(Report Producer/Author: Guolian Securities, Sun Shuming)
Analysis of key companies
1.1. Company History
After many times of splitting and restructuring in the industry, there is one of the three worlds
The company is one of the three major domestic telecommunications operators, the main body was formed in 1997 when the Ministry of Posts and Telecommunications implemented the "post and telecommunications sub-camp" of the General Administration of Posts and Telecommunications of China, is the earliest professional operation of the mainland telecommunications operators.
Since then, in order to promote market competition, the mainland's telecommunications industry has undergone three reforms with the theme of splitting and reorganization: the first time, from 1998 to 1999, the former China General Administration of Posts and Telecommunications was split into China Telecom, China Mobile and China Satcom to break the monopoly of the industry; the second was in May 2002, when China Telecom was divided from the north and south, and China Telecom Group was established to break the monopoly of China Telecom in the field of fixed network; the third was in May 2008, the reorganization of the six major operators was merged into three major operators. The mainland telecom market has formed a market competition pattern with three strong and full-service operations (mobile services + fixed-line services).
On June 6, 2019, China Radio and Television (China Radio and Television Network Group Co., Ltd.) was jointly awarded 5G network licenses with China Telecom, China Unicom and China Mobile, becoming the fourth basic telecom operator in mainland China. In the current 5G network construction, the situation of China Unicom and China Telecom co-construction and sharing, China Mobile and China Radio and Television co-construction and sharing has been initially formed, and the future cooperation and competition pattern of China's telecom market has been basically determined.
Timeless, China Telecom has "Sky Wing"
As one of the three major telecom operators in China, China Telecom ranks second in the market share of mobile communication services (To C) and fixed broadband services (To H), and ranks first in the market volume of industrial digital services (To B/G). In 2009, China Telecom established the "Tianyi" brand, launched 3G mobile communication services, and subsequently launched "Tianyi" 4G and "Tianyi" 5G services. China Telecom's IDC and cloud computing services have obvious resource advantages and channel advantages, "Tianyi Cloud" has long ranked first in the industry, and under the guidance of the "cloud transformation" strategy, it is expected to achieve leading development in emerging business fields.
1.2. Shareholding Structure
China Telecom Group Limited holds 57,836,695,761 domestic shares of the Company, accounting for 63.20% of the total share capital of the Company, and is the controlling shareholder of the Company. The State-owned Assets Supervision and Administration Commission of the State Council is the actual controller of
1.3. Basic information of the main business
China Telecom's main business includes: individual (To C), family (To H) and government and enterprise (To B/G) three plates. In 2020, the company's service revenue totaled 373.798 billion yuan, an increase of 4.5% year-on-year, which was higher than the average growth rate of the telecommunications industry for many consecutive years.
In terms of personal communications and information services (To C), the number of net increase users has led the industry for three consecutive years, and the penetration rate of 5G package users is the first in the industry. In terms of home communication and information services (To H), the scale of users has grown steadily, the smart home business has grown rapidly, the penetration rate has continued to increase, and the operating income has stabilized and rebounded.
In terms of government-enterprise communication and information services (To B/G), the company is the main force in the construction of new information infrastructure at the national level and a global leader in the integration of cloud and network. In 2020, the company's public cloud IaaS business scale ranked first among global operators, revenue scale ranked first among domestic operators, and the company is the largest IDC service provider in China.
In the first three quarters of 2021, the company's various businesses maintained a good development trend. Mobile and home broadband users have maintained steady growth, and 5G package users have grown rapidly. (Source: Future Think Tank)
2. In the 5G period, the operator industry has stabilized and improved into a new pattern
2.1. Industry policies to improve the core drivers of the competitive landscape
The demand for speeding up and reducing fees has gradually eased, and the industry's revenue has stabilized and rebounded
Mainland China's speed-up and fee reduction policy was proposed in 2015, starting with home broadband services. In 2018 and 2019, the mobile communication traffic service and home broadband service, which accounted for the largest proportion of operators' revenue, the average tariff of fixed broadband and mobile traffic of the three major operators decreased by more than 50% and 39% respectively, and the acceleration and fee reduction directly led to the rapid decline in the ARPU value of operators. From 2020 to 2021, the speed increase and fee reduction is mainly for the broadband market, and the pressure to speed up and reduce fees is gradually alleviated.
