China Mobile Limited (941) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to China Mobile Limited's 2020 annual results briefing. To prevent the spread of COVID-19, we continue to communicate our results by way of telephone conference. We'd appreciate your understanding on this. In today's briefing, I'll first review on our overall results for 2020. Then Mr. Dong Xin, our CEO, will talk about the operating performance. Finally, Mr. Li Ronghua, our CFO, will present our financial results. The company was faced with a complex operating environment. COVID-19 affected all aspects of life. Digital transformation of our economy and society speeded up, and coopetition within the telecom industry and beyond continued to evolve. Despite various difficulties and challenges, we made coordinated efforts in facilitating COVID-19 prevention and control, business transformation and upgrade, reforms and innovations, amongst others. Our endeavors achieved remarkable success. We strengthened our industry-leading position, maintained stable and healthy growth in business performance with continuously growing business momentum. Highlights of our operating performance can be summarized in the following 6 areas. First, we took active steps to tackle challenges, and our business performance maintained stable and healthy growth. Second, we achieved remarkable results in transformation and upgrade, and our business momentum continued to grow. Third, we further implemented the 5G+ plan, and 5G is on fast track of development. Fourth, we accelerated the constructions of new information infrastructure and fully promoted 5G co-construction and sharing. Five, we steadfastly advanced reforms, facilitated innovation and fostered open collaboration and devised well-laid plans to strengthen and deploy our capabilities. Sixth, we strive to promote digitalized and intelligent transformation and become a world-class enterprise by building a dynamic Powerhouse. By way of reference, we've provided results of key performance indicator for 2020 in this table. In 2020, we strove to capture opportunities from crisis and turn negatives into positives. We achieved stable and healthy growth in business performance. Revenue from telecom services amounted to CNY 695.7 billion, up by 3.2% year-on-year, reflecting sound development momentum. Net profit stood at CNY 107.8 billion, up by 1.1% year-on-year. It has reversed the decline in 2019 and recorded stable growth. Our profitability continued to stay at a leading level amongst first-tier international operators. At the same time, we've won wide recognitions for our efforts in placing a steadfast focus on customers and providing quality products and service experience. We've maintained a solid market position in terms of the number of mobile customers; and business development in areas such as 5G, household broadband, Internet TV and IoT. We also enjoyed industry-leading network coverage and a continuous improvement in customer satisfaction. We continue to enhance a scale-based and value-oriented business operating system and scale up efforts to promote development of the CHBN markets in an all-round and coordinated manner. We achieved remarkable results in transformation and upgrade with stronger momentum of business development. Of the total service revenue, the proportion of revenue from home, business and new markets rose by 7.2 percentage points from 2018 and stood at 31.4%. The proportions of revenue from new businesses increased by 3 percentage points from 2018 and reached 17.4%. These changes reflect the continuous optimizations of our revenue structure and further shifting of the revenue growth drivers. We are dedicated to taking a leading role in the development of smart home operations. Revenue from smart home value-added services reached CNY 15.6 billion, up by 25.7% year-on-year; and accounted for 18.7% of home market revenue. The proportions of contribution increased by 3.7 percentage points from 2018. We focused on the development of a blue ocean informatization services in the business market and fostered the [ lift-up growth ] of Network + Cloud + DICT services. DICT revenue surged by 66.5% year-on-year to CNY 43.5 billion and accounted for 38.5% of business market revenue. The proportions of contribution increased by 16.8 percentage points from 2018. We further implemented the 5G+ plan, and 5G is on fast track of development. Contributing to 5G standard setting and technological evolution, we advocated [ for the ] on-schedule freezing of R16 standard. And we were heavily involved in the R17 standard setting. In the 3GPP and the ITU, we led 99 projects in relation to 5G international standards. For 5G network construction, we have put in use 390,000 accumulated 5G base stations providing 5G services to all prefecture-level cities, selected counties and key areas in China. We now own the largest 5G SA commercial network and occupying a leading position in terms of network technology in the world. Turning to the 5G ecosystem, we rolled out the 5G+ Blooming Action campaign; and set up the 5G Joint Innovation Fund, which plans to invest tens of billions to nurture