Incident: The company released its 2023 annual report. In 2023, it achieved revenue of 507.84 billion yuan, up 6.9% year on year, and net profit to mother of 30.45 billion yuan, up 10.3% year on year. On a quarterly basis, 2023Q4 achieved revenue of 126.74 billion yuan, up 8.2% year on year, and net profit to mother of 3.35 billion yuan, up 9.7% year on year.
Comment:
The basic business is growing steadily, and the user scale and value continue to increase. Mobile communications service revenue in 2023 was 195.7 billion yuan, up 2.4% year on year. Among them, mobile value-added and application revenue was 25.8 billion yuan, up 12.4% year on year; mobile user ARPU was 45.4 yuan, up 0.4% year on year. Revenue from fixed network and smart home services reached 123.1 billion yuan, up 3.8% year on year. Among them, smart home business revenue reached 19 billion yuan, up 12.8% year on year; broadband comprehensive ARPU was 4.7.6 yuan, up 2.8% year on year. The company innovatively launched special applications such as 5G mobile phones directly connected to satellites and 5G quantum cryptography, continuing to drive large-scale development of computing power products such as 5G cloud computers, and is expected to maintain differentiated development advantages.
The production and data business is developing rapidly, and capacity building for intelligent computing has been increased. In 2023, production volume business revenue reached 138.9 billion yuan, up 17.9% year on year, accounting for 29.9% of service revenue. The year-on-year increase was 2.8 pct, and the incremental contribution to service revenue increased to 70.4%. Tianyi Cloud's revenue reached 97.2 billion yuan, a year-on-year increase of 67.9%. According to IDC estimates, Tianyi Cloud maintains the leading position of government public cloud infrastructure and number one global operator cloud, and its market share continues to increase in the top three domestic public cloud IaaS and IaaS+PaaS. In addition, the company increased intelligent computing capacity building. Intelligent Computing added 8.1 EFLOPS in 2023, reaching 11.0 EFLOPS, an increase of 279.3% over the previous year; steadily promoted total capacity building, adding 1.0 EFLOPS, reaching 4.1 EFLOPS, an increase of 32.3% over the previous year. The Shanghai Shanchi Wanka Liquid Cooling Intelligent Computing Center will be put into operation in 2024 to promote the transformation and upgrading of the data center to AIDC.
The cost growth rate is lower than the revenue growth rate, and digital operations reduce costs and increase efficiency. The company's operating costs in 2023 were 361.42 billion yuan, an increase of 6.3% over the previous year. The main reason is that the company increased investment in high-growth businesses such as industrial digitalization and smart homes. At the same time, strengthen the cost reduction and efficiency of digital operations. (1) Sales expenses increased 4.3% year on year. The company maintained necessary investment in marketing resources, accelerated valuable large-scale development, strengthened online and offline collaboration, strengthened the application of AI in accurate marketing, and improved the efficiency of the use of sales expenses; (2) management expenses increased 6.4% year on year, lower than revenue growth; (3) R&D expenses increased 23.6% year on year, higher than the growth rate of industry R&D expenses. The company focuses on strategic emerging industries and future industries. The related cost growth is reasonable, and further promotion of cost reduction and efficiency is expected to increase profits.
Optimize the investment structure and focus on strategic emerging businesses. The company's capital expenditure in 2023 was 98.8 billion yuan, an increase of 6.8% over the previous year, including 34.8 billion yuan in mobile networks and 35.5 billion yuan in industrial digitalization. The company plans to spend 96 billion yuan in capital expenditure in 2024, down 2.9% year on year, down 4.5 pct from mobile network investment, and 2.5 pct increase in industrial digitization investment; plans to invest 18 billion yuan in cloud and computing power, increasing intelligent computing capabilities by more than 10 EFLOPS, reaching more than 21 EFLOPS. Total capital expenditure has been reduced and shows structural changes. The ratio of service revenue is expected to fall below 20%, and will continue to decline in the next few years.
A final dividend was paid, and shareholder returns increased significantly. The company plans to pay a final dividend of 0.090 yuan (tax included) per share. In addition to the dividend of 0.1,432 yuan (tax included) per share already paid in mid-2023, the dividend for the full year of 2023 was 0.2332 yuan (tax included). The total dividend paid for the whole year increased 19.0% year-on-year, exceeding 70% of the company's shareholders' share profit distribution promise when issuing A shares. The company attaches great importance to shareholder returns. The three-year compound growth rate of dividends per share is 31%, the highest in the industry. Starting in 2024, profits distributed in cash within three years will gradually increase to more than 75% of the profits due to shareholders in the current year, creating greater value for shareholders.
The telecom business volume of the communications industry is growing steadily, and the number of 5G and gigabit users continues to grow rapidly.
According to statistics from the Ministry of Industry and Information Technology, (1) the total domestic telecom business increased 16.8% year on year in 2023 (based on the constant price of the previous year), driving the service industry to recover and improve, and telecom business revenue increased 6.2% year on year. Emerging businesses such as cloud computing increased their share of telecom business revenue to 21.2%, driving telecom business revenue growth of 3.6 pct. The business structure showed the “three-wheel” driving characteristics of emerging businesses such as mobile Internet, fixed broadband, and cloud computing. (2) Mobile phone users are rapidly migrating to 5G. In 2023, China's 5G mobile phone users accounted for 46.6% of mobile phone users, 2.5 times the global average; the proportion of gigabit users was over a quarter, 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. (3) Data traffic consumption is active. In 2023, mobile Internet user access traffic reached 301.5 billion GB, an increase of 15.2% over the previous year; the average monthly household access traffic (DOU) reached 16.85 GB/household/month, an increase of 10.9% over the previous year.
Accelerated development of integrated applications and upgrades are expected to drive traffic consumption growth.
Profit forecasts and investment suggestions:
The company fully and thoroughly implements the “cloud to digital transformation” strategy, using “network+cloud+AI+ application” to meet the digital needs of customers, accelerate the development of new quality productivity, promote the expansion of strategic emerging businesses, steady growth of basic business, and rapid development of industrial digital business. We expect the company's net profit to be 33.417 billion yuan, 36.269 billion yuan, and 38.915 billion yuan respectively in 2024-2026, with corresponding PE being 16.46X, 15.16X, and 14.13X respectively, maintaining a “buy” rating.
Risk warning: Production volume business development falls short of expectations; dividend ratio falls short of expectations; industry competition intensifies.