achieving the best level in recent years, with free cash flow of 34 billion yuan, an increase of 10.8% year on year.
Looking at a single quarter, 2023Q4 achieved operating revenue of 90.9 billion yuan, the same year-on-year; achieved net profit of 82.65 billion yuan, up 3.71% year on year; achieved net profit of 595 million yuan, up 27.26% year on year. The faster growth rate of 2023Q4 profit was related to the lower base last year (the company adjusted the net residual value ratio of optical cables from 3% to 0% in 2022). On the cost side, the company's network operation and support costs in 2023 were 60.26 billion yuan, up 6.4% year on year, accounting for 16.11% of revenue. The increase of 0.21 pct was mainly due to the expansion of the company's network and related infrastructure; depreciation and amortization was 79.957 billion yuan, down 2.9% year on year, accounting for 21.46% of revenue, down 1.74 pct year on year. It is mainly due to the company's good capital expenditure management and network co-construction and sharing in recent years.
Internet investment has reached an inflection point, and capital expenditure declined in 2023. The company's capital expenditure in 2023 was 73.9 billion yuan, down 300 million yuan from 2022 and lower than the 76.9 billion yuan planned in early 2023. In 2024, the company plans to spend 65 billion yuan on capital, a year-on-year decrease of 12%. The current peak of 5G network investment has passed. The main investment is in computing power. It is expected that the company's capital expenditure will continue to decline steadily until the 6G investment period arrives, which will reduce depreciation and amortization pressure and help release profits.
2. The network communication business is progressing steadily, and the computing network digital intelligence business is expanding to new growth poles.
In 2023, the company adjusted its disclosure standards. The two main businesses are network communication business and digital intelligence business. Among them, the network communication business achieved revenue of 244.6 billion yuan, including the six major sectors of mobile networking, broadband networking, television networking, dedicated line networking, communication services, and information business. The number of mobile users reached 333 million, the net increase of users reached 10.6 million in 2023, and the penetration rate of 5G package users reached 78%, an increase of 12 pcts over the previous year. The number of fixed-line broadband users reached 113 million, a net increase of 9.79 million over the previous year. The penetration rate of gigabit users reached 22%, an increase of 6 pcts over the previous year. In 2023, the Computing Network Digital Intelligence business achieved revenue of 75.2 billion yuan, including the six major sectors of Unicom Cloud, Data Center, Mathematical Integration, Data Services, Digital Intelligence Applications, and Internet Communications Security, bringing more than half of the company's new revenue.
3. Unicom Cloud is growing rapidly and continues to lead the data service business.
Unicom Cloud achieved revenue of 51 billion yuan in 2023, an increase of 41.6% year over year. Cloud resources cover more than 230 cities. The company focuses on breaking through key technical difficulties such as cloud server operating systems, databases, and cloud disaster recovery to meet the needs of customers in customized scenarios, and has created a series of benchmark cases in the fields of government affairs, medical care, transportation, education, etc. In terms of data services, the company's data service revenue reached 5.3 billion yuan in 2023, up 32% year on year. The industry share exceeded 50% for 5 consecutive years. The data processing capacity continued to improve. The daily data collection increased by 1.2 PB year on year, and passed the highest level of DCMM5 certification with the highest score in history. At present, 15 provincial government big data platforms have been built, and the total number of smart city service districts and counties has exceeded 800. Furthermore, after the establishment of the data bureau, relevant leaders were put in place one after another. We are optimistic about the company's subsequent development in the data element market. After the construction of the data element market is gradually improved, the large amount of high-quality data resources the company has is expected to be better monetized. In addition, the company has extensive experience in data monetization, and can later help the government and enterprises release the value of data elements.
4. Profit prediction and investment advice.
The company's various businesses are steady, moderate and improving, and businesses such as cloud computing and big data have maintained relatively rapid growth. After the construction of the data element market is gradually improved, the company's large amount of high-quality data resources is expected to be better monetized. In addition, the company has extensive experience in data monetization, and can later help the government and enterprises release the value of data elements. Thanks to the company's good capital expenditure management and network co-construction and sharing in recent years, the amount of depreciation and amortization has declined. The company's planned capital expenditure for 2024 fell 12% year on year. Considering that the current peak of 5G network investment has passed, and 6G investment is still far away, it is expected that the company's capital expenditure will remain steady and declining, which will reduce depreciation and amortization pressure and help release profits. We expect the company's net profit to be 91.5, 100.4, and 10.09 billion yuan respectively for 2024-2026, corresponding PE is 16.2, 14.8, and 13.6X; corresponding PB is 0.91, 0.89, and 0.87X. Maintain a “buy” rating.
5. Risk warning.
Competition in the personal market has intensified, and efforts to speed up and reduce fees have once again increased. 5G-related applications are scarce, and traffic growth is slowing down; cloud computing has fallen short of expectations, and cloud computing is the development focus of the three telecom operators. In addition, other state-owned enterprises are also deploying cloud computing, and there is a risk of increased competition; traditional cloud vendors launch cloud computing price wars; the development of the data element market is still in an exploration period, and there are still major uncertainties, such as data authorization and data pricing. The relevant technology is immature, and there is a risk of data leakage during the transaction process; data involving personal information is more sensitive. Data property disputes may occur during transactions; management changes and business strategy adjustments.