Key points of investment
Event: On March 18, 2024, the company announced its 2023 results; on April 19, the company released the main operating data for the first quarter of 2024.
The overall performance is steady, and the growth rate is expected to improve in 24
The company's overall performance grew steadily. In 2023, it achieved revenue of 94.09 billion yuan, up 2.0% year on year, EBITDA of 63.551 billion yuan, up 1.1% year on year, EBITDA rate of 67.6%, net profit to mother of 9.750 billion yuan, up 11.0% year on year. Profitability continued to improve, and net margin increased 0.87pp to 10.4% year on year.
In the first quarter of 2024, the company achieved revenue of 23.974 billion yuan, a year-on-year increase of 3.3%, an EBITDA of 16.597 billion yuan, a year-on-year increase of 3.0%, an EBITDA rate of 69.2%, and net profit to mother of 2,784 billion yuan, an increase of 11.1% year-on-year. With the gradual implementation of the new commercial pricing agreement, the company's performance growth rate is expected to gradually recover.
The overall operator business resumed growth: the tower business gradually improved, and the room division business grew rapidly. Operator business: The tower business fluctuated briefly, and the room division business grew strongly. In 2023, affected by the switch to the new commercial pricing agreement, the company's operator business achieved revenue of 82.163 billion yuan, a year-on-year decrease of 1.0%, of which:
The tower business achieved revenue of 75.023 billion yuan, a year-on-year decrease of 2.8%; the room division business achieved revenue of 7.140 billion yuan, an increase of 22.5% over the previous year. 2024Q1, with the gradual implementation of commercial pricing agreements, operator business resumed growth. Revenue increased 2.2% year on year to 20.984 billion yuan. Among them, tower business revenue increased 0.6% year on year to 18.946 billion yuan, and room division business revenue increased 19.8% year on year to 2,038 billion yuan.
Network coverage continues to expand, and the level of sharing continues to improve. As of March 31, 2024, the number of the company's tower sites reached 2,059 million, an increase of 13,000 over the end of 2023; the number of tower tenants reached 3.701 million, an increase of 43,000 over the end of 2023, and the average number of tenants in the tower rose to 1.80, an increase of 0.01 from the end of 2023.
The company is a national communications infrastructure construction team and the main force in new 5G infrastructure. The resource endowment advantage is obvious. In the context of the breadth and depth coverage of domestic communication networks, the tower business is expected to gradually improve, the continuous expansion of room coverage is expected to drive rapid revenue growth, and the overall operator business will maintain a steady growth trend in the future.
The two-wing business is growing rapidly: focusing on the digital economy and green and low-carbon development opportunities, the two-wing business is the company's strategic development focus. Relying on digital governance and green and low-carbon development opportunities, it is expected to rapidly advance to open up new space for development. In 2023, the revenue of the two wings business was 11.497 billion yuan, up 29.1% year on year. Among them, Zhilian business revenue was 7.283 billion yuan, up 27.7% year on year; energy business revenue was 4.214 billion yuan, up 31.7% year on year. 2024Q1 had revenue of 2,931 billion yuan, up 13.6% year on year, accounting for 12.2% of revenue. Among them, Zhilian's business revenue was 1,974 billion yuan, up 21.0% year on year, and energy business revenue was 957 million yuan, up 0.8% year on year.
The company reuses site resources, leverages the advantages of medium- and high-ranking resources, and continues to promote the deepening development of intelligent connectivity services; in terms of energy business, it will continue to accelerate the economical and efficient layout of power exchange networks, further consolidate its leading position in the market, and further explore energy saving and carbon reduction needs, and promote comprehensive solutions for the “power backup +” industry, focusing on customer needs in key industries such as finance, communications, and medical care to create “energy management” services. There is still room for incremental development in the future.
Costs and expenses are well controlled, and depreciation is expected to bring obvious profit flexibility. In 2023, the company's depreciation and amortization was 49.049 billion yuan, down 1.0% year on year. Maintenance costs, labor costs, site operation and support costs, and other operating expenses were -2.4%, +11.4%, -7.9%, and +11.1%, respectively. Among them, the increase in labor costs is mainly due to factors such as the company moderately introducing technology and management talents to help the business develop upward. The company's overall results in improving quality and efficiency were remarkable. Operating expenses in 2023 accounted for 84.6% of revenue, down 1.0pp from 2022.
Cash flow was briefly under pressure in 2023 and is expected to improve in the future as the agreement is implemented. In the context of the new commercial pricing agreement switch, the company needed to confirm the details of the agreement with the operator's provincial branches one after another. In 2023, the company's repayment cycle was slightly extended, and operating cash flow was briefly under pressure. The annual operating cash flow was 32.840 billion yuan, down 49.6% year on year, and free cash flow was 1,125 billion yuan, down 97.1% year on year. We expect that with the gradual implementation of commercial pricing agreements, the company's cash flow situation is expected to gradually improve.
The depreciation of the tower assets acquired by the company in 2015 will reach an inflection point in 2026. At that time, the scale of depreciation and amortization will be drastically reduced, contributing significant room for profit growth.
Increase dividends and focus on shareholder returns
The company attaches great importance to shareholder returns. The dividend for the end of 2023 was RMB 0.03739 before tax per share, an increase of 15.7% over the previous year, and the dividend ratio increased to 75%. In the context of market value management assessments of central enterprises, the company focuses on improving the quality of operations, improving quality and efficiency to help steady growth in performance, and at the same time, increasing the intensity of dividends shows shareholders' willingness to return.
Profit forecasting and valuation
The company's revenue for 2024-2026 is expected to be 985, 102.9, and 107.2 billion yuan, up 4.8%, 4.5%, and 4.1% year on year; net profit to mother is 112, 134, and 21.7 billion yuan, up 15.0%, 19.5%, and 62.0% year on year, corresponding PE is 12.53, 10.48, and 6.47 times.
Risk warning
Risks that business progress falls short of expectations; risk of customer concentration; risk of cost control falling short of expectations; risk of product price reduction during the current pricing agreement cycle; dividend payments falling short of expectations, etc.