The annual "Communication Industry News" all-media monitoring and analysis of China's 100 listed communications companies released the results. This report card reflects the fundamentals of China's major telecom listed companies, so what are the characteristics of this report card? What to refract?
Text | Gong Bin, an all-media special expert of "Communication Industry News".
From the perspective of the communications industry as a whole in 2023, the main operating indicators of the entire communications industry will grow steadily in 2023, the network infrastructure such as 5G and gigabit optical networks will become increasingly complete, the popularization of various applications will be accelerated, and the high-quality development of the industry will be steadily promoted. Judging from the financial data, the revenue of the communication industry will maintain steady growth in 2023, but the net profit will be under pressure, especially the performance pressure of smaller enterprises.
However, in 2023, the communications industry as a whole will be affected by the macroeconomic environment, and the overall revenue growth rate of the industry will slow down, and the focus of revenue growth will shift downward. The increasing differentiation of net profit growth rate and the decline in average net profit margin reflect the general trend of faster revenue growth than net profit growth in the current macroeconomic and downstream Capex transformation process, as well as the large difference in expense ratio due to the operating pressure handling ability of different enterprises. From the perspective of cash flow, the company continued to operate conservatively, reduced inventory, and increased payment collection. The overall cash flow of the industry continues to improve. Judging from the latest quarterly financial report data, there has been an important inflection point change. The operation of listed companies in the communications industry has improved, and the revenue has maintained a steady growth trend, with revenue and net profit attributable to the parent company increasing by 6.0%/7.4% year-on-year in the first quarter of 2024, respectively. Excluding operators, the revenue and net profit attributable to the parent company of the communications industry increased by 10.9% and 11.9% year-on-year respectively. The performance is outstanding, and the acceleration is obvious. Among them, the performance of three sub-sectors is particularly bright: (1) benefiting from the development of global AI and the upgrading of high-speed optical module products, the net profit of optical module and optical device companies increased by 93.6% year-on-year; (2) The Internet of Things and controller industries are clearing the high-priced inventory in the early stage, while the traditional business demand is gradually picking up, and the expansion of new business products such as vehicle and AI PC is accelerating, and the net profit of the company in this sector increased by 125% year-on-year. (3) The performance of enterprise private network and IDC has grown rapidly. Continuous observation by quarter can find that the overall revenue of communication equipment in 23Q4 and 24Q1 increased by 3.2% and 5.9% year-on-year, and since the growth rate began to decline in Q1 in 2021, the growth rate has been declining for 10 consecutive quarters until negative growth in 23Q3, but it will reverse and resume growth from 2023Q4, and accelerate growth in 24Q1, reflecting the completion of the switch between the old and new kinetic energy of the industry, and AI computing power has become a new engine for the growth of the industry. The overall net profit of communication equipment in 23Q4 and 24Q1 increased by 30% and 13% year-on-year, which was a significant reversal from -16% in 23Q3, reflecting the rapid recovery of industry profitability under the switch between new and old kinetic energy. New kinetic energy and new quality productivity such as computing power networks, 5.5G, low-altitude economy, Beidou satellite communications, intelligent connected vehicles, and XR led by AI have ended the 10-quarter slowdown in the communications industry, and have begun to resume and accelerate growth.
Let's look at the specific sections in sections
1. Telecom operators: The three major operators achieved good growth in 2023, with gradual results in business transformation, long-term and high-quality development of digital and cloud-related businesses, rapid development of emerging businesses such as data centers, cloud computing, big data, and the Internet of Things and a high growth rate in revenue, and stable business and stable dividends, which are important ballast stones for the entire industry and the capital market. In 2023, carriers' traditional services will benefit from 5G, gigabit broadband, and value-added services, and with the continuous penetration of 5G users and the continuous upgrade of gigabit broadband, the ARPU value will still have momentum to increase, driving the steady growth of traditional services. The three operators focused on the underlying support business directions of the digital economy, such as government and enterprises, cloud, and IDC, and the development of new services gradually entered the harvest period, and the digital transformation revenue of the three major operators accounted for about 30% of the service revenue at most, forming an important boost to the overall revenue growth rate, and the digital transformation achieved remarkable results. The overall profitability of operators continues to improve, and the fundamentals continue to improve. Operators have both the expected performance growth brought about by stable operation and the valuation increase brought about by the rapid development of new services. Specifically, the financial data confirms that 23Q4 and 24Q1 revenue increased by 7.0% and 4.2% year-on-year, showing a steady growth trend in recent quarters; The average gross profit margin in 23Q4 and 24Q1 reached 25.3% and 26.7%, an increase of 0.2 and 0.9 percentage points year-on-year, while the average R&D expense ratio in 23Q4 and 24Q1 was 5.1% and 1.2%, an increase of 1.8 and 0.1 percentage points year-on-year. With the stabilization of the economy in 2024, the overall profit side, especially the profits of the three major operators, will be accelerated, and ROE is in an upward channel. 