Incident: China Telecom releases its 2023 annual report. In 2023, the company achieved operating income of 507.843 billion yuan, up 6.9% year on year; net profit to mother of 30.446 billion yuan, up 10.3% year on year; deducted non-net profit of 29.553 billion yuan, up 8.7% year on year.
Underlying business revenue is growing well. In terms of C-side business, the company's mobile communications service revenue in 2023 was 195.66 billion yuan, an increase of 2.4% over the previous year. Mobile ARPU was 45.4 yuan, up 0.4% year over year. Among them, the number of 5G package customers increased by 50.70% year over year, ranking first among the three major operators. 5G package penetration increased 9.6pp to 78.1%. In the B-side business, the number of cable broadband users reached 190 million, and the comprehensive cable broadband ARPU was 47.6 yuan, an increase of 2.8% over the previous year. The number of IoT connections increased by 120.10% to 527 million.
Tianyi Cloud maintains the lead. In 2023, Tianyi Cloud's revenue was 97.23 billion yuan, up 67.9% year over year. Tianyi Cloud maintains its leading position in the public cloud market, ranking in the top three in the country for IaaS/IaaS+PaaS, government public cloud infrastructure reaching number one in the country, and DaaS ranking first in the country. By increasing investment in cloud business, the company continued to break through self-developed technology, further strengthened cloud capabilities, and accelerated the upgrade to an intelligent cloud. Tianyi Cloud aims to build a ubiquitous computing power infrastructure that integrates Yunzhi, build three intelligent computing platforms covering all links, and become the leading large-scale computing power service provider in China.
Capital expenditure optimization. The company's capital expenditure in 2023 was 98.838 billion yuan, an increase of 6.82% over the previous year, making it the only positive CAPEX growth among the three major operators. In terms of structure, the company focused on strategic emerging businesses and continued to strengthen digital investment in the industry. The share of production CAPEX increased by 6.7pp to 36.0%. According to company guidelines, capital expenditure of $96.00 billion is expected to be realized in 2023, a slight decrease over the previous year. Among them, the share of production and capital expenditure is expected to rise to 38.5%.
Strengthen market value management. The company responded to the call of the State Assets Administration Commission and attached great importance to market value management, with remarkable results. Market capitalization at the end of 2023 was 2.2 times higher than at the end of 2020. The company fulfilled its listing promise, with an annual dividend payout rate of over 70% in 2023, and proposed to gradually increase the dividend payout ratio to over 75% within three years.
Investment advice: China Telecom achieved steady growth in 2023. In this context, the company's emerging industry layout has been very effective, and Tianyi Cloud continues to lead the way. The company optimizes capital expenditure by continuously investing in production volume business. We are optimistic about the company's development and forecast that in 2024-2026, the company will achieve revenue of 560.709 billion yuan, 623.901 billion yuan, and 697.521 billion yuan; net profit to mother of 33.894 billion yuan, 38.126 billion yuan, 43.591 billion yuan; EPS 0.37, 0.42, 0.48, PE 16X, 14X, 12X, and maintain a “buy” rating.
Risk warning: The digital development of the industry falls short of expectations; the development progress of the public cloud market falls short of expectations; market competition intensifies; risk of loss of users.