The performance was in line with expectations, and the dividend ratio increased steadily: in the first half of 2024, the company achieved operating income of 546.7 billion yuan (YoY +3.0%), of which communication service revenue was 463.6 billion yuan (YoY +2.5%); profit attributable to shareholders was 80.2 billion yuan (YoY +5.3%), and revenue profit increased steadily. EBITDA was $182.3 billion (YoY -0.7%), and EBITDA accounted for 39.3% of communications service revenue. Capital expenditure of 64 billion yuan (YoY%-21.4) in the first half of the year is expected to drop further by 4.0% year-on-year to 173 billion yuan for the full year of '24, and the future share of capital expenditure to fall below 20% of revenue.
Free cash flow was $67.4 billion (YoY -14.8%), with an interim dividend of HK$2.6 per share, with a dividend payout rate of 63.3%, compared to 62.5% in the same period last year. The company expects the dividend rate for the full year 2024 to be higher than 71% last year, and profits distributed in cash over three years from 2024 will gradually increase to more than 75% of the profit due to shareholders in that year.
CHBN leads the strategy and advances in quantity and quality: CHBN continues to grow, accounting for 45.0% of communications service revenue (YoY +2.3%). Personal market revenue was 255.2 billion yuan (YoY -1.6%), 1 billion mobile users, a net increase of 9.26 million. Among them, 5G network customers reached 0.514 billion, a net increase of 0.049 billion. Mobile ARPU of 51 yuan (YoY -2.7%) is mainly due to new customers in the middle and lower end, slowing traffic growth trends, and the diversion of the Internet of Vehicles scenarios. Household market revenue was 69.8 billion yuan (YoY +7.5%), household broadband users were 0.272 billion, a net increase of 8.48 million households, leading the industry in terms of the number of home broadband customers. The penetration rate of gigabit home broadband customers was 33.5%, up 3.5 percentage points from the end of 2023. Comprehensive ARPU of 43.4 yuan for home customers (YoY +0.2%). Government and enterprise market revenue was 112 billion yuan (YoY +7.3%), and the number of government and enterprise customers reached 30.38 million, a net increase of 2.01 million. Mobile cloud revenue was 50.4 billion yuan (YoY +19.3%), with IaaS+PaaS revenue share among the top five in the industry. The 5G DICT project's contract amount in the first half of the year reached 12.6 billion yuan (YoY +13.8%), and 5G private network revenue reached 3.9 billion yuan (YoY +53.7%).
Emerging markets and digital business are progressing steadily: in the first half of 2024, revenue from emerging markets was 26.6 billion yuan (YoY +13.2%), of which international business revenue was 11.8 billion yuan (YoY +16.3%), digital content revenue was 14.5 billion yuan (YoY +11.3%), and 0.538 billion monthly active customers of the Migu Video mobile app. The financial business scale of the industrial chain was 37.9 billion, up 72.1% year over year. The digital transformation achieved remarkable results in the first half of the year. The digital income of individuals increased by 34.6% year on year; the digital income of households increased 4.5% year on year; the digital revenue of government and enterprises increased 7.9% year on year, of which DICT revenue reached 65.2 billion yuan, up 8.4% year on year; and digital revenue in emerging markets increased 9.7% year on year.
Maintaining a target price of HK$80, purchase rating: As the operator with the largest number of users in the world, China Mobile occupies a leading position in the mobile and broadband sectors. We believe that even in the face of macroeconomic pressure, the company has firmly grasped the opportunities brought by the development of cloud computing, big data, and AI computing power through an active layout in the conversion of old and new kinetic energy. In terms of basic markets, China Mobile's mobile data and cable broadband business is second to none in terms of quality of operation in the country. China Mobile's profit growth is expected to maintain a positive trend as 5G capital expenditure continues to decline, the lifespan of 5G devices is extended, and the company enters a stage of high-quality development that enhances quality and efficiency and focuses on returns. Considering the current objective pressure on the macroeconomy, we lowered the company's revenue and profit expectations for 2024-2026, corresponding to 3.9%/3.6%/3.5% and 5.9%/5.2%/4.7% growth, respectively. Combining the company's historical valuation center, a profit valuation of 11 times 2024 was given, corresponding to a target price of HK$80, maintaining the purchase rating.
Risk warning: The company's dividend payments, mobile and fixed broadband ARPU growth fell short of expectations, and industry competition intensified.