Key points of investment:
The company announced its 2023 results. In 2023, the company achieved revenue of 1009.309 billion yuan YoY +7.7%, net profit of 131,766 billion yuan YoY +5.0%, weighted ROE of 10.2%.
The performance was in line with expectations, and the performance of various sectors was outstanding. The company achieved the annual performance guidelines of “two breakthroughs” at the beginning of the year, that is, it achieved revenue exceeding trillion yuan and profits reaching record highs. Revenue growth rate of various business segments: individual market 0.3%, household market 13.1%, government enterprise market 14.2%, emerging market 28.2%; mobile customer size reached 991 million households, net increase of 15.99 million households, mobile ARPU increased 0.6% to 49.3 yuan; household, government enterprises, and emerging businesses accounted for nearly 43.2% of revenue; rapid growth in cloud, DICT, private networks, etc., and revenue structure optimization revealed that China Mobile's growth “accelerated shift”.
Operating efficiency continues to improve, and the three indicators are steady. 1) In terms of profit statements, due to increased channel operation support services and SME expansion efforts, sales expenses increased slightly, YoY +5.8%; depreciation and amortization was only +3.3% YoY in the context of network upgrades; R&D expenses YoY +58.7%, and the company's innovation attributes continued to increase under strategic transformation. 2) In terms of cash flow, cash flow from operating activities and free cash flow increased year-on-year and remained healthy; capital expenditure for the year was 1803 billion yuan (down to 20.9%), and capital expenditure in 2024 was expected to fall below 20%, accounting for less than 20% of revenue, but computing power expenses are expected to increase 21.5% year over year. 3) In terms of dividends, the dividend rate for the full year of 2023 is 71%, and the profit distributed in cash over the next three years will gradually increase to more than 75% of the profit that shareholders should account for that year. In addition, with reference to the usage period of 5G facilities and industry accounting processing, the company began adjusting the depreciation period for 5G wireless and related transmission equipment from 7 to 10 years in '24. According to the company's estimates, this change will reduce the depreciation amount of fixed assets by about $18 billion in 2024.
Driven by computing networks, the number of clouds has increased rapidly, and industrial value has become prominent. For the whole year, Mobile Cloud achieved revenue of 83.349 billion yuan, YoY +65.6%, the top 5 IaaS+PaaS revenue share, with a year-on-year increase of over 100% in general computing power; the scale of general computing power reached 8.0 EFLOPS, and the scale of intelligent computing power reached 10.1 EFLOPS. According to the company's performance disclosure, intelligent computing is expected to grow by about 7 EFLOPS in 24, and the total amount will increase by about 3 EFLOPS. The key role of operators in computing network integration and resource allocation may be underestimated, showing a central role in resource reuse rate, hierarchical layout, and overall computing power. It is expected that operators will participate in the construction of networks and computing power hubs throughout the process, seek balance in their positioning in the growth of the computational power+ network field, and continue to reevaluate their value; under the capacity center model, data elements also have huge potential value space, and the value of the operator industry will be further highlighted.
Maintain a buy rating. China Mobile is currently in the development period of the conversion of old and new kinetic energy. Its leading attributes in science and innovation are prominent, ushering in a new starting point of growth. According to the company's disclosure of business development goals for 2024, it is expected to “strive to achieve good revenue and profit growth” throughout the year. Based on this, we adjusted our profit forecast for 24 and 25 to 1391.57 billion yuan and 146.810 billion yuan (147.802 billion yuan and 164.184 billion yuan before the adjustment), and also added the 26-year forecast to 155.122 billion yuan, that is, the net profit growth rate for 2024-2026 is 5.6%, 5.5%, and 5.7%, respectively. Currently, the market has a preliminary understanding of the dividend value of cloud networks in the context of the digital economy, and there is still room for further recognition of cloud, AI, and data capabilities. The fundamentals are steadily improving, and the scale effect is remarkable. Maintain a buy rating.
Risk warning: Industry cloud penetration falls short of expectations; product strength improvement is limited due to insufficient innovation efficiency; ARPU improvement is limited.