\u3000\u30006 Zhongrun Resources Investment Corporation(000506) 00050)
Key elements of the report:
In 2021, the company’s main business was 327854 billion yuan (YoY + 7.9%), service revenue was 296.15 billion yuan (YoY + 7.4%), net profit attributable to the parent company was 6.31 billion yuan (YoY + 14.2%), EBITDA was 96.1 billion yuan (YoY + 2.3%), and free cash flow was 43.01 billion yuan (YoY + 8.4%), and the performance was basically in line with expectations.
Key investment points:
High quality growth of traditional business and the second growth curve of the company driven by industrial Internet. The company’s mobile service revenue increased by 164.1 billion yuan (YoY + 4.8%) year-on-year in 2021, with a net increase of 11.3 million users, from negative to positive; 5g package user penetration reached 49%, up 26pct year-on-year, driving ARPU to 43.9 yuan (YoY + 4.3%). Fixed line broadband revenue reached 44.8 billion yuan (YoY + 5.2%), with a net increase of 8.95 million broadband users to 95.05 million, and traditional services maintained high-quality growth. In addition, the company’s industrial Internet business revenue in 2021 was 54.8 billion yuan (YoY + 28%), of which China Unicom cloud revenue was 16.3 billion yuan (YoY + 46.3%), and the growth rate of emerging businesses was gratifying. Over the past year, the company has paid close attention to “counting from the east to the west” and made great efforts to create an integrated computing network service of “connection + perception + computing + intelligence”. The formation of innovation ability has been accelerated. The core competence of “five middle platforms” has been basically completed, the data governance system has been continuously improved, and the second growth curve is obvious.
Effective control of sales expenses and relief of depreciation pressure. In 2021, with the company comprehensively promoting digital transformation and accelerating Wuxi Online Offline Communication Information Technology Co.Ltd(300959) integration, the company incurred 32.21 billion yuan of sales expenses, accounting for 9.83% of operating revenue from 10.03% in 2020. The depreciation and amortization of the company was 85.66 billion yuan (YoY + 3.2%), accounting for 26.13% of the revenue from 27.33%. The annual capital expenditure was 69 billion yuan, lower than the annual guideline of 70 billion yuan, and the investment efficiency was further improved. The annual free cash flow continued to be abundant, reaching 43 billion yuan, and the financial strength was further consolidated. It is beneficial to the good control of the company’s capital expenditure and network co construction and sharing in recent years. With the leveling of the construction cycle and the further promotion of co construction and sharing, the pressure of asset depreciation of the company is expected to continue to ease.
Profit forecast and investment suggestions: it is estimated that the company’s revenue from 2022 to 2025 will be 344.4 billion yuan, 368.6 billion yuan and 400.1 billion yuan respectively, the net profit attributable to the parent company will be 6.959 billion yuan, 7.686 billion yuan and 8.522 billion yuan respectively, and the EPS will be 0.22, 0.25 and 0.27 respectively, corresponding to the PE of 16.43, 14.88 and 13.42 respectively on March 11, 2022, maintaining the “buy” rating of the company.
Risk factors: the progress of 5g penetration is less than expected, the expansion of innovative business is less than expected, the Sino US trade friction intensifies, and the risk of increasing speed and reducing fees.
