China Mobile Limited (941) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to China Mobile Limited's 2021 Interim 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 the first half of 2021. Then Mr. Dong Xin, our CEO, will talk about the operating performance. Finally, Mr. Jie Huang, our CFO, will talk about our financial results. Highlights of our operating performance in the first half of 2021 are summarized in the following 7 areas. First, we continue to make encouraging progress on transformation and upgrade with business performance demonstrating favorable trends in all aspects. Second, we advanced the comprehensive and integrated development of CHBN markets with value-oriented operating practices yielding notable results. Third, we further implemented the 5G+ plan, and our 5G business is now on fast track of development. Fourth, we expedited constructions of new infrastructure, and laid a solid foundation for digital intelligence transformation capabilities. Fifth, we increased shareholders' returns and continuously create value for shareholders. Sixth, we strive to promote full flash digital intelligence transformation, and we are taking solid steps towards becoming information services and science innovation enterprise. Seventh, we applied for renminbi shares issue sharing the promising future of digital economy. By way of reference, we've provided results of key performance indicators for the first half of 2021 in this table. In the first half of 2021, facing a complex and volatile internal, external business environment, we drove our digital intelligent transformation in an all-round manner. With our all-out efforts to implement a 5G+ plan, promote comprehensive and integrated development of our CHBN market and actively explore the blue ocean digital economy, we continue to make encouraging progress on transformation and upgrade with business performance demonstrating favorable trends in all aspects. Service revenue reached CNY 393.2 billion, representing a year-on-year growth rate of 9.8%, outperformed industry average by 1.1 percentage points. This growth rates surged significantly. Net profit stood at CNY 59.1 billion, up by 6% year-on-year, which reversed downward trend in the past 2 years. EBITDA achieved a rebound and amounted to CNY 162 billion, up by 11.2% year-on-year. Our key performance indicators achieved outstanding performance. Service revenues increased by 9.8% year-on-year, a rate that hit a record high in 10 years. Mobile ARPU stabilized and rallied, achieving positive growth of 3.8% year-on-year. The number of 5G network customers reached 127 million with penetration rate rapidly increasing. Revenues from DICT and smart home value-added services both rapidly increased, and our profitability continued to stay at a leading level amongst first-tier global operators. We continue to step up efforts to drive a scale-based and value-oriented operating system and promoted a comprehensive and integrated development of CHBN markets. Our value-oriented operating practices have yielded notable results. Customer market resumed positive growth of 0.7%. Home, business and new markets rapidly increased by 33.7%, 32.4% and 22.6%, respectively. Revenue from the noncustomer market as a percentage of total service revenue was 35%, up by 3.6 percentage points over 2020. The revenue structure is further optimized. We have quickened our pace to transform ourselves into an information services and site innovation enterprise, and our new drivers remained robust. Revenue from the new businesses amounted to CNY 80.1 billion, up by 38.3% year-on-year. It took up about 20% of our total service revenue, up by 3 percentage points over 2020. Revenue from smart home value-added services amounted to CNY 10.1 billion, up by 35.6% year-on-year. As a percentage of home market revenue, it went up by 1.5 percentage points over 2020. Revenue from DICT amounted to CNY 33.4 billion, up by 59.8% year-on-year. As a percentage of business market revenue it went up by 7.2 percentage points over 2020. We have further implemented our 5G+ plan, and our 5G business is now on fast track of development. In the consumer market, we've focused our efforts on cultivating 5G network customers with an integrated strategy involving our value propositions such as products, terminals, network access and tariff packages to boost 4G to 5G switching and effectively increase customer value. The number of 5G package customers and 5G network customers reached 251 million and 127 million, respectively, in the first half of 2021. 5G ARPU amounted to 88.9%. 4G versus 5G after migration, ARPU moved up by 10%. 5G DOU amounted to 20.7 gig. For the business market, we continue to utilize 5G business showcases to gain traction and brought in an additional 100 headquarter-level industry-leading demo projects with key customers from different industries. We continue to proactively drive the scale and value monetizations of 5G business. And by launching quality commercialized projects, we're able to create a sound business model for 5G and convert it into actual business opportunities. Overall, in the first half of 2021, we signed an addition of 900 contracts, the provincial-level feature projects, and kicked off in addition to 452 5G-dedicated network projects. Our 122 projects were large DICT projects with contract amount each exceeding CNY 10 million. These projects helped broaden additional DICT revenue of more than CNY 6 billion. By way of reference, we've provided some typical cases of China Mobile's 5G industrial applications in Appendix 4. We continue to make forward-looking deployment plans and make targeted investments, proactively promoting the constructions of new infrastructure. In the first half of 2021, we spent an overall CapEx of CNY 86 billion. Major areas of investments include the construction of a premium 5G network, cloud-based infrastructure, 4+3+X data centers as well as promoting smart transformations of our networks. Based on the principle of