Description of the event

On October 22, the company released the 2024 three-quarter report. 2024Q1-Q3 achieved revenue of 392 billion yuan, a year-on-year increase of 2.9%; net profit to mother was 29.3 billion yuan, an increase of 8.1% year-on-year.

Incident comments

The results were in line with expectations, and EBITDA performed well. With 2024Q1-Q3, the company achieved operating income of 392 billion yuan, an increase of 2.9% year on year, of which communication service revenue was 362.9 billion yuan, an increase of 3.8% year on year, and realized net profit to mother of 29.3 billion yuan, an increase of 8.1% year on year. Looking at a single quarter, 24Q3 achieved revenue of 126 billion yuan, an increase of 2.9% year on year, of which communication service revenue was 116.7 billion yuan, an increase of 2.5% year on year, and achieved net profit of 7.5 billion yuan to mother, an increase of 7.8% year on year. Overall, the company's communications service revenue growth rate is still the highest among the three companies, and profit growth is in line with expectations. In addition, referring to the H-share caliber, 24Q1-Q3 achieved an EBITDA of 111 billion yuan, a year-on-year increase of 5.1%, and excellent profit quality.

Traditional businesses are growing steadily, and ARPU remains stable. With 2024Q1-Q3, the company achieved mobile communication service revenue of 156.8 billion yuan, an increase of 3.2% year on year, fixed network and smart home service revenue of 95.6 billion yuan, an increase of 2.9% year on year, and steady growth in traditional business. In terms of users, the company's mobile users increased by a net of 14.9 million, with the largest net increase of the three companies. The net increase of cable broadband users was 6.1 million, maintaining a steady increase. In terms of ARPU, the company's mobile ARPU reached 45.6 yuan, the same as the previous year, with the most impressive performance. The broadband comprehensive ARPU reached 47.8 yuan, the same level over the previous year, and the value contribution of smart homes continued to increase.

Emerging businesses are developing rapidly, and Tianyi Cloud has entered a new stage of intelligent cloud development. 2024Q1-Q3, the company's industrial digitization business revenue reached 105.5 billion yuan, an increase of 5.8% over the previous year. The company seizes the opportunities of economic and social digital transformation, continues to cultivate key industries, continuously expand ecological cooperation, meet the digital needs of thousands of industries with “network+cloud+AI+ application”, promote the rapid development of strategic emerging businesses, and promote the deep integration of digital technology and the real economy. Currently, the launch of the computing power scheduling platform represented by “Xiyang” marks that Tianyi Cloud has crossed the inflection point of development towards an intelligent cloud and entered a new stage of development.

Sales & management expenses are strictly controlled, and R&D investment continues to increase. 2024Q1-Q3, the company's operating cost was 274.4 billion yuan, an increase of 3.0% over the previous year, mainly due to the company seizing strategic opportunities for rapid development of the digital economy, increasing investment in key areas such as technological innovation and industrial digitalization, strengthening intelligent operation to reduce costs and increase efficiency, and continuously improving resource efficiency. Sales expenses were 39.4 billion yuan, -3.2% year over year; management expenses were 26.9 billion yuan, -0.6%; R&D expenses were 8.8 billion yuan, +19.3% year over year, mainly because the company focused on strategic emerging industries and future industries, continued to increase scientific and technological innovation efforts, strengthen key core technology research, and enhance core capabilities; financial expenses of 0.5 billion yuan, compared to -12.2% year on year, mainly due to a decrease in interest expenses on leasing liabilities.

Investment advice: The 24Q3 company's performance was in line with expectations. The growth rate of communication service revenue was higher than that of the industry. The EBITDA growth rate was also the highest of the three companies, and the profit quality performance was excellent. Traditional businesses are growing steadily, with the net increase in mobile users being the top three, and traditional business ARPU has remained stable. Emerging businesses are developing rapidly, and Tianyi Cloud has entered a new stage of intelligent cloud development. On the cost side, the company's sales & management expenses are strictly controlled. Negative year-on-year growth continues, R&D investment continues to increase, and the increase rate has increased. Looking ahead to the whole year, the company strives to achieve the goal of maintaining good revenue and EBITDA growth and increasing net profit higher than revenue growth.

The company's net profit for 2024-2026 is estimated to be 32.9 billion yuan, 35.2 billion yuan, and 37.4 billion yuan, corresponding to year-on-year growth rates of 8.2%, 6.9%, and 6.1%, corresponding to PE 18 times, 17 times, and 16 times. The key recommendation is to maintain the “buy” rating.

Risk warning

1. Traditional business ARPU growth falls short of expectations;

2. Competition in industrial digitalization business intensified.