Key points of investment:
Incident: The company released 23 annual reports, achieving revenue of 124.25 billion yuan, YoY +1.05%; net profit to mother of 9.33 billion yuan, YoY +15.41%; net profit after deducting non-return to mother of 7.40 billion yuan, YoY +19.99%.
Overall performance was in line with expectations. Looking at Q4 alone, it achieved revenue of 34.857 billion yuan, YoY +14.68%; net profit to mother of 1,485 billion yuan, YoY +17.80%. According to the company's 23 annual report (same below), the company's 23 gross margin was 41.53%, +4.34pct year on year; net profit margin was 7.44%, +1.10pct year on year.
Supported by operators' network performance, the gross margin of the main business has increased significantly. By business sector, the company's operator network revenue in '23 reached 82,759 billion yuan, YoY +3.4%; gross profit margin was 49.11%, +2.89pct year-on-year, mainly due to changes in revenue structure and continuous cost optimization. The gross margins of government and enterprise services and consumer businesses were 34.94%/22.26% respectively, +9.59/+4.50pct, respectively, mainly due to cost optimization and increased gross margin of international home information terminal/mobile phone products. The company's internal growth is rooted in the evolution from the operator's “network building capex” to the digitalization of the industry, and related business growth is expected to continue to exceed expectations.
R&D investment continues to increase, and long-term core technology accumulation. In '23, the company's R&D expenses reached 25.29 billion yuan, YoY +17.07%, accounting for 20.35% of revenue, +2.78pct year-on-year. The chip field is internally empowered, focusing on DICT chip underlying technology research and development, and already has a highly competitive product system for the core needs of diverse “cloud, edge, and end” scenarios; in the database field, GoldenDB, a self-developed distributed database, has been deeply operating in the domestic financial and operator markets and continues to expand multiple industries, ranking first in the number of bank core/sub-core/non-bank core systems put into operation in the financial market in 23 years.
Continue to expand the “connection” main track and accelerate the promotion of new “computing power” tracks. In the field of network connectivity, according to Dell'oroGroup data, the company's 5G base station shipments have been second in the world for four consecutive years. In terms of fixed network access, the industry's first three-mode Combo PON solution was released; in terms of IP networks, routers had the second largest domestic share and the highest year-on-year growth rate. In the field of computing power infrastructure, servers and storage, it provides integrated servers, high-performance storage, AiCube integrated training propulsion, etc. that support liquid cooling and heterogeneous acceleration; in terms of switches, the next-generation 400GE/800GE data center switches support single-slot 14.4T, and 9900X series data switch core devices are fully self-developed, which has significantly increased the share of winning bids in operator acquisition projects; in terms of data centers, it has been delivered to multiple domestic markets, and the Indonesian China Telecom data center project has been exclusively constructed overseas. Opportunities for a new growth curve in computing power are expected to support a new round of the company's performance growth in the future.
Maintain a buy rating. The company's R&D innovation attitude is clear, the cost structure is optimized, and self-development of chips empowers the main business, and has great potential to release profits. Combine improvements in the company's gross margin and expense ratio and optimization of operating profit content, and focus on profit-side flexibility.
The company's profit forecast for 24 and 25 was adjusted to 10.8.09 billion yuan and 12.434 billion yuan (before adjustments of 11.750 billion yuan and 13.03 billion yuan), and the 26-year forecast was added to 14.205 billion yuan, corresponding to PE 12, 10, and 9 times for 24-26, respectively, maintaining the purchase rating.
Risk warning: short-term fluctuations in domestic industrial digitization demand; external trade environment and supply chain impact.