On the evening of March 17, China Telecom (601728.SH) released its 2021 annual report. According to the annual report, its revenue in 2021 is 434.2 billion yuan, a year-on-year increase of 11.3%, and the net profit attributable to shareholders of the parent company is 25.952 billion yuan, a year-on-year increase of 24.4%.
From the perspective of business, emerging businesses such as data center and cloud computing have become the main growth force of China Telecom and even the entire telecom industry. This is evident in China Telecom’s capital expenditure plan for 2022. According to the presentation materials of China Telecom’s performance briefing, China Telecom expects capital expenditures to be 93 billion yuan in 2022, of which capital expenditures for 5G networks will decrease by 10.39% year-on-year, while capital expenditures in the field of industrial digitalization will increase by 61.67%.
Obviously, China Telecom is full of confidence in its future development prospects. Taking the cloud business as an example, among comparable companies in the industry, China Unicom (600050.SH) has a revenue scale of 16.3 billion yuan, while China Telecom’s e-Surfing cloud revenue has reached 27.9 billion yuan. Ke Ruiwen, executive director, chairman and CEO of China Telecom, also said recently that he would explore the possibility of spin-off and listing of Tianyi Cloud.
However, China Telecom’s performance is in stark contrast to its performance in the capital market, and its share price is still lower than the issue price. In this regard, China Telecom stated at the performance briefing on the evening of March 17 that it would stabilize the stock price by increasing the parent company’s holdings and raising the level of the dividend payout ratio.
In terms of business segments, the commodity sales business is one of the two carriages driving China Telecom’s revenue growth.
According to the annual report, commodity sales and other businesses mainly refer to the sale of mobile terminal equipment and fixed-line communication equipment to users. In 2021, China Telecom’s revenue from sales of goods and other businesses will reach 31.332 billion yuan, an increase of 15.191 billion yuan (94.11%) compared with 2020, accounting for 34.35% of its annual revenue growth.
In contrast, China Unicom’s revenue from the sale of communications products in 2021 will be 31.701 billion yuan, a year-on-year increase of only 13.12%.
China Telecom’s ability to catch up with a big step may be related to its increase in the sales of 5G terminal products. According to the 2021 annual report, during the reporting period, China Telecom’s advertising expenses were about 2.904 billion yuan, a year-on-year increase of 9.11%; customer service fees were about 4.104 billion yuan, a year-on-year increase of 24.56%. At the same time, China Unicom’s advertising and business promotion expenses were about 2.682 billion yuan, a year-on-year decrease of 1.51%, and the increase in user services and other expenses was far less than that of China Telecom.
In addition, China Telecom’s 5G coverage on the C-end is also slightly better. From 2020 to 2021, the penetration rate of China Telecom’s 5G package users will increase from 24.6% to 50.4%, with 188 million 5G package users. At the same time, China Unicom’s 5G package user penetration rate rose from 23% to 48.9%, with 155 million 5G package users.
Looking ahead, China Telecom said at the performance briefing that it plans to add 15 million mobile service users and 80 million 5G package users in 2022. In addition, China Telecom currently has more than 690,000 5G base stations in use. It plans to invest about 34 billion yuan in the 5G field in 2022. It is expected that the number of 5G base stations in use will exceed 990,000 by the end of this year.
Image source: Photographed by reporter Zhang Jian (data map)
The proportion of industrial digital investment has increased greatly, and Tianyiyun may be spun off and listed
Industrial digitalization is another carriage that drives China Telecom’s revenue growth. According to the annual report, this business is to provide users with services such as Internet data centers, cloud services, digital platform services, and dedicated line services.
In 2021, the digital business revenue of China’s telecommunications industry will reach 98.945 billion yuan, a year-on-year increase of 19.4% (after excluding the income impact of the sale of subsidiaries), and the growth rate is significantly higher than that in 2020 (9.7%); the specific increase is 14.976 billion yuan, It accounted for 33.87% of its full-year revenue growth.
According to China Telecom’s performance briefing, it will significantly increase the scale of investment in industrial digital business in 2022. Capital expenditure in the field of industrial digitalization will increase by 61.67% to 27.9 billion yuan, and the proportion of total capital expenditure will increase from 19.9% to 30%. %; at the same time, the capital expenditure of 5G network will decrease by 10.39% to 34.038 billion yuan, and the proportion of total capital expenditure will decrease from 43.8% to 36.6%.
