Description of the event
On April 23, the company released its 2024 quarterly report. 2024Q1 achieved operating income of 134.5 billion yuan, an increase of 3.7% year on year; net profit to mother of 8.6 billion yuan, an increase of 7.7% year on year.
Incident comments
Service revenue growth was impressive, and performance was in line with expectations. 2024Q1 achieved operating revenue of 134.5 billion yuan, up 3.7% year on year, of which service revenue was 124.3 billion yuan, up 5.0% year on year, the fastest growth rate of the three companies; net profit to mother was 8.6 billion yuan, up 7.7% year on year, in line with expectations. The overall operating performance of 23Q1 operators was excellent. On the relatively high base of 23Q1, the company still achieved high-quality growth in 24Q1, showing the resilience of performance growth. The company clearly defines its goals for the next three years: service revenue to maintain good growth, net profit growth rate is higher than revenue growth rate, and growth is highly certain.
ARPU is rising steadily, and the production volume business continues to grow in double digits. In terms of traditional business, 24Q1 mobile communication service revenue reached $52.2 billion, up 3.2% year on year, fixed network and smart home service revenue reached 31.8 billion yuan, up 2.2% year on year, and basic market business maintained steady growth. In terms of ARPU value, the 24Q1 mobile ARPU was 45.8 yuan, the same as the previous year; the broadband comprehensive ARPU was 48.6 yuan, an increase of 2.3% over the previous year, with an overall steady increase. In terms of industrial digitalization, the company uses “network+cloud+AI+ applications” to meet the digital needs of thousands of households and industries, promote the rapid development of strategic emerging businesses, and promote the deep integration of digital technology and the real economy. The digital revenue of the 2024Q1 industry reached 38.7 billion yuan, an increase of 10.6% over the previous year.
Depreciation and amortization as a share of revenue declined further, increasing staff incentives. Referring to the H-share caliber, the 24Q1 company's operating expenses were 124.9 billion yuan, an increase of 3.6% over the previous year. Among them, network operation and support costs increased 6.6% year on year, mainly because the company continued to improve cloud network service quality and capabilities, support the rapid development of industrial digitalization and smart home business, and moderately increase capacity investment; labor costs increased 4.8% year over year, mainly because the company increased the introduction of technology-based and innovative talents and incentives for first-line employees and high-performing teams; depreciation and amortization increased 2.8% year on year, accounting for a decrease of 0.2 pct to 18.1% year on year, continuing to support profit release.
The capital expenditure inflection point is about to be reached, and the dividend payout ratio is comparable to China Mobile. The company's estimated capital expenditure in 2024 was 96 billion yuan, down 2.9% year on year. The inflection point will now be reached. The structure is further skewed towards industrial digitalization. The related investment was 37 billion yuan, an increase of 3.9% over the previous year, of which 18 billion yuan was invested in cloud/ computing power. In terms of computing power planning, the company's intelligent computing scale reached 11.0 EFLOPS in 2023, and plans to add at least 10 EFLOPS to 21 EFLOPS or more in 2024, leading the scale industry, and building AIDC for intelligent computing. The company fulfilled its listing dividend promise, increased its dividend payout rate by more than 5 pct to 71% in 2023, and announced a new 3-year dividend promise: the dividend payout rate will gradually increase to over 75% within 3 years from 2024, which is comparable to China Mobile's intention to pay dividends.
Investment advice: The 24Q1 service revenue growth was impressive, net profit to mother grew well, ARPU was rising steadily, and the production volume business continued to grow by double digits. On the cost side, depreciation and amortization share of revenue continues to decline, increasing investment in capacity moderately and increasing incentives for innovative talents in science and technology. Capital expenditure is about to reach an inflection point, and the willingness to pay dividends is on par with China Mobile. The company guides service revenue to maintain good growth over the next 3 years, the net profit growth rate is higher than the revenue growth rate, and issued new dividend promises. The growth and dividends are highly certain. The company's net profit for 24-26 is estimated to be 33.1 billion yuan, 35.6 billion yuan, and 38 billion yuan, corresponding to year-on-year growth rates of 8.6%, 7.7%, and 6.7%, corresponding to PE 17 times, 15 times, and 14 times PE. The main recommendation is to maintain the “buy” rating.
Risk warning
1. The increase in traditional business ARPU falls short of expectations;
2. Competition in industrial digitalization business intensified.