China Mobile (00941. HK,600941.SH) After the announcement of the results, the stock prices of both A-shares and Hong Kong stocks declined.
From the performance point of view, China Mobile continues to lead the three major operators, the performance is still good, and it plans to further increase the dividend payout ratio next year, which should provide some support for its stock price.
Peak user growth? 5G may be the new treasure
In terms of mobile subscriber size, China Mobile still had the highest number of subscribers, increasing by 18.1 million year-on-year to 975 million, 584 million and 652 million higher than China Telecom (00728.HK) and China Unicom (Hong Kong) (00762.HK).
However, relatively speaking, the growth rate of mobile users seems to be peaking soon, and the traffic dividend may soon peak.
However, from the perspective of 5G package user penetration, the penetration rate of mobile is still as low as 62.97%, while that of Telecom and Unicom reached 68.50% and 65.92% respectively. Given Mobile's large user base, this means that the conversion rate of its 5G users still has a lot of room to rise.
It is also worth noting that the ARPU (value per user per month) of mobile's 5G package users is also better, reaching 81.5 yuan in 2022, much higher than telecom's 50.8 yuan.
With the increase in 5G subscriber penetration, mobile revenue and profit growth may be supported.
From the above data, it can be seen that in addition to the consolidation of the user base of mobile services, the growth rate of fixed-line users and the number of Internet of Things connections of mobile is also very satisfactory, which reflects the resilience of its business performance.
In fact, in Tencent (00700. HK) and other social media applications have gradually become popular, the To C business of the three major operators has declined, and they have shifted their business focus to infrastructure, government and enterprises, and social platforms to perform their respective roles. Simply put, from small business to big business.
As shown in the chart below, the size of mobile personal market income has remained stable, but the income contribution of households, government and enterprise markets, and emerging markets is increasing significantly, all of which reflect the comparative advantage of mobile.
Profitability has declined,
But still the most profitable operator
Because all businesses are relatively balanced, and they occupy the first place, and the business growth is also quite significant, China Mobile's revenue and profit in 2022 continue to remain stable.
In 2022, operating income increased by 10.49% year-on-year to RMB937.259 billion, of which service revenue increased by 8.07% year-on-year to RMB812.058 billion. EBITDA increased by 5.84% year-on-year to RMB329.176 billion, while the ratio of EBITDA/service revenue decreased by 3.09 percentage points year-on-year to 38.30%, which is still advantageous compared with peers, but the largest decrease.
Mobile's net profit in 2022 increased by 8.02% year-on-year to RMB125.459 billion, and its net profit margin decreased by 0.31 percentage points year-on-year to 13.39%, still the highest among the three major operators. However, from the perspective of growth rate, Unicom's profit margin has improved significantly, which may be the reason why its stock price has risen sharply after announcing its results.
In recent years, China Unicom (Hong Kong) and China Telecom have jointly built and shared, 5G shared base stations have reached one million, accounting for 30% of the total scale of global 5G base stations, through 5G/4G joint construction and sharing, the cumulative saving of investment for the country exceeds 270 billion yuan, saving operating costs of more than 30 billion yuan per year, cooperation may be conducive to its resource sharing and cost saving, may be the reason why the profitability of Unicom and Telecom can be maintained.
Digital transformation will be the new growth point
From To C to bigger, this is not only an isolated case of mobile, the layout of Unicom and Telecom is also focused on digital transformation, which will be their future growth point.
From the perspective of revenue in 2022, the scale of digital transformation revenue of China Mobile will still be the largest, up 30.3% year-on-year to RMB2.076 billion, while Telecom will increase by 19.7% year-on-year to RMB1.178 billion, and Unicom's industrial Internet revenue will also increase by 28.6% year-on-year to RMB705 million.
In terms of revenue ratio, telecom's digital transformation revenue accounted for 24.5% of total revenue in 2022, higher than China Mobile's 22.1% and Unicom's 19.9%, which may benefit from the advantages of Tianyi Cloud.
In the field of cloud computing business, Telecom's Tianyi cloud revenue scale is the largest of the three major operators, reaching 579 million yuan, higher than China Mobile's 503 million yuan and Unicom's 361 million yuan, or still a certain distance from Alibaba (09988.HK, BABA.US), the leading operator in cloud computing. Alibaba's cloud business revenue for the 12 months ended December 31, 2022 was RMB77.592 billion.
In 2023, the three major operators have all said that they will increase their investment in computing power, especially cloud servers and IDC racks.