co-construction and sharing to create mutual benefits, we have orderly made progress on the co-construction and sharing of the 700 megahertz network in collaboration with CBN, completing the centralized procurement of the master unit and antennas of the wireless network on behalf of the partnership. In the second half of 2021, we proactively forged ahead with the construction of the 5G network, rationally utilized the spectrum resources of 700 megahertz, 2.6 gigahertz and 4.9 gigahertz, promote multi-band coordination and achieved efficient resource deployment. We target to build a cumulative more than 700,000 5G base stations by the end of 2021, offering good coverage into urban areas of cities and counties as well as key villages and towns in key areas across countries, in general. Moving ahead, we added this progression to the computer power network, including such network in the overall planning of the next-generation new infrastructure and establishing a diversified computer power resources system managed by both centralized and disbursed approaches. At the same time, we redouble our efforts to achieve breakthroughs in key technologies and cultivated the first computer power ecosystem. We've quickened our pace to extend comprehensive reform to our cloud business in order to nurture differentiated advantages in terms of convergences of cloud and network, cloud and big data, cloud and intelligence, and cloud and edge computing. Our cloud business demonstrated industry-leading growth. We are committed to ensuring our leading position of resource and product capabilities. We've optimized our AN+31+AN deployment plan and self-developed more than 210 types of products. We are committed to ensuring a leading position over self-directed innovation capabilities. Our operating systems, elastic computing, storage and cloud management platforms were all managed independently. Besides being committed to ensuring our leading positions over basic service capabilities, we've also provided full coverage dedicated cloud-based networks and offered personalized, customized, secure and reliable services. The number of and-Caiyun users reached 116 million, representing a net additions of 13.19 million from the end of last year. Revenue from mobile cloud increased rapidly and reached CNY 9.7 billion, up by 118.1% year-on-year. Public cloud revenue share was ranked top 10 in the industry, achieving a break through. We remain committed to implementing reforms, fostering innovation and facilitating opening up and cooperation. Our efforts bore fruit, and we achieved remarkable results. On system reforms, with the goal of establishing China Mobile as a world-class model enterprise, we systematically furthered reforms to key areas such as governance, staff deployment and incentive mechanisms in order to build new momentum towards high-quality development of our organization. On technological innovation, we took a leading role in the evolutions 5G technologies and owned a standard-related patent pipeline that's put us in the camp of top-tier global operators. We constantly enhance ability to self-direct digitalization in various views, including artificial intelligence, blockchain, IoT, cloud computing, security and super SIM. On open collaboration, we proactively built extensive networks and deepened strategic partnerships with local governments, large enterprises and public institutions. We joined forces with renowned higher education institutions, science research institutions to make further contributions on top-notch innovation. Further, we deepened cooperations with industry partners, and step up efforts to further develop the relative circle and partnership network. On impartment of mid-end platforms, we've preliminarily built our small mid-end Business + Data + Technology platform with the characteristics of telecommunications operators and selling features of China Mobile. We also proactively developed capabilities to support various business scenarios and launched a China Mobile smart mid-end platform gateway and branding. Currently, there are 208 types of capabilities on the mid-end platform, and they are deployed on average nearly 7 billion times each month for the first half of the year. On the front of sustainable development, we've unveiled white paper on C² Three Energy-China Mobile Carbon Peak Carbon Neutrality Action Plan. Our objectives are to save energies in the operations through technological innovation, raise proportions of clean energy we use, and bring into play our operational advantages to realize and energize the empowerment of helping to reduce carbon emissions. To create higher returns with shareholders and share the results of its operating gains after giving full consideration to its profitability, cash flow generation and future development needs, the company has decided to pay HKD 1.63 per share for the 2021 interim dividend, representing an increase of 6.5% year-on-year. The company will strive to achieve favorable growth in full year dividend per share and continuously create greater value for shareholders. At present, the new wave of technological evolution and industry transformation, characterized by digital network and intelligent features has emerged. And the digital economy has become the major driving force of growth. With 5G at the forefront, a new generations of information technology is integrating into the economy, society and people's livelihood at an accelerated pace, giving rise to new factors, new models and new products. Enormous emergence of business opportunities is taking shape. It is expected that the contributions of digital economies to China's GDP will increase from 38.6% in 2020 to more than 50% in 2025. Revenue from China's information subsector will have grown from CNY 10.8 trillion in 2020 to more than CNY 20 trillion in 2025. That will translate into tremendous opportunities for digital intelligent transformation. Looking ahead, we adhere to the strategy of becoming a world-class