In 2020, the average tariff level of fixed broadband and mobile phone traffic decreased by more than 95% compared with 2015, the average network speed increased by more than 7 times, and the cumulative profit exceeded 700 billion yuan. Speeding up and reducing fees will benefit the people and achieve remarkable results.
The adjustment of assessment indicators drives the transformation of the competitive landscape of operators
The sharp decline in ARPU value in 2018 and 2019 is the result of the acceleration and fee reduction policy superimposed on the price war led by various operators with market share. In October 2019, in order to quickly adapt to the shift from high-speed growth to high-quality development of central communication enterprises, to prevent number portability or lead to a vicious price war between the three major operators, the relevant departments adjusted the key assessment indicators of operators.
In 2020, the three-year action plan for the reform of state-owned enterprises was implemented, and the indicator system of "two benefits and three rates" was established, and in 2021, it was adjusted to "two benefits and four rates", and the three-year action plan for the reform of state-owned enterprises in 2022 will usher in a three-year examination, and the three major operators are important central enterprises, and the impact of relevant policies on enterprise operations is very obvious.
It is worth noting that in the assessment of central enterprises in 2021, the SASAC has added the indicator of total labor productivity (total labor productivity = total output value of the enterprise / the average number of all employees), which can effectively measure the level of enterprise management and the enthusiasm of employees. The long-term development of operators will pay more attention to performance growth, profitability, personnel efficiency, etc., and further guide the high-quality and comprehensive development of the operator industry.
Driven by policies, the inflection point of the industry is confirmed
With the slowdown of the pressure to speed up and reduce fees, the industry policy orientation has changed from "share is king" to "comprehensive development", which has directly changed the competitive cooperation relationship between the three operators in the same regional market: from the original price war to grab the market and the resource level to contain each other, and gradually evolved to a benign competition pattern of rational and reasonable pricing and orderly sharing of resources. The improvement in operators' revenue margins was immediate. The average tariff of mobile data traffic in the whole industry tends to be stable, the average monthly mobile data usage of users continues to grow, and the ARPU value of the mobile services of the three major operators has bottomed out in 2020.
2.2. The 5G cycle, the core factor of profitability improvement
The proportion of network coverage and terminals continues to increase, and the increase in 5G service volume and revenue is not yet obvious
According to data from the Ministry of Industry and Information Technology, as of September 2021, the total number of mobile phone base stations in the mainland reached 9.69 million, an increase of 5.7% year-on-year and a net increase of 377,000 from the end of the previous year. Among them, 5.86 million 4G base stations, accounting for 60.4%, and 1.159 million 5G base stations, accounting for 12%. 5G network coverage from urban to rural areas. On the terminal side, 5G mobile phone shipments continue to accelerate, starting from Q2 2021, the proportion of 5G mobile phone shipments is basically stable at more than 75%.
The construction of base stations means the improvement of the quality of 5G network coverage, and 5G terminals are the basis for user experience of 5G network services, and these two key factors together promote a significant increase in the penetration rate of 5G package users in the three major operators. As of September 2021, the number of 5G terminal connections in mainland China has exceeded 450 million, with China Mobile's 5G package user penetration rate of 34.68%, China Telecom's 5G package user penetration rate of 42.08%, and China Unicom's 5G package user penetration rate of 43.42%.
The 5G penetration rate of large operators has crossed the inflection point of 30% of subscriber traffic growth, but the current pulling effect of 5G on mobile Internet traffic has not yet emerged. According to the "Economic Operation of the Communication Industry from January to October 2021" issued by the Ministry of Industry and Information Technology, the DOU of mobile network users was 14.43GB/household, an increase of 23% year-on-year. It basically continues the traffic growth rate in the post-4G period, which is much lower than the traffic growth rate during the 4G outbreak period.
Revenue side: In the first three quarters of 2021, the arpu of the mobile services of the three major operators showed a stable and upward trend. China Telecom's mobile communication services revenue was RMB140.528 billion, an increase of 6.3% year-on-year, and China Unicom's mobile main business revenue was RMB123.324 billion, an increase of 5.8% year-on-year.