In fact, in recent years, the growth rate of users in the telecommunications industry has faced downward pressure, and emerging digital services for enterprises, such as cloud computing, big data, and data centers, have become the first driving force for the growth of telecommunications business revenue.
At present, the industrial digital business income has accounted for 22.79% of China Telecom’s total revenue, becoming the third largest source of income after traditional businesses such as mobile communication services, fixed network and smart home services. China Telecom said that within the next three years, the proportion of industrial digital revenue will increase to more than 30%.
Image source: Photo by reporter Zhang Yun (data map)
In addition, according to China Unicom’s 2021 annual report, although the revenue of its industrial Internet business is not as large as that of China Telecom, the revenue growth rate of this business is even faster than that of China Telecom, with a year-on-year growth rate of 28.2%, accounting for the overall main business revenue. The proportion also reached 18.5%.
However, the revenue gap between the two in the cloud business is still large. Among them, the revenue of China Telecom’s “Tianyi Cloud” will increase by 102% year-on-year to 27.9 billion yuan in 2021; the revenue of China Unicom’s “Unicom Cloud” will be 16.3 billion yuan, a year-on-year increase of 46.3%.
It is worth mentioning that Ke Ruiwen, executive director, chairman and CEO of China Telecom, said at the performance briefing recently that China Telecom will actively explore the possibility of spin-off and listing of Tianyi Cloud under the conditions of compliance with regulatory rules.
On the other hand, China Telecom also admitted that there is still a gap between its industrial digitalization level and the requirements of digital economy development. In the past two years, with the rapid development of the digital economy, the update and iteration of products and services has accelerated, and customer needs have become more diversified and personalized. There is still a certain gap between China Telecom and customer needs in terms of product and service categories, performance and experience.
After returning to A, the interest-paying debt has decreased by nearly 70%, and the stock price is still under pressure
In 2021, China Telecom will return to A listing, raising about 47.5 billion yuan. Affected by this, China Telecom’s financial indicators in 2021 have improved.
Specifically, China Telecom’s monetary funds increased by 42.119 billion yuan, a year-on-year increase of 127.28%. At the same time, as the funds raised from A-shares met the funding needs of key projects, China Telecom’s external financing needs declined, with short-term borrowings down 82.37% year-on-year and long-term borrowings down 68.95% year-on-year.
Overall, in 2021, the scale of China Telecom’s interest-bearing debt will drop from 53.342 billion yuan to 16.496 billion yuan, a year-on-year decrease of 69.1%; the asset-liability ratio will drop from 48.8% to 43.4%; free cash flow will also increase from 14.276 billion yuan to 15.139 billion yuan billion. In this regard, China Telecom described in the presentation materials of the performance briefing that the company has a “stable capital structure and abundant cash flow”.
However, despite the continuous growth of China Telecom’s performance level and financial strength, the capital market still seems hesitant. As of March 18, 2022, China Telecom’s closing price was 4.05 yuan per share, still below its issue price. At the same time, many brokerages have given target prices of 5 yuan or even more than 6 yuan.
Image source: wind financial terminal
China Telecom’s measures to stabilize its share price are mainly to increase its parent company’s shareholding and increase its dividend payout ratio. According to relevant announcements of China Telecom, its parent company, China Telecom Group, plans to increase its holdings of listed companies within 12 months from September 22, 2021, with an increase of not less than 4 billion yuan. In addition, China Telecom Group will increase its holdings by no less than 500 million yuan within 12 months from January 28, 2022.
On the other hand, China Telecom said it will distribute a dividend of RMB 0.17 per share (tax included) to all shareholders this year at a payout ratio of 60%. Ke Ruiwen said at the performance briefing, “According to this level of dividend payout ratio, the A-share dividend (rate) can exceed 4%, and the H-share dividend (rate) can exceed 7%, (this) is an attractive dividend return level” . In addition, China Telecom also promised that within three years after the A-share issuance and listing, the profits distributed in cash will gradually increase to more than 70% of the profits attributable to the company’s shareholders in that year.
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