enterprise by building a dynamic powerhouse following the path of digital intelligence transformation to strive for high-quality growth. We'll develop innovative digital intelligence products and promote extensions of our product offerings from the realm of telecommunication services to digital information services. We strengthened our digital intelligent networks and build up a network system that is characterized by the convergence of cloud and network as well as a high level of automation and intelligence. We will establish a digital intelligence mid-end platform to support innovation and a digital intelligent organization equipped with sound systems and talented teams to satisfy the needs of our digital intelligence transformation. In addition, we'll nurture digital intelligent ecosystems and proactively create a digital intelligent cluster to bring together different forces and unlock the potential of the digital space on a broader scale and at a deeper level. With our all-out efforts in the 5 areas above, we'll make every endeavor to develop our second curve of growth and create new growth drivers in the process of promoting the digital intelligence transformation of the economy and society, thus, generating greater value for our shareholders and customers. In response to the 14th 5-year plan, we've made [ step-up ] efforts to work on the 2 promotions and 2 integrations and take solid steps towards becoming a world-leading information services and sci-tech innovation enterprise. We strive to achieve the following goals by 2025: Operating revenue achieving favorable growth; profitability continuing to maintain at a leading level amongst first-tier global operators; the service capabilities of our mobile cloud, [ Phoenix 3 Big Data ] platform and Jiutian AI platform entering the camp of top-tier industry players; and the proportion of revenue from new businesses related to information services recording remarkable growth. In order to grab the window of opportunities to develop the information services market, promoting implementations of strategies of becoming a world-class enterprise by building a dynamic powerhouse, advanced digital intelligence transformation, cultivate a digital intelligence ecosystem with new vitality and build a new momentum towards high-quality development, the company proposed to apply for the renminbi share issue. The Board approved the proposal, which subsequently approved by our shareholders at an extraordinary general meeting. Other related work is in progress and will be implemented upon approvals from the relevant regulatory authorities in accordance with relevant procedures. That basically concludes my part of the presentation. Now let me turn it over to Mr. Dong Xin for operating performance.

Thank you, Chairman Yang. I'm delighted to present our operating performance in the first half of 2021. In the first half of 2021, we saw comprehensive development of the CHBN markets and encouraging growth momentum of our overall business. By way of reference, we've shown this table, the revenue data of our CHBN markets. I'll now go through the latest developments of all these 4 markets in more details. For the customer market, we promoted the integration of data assets, applications and customer benefits and took a steadfast approach to drive the uptake in both quantity and quality of our 5G business, stimulating the upgrade of consumption of information and communication services. Leveraging our value propositions of 5G services and customer benefits, we enhanced our brand management of GoTone, M-zone and Easy Own, effectively boosting customer value and loyalty. As of the end of June 2021, the number of mobile customers reversed downward trajectory and recorded growth, reaching 946 million and representing net additions of 3.59 million. Of these, the number of customers with integrated benefit products reached 110 million. Mobile ARPU stood at CNY 52.2 million, up by 3.8% year-on-year, thanks to the stable customer base and the upturn in mobile ARPU revenue from customer market resumed growth and reached CNY 255.5 billion, up by 0.7% year-on-year. For the home market, we've quickened our pace to set up a service suite that combines full-gigabyte network connections with cloud-based applications. We've taken a consistent approach, attained leadership in broadband, TV and smart home services using quality content and applications as their respective driving forces. We recorded rapid growth in our customer base and revenue. The number of household broadband customers reached 205 million with net additions of 13.39 million. Of these, our digital set-top box, Mobaihe reached a total of 154 million customers for a penetration rate of 74.8%. Revenue from home market increased by 33.7% year-on-year to CNY 50.1 billion, with the growth rate hitting record high again. Household broadband blended ARPU amounted to CNY 41.1, up by 16.2% year-on-year. For the business markets, we focused on key areas such as smart city, smart transportation and industrial Internet, and further promoted the integrated development of network, cloud and DICT. In the first half of 2021, revenue from business market reached CNY 73.1 billion, up by 32.4% year-on-year with a growth rate hitting record high again. The number of corporate customers reached 15.53 million with net additions of 1.69 million. While we made redoubled efforts to develop our cloud business, we've continuously improved the planning of the constructions of a new infrastructure such as data centers, developed industry-leading connections plus computing capabilities and continuously facilitating standard upgrades and promotion. IDC revenue grew by 27% to RMB 11.8 billion. Revenue from dedicated lines increased by 7.7% year-on-year, totaling CNY 13.5 billion. ICT revenue reached CNY 8 billion, up by 57.3% year-on-year. The number of IoT smart connections reached 980 million. For the new markets, we strive to draw on the spirit of innovation, entrepreneurship and