Incident: China Unicom released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 197.341 billion yuan, an increase of 2.87% year on year; net profit to mother was 6.039 billion yuan, an increase of 10.93% year on year.

DOU is improving at an accelerated pace. The company reached 0.339 billion mobile users in the first half of 2024. 5G package users reached 0.28 billion. The number of H-end fixed broadband users reached 0.117 billion. Among them, the penetration rate of gigabit users increased to 25%, and the user structure improved markedly. The ARPU value for fusion users is 103 yuan. The DOU for mobile phone users was 16.0 GB, up 16% year over year (DOU growth rate of 7% in 2023).

Effectively control costs. In 2024 H1, the company's CAPEX was 23.9 billion yuan, a year-on-year decrease of 13.4%, maintaining the same annual guideline of 65 billion yuan. Depreciation and amortization remained flat, at $42.4 billion, due to reduced capital expenditure and network co-construction and sharing, showing a downward trend. Total costs and expenses totaled 178.6 billion yuan, up 0.7% year over year, lower than the revenue growth rate.

Unicom Cloud is growing rapidly. In 2024, Unicom's cloud revenue reached 31.7 billion yuan, up 24.3% year over year.

The company initiated intelligent transformation of the data center, driving rapid growth in AIDC's business. The data center revenue reached 13.1 billion yuan, an increase of 5.0% over the previous year, leading the industry in growth rate. Based on a rich intelligent computing product system, the company helps the digital transformation of the economy and society. Currently, it has participated in the construction of 20 ministerial clouds, 22 provincial government clouds, 100+ clouds for medium and large enterprises, and more than 2,000 medical clouds.

Leading the data services industry. In the first half of 2024, the company's data service revenue was 3.2 billion yuan, up 8.6% year on year, and continued to lead the industry. The company is deeply involved in the market-based reform of data elements, building data infrastructure, publishing trusted data resource space platforms and connected network solutions, and cooperating with local digital exchanges, big data companies and other organizations to participate in public data licensing operations. As of June 30, the company has served 11 provinces and 24 municipal big data platforms.

Dividends continue to rise. In the first half of 2024, the company continued to strengthen shareholder returns. The board of directors proposed an interim dividend of RMB 0.0959 per share, an increase of 20.5% over the previous year, which is significantly higher than the EPS growth rate (10.9%).

Unicom's red chip dividend payout rate is 55%.

Investment advice: Under the steady support of traditional business, the company's net profit achieved double-digit year-on-year growth. By improving quality and efficiency, the company's cost ratio continues to decrease. We are optimistic that the company will achieve its performance target of double-digit profit growth for the whole year. In the long run, we are optimistic that application-side breakthroughs will drive an increase in traffic consumption, and the company's overall ARPU is expected to increase accordingly. It is predicted that in 2024-2026, the company will achieve revenue of 400.169 billion yuan, 434.984 billion yuan, 475.002 billion yuan; net profit to mother of 9.302 billion yuan, 10.611 billion yuan, 12.153 billion yuan; EPS 0.29, 0.33, 0.38 yuan, PE 16X, 14X, 13X, maintaining a “buy” rating.

Risk warning: The digital development of the industry falls short of expectations; the development progress of the public cloud market falls short of expectations; market competition intensifies; and the risk of losing users.