Comparing traffic growth rate, ARPU growth rate, 5G user penetration rate, and 5G user ARPU, China Mobile, which has a low user penetration rate of 5G packages, has the highest ARPU for 5G users. We believe that the current high ARPU value of 5G users in mainland China is mainly the result of the priority conversion of high-end users to 5G. The role of 5G in increasing the revenue of mobile communication services has not been fully reflected.
Capital expenditure: 5G technology leads the way, and the return on investment cycle is extended
From 3G licensing in 2009 to 5G licensing in 2019, Chinese operators have completed the technical iteration from 3G to 5G in ten years, from 3G to catch-up to 4G and run, taking the lead in the 5G era. The rapid development of mobile communication networks has promoted the high prosperity of the mainland's mobile Internet industry, and the high-speed network connecting villages and villages has benefited thousands of households. However, using 1/2 of the time of western developed countries to complete network technology updates has made mainland operators in a period of large-scale capital expenditure for a long time. The 3G/4G payback period for mainland operators is significantly shorter than the overseas average, making it difficult to fully enjoy the market dividend of network traffic growth.
In the 3/4G period, the proportion of capital expenditure of Chinese operators in revenue is much higher than that of AMERICAN operators. Compared with 2012-2020, the cumulative capital expenditure of the three major operators in China accounted for 25.4% of revenue, while the cumulative capital expenditure of AT&T and Verizon in the United States accounted for only 14.2%.
At the 2021 Huawei Analyst Conference, Xu Zhijun, Huawei's rotating chairman, said that 6G should be introduced to the market around 2030. We predict that 5G network investment will have a super long investment return cycle of more than 10 years, and during the 14th Five-Year Plan period, 5G networks are still in the construction investment cycle, and the proportion of capital expenditure is expected to decline from 23%.
On the cost side, co-construction and sharing have achieved remarkable results
5G frequency co-construction and sharing: At present, the 5G frequency sharing of 4 operators in the mainland has formed two camps. Telecom and China Unicom form an advantage in medium-frequency bandwidth resources, which is convenient for centralized base station co-construction and sharing, while mobile and broadband are equipped with high- and medium-low frequencies, which can accelerate the realization of wide coverage and deep coverage of 5G networks.
5G base stations co-construction and sharing: The Ministry of Industry and Information Technology clarified the principle of "intensive use of existing resources, sharing and not new construction" in the "14th Five-Year Plan" Information and Communication Industry Development Plan. In the future, the scale of joint construction and sharing base stations of China Unicom and China Telecom, China Mobile and China Radio and Television will continue to expand, and the cost savings of 5G network construction will be more fruitful. According to The disclosure of China Unicom's 2021 third quarter report, the overall scale of 5G base stations jointly built and shared by the two sides has reached 380,000 stations, saving more than 76 billion yuan in network construction costs for both sides.
Tower resource co-construction and sharing: Since its establishment in July 2014, the tower company has adhered to the shared development model of "can share without new construction, can co-build without independent construction", and the sharing level of new towers has increased significantly from 14.3% in history to 80%, which is equivalent to building 840,000 towers less, saving 150.5 billion yuan in investment for the three major operators.
2.3. Gigabit upgrade, the key to the growth of Jiakuan's business
Gigabit penetration rate increased rapidly, and fixed broadband service revenue increased
In 2021, the number of fixed broadband access users in the mainland will grow steadily, with the number of gigabit users exceeding 20 million. Fixed broadband access networks show a trend of less than 100 megabytes of withdrawal, 100-megabit networks are basically saturated, and gigabit networks begin to grow.
According to the data of China Telecom and China Unicom in the third quarter of 2021 and China Mobile's semi-annual report, the revenue growth of fixed broadband services has grown steadily
The smart home business has grown rapidly, effectively increasing the comprehensive ARPU value of home wide
Smart home is an important value-added means for operators' home broadband services. Led by the "all-gigabit" strategy of "gigabit home wide, gigabit WiFi, gigabit 5G, gigabit applications, and gigabit services", China Mobile has comprehensively promoted the upgrading of smart home services. Actively promote open cooperation, set up the "China Mobile Smart Home Cooperation Alliance", and unite more than 400 partners to promote the high-quality development of the family market.
