Incident: The company released its 2023 annual report. In 2023, it achieved revenue of 372.60 billion yuan, up 5.0% year on year, and net profit to mother of 8.17 billion yuan, up 12.0% year on year. On a quarterly basis, 2023Q4 achieved revenue of 90.9 billion yuan, down 0.07% year on year, and net profit to mother was 590 million yuan, up 27.3% year on year.
Comment:
The network communication business is progressing steadily, and the computing network digital intelligence business is improving. In 2023, the company achieved main business revenue of 335.2 billion yuan, an increase of 5.0% over the previous year. (1) In 2023, the networked communications business achieved revenue of 244.6 billion yuan, accounting for about 3/4 of the revenue scale. In terms of mobile networking, the user structure continued to be optimized, and the 5G package user penetration rate reached 78%, an increase of 12 pct; in terms of broadband networking, the user structure improved markedly. The integrated penetration rate of broadband users reached 76%, and the penetration rate of gigabit users reached 22%, an increase of 6 pcts over the previous year. (2) In 2023, the Internet Digital Intelligence business achieved revenue of 75.2 billion yuan, accounting for about 1/4 of the revenue scale, bringing the company more than 50% of the new revenue. On the cloud side, Unicom achieved revenue of 51 billion yuan in 2023, an increase of 41.6% over the previous year. The company's traditional business is progressing steadily, and the share of emerging businesses is expected to continue to increase, driving the company's performance growth rate.
Cost growth is in line with revenue growth, and R&D investment continues to be increased. In 2023, the company's operating costs were 281.23 billion yuan, up 4.6% year-on-year. Considering future sustainable growth, the company increased its investment in innovative business and strategic resources, resulting in cost growth. Cost growth is in line with revenue growth. (1) Sales expenses increased 4% year on year, and the company appropriately increased sales expenses to increase market attractiveness; (2) management expenses increased 4.4% year on year, mainly due to increased labor costs, and the company continued to push forward incentive system reforms to optimize human resource efficiency; (3) financial expenses increased 65.4% year on year, mainly due to the year-on-year increase in interest expenses on rental debt; (4) The company strengthened its scientific and technological innovation capabilities and continued to increase R&D investment. R&D expenses increased 18.5% year on year, higher than the growth rate of R&D expenses in the industry.
Accelerate the layout of emerging artificial intelligence industries, and network investment has shown an inflection point. The company is speeding up the deployment of emerging AI industries and creating a large-scale model development application paradigm characteristic of Unicom. On MWC2024, the company launched the “Yuanjing” large model system, which lays out multi-parameter versions according to different functional requirements to promote large models to better empower real economy application scenarios. As 5G network coverage improved, the company's investment focus changed from networked communication services to high-growth digital computing and intelligence services, and network investment showed an inflection point. Capital expenditure in 2023 was $73.9 billion. Depreciation and amortization expenses declined year-on-year due to good capital expenditure management and network co-construction and sharing. It is estimated that fixed asset investment will be about 65 billion yuan in 2024, of which Computing Network Digital Intelligence Investment will continue to stay moderately ahead of schedule and speed up the layout.
A final dividend was paid, and the level of cash dividends reached a record high. The board of directors recommended a final dividend of $0.0524 (tax included) per share, along with the interim dividend of $0.0796 per share already paid. The total annual dividend was $0.132 per share, up 21.1% year on year, significantly higher than the 11.5% increase in basic profit per share, and the level of cash dividends reached a record high. The company attaches great importance to shareholder returns, and dividends are expected to continue to grow.
China's telecom business volume has increased doubly, the spread of gigabit broadband has accelerated, and the computing power network layout continues to improve. (1) In 2023, the total domestic telecom business increased by 16.8% year-on-year (based on constant prices in the previous year), driving the service industry to recover for the better. Telecom business revenue increased 6.2% year over year, and emerging businesses such as cloud computing increased their share of telecom business revenue to 21.2%, driving telecom business revenue growth of 3.6 pcts. (2) In 2023, China's 5G mobile phone users accounted for 46.6% of mobile phone users, 2.5 times the global average; the number of 5G base stations reached 3.377 million, and the network infrastructure was becoming more and more complete; the proportion of users with access rates of 1000 Mbps and above reached 25.7%, and the proportion of dual gigabit users increased rapidly; the number of 10G PON ports with gigabit network service capabilities reached 2.32 million, an increase of 51.2% over the previous year. The gigabit optical network supported the digital transformation of enterprises, and FTTR entered the user promotion stage. (3) In 2023, the three major operators will provide 970,000 data center racks to the public, an increase of 18.6% over the previous year, and the computing power network layout will continue to improve.
Profit forecasts and investment suggestions:
The company's main businesses, networked communications and digital intelligence, are being developed in a coordinated manner, promoting the layout of strategic emerging industries, rapid development of the Unicom Cloud, and continuous optimization of the business structure. As capital expenditure shows a downward inflection point, the company's ability to release performance is expected to increase, and the company may maintain steady revenue growth and double-digit growth in total profit in 2024. We expect the company's net profit to be 9.054 billion yuan, 10.019 billion yuan, and 11.071 billion yuan respectively in 2024-2026. The corresponding PE is 16.09X, 14.54X, and 13.16X, respectively, downgraded to the “increase in holdings” rating.
Risk warning: Computing and digital intelligence business development falls short of expectations; dividend ratio falls short of expectations; industry competition intensifies.