Core views

The company's revenue grew steadily, and profits maintained double-digit growth. Various businesses have been steady, moderate and positive, and the scale and value of networked users have achieved “double growth”; businesses such as cloud computing and big data have maintained relatively rapid growth. The company initiated intelligent transformation of the data center, driving the rapid growth of AIDC's business. Thanks to the company's good capital expenditure management and network co-construction and sharing in recent years, the amount of depreciation and amortization has reached an inflection point. It is expected that as capital expenditure declines, subsequent depreciation and amortization amounts will continue to decline to help release profits.

occurrences

The company released its 2024 semi-annual report. In the first half of the year, the company achieved revenue of 197.3 billion yuan, an increase of 2.9% over the previous year. EBITDA reached 54.9 billion yuan, up 2.7% year on year, achieving total profit of 16.8 billion yuan, up 10.2% year on year, and net profit to mother 6 billion yuan, up 10.9% year on year.

Brief review

1. Revenue grew steadily, and profits maintained double-digit growth.

2024H1 achieved revenue of 197.3 billion yuan, up 2.9% year on year, including main business revenue of 175.7 billion yuan, up 2.7% year on year; EBITDA of 54.9 billion yuan, up 2.7% year on year; total profit of 16.8 billion yuan, up 10.2% year on year; and net profit to mother of 6 billion yuan, up 10.9% year on year. 2024Q2 achieved operating income of 97.8 billion yuan, up 3.4% year on year, of which main business revenue was 86.6 billion yuan, 1.98% year on year; net profit to mother was 3.6 billion yuan, up 13.04% year on year. The company's accelerated profit growth rate in the second quarter was related to some asset disposal income.

The cost ratio declined further. The total cost of 2024H1 was 178.6 billion yuan, up 0.7% year on year, accounting for 90.5% of revenue, down 2 pct year on year. Network operation and support costs were $30.4 billion, up 4.4% year on year, and depreciation and amortization was $42.4 billion, down 0.1% year on year. It is mainly due to lower capital expenditure and network co-construction and sharing. It is expected that as capital expenditure declines, the amount of depreciation and amortization will continue to decline.

2. Stabilize and improve the quality of network communication services, and expand the efficiency of network digital intelligence services.

The 2024H1 network communication business completed revenue of 125.1 billion yuan, an increase of 2.1% over the previous year. The scale and value of the company's online users achieved a “double increase”. First, the number of connections has been growing steadily. The net increase in mobile users has exceeded 6 million, and the total number of users has reached 0.34 billion, and the net increase has reached a record high in the same period in the past five years; broadband users continued to grow steadily, reaching 0.117 billion, of which the number of integrated users exceeded 80 million. Second, the user structure was further optimized. The 5G package user penetration rate exceeded 80%, the gigabit broadband user penetration rate exceeded 25%; the ARPU for integrated users reached 103 yuan.

The revenue of the 2024H1 Computing Network Digital Intelligence business reached 43.5 billion yuan, an increase of 6.6% over the previous year. Unicom's cloud revenue reached 31.7 billion yuan, up 24.3% year over year. The company initiated intelligent transformation of data centers, driving rapid growth in AIDC's business. IDC's revenue was 13.1 billion yuan, an increase of 5% over the previous year, leading the industry in growth rate. The data service industry is leading, with revenue of 3.2 billion yuan in the first half of the year, an increase of 8.6% over the previous year. Actively use the multiplier effect of data elements to build government big data platforms and economic operation platforms for many provinces and cities; actively participate in the market-based reform of data elements, release spatial solutions for trusted data resources, consolidate data infrastructure, cooperate with many local digital exchanges, big data companies, etc., and actively promote innovation in public data operation models. In terms of data asset registration, in the 2024 semi-annual report, the data resources in development expenses were 84.76 million yuan.

3. Capital expenditure as a share of revenue continued to decline, and cash flow declined.

In the first half of 2024, the company focused on strengthening network industry collaboration, accurate investment, and effective control of capital expenditure. The total capital expenditure was 23.9 billion yuan, a decrease of 13.4% over the previous year. Net cash flow from operating activities was 30.1 billion yuan, down 23.2% year on year. It is estimated that the company's accounts receivable size will increase by about 21% year on year in connection with the expansion of the Internet Digital Intelligence business.

4. Profit prediction and investment advice.

The company's various businesses are steady, moderate and improving, and businesses such as cloud computing and big data have maintained relatively rapid growth. The company initiated intelligent transformation of the data center, driving the rapid growth of AIDC's business. Thanks to the company's good capital expenditure management and network co-construction and sharing in recent years, the amount of depreciation and amortization has reached an inflection point. It is expected that as capital expenditure declines, subsequent depreciation and amortization amounts will continue to decline to help release profits. We expect the company's 2024-2026 net profit to be 92.0.3, 10.069, and 10.833 billion yuan, respectively, with corresponding PE being 16, 15, and 14X; corresponding PB of 0.92, 0.90, and 0.89X. Maintain a “buy” rating.

5. Risk warning.

Competition in the individual market intensified, operators launched low-cost packages to seize customers. In the context of consumption downgrading, users chose to downgrade the package, and the company's mobile RPU value dropped; 5G-related applications were scarce and traffic growth slowed; cloud computing fell short of expectations, and cloud computing was the development focus of the three telecom operators. In addition, other state-owned enterprises also deployed cloud computing, which may have a risk of increased competition; traditional cloud vendors are still in the cloud computing price war; there are still major uncertainties, such as data confirmation and data pricing. Relevant technology is immature, and there is a risk of data leakage during the transaction; data involving personal information is sensitive, and data property disputes may occur during the transaction; management changes and business strategy adjustments.