China Telecom focuses on the digital and intelligent needs of the home, continuously upgrades the ecological cooperation, and rapidly promotes the process of family informatization with the "five wisdoms" capability system of "intelligent broadband, smart platform, intelligent application, intelligent security and intelligent service" as the core, aggregates content applications and home industry ecology, and provides customers with comprehensive information services upgraded from traditional fixed network communication to smart life.
In the first half of 2021, China Mobile's "Mobaihe" customers reached 154 million, becoming the largest home broadband operator and large-screen content service provider in the domestic market. Value-added services such as large-screen on-demand, intelligent networking, home security, and intelligent remote control grew rapidly, and the revenue of smart home value-added services was 10.084 billion yuan, an increase of 35.60% year-on-year. In the first three quarters of 2021, China Telecom's smart home revenue increased by 30.3% year-on-year, driving the broadband integrated ARPU to 46.1 yuan / month, an increase of 4.5% year-on-year.
Gigabit upgrades and smart homes drive long-term growth of home broadband business
Gigabit network coverage is basically complete. According to the "Economic Operation of the Communications Industry in the First Three Quarters of 2021" issued by the Ministry of Industry and Information Technology, as of the end of September, the number of Internet broadband access ports nationwide reached 996 million, an increase of 6.3% year-on-year, a net increase of 49.63 million over the end of the previous year. Among them, the number of optical fiber access (FTTH/O) ports reached 934 million, a net increase of 54.21 million over the end of the previous year, accounting for 93.8% from 93% at the end of the previous year. The access network coverage required for the Gigabit user upgrade has been basically completed.
The new smart home service will continue to guide users to upgrade to Gigabit. The Ministry of Industry and Information Technology's "14th Five-Year Plan" Information and Communication Industry Development Plan clearly requires: enrich gigabit optical fiber application scenarios, carry out pilot demonstrations of gigabit broadband applications, promote the development of new services such as cloud virtual reality (Cloud VR) and ultra-high-definition video, and guide users to upgrade to gigabit rate bandwidth. Technologies such as 5G, Gigabit Home Wide, and Internet of Things technology will together give birth to more and more smart home services. In the future, edge computing and local storage will also be more widely used in terminal devices, and the integration of "cloud, edge and terminal" will be increasingly improved, and the smart home will evolve from "single wisdom" to "whole house wisdom".
As of November 2021, the penetration rate of the mainland Gigabit home wide is 6.33%, which is in its infancy. Considering factors such as the basic network coverage readiness and new business guidance, the penetration rate of gigabit home wide in the mainland is likely to exceed 10% in 2022.
2.4. The digital industry opens up a new track of growth space
Industrial digitalization opens up new growth space During the 13th Five-Year Plan period, emerging technologies such as 5G, cloud computing, Internet of Things, and big data have developed rapidly. In the 14th Five-Year Plan period, under the initiative of national new infrastructure construction, China's digital economy-related industries will usher in huge development space. According to the "White Paper on the Development of China's Digital Economy" released by the Chinese Academy of Information and Communications Technology in 2021, the scale of China's digital economy will increase from 41.36 trillion yuan in 2020 to 60 trillion yuan in 2025, and its proportion of GDP will increase from 40.2% in 2020 to 50.3%.
We expect that with the comprehensive promotion of enterprise digital transformation and the continuous landing of 5G To B key projects, the operator's industrial digital business is expected to continue to grow at a high speed. The new blue ocean of digital economy has brought unprecedented new opportunities for development to the telecom operator industry.
The evolution of 5G networks and the advantages of B-end resource channels help operators transform and develop
Experiencing the dilemma of incremental non-increase in the 4G era, operators have also accelerated the strategic layout of innovation and development in the face of 5G development opportunities. Coordinate the advantages of IDC and network resources, and the sinking advantages of government and enterprise market channels, put forward industrial transformation plans, and achieve initial results.
The B-end business is growing steadily, and the emerging business is growing rapidly
The three basic telecommunications companies are actively developing emerging services such as IPTV, Internet data centers, big data, cloud computing, and artificial intelligence. According to the Ministry of Industry and Information Technology's "Economic Operation of the Communications Industry in the First Three Quarters of 2021", a total of 168.1 billion yuan of emerging business revenue was completed in the first three quarters, an increase of 28.8% year-on-year, and business revenue accounted for 15.2%, driving telecommunications business revenue to increase by 3.7 percentage points. Among them, the revenue growth rate of cloud computing and big data reached 94.8% and 33.3% respectively year-on-year.
