Key points of investment
The overall performance of the company was steady in the first quarter of '24. Net profit without return to mother increased 8.4% year on year. In the first quarter of 2024, the company's overall performance was steady, with operating income of 263.7 billion yuan, up 5.2% year on year. Among them, communication service revenue was 219.3 billion yuan, up 4.5% year on year; net profit to mother was 29.6 billion yuan, up 5.5% year on year. ; Net profit after deducting non-return to mother was 26.1 billion yuan, an increase of 8.4% over the previous year.
The individual/household/government and enterprise markets all showed a good growth trend
Personal market: Consolidate the base of user size and value. As of March 31, 2024, there was a net increase of 4.63 million mobile users to 996 million, including 799 million 5G package users, 80.2% 5G package penetration rate, 488 million 5G network customers, and 5G network penetration rate of 49.0%; in the first quarter, the company's mobile Internet traffic increased 3.3% year on year, DOU reached 14.9GB; mobile ARPU was 47.9 yuan, the same as the previous year. As the 5G network penetration rate approaches the 5G package penetration rate, and the company's “connection+application+equity” integration and expansion, the company's individual market is expected to continue to be stable.
Family market: Smart Home's ecosystem is driving a sharp rise in scale and value. As of March 31, 2024, the number of wired broadband users increased net from 6.83 million to 305 million, including a net increase of 5.28 million to 269 million households; the comprehensive household ARPU was 39.9 yuan, an increase of 1.8% over the previous year. The company has built a “full gigabit+ cloud living” smart home ecosystem to increase the value contribution of HDICT. It is expected that the business value of the household market will continue to increase in the future.
Government and enterprise market: DICT's business has maintained good growth. The company is deeply involved in digital intelligence services in the industry, promoting “cloud, network, and DICT” integrated services based on its resource endowment advantages, while promoting high-quality business growth. It is expected that future government and enterprise market development will continue to improve quality and efficiency and contribute to revenue growth momentum.
Costs and expenses are properly controlled, and the depreciation and amortization rate continues to decline
In the first quarter, the company's operating costs were 194.6 billion yuan, up 2.8% year on year, of which network operation and support costs increased 2.3% year on year, accounting for -0.7pp of service revenue; the company comprehensively considered factors such as technology business and asset usage, and adjusted the depreciation period for 5G wireless and related transmission equipment from 7 years to 10 years from January 1, 2024. Depreciation and amortization in the first quarter decreased 7.9% year on year, accounting for 3pp of service revenue; employee compensation and related costs increased 7.6% year on year, accounting for services Revenue ratio +0.5pp.
On the cost side, the sales expense ratio, management expense ratio, and financial expense ratio were 5.67%/4.98%/-0.22%, with a year-on-year change of +0.42pp/ -0.15pp/ -0.09pp. The company focused on R&D investment. R&D expenses increased 6.7% year on year in the first quarter, and the R&D expense ratio was 1.14%, up 0.02pp year on year. The company anchors the development position of a “world-class information service science and technology innovation company”, increases investment in talent introduction and R&D, and promotes the “BASIC6” science and technology innovation plan, which is conducive to enhancing core competitiveness and contributing continuous impetus to subsequent innovation and development.
The dividend payout rate was raised to over 75% within three years, highlighting the investment value
The company attaches great importance to improving shareholder returns, stating that starting in 2024, profits distributed in cash will gradually increase to more than 75% of the profits that shareholders should account for that year. We assume that the dividend ratio increases to 72% in '24, the expected dividend rate for mobile H shares will reach 7.4% in '24, and the dividend rate for A shares will reach 4.4%. In the context of the “Nine Rules of the New Country” to strengthen dividend supervision to guide long-term capital entry into the market and market value management assessments of central enterprises, the company's investment value is expected to increase further.
Profit forecasting and valuation
The company has a triple investment logic of steady performance+high dividend rate+technological growth. Revenue growth is expected to be 6.6%, 6.3%, and 6.2% in 2024-2026, and net profit growth rates of 6.2%, 6.1%, and 6.0%, corresponding to PE 16.22, 15.29, and 14.42 times, maintaining the “buy” rating.
Risk warning
The development of government and enterprise services fell short of expectations; ARPU fell short of expectations; cost control fell short of expectations, etc.