CICC believes that China Communications Services (00552) strictly controls repayments, controls profit quality, and increases in the dividend ratio, which is expected to contribute good returns to investors.
The Zhitong Finance App learned that CICC released a research report stating that while maintaining the “outperforming industry” rating of China Communications Services (00552), the profit forecast for 2024 remains basically unchanged. For the first time, it introduced a net profit forecast of 3,961 billion yuan to the mother in 2025, with a target price of HK$4.7 billion. The company's revenue and net profit for 2023 are in line with the bank's expectations. In the semi-annual situation, 2H23's revenue was 75.45 billion yuan, +5.5% year-on-year, and net profit to mother was 1.55 billion yuan, +6.0% year-on-year.
The main views of CICC are as follows:
Seize strategic emerging business development opportunities, and each customer's market revenue is growing well.
By customer market, revenue from operators, attracting customers, and overseas markets in 2023 reached +4.7/6.3/ 15.3% year-on-year, respectively, reaching 817/634/3.5 billion yuan. Among them: 1) In the customer attraction market, the company focused on strategic emerging businesses such as industrial digitalization and photovoltaic energy. The number of new contracts signed in the customer attraction market increased by about 8% year-on-year to 87 billion yuan, of which new contracts for strategic emerging businesses increased by about 19% year-on-year. 2) In the operator market, the company seized opportunities for computing power development. Intelligent computing centers, smart cities, etc. drove the operator market to sign new contracts by about 8% year-on-year. By business: TIS/BPO/ACO business revenue was +4.4/1.1/16.8% year-on-year, respectively, to 761/436/28.9 billion yuan. In 2023, the amount of new contracts signed for strategic emerging businesses was 59 billion yuan, +31% year-on-year, accounting for nearly 30% of the total number of new contracts signed +6ppt.
Project control is strict, gross profit continues to increase, and business quality continues to improve.
In 2023, operating costs were +5.3% to 131.4 billion yuan, and gross margin increased by 0.2ppt to 11.6% year on year. The company continued to strengthen cost control and optimize revenue structures, and gross margins in all customer markets showed a positive trend. The annual R&D expenditure was about 5.6 billion yuan, +12% over the same period last year, mainly in key areas such as digital infrastructure and industrial digitalization. In 2023, the company's RoE was +0.1ppt to 8.6% year on year, and operating efficiency continued to improve.
Cash flow from operating activities performed well, and the dividend ratio increased to 42%, increasing shareholder returns.
In 2023, the company's net cash flow from operating activities increased 9.1% year on year to 5.356 billion yuan, and capital expenditure increased 35.1% year on year to 1,245 billion yuan, mainly due to the purchase of a number of submarine cable construction and maintenance facilities in 2023. The company's free cash flow in 2023 was -0.5% year-on-year to 4.33 billion yuan, mainly due to an increase in capital expenditure. The company announced that it will increase the dividend ratio to 42% in 2023, an increase of 2ppt over the previous year, and continue to increase dividend returns. The bank believes that the company strictly controls repayments and controls the quality of profits, and increases the dividend ratio. The bank believes that it is expected to contribute good returns to investors.
Risk: The impact of fluctuations in downstream demand exceeds expectations; the company's cost control falls short of expectations.