By operator, China Mobile's B-terminal (DICT) services include IDC, ICT, mobile cloud and other government and enterprise applications and information services. China Telecom's B-end (industrial digitalization) services mainly include industry cloud, IDC, networking private line, Internet of Things, digital platform and big data. China Unicom's B-end (industrial Internet) business, including IDC, IT services, Internet of Things, cloud computing and big data. China Telecom's revenue scale and business proportion are leading, and China Mobile's business is growing very rapidly. (Source: Future Think Tank)
3. Jointly build and share dividends and cloud network resource advantages to help the company lead growth
3.1. The growth rate of revenue and profit in 2021 is industry-leading
The implementation of equity incentives continues to inject vitality into the company's business development and scientific and technological innovation
In 2018 and 2021, China Telecom implemented two stock appreciation rights plans to implement medium- and long-term incentives for core backbone employees.
Among them, in 2018, with the approval of the State-owned Assets Supervision and Administration Commission, China Telecom implemented the "Core Backbone Personnel Stock Appreciation Rights Plan" for the first time, and the total number of units with stock appreciation rights granted by the company to the core backbone personnel during the validity period of the plan did not exceed 10% of the company's total share capital, aiming to link the interests of the company's core backbone personnel with the growth of the company's value (H stock market value).
The Second Phase of China Telecom Co., Ltd.'s Stock Appreciation Rights Incentive Plan was approved by the State-owned Assets Supervision and Administration Commission on March 3, 2021. Pursuant to the relevant provisions of the Scheme, on 10 March 2021 (the "Grant Date"), the Board of Directors approved the grant date to a total of approximately 2,411.62 million shares of appreciation rights to a total of approximately 8,239 core key personnel (excluding executive directors, non-executive directors, independent directors, supervisors and senior management) on the date of grant, representing approximately 2.98% of the total issued share capital on the date of grant.
At the business level, fully implement the "cloud to digital transformation" and transform into a digital integrated service provider
The company actively embraces the opportunities of digital transformation, deeply cultivates customer needs and application scenarios, fully implements the strategy of "cloud transformation and digital transformation", takes 5G and cloud as the core to create a new type of information infrastructure, operation support system, scientific and technological innovation hard core strength of cloud-network integration, deepens the reform of institutional mechanisms, builds differentiated advantages with innovation and integration, and is committed to providing flexible and diverse, convenient, quality experience, safe and reliable comprehensive intelligent information services for individual (To C), family (To H) and government and enterprise (To B/G) customers.
Strategic plans and measures mainly include: strengthening scientific and technological innovation, promoting the integration of cloud and network, building a digital platform, strengthening ecological cooperation, deepening the reform of institutional mechanisms, and building a network information security system.
The strategy has borne fruit, and revenue and profit have doubled
In the first three quarters of 2021, the company's revenue and attributable net profit both achieved double-digit growth.
3.2. Co-construction and sharing to enhance the competitiveness of mobile services
The market share is stable and rising, and the ARPU value of mobile communication services has rebounded
In the first three quarters of 2021, the company's mobile communication users increased by 18.64 million, continuing to maintain its industry leadership. The mobile user market share grew steadily to 22.6% from 22% at the end of 2020. In the first three quarters of 2021, China Telecom's mobile ARPU value was 45.4 yuan per month, an increase of 2.3% year-on-year. Revenue from mobile communication services was RMB140,528 million, representing a year-on-year increase of 6.3%.
As we have explained in Section 2.1, industry policies are the main drivers of the recovery of revenue and profits of the three major operators. We believe that the company is expected to benefit from multiple factors such as industry policies and network coverage improvement at the same time, and maintain the industry-leading growth rate of mobile users and the growth rate of mobile communication business revenue.
Co-construction and sharing bring about the dual benefits of network quality improvement and cost optimization
Co-construction and sharing has played an obvious role in improving the network quality of China Telecom and China Unicom. In China Unicom's semi-annual report, it is mentioned that Telecom Unicom shares 5G networks to achieve first-tier city coverage and network awareness. In the future, with the withdrawal of 2/3G base stations, the continuous promotion of co-construction and sharing, and the increasing number of 5G base stations, China Telecom and China Unicom are expected to achieve mobile network coverage quality and leading operator alignment.