industry players. We also put forward a 100 billion industry stimulus plan to step up efforts to develop the industry ecosystems and our partnership network, thus accelerating the deployment of our digital intelligence plan in breadth and depth. In terms of innovations of 5G applications, we've launched a range of new applications to the customer markets such as the ultra-high-definitions live streaming, video connecting tones, cloud-based games and 5G messages, which further enhance user experience. As of December 2020, the number of 5G package customers reached 165 million, representing a net increase of 162 million. Compared to the numbers before migration, ARPU and DOU of 5G package customers moved up by 6% and 23.7%, respectively, showing sound growth potential. For the business market, we created over 2,000 showcases for 15 industry segments, amongst which our 5G coverage in Mount Everest and deep mines generate the most enthusiastic responses. 5G-driven DICT contract values exceed CNY 4 billion. As the products and standards for 5G applications become more mature in vertical industry sectors, we expect this business line will [ bring in ] more contribution to our revenue growth. We continued to make advanced planning and targeted investments and accelerated the constructions of new information infrastructure. In 2020, we spent an overall CapEx of CNY 180.6 billion. Major areas of investments included the constructions of premium 5G networks, cloud infrastructure and 3+3+X data centers; as well as promoting smart transformation of our networks. We fully promoted 5G co-construction and sharing. We signed agreements with CBN in respect of 5G network construction, network maintenance, market collaboration and network usage fee settlement. We believe that this partnership will help us pull resource advantages and accelerate 5G network coverage in an efficient manner, further reinforcing our advantages in 5G networks and reducing construction costs. We plan to spend a total CapEx of CNY 183.6 billion for 2021, a slight increase from 2020. It will be spent mainly for creating premium 5G networks, constructing cloud-based strategic infrastructure and supporting the integrated development of CHBN markets. Out of this total CapEx budget, around CNY 110 billion will be 5G related. We'll build around 120,000 new 2.6 gigahertz base stations in 2021, and we plan to jointly procure more than 400,000 700 megahertz base stations with CBN. And these base stations will be completed and put in use in 2021 to 2022. We strictly control the scale of investment, rationally deploy resources and make targeted case-specific construction. Our aims are to maintain a leading market position and strive to continuously increase efficiency of use of resources. We steadfastly advanced reforms, facilitated innovation and fostered open collaboration and devised well-laid plans to strengthen and deploy our capabilities. For system reforms, we systematically further reforms in 3 key areas of governance, talent development and incentive mechanisms; and stimulate new momentums towards high-quality development, with the goal of establishing a world-class model enterprise. For organizational reforms, through continuously implementing reforms areas including corporate business, markets, networks, R&D and IT, we've basically built out an organizational structure that allows headquarters to set strategies, regional companies to drive business development and specialized teams to enhance competence. We also implemented all-round reforms to grid operations and effectively motivated and empowered individual staff. In terms of R&D and innovation, we actively led the development of 5G technology. We are amongst the top international telecom operators in terms of the accumulative number of 5G international standards formulated and patent applications. We continuously improve ability of independently developing digitalized products in fields such as IoT, cloud computing and information security. To facilitate product innovation, we continue to enhance the 5-in-1 management and operating systems that covers R&D, operations, support, sales and marketing and services. On the 5G front, we launched new applications in the consumer domain and dedicated network products for vertical sectors. We also joined hands with industry partners to release a 5G messaging white paper; and promoted the implementations of super SIM solutions, thus further strengthening the competitiveness of our products. To foster open collaboration, we actively built extensive networks and deepened our strategic partnership with local governments and large enterprises and public institutions to make use of the complementary strengths of different sectors. We also deepened industry cooperation and continued to develop the industry ecosystems and our partnership network to accelerate the deployments of our digital intelligence plan in breadth and depth and infuse the industry ecosystem with new vitality. As always, we pay attention to both shareholders' interests and the company's future development. We strive to create better returns for our shareholders and share