Service revenue growth exceeded expectations, and the dividend payout ratio continued to rise: 2024H1 achieved revenue of 268 billion yuan (YoY +2.8%), of which service revenue was 246.2 billion yuan (YoY +4.3%), which continued to be higher than the growth rate of the Chinese communications industry, and service revenue growth exceeded expectations. EBITDA was 76.8 billion yuan (YoY +4.7%), net profit 21.8 billion yuan (YoY +8.2%), and profit growth was in line with expectations. Capital expenditure in the first half of the year was 47.2 billion yuan, and the annual capital expenditure ratio fell to less than 20% of revenue. It is estimated to be around 96 billion yuan. The company attaches great importance to shareholder returns and continues to pay interim dividends. The dividend ratio is 70%, or RMB 0.1671 per share (YoY +16.7%). Starting in 2024, the company's cash distribution profit will gradually increase to more than 75% of the profit that shareholders should account for that year, continuing to create greater value for shareholders.

Mobile and integrated broadband ARPU grew steadily: In terms of mobile business, in the first half of the year, the company's mobile communications service revenue reached 105.2 billion yuan (YoY +3.6%), mobile value-added and application revenue reached 18.1 billion yuan (YoY +17.1%), the net number of mobile users increased 9.08 million, the number of users reached 0.417 billion yuan, and the mobile user ARPU reached 46.3 yuan (YoY +0.2%). The revenue from fixed network and smart home services was 64 billion yuan (YoY +3.2%), of which smart home business revenue reached 10.7 billion yuan (YoY +14.4%), and the penetration rate of gigabit broadband users increased to 27.3%. The smart home business value contribution continues to increase, and the comprehensive broadband ARPU is 48.3 yuan (YoY +0.2%). The company's mobile ARPU and broadband comprehensive ARPU lead the industry in year-on-year growth, and is expected to maintain a steady increase in ARPU in the future.

Adhere to the two-wheel drive of the foundation and production volume: 24H1's industrial digital revenue was 73.7 billion yuan (YoY +7.2%), accounting for 30% of service revenue, an increase of 0.8 p.p.; of these, Tianyi Cloud's revenue was 55.2 billion yuan (+20.4%), which continues to grow rapidly, and is expected to exceed 100 billion yuan in revenue throughout the year. The company accelerates the construction of digital information infrastructure, promotes the comprehensive upgrading of data centers to AIDC, and meets the inference needs of various AI applications. The company and China Unicom continued to deepen network co-construction and sharing. In the first half of the year, they built more than 0.1 million shared 5G base stations and more than 1.31 million 5G base stations; steadily promoted a 4G network and more than 2 million 4G base stations. The 5G network achieves continuous coverage of the country's townships and above.

Maintaining the target price of HK$6 and maintaining the purchase rating: China Telecom continues to thoroughly implement the cloud to digital transformation strategy, comprehensively promote high-quality growth, and lead the industry in terms of base innovation such as cloud computing and big models on the basis of stabilizing basic businesses. We are optimistic about the future growth potential of the company as the main force in the country's digital infrastructure construction. Considering the current macroeconomic objective pressure, we lowered the company's operating income and profit guidelines to correspond to 4.4%/4.2%/3.9% and 9.0%/8.8%/8.2% growth, respectively. Combining the company's historical valuation center, a profit valuation of 15 times in 2024 was given, corresponding to a target price of HK$6, maintaining the purchase rating.

Risk warning: ARPU increases and capital expenditure falls short of expectations, increased competition, etc.