This report makes a detailed analysis of the annual report of the three major operators in 2021 and the operation data of the communication industry, and the development quality of traditional telecom operation business of Chinese operators has gradually improved. The strong growth of industrial Internet business has become the main driving force for the growth of business performance. The capital expenditure of operators remained stable, focusing on industrial digitization and transmission network investment in structure, and the energy efficiency of investment was further improved. At present, the valuation of the operator sector is still at the bottom, which is expected to usher in “Davis double click” and maintain the “recommended” investment rating of the industry.
The three major operators released the annual report of 2021, with steady improvement in performance and continuous improvement in profitability. According to the annual reports of China United Network Communications Limited(600050) , China Telecom Corporation Limited(601728) , and China Mobile in 2021, the company achieved operating revenue of 327854, 434159, and 848258 billion yuan respectively, with a year-on-year increase of 7.9%, 11.3%, and 10.4% (a year-on-year increase of 4.6%, 4.8%, and 3.0% in 20 years); The net profit attributable to the parent company was RMB 6.305 billion, 25.952 billion and 115937 billion, with a year-on-year increase of 14.2%, 24.4% and 7.5% (a year-on-year increase of 10.8%, 1.6% and 1.1% in 20 years). With the rapid development of industrial Internet business, the traditional mobile and fixed network business grew steadily, and the profitability of the three operators continued to improve.
The “speed increase and fee reduction” of mobile communication and home broadband has come to an end, the business ecology is benign, and the fundamentals of operators have ushered in a historic turning point. 1. Policy: from 2015 to 2020, the average tariff of China’s fixed broadband and mobile phone traffic decreased by more than 95%, and the proportion of optical fiber users and 4G users increased significantly. The 2022 government work report no longer mentions the requirement of “raising speed and reducing fees”, which brings historic development opportunities to operators; 2. Fundamentals: from the revenue side, the inflection point of traditional business income of operators appears, the rebound trend of ARPU bottoming is strengthened quarter by quarter, and the expansion of Tob business is accelerated to support the growth of medium and long-term income; From the cost side: strictly control the user expansion cost and strengthen the control of marketing expenses; Adhere to accurate and efficient investment, and the depreciation and amortization expenses are expected to remain stable.
Compared with the global mainstream operators, the overall valuation of Chinese operators is low, and there is still room for improvement. From the perspective of Pb valuation, according to Bloomberg’s unanimous expectation, the Pb of overseas mainstream operators such as Verizon, T-Mobile, KDDI and Deutsche Telekom is generally more than 2.0 times, and that of Chinese operators is generally less than 1.0x; From the EV / EBITDA valuation, the average value of overseas mainstream operators is 7.4x, and that of Chinese operators is generally below 5.0x. The overall valuation of Chinese operators still has room for improvement.
Investment suggestion: at present, the valuation of the operator sector is still at the bottom, which is expected to usher in “Davis double click”. It is suggested to focus on it. In terms of traditional business, “four to five” has formed support for mobile business, the integration and promotion of value-added services has driven the recovery and growth of home wide business, and the trend of ARPU inflection point is strengthening quarter by quarter. In 2022, 5g applications may be launched one after another, operators’ 5g network investment will gradually enter the harvest period, and the costs and expenses such as depreciation and amortization, network operation and maintenance and market promotion are better than expected. In terms of innovative business, operators have the advantage of “cloud network integration” in cloud computing, IDC and other fields. In the 5g period, they will give full play to their network advantages to enable industrial Internet and other industrial applications. Breakthroughs have been made in the transformation of emerging businesses, and the proportion of revenue is gradually increasing. However, the real value of emerging businesses has not been fully recognized by the market, so there is room for valuation improvement in the future.
Risk tip: the risk of changes in industrial regulatory policies, the risk of immature business model for 5g business development and operation, and the risk of further intensification of market competition.
