occurrences

With 2024Q1-Q3, the company achieved operating income of 791.46 billion yuan, an increase of 2.1% year on year; net profit to mother was 110.88 billion yuan, up 5.1% year on year, after deducting net profit of not attributable to mother of 100.5 billion yuan, an increase of 3.6% year on year.

With 2024Q3, the company achieved operating income of 244.71 billion yuan, a year-on-year decrease of 0.1%; net profit to mother was 30.68 billion yuan, an increase of 4.6% year-on-year, after deducting non-return net profit of 27.46 billion yuan, an increase of 1.0% year-on-year.

1. The CHBN business has gained full strength, and the household market has achieved a sharp rise in volume and price (1) Personal market: Traffic has grown steadily, and ARPU has gradually stabilized in a single quarter. As of the third quarter report, the total number of mobile customers reached 1.004 billion, of which the number of 5G network customers reached 0.539 billion, and the 5G network penetration rate was 53.7%; in the first 3 quarters, mobile Internet traffic increased 2.1% year on year, and mobile Internet DOU reached 15.7 GB; mobile ARPU was RMB 49.5, down 3.3% year on year, narrowing compared to the semi-annual ARPU decline.

(2) Household market: Gigabyte households drive volume and price increases sharply. As of the first three quarters, the total number of cable broadband customers reached 0.314 billion, a net increase of 15.36 million, of which household broadband customers reached 0.276 billion, a net increase of 12.46 million. In the first 3 quarters, the comprehensive ARPU for household customers was RMB 43.2, an increase of 2.6% over the previous year, a significant increase of 2.6% over the previous year.

(3) Government enterprises and emerging markets: achieve good growth. The integration promotes “network+cloud+DICT” scale expansion, and content media revenue and international business revenue have maintained rapid growth.

2. Steady management, stable release of profit space

The company's gross profit margin for the first three quarters was 30.8%, up 2.1 pct year on year, and the net profit margin was 14.0%, up 0.4 pct year on year. The increase in gross margin was mainly due to a 7.0% year-on-year decrease in depreciation and amortization expenses. In addition, employee remuneration and network operating costs increased by 0.4%/9.0%, respectively. The overall cost rate for the first three quarters was 12.9%, up 1.1 pct year on year. The sales/finance/R&D expenses ratio increased by 0.3/0.2/0.6 pct year on year, respectively, and the management expense ratio remained basically the same.

3. Cash flow has improved, and the pace of payments has been adjusted. Credit impairment accruals affected profit margins as of the three-quarter report. Net operating activity was 224.08 billion yuan, down 5.7% year on year, cash income ratio 1.02, slight increase 0.1 year on year. The company adjusted the pace of payments, and the overall net operating decline was significantly narrower than 24H1.

The company accrued credit value losses of 18.07 billion yuan in the first three quarters, up 44.5% year on year. Credit impairment losses in a single quarter were 7.11/4.92/6.05 billion yuan respectively, up 72.9/45.1/ 20.8% year on year.

4. Investment suggestions:

Considering the slowdown in the growth rate of the low-margin business in the sales of communications products and the interim report on the CHBN related business growth rate, the expected revenue forecast for 2024-2026 will be adjusted from 1078.5/1150.9/1226.7 billion yuan to 1003.4/1063.9/1099.3 billion yuan, respectively. Earnings per share will be adjusted from 6.53/6.91/7.32 yuan to 6.45/6.75/7.10 yuan respectively, corresponding to 104.38 yuan on October 22, 2024 The closing price per share, PE was 16.19/15.45/14.70 times, respectively, maintaining the “Overweight” rating.

6. Risk warning:

Risk of bad debt loss; risk of industry policy changes; innovative business promotion falling short of expectations, systemic risk.