China Unicom stressed that of its capital expenditure budget of 76.9 billion yuan in 2023, the proportion of computing power network investment will increase from 16.8% last year to 19.4%, and the expenditure will be 14.9 billion yuan, focusing on cloud computing, IDC and backbone bearer networks.
China Telecom's capital expenditure budget for 2023 is 99 billion yuan, of which the capital expenditure of industrial digitalization increased by 9.1 percentage points from last year to 38.4%, including IDC's investment of 9.5 billion yuan and computing power (cloud resources) investment of 19.5 billion yuan. At the same time, the proportion of mobile network investment was lowered from 34.6% last year to 31.8%, the proportion of broadband network investment was also reduced from 20.1% last year to 15.7%, and the proportion of operation system and infrastructure investment was reduced from 16.0% last year to 14.1%. Obviously, the digitalization of industry is its focus.
Looking at China Mobile's past capital expenditure, mainly in connectivity, most of which has been invested in 5G networks in recent years. However, from 2023 onwards, Mobile will spend more resources on computing power and capacity, of which the proportion of capital expenditure on computing power will increase from 18% in 2022 to 25%, and it is planned to add more than 240,000 cloud servers and more than 40,000 externally available IDC racks in 2023.
The 2023 capital expenditure budgets of the three major operators are equivalent to about 20% of their total revenue in 2022, of which 20% are for Mobile, 21% for Telecom and 22% for Unicom. In contrast, the net profit margins of Mobile, Telecom and Unicom in 2022 are only 13.39%, 5.73% and 4.72%, which makes people worry, although the huge capital expenditure of the three major operators benefits upstream suppliers, but does it affect their balance sheets.
Strong financial position
Of course, there is no need to worry about this problem.
Whether it is the 3G investment of the year, the 5G investment in recent years, or the current computing power investment, the capital expenditure budgets of the three major operators have always been the focus of market attention, because it means that upstream suppliers have large orders.
These capital expenditures will be amortized in the form of depreciation in subsequent fiscal years and will not affect the operating cash flow of the three operators.
In fact, even as the three operators continue to make significant capital expenditures, they have maintained positive free cash flow, reflecting that the net cash inflows from their operating activities are sufficient to cover their capital expenditures, and there is still a surplus that can be used to give back to shareholders.
As shown in the table below, the net cash inflow of operating activities of the three major operators in 2022 is calculated in the level of 100 billion yuan, and even after deducting capital expenditure, there is still a total free cash flow of more than 100 billion yuan, of which the mobile is the highest, with free cash flow reaching 95.566 billion yuan.
Its leverage is also very modest.
As of the end of 2022, the assets of the three major operators have less than twice the ratio of ownership equity, and mobile is less than 1.5 times. Even so, Mobile still has a higher return on assets and return on equity than its peers, as shown in the table below, with a return on assets of 6.64% and a return on equity of 9.99%, more than three percentage points higher than the other two operators.
The strong financial position allows the three operators to play their "public share" function – stable cash flow allows them to maintain high dividends. Telecom will pay a dividend of RMB0.196 for the whole year of 2022, Unicom will pay a dividend of RMB0.274 for the whole year, and China Mobile will pay a larger amount of HK$4.41 for the whole year and carry out share repurchase.
In announcing its 2022 results, China Mobile proposed to declare a final dividend of HK$2.21 per share, bringing the full-year dividend to HK$4.41, an increase of 8.6% year-on-year, and an increase in the dividend payout ratio to 67% from 60% in the previous year. The company announced that it will increase the profit distributed in cash to more than 70% of the profit attributable to the company's shareholders in 2023.
Based on the number of issued shares of 21.364 billion shares at the end of February 2023, the total dividend in 2022 may reach HK$94.2 billion, plus China Mobile spent HK$866 million to repurchase a total of 15.42 million shares on the Hong Kong Stock Exchange during 2022, or a total of HK$95.066 billion to shareholders, equivalent to 7.12% of its market value of HK$1.34 trillion, far exceeding bank wealth management products.
From its H-share valuation, the move is also much lower than its peers, see the table below.
For the future, China Mobile plans to increase the net growth of 5G customers by 130 million this year, and mobile ARPU will continue to tap the value in the home market, with a net increase target of 18 million home broadband customers and 3 million government and enterprise customers, and achieve quality and efficiency improvement in the government and enterprise market, while emerging markets will continue to accelerate innovation and promote the growth of revenue scale.
All in all, continued stable, gradual growth, as well as strong dividend yields, should provide some support for the valuation of moving H-shares.
This article is derived from Hong Kong stock decoding