Key points of investment
Net profit to mother increased 10.9% year over year, exceeding market expectations
With 2024H1, the company achieved revenue of 197.3 billion yuan, up 2.9% year on year, including service revenue of 175.7 billion yuan, up 2.7% year on year, EBITDA 55 billion yuan, up 2.7% year on year, total profit of 16.8 billion yuan, up 10.2% year on year, net profit of 6 billion yuan, up 10.9% year on year, and double digit growth for 8 consecutive years. The growth rate of net profit to mother was higher than our forecast of 8.5%-10.5%. This increase is even more rare, especially in the face of weak recent market industry data.
Profitability gradually increased. The return on net assets (average) was 3.74%, up 0.26pp year on year, and the net profit margin on sales was 6.97%, up 0.47pp year on year.
The company is confident in its full-year performance outlook, which will guide steady growth in revenue and double-digit growth in profit before tax.
The two main businesses are consolidating and improving, and their scale and value are increasing simultaneously
2024H1, networked communications business revenue of 125.1 billion yuan, up 2.1% year on year, accounting for 74.2% of main revenue. Both user size and value increased. The net increase of mobile users reached 1 billion in the first half of the year. Among them, the net increase of mobile users was 6.09 million to 0.339 billion, the net increase in the same period of nearly 5 years. 5G package users reached 0.28 billion, the 5G package penetration rate exceeded 80%; the net increase of fixed broadband users reached 0.117 billion. Networked communication achieved an increase in value, and the ARPU for the integrated package reached 103 yuan. The data is expected to increase further in the second half of the year.
Internet Digital Intelligence business revenue was 43.5 billion yuan, up 6.6% year on year, accounting for 25.8% of main revenue. Among them: Unicom Cloud revenue was 31.7 billion yuan, up 24.3% year on year; data service revenue was 3.2 billion yuan, up 8.6% year on year; digital intelligence application revenue was 3.7 billion yuan, up 13.5% year on year; Internet Communications security revenue was 1.4 billion yuan, up 58.2% year on year.
In the context of a cyber power and the construction of a digital China, the real economy and the digital economy are being integrated at an accelerated pace. The company actively promotes new networks, new technology and services, and creates continuous growth momentum for performance growth. In terms of networked communication business, the company deeply explores the value of segmenting customer scenarios, strengthens integrated customer-facing operations, promotes the steady development of this business based on business integration, product integration and terminal integration, and continues to consolidate the basic market. In terms of the computing network digital intelligence business, we are making every effort to expand the scale of the computing network market, enrich the intelligent computing product system, and continue to consolidate the leading edge of big data, promote the company's development transformation and model transformation with new productivity, and increase efficiency for long-term development and expansion.
Improve quality and efficiency, and overall cost control is effective
2024H1, under the Hong Kong stock market, the company's operating costs increased 2.2% year on year, and the operating cost ratio decreased by 0.6 pp year on year. Among them, network operation and support costs were 30.45 billion yuan, up 4.4% year on year, accounting for 0.2 pp increase; depreciation and amortization was 42.36 billion yuan, down 0.1% year on year, accounting for 0.6 pp; employee compensation and benefits expenses were 28.71 billion yuan, down 11.0% year on year, accounting for 2.3 pp; sales expenses rate and management expense ratio remained flat year on year.
Capital expenditure has declined significantly, and cash flow is expected to improve
2024H1, capital expenditure of 23.9 billion yuan, a year-on-year decrease of 13.4%, guided capital expenditure of 65 billion yuan for the whole year, a year-on-year decrease of 12%. In the first half of the year, the company's operating cash flow was 30.14 billion yuan, down 23.2% from the previous year. The main reason was that the company accelerated the development of the Computing Network Digital Intelligence business. Compared with traditional network communication services, the implementation cycle of the Computing Network Digital Intelligence project was long, the inspection process was relatively complicated, and the repayment speed was slow. We expect the repayment situation to gradually improve as the company increases its repayment efforts and refined management of projects and customers.
Continued strengthening of shareholder returns, and mid-term dividends increased by 22%
The company's interim dividend for Hong Kong shares was RMB 0.2481 per share (before tax), up 22.2% year on year, and RMB 0.0959 (tax included) for A shares, up 20.5% year on year. The year-on-year dividend growth rate per share was significantly higher than the profit growth rate. The company guides Hong Kong stocks to have an annual dividend payout rate of 55%, which is not lower than the dividend rate for 23 years.
Profit forecasting and valuation
Revenue growth is expected to be 4.7%, 4.5%, and 4.5% in 2024-2026, and net profit growth rates of 10.7%, 10.2%, and 10.1%, corresponding to PE 15.9, 14.4, and 13.1 times, maintaining the “buy” rating.
Risk warning
The increase in basic business users fell short of expectations; competition in innovative businesses intensified; cost control fell short of expectations; dividend payments fell short of expectations, etc.