Core views

The company's revenue has grown steadily, profits have maintained double-digit growth, various businesses have been steady, moderate and positive, the scale and value of connected users have achieved “double growth”, and businesses such as cloud computing and big data have maintained relatively rapid growth. At the same time, the company is actively expanding emerging businesses such as data elements and network communication security. The company initiated intelligent transformation of the data center, driving the rapid growth of AIDC's business.

The decline in net cash flow from 2024Q3's operating activities narrowed, and the trend improved. Furthermore, with the advancement of government debt, corporate government and enterprise affairs are expected to improve.

occurrences

Recently, the company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved operating income of 290.12 billion yuan, a year-on-year increase of 3.0%; total profit reached 23.42 billion yuan, and net profit to mother reached 8.34 billion yuan, an increase of 10.0% year-on-year, maintaining a double-digit growth rate.

Brief review

1. Profit maintained double-digit growth, and cash flow stabilized in Q3.

The company achieved operating income of 290.123 billion yuan in the first three quarters of 2024, up 2.99% year on year. Among them, communication service revenue was 258.786 billion yuan, up 2.48% year on year; net profit to mother was 8.338 billion yuan, up 10.04% year on year, after deducting non-return net profit of 6.876 billion yuan, up 1.00% year on year. Looking at a single quarter, 2024Q3 achieved operating income of 92.782 billion yuan, up 3.25% year on year, including communication service revenue of 83.13 billion yuan, up 2.03% year on year; net profit to mother was 2.299 billion yuan, up 7.75% year on year, after deducting net profit of 1.817 billion yuan without return to mother, a decrease of 6.02% year on year. The company achieved double-digit profit growth in the first three quarters, but some contributed to asset disposal revenue.

In terms of cost ratios, the company's sales, management, R&D, and finance expense ratios for the first three quarters of 2024 were -0.04pct, -0.90pct, +0.34pct, and +0.02pct, respectively. Net cash flow from operating activities in the first three quarters of 2024 was $58.25 billion, down 14% year on year; net cash flow from operating activities of 2024Q3 company was 28.113 billion yuan, down 1.2% year on year, improving the trend.

2. The network communication service user structure continues to be optimized, and Unicom's cloud revenue is growing rapidly.

In terms of network communication services, the company's mobile users reached 0.345 billion, with a cumulative net increase of 11.23 million users throughout the year, a record high for the same period in the past 6 years. Among them, there were 0.286 billion 5G package users, and the 5G package penetration rate reached 83%, and the user structure continued to be optimized. The number of IoT connections reached 0.594 billion, a net increase of nearly 100 million; fixed-line broadband users reached 0.121 billion, with a cumulative net increase of 7.12 million households throughout the year, and the scale development trend remained good.

Computing network digital intelligence business aspects. Unicom's cloud revenue reached 43.86 billion yuan, an increase of 19.5% over the previous year; the intelligent transformation of data centers promoted the accelerated development of AIDC, with data center revenue reaching 19.69 billion yuan, an increase of 6.8% over the previous year; the cumulative number of virtual private network service customers in the 5G industry reached 14013; the company actively built a “big security” system from safe operation to secure services and ecological prosperity, and Netcom security revenue grew strongly.

3. 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. The decline in net cash flow from 2024Q3's operating activities narrowed, and the trend improved. Furthermore, with the advancement of government bonds, the company's government and business operations are expected to improve. We expect the company's net profit to be 9.097, 9.716, and 10.282 billion yuan respectively in 2024-2026, corresponding PE is 17.7, 16.6, and 15.7X; the corresponding PB is 0.99, 0.97, and 0.95X. Maintain a “buy” rating.

4. Risk warning.

Competition in the individual market intensified, operators launched low-cost packages to seize customers. In the context of consumption downgrades, users chose to downgrade packages, and the company's mobile ARPU 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 the risk of increased competition; traditional cloud vendors are still in the cloud computing price war; there are still major uncertainties, such as data authorization 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.