Incident: On the afternoon of October 22, 2024, the company released the “2024 Third Quarter Report”. 9M24 achieved operating income of 392 billion yuan (yoy +2.9%), including general service revenue of 362.9 billion yuan (yoy +3.8%), and realized net profit of 29.3 billion yuan (yoy +8.1%) and EBITDA of 111 billion yuan (yoy +5.1%).

Results for the first three quarters of 24 were in line with expectations, and profitability continued to strengthen. 9M24 achieved operating revenue of 392 billion yuan (yoy +2.9%), of which Express business revenue was 362.9 billion yuan (yoy +3.8%). Achieving net profit of 29.3 billion yuan (yoy +8.1%), EBITDA of 111 billion yuan (yoy +5.1%), ROE level of 6.5% (yoy+0.3pct), and net interest rate of 8.1% (yoy+0.3pct). The company's performance in the first three quarters was in line with expectations, profitability continued to strengthen, and high-quality development advanced further.

Looking at a single quarter, 24Q3 achieved revenue of 126 billion yuan (yoy +2.9%, 24Q2 yoy +2.0%), including general service revenue of 116.7 billion yuan (yoy +2.5%), and realized a net profit of 7.5 billion yuan (yoy +7.8%).

Mobile and fixed network ARPU continues to be stable, and the industrial digital business is steadily improving.

1) In terms of mobile communication services: 9M24 achieved revenue of 156.8 billion yuan (yoy +3.2%), the total number of mobile users reached 0.423 billion (net increase of 0.015 billion), the number of 5G package users reached 0.345 billion (net increase of 0.026 billion), the 5G package penetration rate reached 81.6% (yoy+5.8pct), and mobile ARPU reached 45.6 yuan (year-on-year flat). The company accelerated the promotion of standard products, cloud, and The integration of new elements of warfare, such as AI, quantum, and satellites, promotes the continuous increase in the value of mobile services.

2) In terms of fixed network and smart home services: 9M24 achieved revenue of 95.6 billion yuan (yoy +2.9%), the number of cable broadband users reached 0.196 billion (net increase of 0.006 billion), and the comprehensive ARPU of household broadband reached 47.8 yuan (same level over year), and the value contribution of smart homes continued to increase.

3) In terms of industrial digitalization: 9M24 achieved revenue of 105.5 billion yuan (yoy +5.8%). The company deepened “network+cloud+AI+ application” to comprehensively meet the digital needs of various industries and promote the rapid development of strategic emerging businesses.

Operating expenses are well controlled, and the share of network operation and support costs and SG&A in revenue declined slightly. According to the company's Hong Kong stock announcement, 9M24's operating expenses were 358.3 billion yuan (yoy +2.3%), and the growth rate of operating expenses continued to decline. Among them, 1) depreciation and amortization of 74.6 billion yuan (yoy +3.9%), accounting for 20.6% of revenue (yoy+0.04pct); 2) network operation and support costs of 118.5 billion yuan (yoy +3.5%), accounting for 32.6% (yoy-0.07pct); 3) SG&A reached 48.6 billion yuan (yoy -0.5%), accounting for 13.4% (yoy-0.6pct). The company continued to strengthen intelligent operations to promote cost reduction, efficiency and resources Performance continues to improve.

9M24 comprehensively increased investment in key areas and promoted the layout of seven strategic emerging businesses. 9M24's R&D expenses reached 8.75 billion yuan (yoy +19.3%). The company focuses on strategic emerging industries and future industries, continuously increases scientific and technological innovation efforts, and clearly “network, cloud and cloud network integration, artificial intelligence, and quantum/security”

Four technical directions, continue to strengthen research on key core technologies, and fully complete the layout of the seven strategic emerging businesses.

Operating cash flow declined slightly, and the effects of accounts receivable and credit impairment control gradually became apparent. 1) In terms of operating cash flow: 9M24 achieved net operating cash flow of 97.4 billion yuan (yoy -13.8%), 24Q3 achieved net operating cash flow of 39.1 billion yuan (yoy -17.4%); 2) In terms of accounts receivable and credit impairment: 9M24's accounts receivable balance was 59.1 billion yuan (yoy +13.7%, 24H1 yoy +18.4%), 24Q3 accrued credit impairment losses of 1.57 billion yuan in a single quarter ( (23Q3/24Q2 accrued 1.6/1.56 billion yuan respectively). The company's overall accounts receivable and credit impairment control effects are gradually showing. It is expected that 24H2 will maintain steady cash flow throughout 24 years as customer repayment cycles are continuously optimized and the company continues to strengthen accounts receivable management.

Investment advice: The company's net profit for 2024-2026 is estimated to be 32.6 billion yuan, 34.9 billion yuan and 37.6 billion yuan, corresponding EPS of 0.36 yuan, 0.38 yuan and 0.41 yuan respectively. The corresponding PE is 18.6 times, 17.4 times and 16.2 times, respectively, and the corresponding PB is 1.3 times, 1.2 times and 1.1 times, respectively, maintaining a “highly recommended” rating.

Risk warning: Traditional business development falls short of expectations, innovative business falls short of expectations, and cost control falls short of expectations.