with them the fruits of our success while also securing shareholder's value and the company's development in the longer term. The Board recommends a final dividend payment of HKD 1.76 per share for the year of 2020. Together with the interim dividend payment of HKD 1.53 per share, the total dividend for the 2020 financial year amounted to HKD 3.29 per share. The company attaches great importance to shareholders' returns; and will remain its stable dividend per share for the full year of 2021, after giving overall consideration to its profitability and cash flow generation. The company will strive to create greater value for the shareholders. A new wave of technological revolution and industry transformation characterized by digitalization, networkization and intelligentization has emerged, integrating 5G, AI, IoT, cloud computing, big data, edge computing, blockchain and other next-generation information technologies into the economy, society and people's livelihood. Every industry has embarked on digital transformation, presenting unprecedented opportunities in the blue ocean digital economy. Innovations emerge with frequency not seen before. Technology and innovation will drive and create demand for information services, and the resulting impact will be more prominent. In addition, China's digital economy will pick up growth momentum. It is expected that, in 2025, the size of China's digital economy will increase to CNY 65 trillion, with a CAGR of more than 10%, creating huge potential for us to grow. Moving into a new stage of development, we step up [ all-out ], efforts to promote digitalized and intelligent transformation and achieve high-quality development, placing a sharp focus on our 4x3 strategic core. First, we speed up the 3 changes, changing our directions from telecom services to information services, from primarily to C market to the balanced and integrated development of all 4 CHBN markets and from being resources-driven to being innovation-driven, second, we facilitate 3 trends, leveraging online operations, intelligentizations and cloudifications to stimulate demand for information services and upgrade the industry landscape; at the same time, satisfy the ubiquitous demands for connection, intelligent applications and computing. Third, we reinforce the 3 approaches setting up a scale-based and value-oriented business operating system with an emphasis on business convergence, integration and digitalization, which drive integrations of the CHBN markets and convergence of telecom and information services and foster abilities in cloud infrastructure, gradually decreasing our reliance on traditional resource factors. We'll promote digitalization and empower the entire value chain. Fourth, we will strengthen the 3 forces building up an organization structure incorporating our capabilities, collaboration and [ vitality ] to deliver high operating efficiency and synergy across operations. We'll further bolster our 5 key capabilities of innovation, network support, sales and marketing, organizational operations and the implementations of business plans; at the same time, fully unite collaborations of organization culture and ecosystems to effectively infuse vitality into the organization and incentivize individuals within that. Moving into the 14th 5-year plan. We'll strive to achieve new breakthroughs in development scale, structural changes, innovations capabilities, operation efficiency and institutionals mechanisms. The year 2021 marks the beginning of 14th 5-year plan. It will also be a milestone year for us in terms of deepening 5G development and consolidating our market leadership. We strive for making progress while maintaining stability, adopting our main lines of development that promotes digitalized and intelligent transformation and achieves high-quality development. We'll focus on our 4x3 strategic core and fully implement the 5G+ plan, taking solid steps towards developing a world-class enterprise by building a dynamic Powerhouse and creating higher value for our shareholders. That basically concludes my parts of the presentation. Now let me turn it over to Mr. Dong for operating performance.

Thank you, Chairman Yang. I'm delighted to present our operating performance in 2020. In 2020, we continued to scale up efforts to promote development of the CHBN markets in all-round and coordinated manner. We achieved operating targets across the board and realized stable and healthy growth. I'll now go through the latest development of these 4 areas in more details. In terms of the customer market, we promoted a strategy of integrating data assets, applications and customer benefits; continued to drive the uptick in both quality and quantity of 5G business; and stimulated the consumptions of information and communications services. With the dual drivers of 5G and customer benefits, we worked to build our 3 major consumer brands, namely GoTone, M-zone and Easy Own, effectively boosting customer value and loyalty. As of the end of December 2020, our mobile customer amounted to 942 million. Amongst them, the number of 5G package customers was 165 million. Mobile ARPU reached