2. In terms of telecommunications equipment, 23Q4 and 24Q1 revenue increased by 6.1% and 5.1% year-on-year, and the growth rate has slowed down since 2021Q1 and 23Q2 and 23Q3 once fell to negative growth, but 23Q4 and 24Q1 returned to positive growth for two consecutive quarters; The year-on-year growth rate of net profit attributable to the parent company was -3.4% and +8.9% respectively, and 24Q1 began to resume positive growth: (1) Main equipment manufacturers: 5G+AI empowers the integration and upgrading of computing, network and cloud in the digital economy, opening up new growth space. The revenue of main equipment in 23Q4 and 24Q1 increased by 6.8% and 3.2% year-on-year, and the growth rate has slowed down since 2021Q1, but 23Q4 and 24Q1 have resumed growth for two consecutive quarters, benefiting from the switching of old and new kinetic energy. The new wave of AI technology will continue to drive the demand for ICT equipment manufacturers, optical communications, PCBs, heat dissipation and temperature control, and related enterprises such as computing power + network + storage + heat dissipation are the main beneficiaries of the hot spots, especially in the field of high-speed interconnection. At the same time, with the commercialization of 5.5G networks, it is expected to be promoted in the fields of low-altitude economy/synaesthesia integration, Internet of Things and XR, and main equipment manufacturers will fully benefit. (2) Optical devices and optical fiber and cable: Computing power networks have become a hot spot and direction for long-term investment, and the global demand for AI-driven optical modules has entered a high growth rate in an all-round way, while the demand for expansion and upgrading of wired networks/optoelectronic interconnection (optical transmission, optical modules) with the goal of meeting traffic growth is also strong, and the demand for AI has driven the volume of high-speed optical devices, and the performance has been continuously verified. The incremental demand for 1.6T and 800G driven by AI computing power is expected to continue to be released, while the commercial use of new products such as LPO, CPO, and silicon photonics is expected to be accelerated. Domestic optical device enterprises in 23Q4, 24Q1 revenue +15.3%, +40.8% year-on-year, after 5 consecutive quarters of growth slowed down to 3 quarters of negative growth, 23Q4 returned to positive growth for the first time, and 24Q1 accelerated high growth, net profit attributable to the parent company year-on-year growth rate was +35.6%, +108.3%; In 2024, the global demand for optical fiber and cable will resume growth, and maintain a steady growth trend from 2024 to 2028. The revenue of domestic optical fiber and cable enterprises in 23Q4 and 24Q1 increased by 5.6% and -0.2% year-on-year, mainly due to the slow demand for optical fibers and the postponement of the development of Haifeng submarine cable, and the net profit attributable to the parent company increased by -35.8% and -22.3% year-on-year, but we observe that the bidding schedule of various countries in 2024 is tight, and it is expected that the growth momentum of offshore wind power installed capacity may turn positive in the next few years, and Haifeng submarine cable has become an important incremental highlight of the industry. (3) Base station antennas, RF devices, PCBs, etc.: downstream demand is steadily shrinking, and the industry is in the adjustment stage; 23Q4 and 24Q1 revenue in the field of radio frequency increased by 14.6% and -5.9% year-on-year respectively, 7 of the past 8 quarters were negative growth, and the net profit attributable to the parent company increased by -33.2% and -173.3% year-on-year. From the perspective of global telecommunications investment, the overall development is stable. PCB companies have taken the lead in benefiting from the outstanding performance of automotive PCB and AIPC, information innovation and AI server PCB. Low-altitude eVTOL & Beidou, trillions of industries are ready to fly, communication technology support landing, first of all, low-altitude field short-wave ultra-short-wave, wireless relay networking industry chain, followed by satellite communication as an important supplementary communication mode for low-altitude aircraft, with the domestic low-orbit satellite launch networking gradually mature, at the same time, heterogeneous multi-sensor to provide multi-dimensional environmental information to ensure flight safety, low-altitude economy is expected to become an important landing application scenario of low-orbit satellite communication. The process of space-air-ground integrated networking has accelerated, low-orbit satellites have entered an intensive launch period, the commercial scale of mature satellite communication and navigation networks such as Tiantong and Beidou has been expanding, the construction pace of new low-orbit satellite communication networks such as satellite networks and "G60" has accelerated, the scale of satellite communication market is large enough, the industrial chain is long enough, and at the same time, mobile phones directly connected to satellites have opened the C-end market, and the huge increment will drive the performance recovery of related subfields, and the performance growth of related enterprises is expected to continue to benefit. This will be another important highlight of the year. (4) AIoT IoT and terminals: revenue and inventory have