Revenue and profit have maintained good growth, and China Mobile announced financial results to further increase the dividend rate to 75% within three years: 1Q24's revenue increased 5.2% year on year to RMB 263.707 billion; net profit to mother increased 5.5% year on year to RMB 29.609 billion, continuing the steady growth trend. The company continues to improve shareholder returns, with a dividend payout rate of 71% in 2023, and plans to further increase the dividend ratio to 75% within three years from 2024. We are optimistic about the company's development potential and expect net profit to be 1,400/1478/155.6 billion yuan in 2024-2026. Considering the company's high profitability and long-term growth potential of the digital business, A shares were given 1.9 times 24-year PB (global average: 1.26), corresponding target price of 123.3 yuan; referring to the average premium rate of 68.7% of the company's AH shares in the past, H shares were given 1.12 times 2024 PB, corresponding to a target price of HK$78.9, maintaining the “buy” rating.
Mobile/fixed network ARPU has been rising steadily, and DICT's business revenue has maintained good growth in the individual market. The company insists on “connection+application+equity” integration and expansion, improving the existing customer operation system, and further consolidating the scale and value foundation of growth. 1Q24's mobile business ARPU was 47.9 yuan (1Q 23:47.9), 5G users grew to 799 million, and the 5G penetration rate reached 80%.
In the home market, the number of home broadband customers increased to 269 million, and the comprehensive ARPU for home broadband increased 1.8% year over year to RMB 39.9 yuan. The company promoted large-scale development of home security, mobile HD, and intelligent networking, comprehensively upgraded the smart home ecosystem, and increased the value contribution of HDICT. In terms of the government and enterprise market, the company is integrating to promote “network+cloud+DICT” scale expansion, increase merchant market expansion efforts, and deepen industry digital intelligence services, and DICT's business revenue has maintained good growth.
Operating efficiency continues to improve. Anchored the development position of a “world-class information service technology innovation company”, the gross margin/net margin of the 1Q24 company was 26.17%/11.24%, respectively, up 1.71/0.04 pct year-on-year, respectively, and operating efficiency continued to improve. On the cost side, network operating costs increased 2.3% year over year to RMB 74.594 billion, mainly because the construction of East Digital and Western computing and dual gigabit networks continued to advance; employee compensation and related costs increased 7.6% year over year to RMB 36.08 billion, mainly because the company comprehensively promoted digital transformation, anchored the development position of a “world-class information service science and technology innovation company”, and increased efforts to introduce innovative talents; depreciation and amortization costs decreased 7.9% year on year, mainly due to the company's ability to more objectively and fairly reflect the longevity and actual use of fixed assets As a result, the depreciation period for 5G wireless and related transmission equipment was adjusted from 7 years to 10 years starting January 1, '24.
Profits are expected to continue to grow and maintain “buying”
We are optimistic about the company's development potential. The net profit for 24-26 is estimated to be 1400/1478/155.6 billion yuan, and the 24-26 BPS is estimated to be 64.87/67.07/69.30 yuan. Considering the company's high profitability and long-term growth potential of the digital business, A shares were given 1.9 times 24-year PB (global average: 1.26), corresponding target price of 123.3 yuan; referring to the average premium rate of 68.7% of the company's AH shares in the past, H shares were given 1.12 times 2024 PB, corresponding to a target price of HK$78.9, maintaining the “buy” rating.
Risk warning: 1) ARPU improvement falls short of expectations; 2) 5G capital expenditure exceeds expectations; 3) competition intensifies; 4) the company adopts a more conservative dividend policy.