As of September 2021, the number of 5G terminal connections in mainland China has exceeded 450 million, with China Mobile's 5G package user penetration rate of 34.68%, China Telecom's 5G package user penetration rate of 42.08%, and China Unicom's 5G package user penetration rate of 43.42%. From the perspective of 5G package market share, China Telecom's 5G package user market share in 2021 is about 25%, which is higher than China Telecom's mobile user market share of 22%. It confirms the positive effect of co-construction and sharing on the quality of network coverage and user development.
At the same time, through the co-construction and sharing of 4G/5G networks, the two parties have saved more than 100 billion yuan in cumulative investment, and saved considerable network costs such as tower usage fees, electricity costs and network maintenance fees for both parties, making significant contributions to the realization of carbon peaking and carbon neutrality goals.
3.3. Cloud network resources to ensure the stable growth of Jiakuan's business
The cloud and network are integrated, and the resource advantages are obvious
We look at China Telecom's fixed network resource advantages from two key indicators:
The first is the speed measurement data that can intuitively reflect the user experience: according to the speed measurement data released by Speedtest at the end of 2020, China Telecom's domestic average download and upload rates have maintained the best level in the industry.
The second is the obvious impact on high-value users of international export bandwidth capacity: China Telecom monopolizes 50% of the mainland's international export bandwidth resources, and has a very obvious advantage in network resources.
These two data are the results of the comprehensive use of China Telecom's fixed-line network resource construction, cloud-network integration construction, and long-term network resource introduction.
The company has built an FTTH all-optical access network covering urban and rural areas, deployed gigabit optical networks in more than 200 cities, and led the scale of gigabit optical network ports; built a roadm all-optical transmission network covering the country and overseas key areas and the world's largest capacity; the company has two high-quality networks of CN2-DCI and government and enterprise OTN, covering more than 300 cities in China, all Tianyi cloud resource pools and key data centers, reaching more than 40 cities in more than 20 countries around the world, providing large bandwidth, low latency, Highly reliable service bearer.
Focus on all-scenario digital life, and transform and grow the home wide business
In the field of home communication and information services, the company focuses on all-scenario digital life, gives full play to the advantages of cloud-network integration, creates 5G + light width + WiFi6 "three gigabit" high-quality pan-connection services, sets up Tianyi Digital Life Technology Co., Ltd., builds a smart home platform to aggregate content applications and smart home and other industrial ecosystems, and builds safe and credible smart homes, smart communities and digital village integrated intelligent information services.
According to the company's 2021 third quarterly report, the revenue of fixed network and smart home services in the first three quarters of 2021 reached 85.498 billion yuan, an increase of 4.7% year-on-year, the net increase of wired broadband users was 9.11 million to 168 million households, broadband access revenue reached 56.896 billion yuan, an increase of 6.8% year-on-year, broadband access ARPU reached 38.8 yuan / month households, maintaining a rebound from the same period last year, smart home income increased by 30.3% year-on-year, driving broadband integrated ARPU to reach 46.1 yuan / Monthly households, up 4.5% year-on-year.
Based on the above data, combined with the company's 2018-2020 fixed network and smart home service revenue, we believe that the company's fixed telephone business revenue continues to decline, to some extent offsetting the contribution of user growth, gigabit penetration rate increase, and smart home revenue growth to business revenue.
According to the Ministry of Industry and Information Technology's "14th Five-Year Plan" Information and Communication Industry Development Plan, the number of Gigabit home wide users will increase from 6.4 million in 2020 to 60 million in 2025, an increase of 56% year-on-year. However, from the actual data, as of November 2021, the number of gigabit home wide users in the mainland has reached 33.86 million, an increase of 476% year-on-year, indicating that the demand for gigabit home wide has far exceeded expectations, which is in line with the logic of the strong demand for the home economy under the epidemic.
In the case of gigabit network coverage is basically completed, user needs can be quickly met, and there is no supply bottleneck. While Gigabit users are growing, 200M and 300M plan users have simultaneously upgraded their plans. Judging from the tariff situation of China Telecom packages, for each upgrade of the user, the ARPU increase is about 15-30%.
