Event description:
China Telecom released its 2023 annual report. In 2023, the company achieved revenue of 507.8 billion yuan, +6.9% year-on-year; of these, it achieved service revenue of 465 billion yuan, +6.9% year-on-year; and realized net profit of 30.4 billion yuan, or +10.3% year-on-year.
Incident reviews:
The basic business grew steadily, and the development of differentiated integrated applications drove ARPU growth. In 2023, the company's mobile communication service revenue was 195.7 billion yuan, +2.4% year-on-year, of which mobile Internet and mobile value-added application revenue achieved revenue of 146.4 billion yuan (+1.6% YoY) and 25.8 billion yuan (+12.4% YoY), respectively. The company not only stabilized the basic number of users, but also achieved a steady increase in mobile ARPU through value-added services such as 5G mobile phones connected directly to satellites, 5G quantum chat, AI video ringtones, AI communication assistants, and 5G Tianyi Cloud Drive. The revenue of fixed networks and smart households was 123.1 billion yuan, +3.8% year-on-year, of which smart household revenue was 19 billion yuan, +12.8% year-on-year. The company achieved comprehensive broadband ARPU growth for three consecutive years. On the one hand, we have seen a rapid increase in the proportion of gigabit broadband users. On the other hand, the company continues to explore smart home businesses such as FTTR, Whole-House Intelligence, Tianyi Home Watch, and Cloud Computers.
Production and revenue continued to grow in double digits, and Tianyi Cloud was fully upgraded to an intelligent cloud after reaching 100 billion dollars.
In 2023, the company's industrial digitization revenue reached 138.9 billion yuan, an increase of 17.9% over the previous year. Among them, Tianyi Cloud achieved revenue of 97.2 billion yuan, +67.9% over the same period, growing rapidly for many years. IaaS+PaaS has steadily ranked among the top three in the domestic government public cloud and DaaS markets. As the representative of “Guoyun”, Tianyi Cloud's self-developed technology is autonomous and controllable. At the same time, it continues to be deeply cultivated in the government, state-owned enterprise, industrial, medical, education and other markets. The number of government and enterprise customers was +35.3% year-on-year in 2023. Tianyi Cloud will accelerate its upgrade to an intelligent cloud in the future. In the future, it will increase investment in large-scale AIDC in hot regions, build 10,000 card intelligent computing pools, achieve full cloud-side coverage of computing power products, and polish the “Star” model into a leading domestic large-scale computing power service. In 2023, the company has built a total computing capacity of 4.1 EFLOPS and an intelligent computing capacity of 11.0 EFLOPS. The capital expenditure in 2024 will be further skewed towards computing power. It plans to invest 181 billion yuan in the cloud & computing power field to achieve an additional 10 EFLOPS of intelligent computing.
Accelerate the marketization of data elements and empower thousands of industries. On the one hand, the company will continue to improve the Xinghai Big Data Platform to realize data value monetization in the fields of accurate teaching, cultural tourism guidance, intelligent customer service, public data operation, financial services, etc. The company's Lingze Data Element 2.0 platform has become the number one ecological service provider in China. On the other hand, relying on high-value data accumulation generated by public cloud services and production data services, the company will continue to strengthen basic large-scale model training to achieve a basic large-scale model+12 large-scale industry model+9 large models for personal use, new growth momentum for the main production and data business, and internal cost reduction and efficiency.
We attach great importance to shareholder returns and will continue to increase dividend payout rates in the future. In 2023, the company paid 0.233 yuan per share. The total dividend paid for the whole year was +19.0% year-on-year, and the dividend ratio was over 70%. The company plans to continue to maintain high dividends. Starting in 2024, profits distributed in cash within 3 years will gradually increase to more than 75% of the profits that shareholders should account for that year, and continue to create greater value for shareholders.
Profit forecast, valuation analysis and investment suggestions: We expect the company's net profit to be 333.54/363.56/39.209 billion yuan in 2023-2025, up 9.6%/9.0%/7.8% year-on-year; we see a steady increase in the company's revenue and profit, while the share of capital expenditure continues to decline, and the dividend rate continues to rise. There is still room for improvement in valuation compared to mainstream overseas operators, maintaining a “buy-A” rating.
Risk warning:
The risk of a decline in the growth rate of users in the communications industry.
There is a risk that the growth rate will slow down due to the increase in Tianyi Cloud base and fierce market competition.
Risk that new intelligent calculation targets cannot be completed on time due to external policy restrictions or limited internal supply.