Core views

The company operates steadily and is leading the industry in terms of revenue growth in communications services. Against the backdrop of pressure on the mobile communications industry as a whole, the company is actively promoting the integration of mobile phones directly connected to satellites, quantum, AI, etc., to boost the revenue growth of mobile value-added applications, and the value of mobile ARPU has continued to grow. The company promotes the rapid development of industrial digital business, strengthens digital platform technology research and development and capacity innovation, empowers customers in more than 10 key industries such as government affairs, industry, education, healthcare, and finance to digitally transform and upgrade, and the quality of the company's development is steadily improving.

occurrences

The company released its 2024 semi-annual report. 2024H1 achieved operating income of 266 billion yuan, an increase of 2.8% year on year, including service revenue of 246.2 billion yuan, a year-on-year increase of 4.3%, and net profit to mother of 21.8 billion yuan, an increase of 8.2% year on year. After deducting non-return net profit of 21.7 billion yuan, an increase of 6.0% year on year.

Brief review

1. Steady growth in performance, leading the industry in commuter revenue growth.

2024H1 achieved operating income of 266 billion yuan, an increase of 2.8% year on year, including service revenue of 246.2 billion yuan, up 4.3% year on year, which continued to be higher than the industry growth rate. Net profit to mother was 21.8 billion yuan, an increase of 8.2% year on year. With 2024Q2, the company achieved revenue of 131.5 billion yuan, up 1.98% year on year, of which service revenue was 121.9 billion yuan, up 3.7% year on year, and net profit to mother was 13.2 billion yuan, up 8.6% year on year. The company has maintained steady growth in revenue from basic businesses such as mobile communications and home insurance, while actively expanding value-added businesses. Production and revenue have achieved good growth, and the quality of development has steadily improved.

2024H1, the company's operating cost was 183.96 billion yuan, an increase of 2.7% over the previous year. The main reason is that the company continues to improve the quality and capabilities of cloud network services and increase investment in high-growth businesses such as industrial digitalization and smart homes. Among them, operation and maintenance costs were $52.381 billion, up 8.1% year on year, accounting for 21.3% of service revenue, up 0.7 pct year on year; depreciation and amortization was 47.22 billion yuan, up 3.4% year on year, accounting for 19.2% of service revenue, down 0.2 pct year on year. As subsequent capital expenditure declines, depreciation and amortization are also expected to show a downward inflection point. The company's expense ratio is well controlled. 2024H1's sales, management, and finance expenses rate decreased by 0.43, 0.24, and 0.1 pct, respectively, and R&D expenses increased by 0.15 pct. The main reason is that the company adheres to scientific and technological innovation leadership and continues to strengthen key core technology research around the four major technical directions of networks, cloud and cloud network integration, AI, and quantum/security.

2. The basic business is growing steadily, the production volume business is growing well, and it is actively expanding new business directions such as AI, quantum, and satellite communications.

2024H1, the company's mobile communications service revenue reached 105.2 billion yuan, up 3.6% year on year. Among them, mobile value-added and application revenue was 18.1 billion yuan, up 17.1% year on year, the net number of mobile users increased by 9.08 million to 0.417 billion users, the mobile user ARPU was 46.3 yuan, up 0.1 yuan year on year, and the DOU was about 17.8 GB (calculated value), up 23.3% year on year. Against the backdrop of pressure on the entire mobile communications industry, the company still achieved an increase in ARPU value. On the one hand, the company strengthened accurate marketing for existing customers to promote 4G to 5G; on the other hand, the company actively promoted the integration of mobile phones directly connected to satellite, quantum, AI, etc., to boost revenue growth for mobile value-added applications.

2024H1's revenue from fixed network and smart home services was 64 billion yuan, up 3.2% year on year. Among them, smart home business revenue was 10.7 billion yuan, up 14.4% year on year, the net number of broadband users increased by 3.19 million to 0.193 billion households, and the comprehensive broadband ARPU reached 48.3 yuan, an increase of 0.1 yuan year on year. Industrial digitization revenue reached 73.7 billion yuan, up 7.2% year on year, accounting for 30.0% of service revenue, up 0.8 pct year on year. Tianyi Cloud's revenue reached 55.2 billion yuan, up 20.4% year on year. Among them, public cloud revenue increased 26% year over year, and IaaS share increased by 1.5 pct.

3. Optimize the capital expenditure structure and increase investment in digital information infrastructure.

2024H1's capital expenditure was 47.2 billion yuan (annual capital expenditure fell to less than 20% of revenue), a year-on-year increase of 13%, including 18.6 billion yuan for mobile networks and 16.1 billion yuan for industrial digitization. The company has begun the second batch of AI server procurement to build a computing power infrastructure integrating cloud intelligence and training. It has built a leading domestic fully liquid-cooled 10,000 card pool in Beijing-Tianjin-Hebei and Yangtze River Delta. It has carried trillion-parameter large model training tasks, and deployed inference pools in 31 provinces to meet the inference needs of various AI applications. The intelligent computing power has been added by 10 EFLOPS, totaling 21EFLOPS. The company's net cash flow from operating activities in the first half of the year was 58.34 billion yuan, down 11.2% year on year. The main reason was the long repayment period for the industrial digitization business, the corresponding increase in accounts receivable, and accounts receivable increased 18.4% year on year. At the same time, the company actively fulfilled its social responsibilities, supported the development of the industrial chain, and made timely payments in strict accordance with contract agreements.

4. Profit prediction and investment advice.

The company operates steadily and is leading the industry in terms of revenue growth in communications services. Against the backdrop of pressure on the mobile communications industry as a whole, the company is actively promoting the integration of mobile phones directly connected to satellites, quantum, AI, etc., to boost the revenue growth of mobile value-added applications, and the value of mobile ARPU has continued to grow. The company promotes the rapid development of industrial digital business, strengthens digital platform technology research and development and capacity innovation, and empowers customers in more than 10 key industries such as government affairs, industry, education, healthcare, and finance to digitally transform and upgrade. The quality of the company's development is improving steadily. We expect the company's net profit to be 32.921 billion yuan, 35.215 billion yuan, and 37.3 billion yuan in 2024-2026, corresponding PE being 17, 16, 15X; corresponding PB is 1.23, 1.18, and 1.14X, maintaining a “buy” rating.

5. Risk warning.

Competition in the individual market has intensified, and efforts to speed up and reduce fees have once again increased; the scale of B-side projects has increased, accounts receivable have increased, repayment of some projects is difficult, and credit impairment has increased; the development of cloud computing falls short of expectations, and cloud computing is the development focus of the three telecom operators. In addition, other state-owned enterprises also have cloud computing, and there may be a risk that competition will intensify; the development of the data factor market is still being explored. There are still major uncertainties, such as data verification and data pricing, where there are still major difficulties, related technology is not mature, and data is stored in the transaction process Risk of disclosure; data involving personal information is sensitive, and data property disputes may occur during transactions.