We maintain the investment rating as "Accumulate" and set TP to HK$4.25. We forecast FY24-FY26 EPS to be RMB0.547/ RMB0.574/ RMB0.600, respectively. Considering the steady improvement of its dividends, and opportunities brought by the massive construction of data centers, we maintain the investment rating as "Accumulate". The corresponding dividend yield will be 6.1%/ 6.7%/ 7.3% in FY24-FY26.

China Communications Services' (the "Company") FY23 results were in line with expectations. Operating revenue in 2023 was up by 5.6% yoy to RMB148,615 million and shareholders' net profit up by 6.7% yoy to RMB3,584 million. Gross profit margin increased by 0.2 ppt yoy to 11.6%. Revenue from TIS, BPO and ACO increased yoy by 4.4%/ 1.1%/ 16.8%, respectively. The final dividend payout ratio increased from 40% in 2022 to 42% in 2023, with shareholders' dividend payout up by 12.1% yoy.

We believe the Company will continue to achieve high-quality development. As the Company continues to strengthen cost control measures and vigorously deploys strategic emerging businesses, its business has achieved high-quality development. Due to the rapid growth of ACO business, as well as effective cost control, we expect shareholders' net profit to achieve a steady yoy growth in coming years, and we expect that the dividend payout ratio to grow every year smoothly given the rising dividend payout ratio and strong free cash flow. Besides, we expect that cloud and AI will both bring huge market space for the digital infrastructure industry. We can see that the Company is continuously enhancing its technology and innovation capabilities to drive the second curve of its business growth.

Catalysts: Increase in dividend payout ratio; better-than-expected profitability of non-operator market.

Risks: Slower-than-expected growth of ACO business; weaker-than-expected demand from non-operator customers.