3.4. "Cloud-to-digital transformation" to seize the new space for industrial digitalization
In the field of government and enterprise communications and information services, the company deeply integrates digital economic elements and emerging information technology, with 5G, Tianyi cloud and security as the core capabilities, stimulating strong market demand, 5G business model continues to enrich and mature, and benchmarking projects are widely copied. Tianyi Cloud Technology Co., Ltd. was officially established, with the public cloud, private cloud, exclusive cloud, hybrid cloud one-cloud multi-state service capabilities, Tianyi Cloud continues to maintain a leading market position in the industry.
Relying on the "2+4+31+X+O" cloud and IDC resource integration layout, we will create a differentiated competitive advantage.
The company deploys ultra-large-scale IDC parks in Inner Mongolia and Guizhou to meet the needs of large customers nationwide; in the four most developed areas of the domestic economy, Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong, Hong Kong and Macao, Sichuan, Chongqing and Shaanxi, it deploys IDC around the core city scale to radiate the surrounding areas to meet the needs of localization business; by the end of 2020, the company has about 700 data centers, with a rack scale of more than 430,000, of which 80% of the racks are deployed in four economically developed regions, with outstanding traffic orientation and significant intensive advantages.
Tianyi Cloud continues to lead, and IDC and industry cloud advantages are obvious
According to iResearch's statistics, in the first half of 2021, the company's market share in the mainland public cloud IaaS industry was 9.6%, and the IaaS+PaaS industry market share was 10.5%, lagging behind Alibaba Cloud, Tencent Cloud, and HUAWEI CLOUD, all ranking fourth. At present, Tianyi Cloud has undertaken 16 provincial-level government cloud platforms nationwide, covering 130 prefectures and cities, and creating more than 1,000 smart city projects. In the first half of 2021, Tianyi Cloud's revenue reached RMB14 billion, up 109.3% year-on-year, exceeding the total revenue for the whole year of 2020.
5G customized network commercialization, service model exploration has achieved remarkable results
In 2020, based on a deep understanding of the needs of the industry, the company released a new 5G custom network solution of "network customization, edge intelligence, cloud collaboration, and application selection", which takes the 5G cloud network as the cornerstone and the business scenario as the core, provides industry customers with the five-in-one custom network integration service of "network-side cloud service", and realizes "cloud-to-network integration and on-demand customization". For the To B market, the company has launched three customized network service models of "Ghrepower, Bilin, and Ruyi". In 2020, more than 320,000 5G sites were launched.
"5G + Cloud Network Convergence" can not only realize common service capabilities such as enterprise private network, data diversion, QoS guarantee, etc., but also provide differentiated comprehensive services such as 2B+2C, public-private collaboration, 4G/5G integration, and cross-region for all kinds of customers. Relying on the unique advantages of "5G + Tianyi Cloud" cloud-network integration, Tianyi Cloud can ensure a good experience for services with high demand for speed, latency and cloud-side collaboration, such as ultra-high-definition video, cloud games, cloud mobile phones, remote control, and automatic driving.
Edge Computing: Build a MEC platform based on your own strengths
The company's MEC platform relies on its own advantages to provide users with the following key services:
Connectivity: Fixed/mobile networks covering the whole country, more than 5,000 edge computer rooms and more than 100,000 integrated access bureau computer rooms, so that China Telecom has the ability to build edge nodes at different levels, promote the sinking of business capabilities, and meet differentiated service performance needs;
Computing: By introducing advanced hardware and software products and technologies provided by Intel and other partners, and effectively integrating 5G network capabilities with the cloud service advantages brought by "Tianyi Cloud", China Telecom edge nodes can bring high-performance computing capabilities close to their application scenarios for users in different vertical fields;
Security/O&M: From air interface, transmission, access control to platform, to applications and data, China Telecom provides users with end-to-end data security protection with a full-range security mechanism, and provides comprehensive and visualized O&M capabilities;
Capabilities/Applications: Through the Capability Open Platform, China Telecom provides users with a rich set of cloud network capabilities in a series of vertical fields, such as speech recognition, face recognition, AR/VR, etc., for various service scenarios to integrate and call on demand.