CNY 47.4, down by 3.5% year-on-year, where the decline rate have flattened by 4 percentage points compared to the previous years. Our handset DOU increased by 39% to 9.4 gig. Turning to the home market. We placed an emphasis on scale expansion, brand building, ecosystems cultivation and value uplift, expediting the setting up of a service suite that combines full-gigabit network connections with cloud-based applications. We focused on expanding our 3 main applications, namely smart home network deployment, home security and smart remote control, to further promote our smart home operations business. As a result, we recorded favorable growth in our customer base and revenues. In 2020, we added 20.13 million household broadband customers, bringing the total number to 192 million. Amongst them, the set-top box Mobaihe registered a total of 140 million customers or a penetration rate of 73.3%. Revenue from the home market increased by 20% year-on-year to CNY 83.2 billion. Household broadband blended ARPU reached CNY 37.7, up by 6.9% year-on-year. The business market is the new driver for our revenue growth and a major force of our business transformation and upgrade. We promoted the integrated development of network, cloud and DICT in key sectors such as smart city, smart transportation and the industrial Internet. In 2020, revenue from the business market increased by 25.8% to CNY 112.9 billion. The number of corporate customers increased by 34.6% year-on-year to more than 13.84 million. We forged our differentiated advantages in the convergences of cloud and network, cloud and big data, cloud and intelligence and cloud and edge computing; and accelerated the evolutions of intelligent cloud. Mobile cloud revenue leaped by 353.8% year-on-year to CNY 9.2 billion. We continued to improve our 3+3+X data center layout, developed industry-leading capabilities in connections plus computing and continuously facilitated standardized upgrade and promotion. IDC revenue grew by 54.4% to CNY 16.2 billion. IoT revenue amounted to CNY 9.5 billion with more than 870 million smart connection. ICT revenue reached CNY 10.7 billion, up by 59.4% year-on-year. For the new market, we continued to make innovative efforts to international business, equity investments, digital content and finance technology; and achieved initial success. In 2020, our international business revenue reached CNY 11.1 billion, up by 16.6% year-on-year. Our equity investment returns accounted for 11.8% of our net profit. The monthly active users of the MIGU Video increased by 18.4% year-on-year. The number of users of our video connecting tones exceeded 140 million. The number of users of the cloud product and-Caiyun exceeded 100 million, and the number of monthly active users of and-Wallet recorded year-on-year growth of 39.1%. Looking forward to 2021, we'll fully implement our strategy, focusing on strengthening capabilities, refining operations and improving services to promote high-quality development. For capabilities, first, we'll accelerate the constructions of digital infrastructure such as premium 5G networks, cloud infrastructure and data centers. Second, we'll accelerate the developments of multiple customer touch points; and put in place digital and all-encompassing, new channels to enable 2-way traffic flows online and off-line. Third, we'll accelerate the building-out of a smart mid-end platform comprising business, data, technology to achieve comprehensive digitalization and intellectualization of the value chain. For operations, first, we will promote integrated developments of CHBN through scale-based and value-oriented operations. Second, we'll facilitate 5G development with a dual focus on quantity and quality by offering feature applications and multidimensional services to the customer market and developing standardized products for business market with large-scale promotion. Third, we'll improve our operating efficiency and effectiveness by strengthening classified management and taking measures to enhance both quality and efficiency. For services, first, we'll enhance product competitiveness, further improve product management system and actively develop flagship products related to information consumption. Second, we'll provide customized and targeted services to satisfy our customers and deepen the operations of 3 major brands. Third, we'll enhance cooperation and achieve mutual benefits through establishing a digitalized and intelligent ecosystems with focus on customers' demands and safeguarding customer rights and interests. In 2021, we'll continue to uphold our strategy of becoming a world-class enterprise by building a dynamic Powerhouse, adopting the main lines of development that promotes digitalized and intelligent transformation and achieve high-quality development and actively capture new markets emerged in the blue ocean digital economy. We will strive to achieve our targets of delivering stable and healthy growth in service revenue and net profit. By way of reference, we list our major full year targets of our businesses on this slide. Now let me turn it over to Mr. Li for financial performance.