stabilized and rebounded, and are expected to show an inflection point; The overall growth rate of IoT modules, controllers, connectors, etc. slowed down due to demand, and destocking continued to advance, the 23Q4 revenue growth rate in the Internet of Things field maintained a stable growth rate of 7.1%, the growth rate of 24Q1 accelerated significantly by 23.9%, and the year-on-year growth rate of net profit attributable to the parent company in 24Q1 was +92.5%, the first positive growth in 6 quarters, the industry showed further recovery, and the domestic and foreign economic recovery drove market demand. MeiG Intelligence, etc., the performance of leading enterprises in the field of controllers, such as Topband Co., Ltd. / Heertai, etc., are acceptable. In the context of the continuous development of 5G RedCap and the continuous increase in the demand for edge computing power in the AI era, it is expected to bring industry changes to the IoT module, promote the IoT industry to continue to move forward in the new era of "intelligent connection of all things", and the IoT module sector is expected to continue to move upward. In addition, the controller sub-field is also expected to usher in a new round of business cycle in the continuous recovery of traditional downstream demand such as home appliances and tools, as well as the broad market brought by new application scenarios such as new energy, AI, and robots. In the field of mobile phones and pan-smart terminals, the inventory cycle bottomed out and reversed in the fourth quarter of 2023 and began to enter a new upward cycle. At the same time, AI empowers terminal innovation and leads a new round of product cycles. AIPC is expected to take the lead in increasing volume, and new AI mobile phone products will gradually generate new demand for replacement, driving the industry to recover. Intelligent cars and humanoid robots are expected to become AI super terminals, with the support of large models, the urban NOA function will be accelerated on the car, and the pilot policy will be superimposed, and the implementation of high-level autonomous driving will be accelerated. The humanoid robot industry may usher in the first year of mass production. AI terminal innovation brings increments, and replenishment and new technologies are expected to resonate, driving the bottom of performance and valuation upward. (5) IDC &CDN: Cloud computing infrastructure investment to meet the growth needs of applications and content continues to expand, fully benefiting from the explosion of computing power demand, and the industry is showing a trend of stabilization and recovery. Driven by the growth of new applications and new content, especially since 2023, the AI models of various manufacturers have gradually landed, and major Internet vendors ISPs have increased the construction of computing power bases, continued to improve cloud computing infrastructure investment in CAPEX, and driven a new round of prosperity including IDC &CDN, network routing and switching, servers, supporting temperature-controlled power supplies, optical modules and optical devices. The revenue in the IDC &CDN field in 23Q4 and 24Q1 increased by 2.2% and 13.0% year-on-year, and the growth rate began to decline in 23Q3, and the growth rate accelerated again in 24Q1, fully reflecting the switch between new and old kinetic energy. As the computing power base, IDC has benefited from the development of the AI industry, and listed companies such as Runze Technology, the leader of the intelligent computing center, have performed well.
Growth direction this year
Combined with the annual reports and quarterly reports of enterprises in various sub-sectors and the direction of economic recovery, it is expected that the performance of enterprises in the following directions will maintain continuous growth this year: AI computing power supply chain (optical module/optical chip, GPU chip module manufacturing, PCB, server, Ethernet/switch/ICT equipment and other link enterprises), as well as AI diffusion gradually increase the number of branches: AI domestic computing power/information innovation, AI new technology silicon photonics/LPO/CPO, liquid cooling and heat dissipation, and new AI applications (intelligent driving/intelligent networked NOA, AI+). robots, AI PCs, AI mobile phones and other hardware terminal manufacturers); 2) Telecom operators, IDCs and computing power leasing/service providers; 3) In the "0-1" change stage of the new connection theme direction, the change of connection is the eternal theme of the communication field, the ground orbit satellite is expected to usher in the first year of large-scale construction in 2024, the corresponding supply chain has also ushered in the reconstruction and determination, a new blue ocean market nuggets. Satellite Internet, low-altitude economy & "space-ground integration" are the key directions of 6G; 4) The application of the Internet of Things/smart cars, industrial Internet, communication + new energy, military communications and other industries has entered the stage of accelerated development; 5) Sea breeze submarine cable, sea breeze will continue to be prosperous in the next few years, and the submarine cable barrier is high. (The author, Gong Bin, is the founding partner of Qianxun Technology Think Tank and the innovation mentor of Tsinghua X-Lab)
About the Author
Gong Bin Qianqian consults the founding partner of the science and technology think tank and the innovation mentor of Tsinghua X-Lab. He is an expert in semiconductors, AI and hard technology, focusing on disruptive technological innovation, enterprise strategy and investment research in emerging industries, and has long served as a consultant for major technology companies and specialized new technologies.
Finishing: Cui Liangliang editing, proofreading: Liangliang guidance: new text
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