The market-oriented organizational system has been adjusted, and the results of the reform have been obvious
In 2020, in order to adapt to a more flexible and market-oriented organizational system, resource allocation and assessment incentive mechanism, China Telecom will manage according to the information service business group, and upgrade the government and enterprise customer division to the government and enterprise information service business group, covering communications, office, cloud computing, IDC, Internet of Things and other aspects. According to the operational data for the first seven months of 2020, the digital revenue of China's telecom industry reached 42.9 billion yuan, an increase of 5.1% year-on-year, and the results of organizational change were obvious.
According to the Ministry of Industry and Information Technology's "14th Five-Year Plan" Information and Communication Industry Development Plan, the mainland IDC computing power demand will maintain an average annual growth rate of 27% during the 14th Five-Year Plan period. In the domestic public cloud market, bandwidth resources have always been an important competitive advantage for the IDC and cloud computing services of the three major operators. We believe that the company adapts to the needs of government and enterprise market development through organizational change. With the advantages of Tianyi Cloud Cloud Network resources, with the in-depth implementation of the company's "cloud change and digital transfer" strategy, the revenue growth rate of industrial digital business will continue to increase.
4. Profit Forecast and Profit Forecast
4.1. Financial Analysis
In the first three quarters of 2021, the company's operating income was 326.536 billion yuan, an increase of 12.3% year-on-year, of which service revenue was 304.271 billion yuan, an increase of 8.3% year-on-year. Net profit attributable to the parent company was RMB23,327 million, up 24.7% year-on-year.
In the first three quarters of 2021, the company's operating cost was 227.021 billion yuan, an increase of 13.3% year-on-year, mainly due to the company's continuous improvement of network quality and capabilities, supporting the rapid development of 5G, government and enterprises and emerging businesses, while the sales of mobile terminal goods such as 5G mobile phones increased significantly. The sales expense was 38.019 billion yuan, an increase of 6.6% year-on-year, mainly due to the company's investment in necessary marketing resources during the 5G development opportunity period; the management expense was 25.657 billion yuan, an increase of 12.7% year-on-year, mainly due to the increase in the company's related expenses related to the implementation of the stock appreciation rights plan; the research and development expenses were 2.937 billion yuan, an increase of 29.7% year-on-year, mainly due to the company's strengthening of scientific and technological innovation, increased the introduction of high-tech talents, and strengthened the research and development of core technologies such as cloud network integration and 5G; and the financial expenses were 1.309 billion yuan, down 44.8% year-on-year, mainly due to the company's good operating performance and cash flow, the issuance of A shares to effectively protect the capital needs of key investment projects, and the scale of interest-bearing bonds to effectively reduce.
In 2022 and 2023, under the guidance of the indicator system of "two benefits and four rates" of the three-year action plan for the reform of state-owned enterprises, the company will further increase investment in research and development and enhance its innovation capabilities, and it is expected that the proportion of research and development expenses and management expenses will continue to grow.
4.2. Profit Forecast
Mobile communications business revenue forecast
We believe that the increase in network coverage brought about by co-construction and sharing will have a positive impact on the market share of the company's mobile communication business. With the further improvement of the number of co-built and shared base stations, the contribution of network quality to user growth will gradually be realized. We expect the number of mobile subscribers in the company to maintain the high growth trend of Q3 2021 in 2021-2023, with a year-on-year growth rate of 5.30%/6.00%/6.00%, respectively.
By 2023, we believe that the user penetration rate of 5G packages will reach 80%, 5G applications will effectively drive mobile traffic growth, and the ARPU value of mobile users in the company will increase steadily year by year. We expect the company's mobile traffic revenue to grow at a year-on-year rate of 9.2%/9.4%/9.6% from 2021 to 2023, respectively, and the proportion of mobile traffic revenue will continue to increase.
Considering the alternative role of Internet applications such as WeChat voice on mobile voice services, we predict that mobile voice revenue will maintain a downward trend in 2021-2023, with year-on-year growth rates of -2%/-2%/-1.5%, respectively.
We expect the company's mobile communications revenue to grow at the same rate of 6.42%/6.71%/7.10% in 2021-2023, respectively.
(This article is for informational purposes only and does not represent any of our investment advice.) For usage information, see the original report. ）
Featured report source: [Future Think Tank]. Future Think Tank - Official website