Thank you, Mr. Dong. I'm delighted to present our 2020 annual financial results with you. In 2020, we continued to pursue transformational development and recorded growth in both revenue and profit. Revenue from telecommunication services was CNY 695.7 billion, an increase of 3.2% year-on-year. Revenue from sales of products amounted to CNY 72.4 billion, up by 1.2%. While we continue to strengthen cost management, we have appropriately increased our investment to support future transformation. Operating expenses increased by 3.6% year-on-year. Interest and other income dropped by 7.8% year-on-year as a result of declines in market interest rates. For the investments of associates of -- SPD Bank, China Tower, et cetera, [ supports ] positive contributions to our returns. Income from investments accounted for using equity methods reached CNY 12.7 billion. Therefore, our net profit increased by 1.1% year-on-year to CNY 107.8 billion. Our profitability continued to stay at a leading level amongst top-tier global telecom operators. In terms of the breakdown of revenue growth by business, as shown in the financial statements, the increase in telecom services revenue was mainly due to the growth of wireline broadband and applications and information services, of which the incremental revenue contributions from wireline broadband and applications and information services amounted to CNY 12 billion and CNY 18.5 billion, respectively. Revenue from wireless data traffic, SMS and MMS registered slight increases, while voice services revenue recorded a continuous decrease. As for breakdown of revenue contributions by CHBN markets, the incremental revenue contributions from the home market and business market reached CNY 13.9 billion and CNY 23.1 billion, respectively. However, the revenue contributions from the customer market and the new market declined. To promote enhancement to business structure and [ salary ] momentum shift, we will consolidate the customer market and further strengthen efforts to spend in home market, business market and new market. We continue to promote low-cost and high-efficiency operations strengthen all members or elements or processes cost control as well as strive to reduce costs and enhance efficiency. These efforts yielded substantive results. In respect of the main core structure, network operations and support expenses increased by 17.4% to CNY 206.4 billion. The main reasons were that we have increased investments in areas such as smart family, DICT and the constructions of smart mid-end platforms to address our accelerating transformation. In addition, we expanded the scale of our 5G networks and data centers, amongst others. There was a relatively significant increase in electricity expenses. Depreciation and amortization dropped by 5.7% to CNY 172.4 billion. After excluding the impacts of the revision of the depreciable life of 4G wireless assets, depreciation and amortization grew by 5.1% on a comparable basis year-on-year. Employee benefits and related expenses increased by 3.8% to CNY 106.4 billion with increased investments to develop market management talents for the business and new markets; at the same time, nurture R&D talents for the 5G and AICDE businesses. Meanwhile, we managed to save some costs resulting from the introductions of social insurance reduction and exemption policy by the government during COVID-19. The increment rate slowed down compared to the previous year. Turning to the network maintenance and supporting costs. We have applied new technologies, continuously disposed of assets of low or no cost effectiveness and enhanced managements of unit cost benchmarking; and these efforts had obvious results. Network maintenance and supporting costs decreased by 4% year-on-year, and maintenance and supporting cost per RMB 100 of network fixed assets dropped by 9.2% year-on-year. For selling expenses, we promoted marketing transformation, strengthened centralized online management system and raised resource utilization efficiency. Selling expenses decreased by 5.4% year-on-year to CNY 49.9 billion. Selling expenses-to-revenue ratio continued to decline and remained lowest in the industry. On the leasing fee of tower, we leased an addition of 19,000 new macro cell towers in 2020. Tower leasing fee amounted to CNY 44.3 billion on a comparable basis. We further optimized surface resources of existing towers, and newly added 5G towers were built on modified co-located sites. At the same time, we strengthened management of utility connection and premise rental fees and enhanced synergy and strictly controlled cost increases. The company's cash flow continued to be healthy. In 2020, EBITDA decreased by 3.7% year-on-year to CNY 285.1 billion. Free cash flow were up by 55.6% year-on-year to CNY 127.1 billion mainly because of an increase in the net operating cash inflow. Our capital structure maintains solid. And corporate credit ratings are equivalent to China's sovereign ratings, which obtained recognition from credit-rating agencies and built a solid foundation to respond to the changes of the market competition and to foster future development. In 2021, we'll continuously enhance quality and efficiency of our operations and increase the value of our shareholders with relentless efforts. Major initiatives include we will strengthen revenue and cost management and target to achieve stable growth in performance. We'll strengthen classified management and target to enhance efficiency and effectiveness of resource allocation. We'll strengthen managements of funds, capital and assets; and target to further increase value contributions. We'll strengthen risk management and target to foster risk prevention and control capabilities. This is the end of our presentation and analysis on our 2020 annual results. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]