The performance in the first half of 2022 is in line with market expectations
The company announced its results for the first half of 2022: operating income was 240.2 billion yuan, up 10.4% from the same period last year; net profit from homing was 18.3 billion yuan, up 3.1% from the same period last year. Excluding the impact of one-time after-tax gains from the sale of subsidiaries last year, 1H22's net profit increased by 12.0% compared with the same period last year. In a single quarter, 2Q22's operating income was 121.6 billion yuan, up 9.4% from the same period last year. 2Q22's net profit was 11.1 billion yuan, down 2.1% from the same period last year. Excluding the impact of last year's one-time after-tax income, 2Q22's net profit increased by 12.0% over the same period last year, which is in line with market expectations.
Trend of development
Revenue from mobile communications and fixed-line broadband services has grown steadily. In the first half of 2022, the company's revenue from mobile communications services increased by 6.0% to 99 billion yuan compared with the same period last year. 1H22 cumulative mobile ARPU increased 0.7% to 46 yuan compared with the same period last year. In the long run, driven by the development of 5G C-end applications such as encrypted calls, cloud disks and cloud games, we expect the company's mobile business ARPU to maintain low single-digit growth. 1H22's fixed-line and smart home service revenue increased 4.4% year-on-year to 59.9 billion yuan. Benefiting from the increase in gigabit broadband penetration, 1H22 cable broadband integrated ARPU grew 0.9% year-on-year to 47.2 yuan. We expect that income from fixed network and smart family services will continue to grow steadily in the future.
The production business has maintained rapid development. In the first half of 2022, the company's industrial digital revenue increased by 19.0% year-on-year to 58.9 billion yuan, of which Tianyi cloud revenue increased 101% to 28.1 billion yuan. We are optimistic that the company will rely on the natural endowment of cloud network resources to constantly enrich cloud business industry solutions and release operating leverage. We expect Tianyi Cloud's revenue to double for the whole of 2022.
Expand research and development to strengthen scientific and technological strength, and pay dividends in the medium term to improve shareholder returns. The company's 1H22 R & D spending increased by 41.5% compared with the same period last year. 1H22 capital expenditure was 41.7 billion yuan, an increase of 54% over the same period last year. We believe that the company will continue to build infrastructure related to the digitization of the industry, enhance the ability of computing coverage, and create an integrated service capability of cloud and network. The company fulfilled its promise at the beginning of the year and declared an interim dividend of 0.12 yuan per share for the first time, with a dividend rate of 60%.
Profit forecast and valuation
Keep profit forecasts for 2022 and 2023 unchanged. A shares maintain an outperform industry rating, but considering the downside of the industry valuation center of the company's IDC business, we downgrade the IDC industry comparable EV/EBITDA multiple in the SOTP valuation, and based on the segment summation method, we reduce the target price by 20.3% to 5.00 yuan, resulting in a market capitalization of 458.1 billion yuan for the company's A shares, which has 33.3% upward space compared with the current stock price. H shares maintain an outperform industry rating, with a market capitalization of HK $336.7 billion and a target price of HK $3.68 based on the segment summation method, with 28.7 per cent upside compared with the current share price. The current share price corresponds to a dividend yield of 5.7% for the 2022E Adeband H-share.
Risk
The market competition is further intensified, and the business transformation and expansion is not as expected.