originality, and expand the scale of our new businesses. We continue to expedite development of our international business, digital content, finance technology as well as equity investment and other operations and achieved notable results. In the first half of 2021, revenue from new market reached CNY 14.5 billion, up by 22.6% year-on-year. We obtained a new turnaround growth rate, which also a record high, of which revenue from international business reached CNY 6.8 billion, up by 19.5% year-on-year. Revenue from digital content reached CNY 7.7 billion, up by 25.1% year-on-year. The monthly active users of the MIGU video across all platforms increased by 14.5% year-on-year. The number of users of our video connecting terms exceeded 180 million, and the number of monthly active users of and-Wallet recorded year-on-year growth of 31.5%. Our equity investment income accounted for 11% of our net profit. We are now in a critical development stage for extensively applying 5G across industry sectors and serve to wider society. We'll make every effort to provide premium 5G, easy-to-use 5G, open 5G and secure 5G services leading the scale development of 5G business. We will facilitate multiband coordination by constructing a multidimensional network with multi spectrum comprising 2.6 gigahertz, 4.9 gigahertz and 700 megahertz. We target to build over 700,000 5G base stations by the end of this year. We strengthened our cloud network conversions, taking steps to deepen convergences of cloud, network, edge computing, big data and intelligence. We will also take measures to realize public private network convergence, designing and constructing our network-based market development and demand, and at the same time, accelerate the commercializations of high-quality development of 5G dedicated networks. To ensure compatibility of capabilities, we'll build up capabilities comprising dedicated network, platforms, applications and device for the 5G industry. As part of our efforts to promote replicable applications, we'll develop narrow base and standardized solutions and speed up the transformation of business showcases into commercialized projects. We'll also take steps to enable customizable functions, work with certain corporate customers according to their willingness and ability to pay and optimize our on-demand business model. We'll continue to enhance industry cooperation in the 3 areas of fostering joint innovation, sharing-based capability and driving industry maturity. We'll also ensure the security and reliability of 5G services by implementing full life cycle security management and offering all-in-one security solutions. We are committed to consolidating our position in the market with supreme products and making use of scientific management to enhance efficiency. In the first half of 2021, we expanded our customer base with 9 products, each attracting over 100 million customers. Our products such as cloud products and-Caiyun, CM passport, MIGU Music, cloud-based games, cloud-based VR and super SIM saw accelerated development. We have currently agreed to point using scientific management and a classified management approach being gradually applied to various business lines and [ views ], allowing coherent coordination between local operations and specialized teams and across specialized teams when it comes to market development and capability enhancement. This approach delivered remarkable results. Looking forward, we'll develop more and better flagship products through self-directed R&D, collaboration, acquisitions, equity investments and other measures placing a focus on products' compatibility with the company's strategic core: core capabilities, the need for innovation and transformation and other development directions. We'll strengthen scientific management, and at the same time, continue to reinforce synergy from strategy formulation, market developments and capability enhancement and build differentiated and classified management system covering various [ views ]. We precisely manage our organization in aspects such as resource allocation, service assurance, assessment targets and organizational settings, taking into account the differences across local operations, first continuously enhancing management standards and operating results. In the view of favorable business results and business development trend in the first half of 2021, we've revised our full year telecommunications subs revenue and net profit guidance from stable to healthy growth provided early this year to favorable growth. By way of reference, we've listed our major full year business targets on this slide. We will continue to pursue the strategy of becoming a world-class enterprise by building a dynamic Powerhouse, drive digital intelligence transformation in an all-round manner and strive to achieve our full year targets. Now let me turn it over to Mr. Li Ronghua for financial performance.

Thank you, Mr. Dong. I'm delighted to present our 2021 interim financial results to you. Well, in the first half of 2021, we continue to promote transformational development and recorded growth in both revenue and profit. Service revenues was CNY 393.2 billion, up by 9.8% year-on-year. Sales products revenue amounted to CNY 50.4 billion, up by 59.4% year-on-year. While we continue to strengthen cost management, we have appropriately increased our investments to support future transformation. Operating expenses increased by 15.2% year-on-year. Benefited by the optimization of our well management product portfolio and the enhancement to the rate of return, interest and other income went up by 7% year-on-year. For the investment associates, SPD Bank, China Tower, et cetera, also brought contributions to our returns. Income from investment account for using the equity method reached CNY 6.5 billion, increasing by 8.8% year-on-year. As a result, our net profit increased by 6% year-on-year to CNY 59.1 million. Our profitability continued to stay at a leading level amongst top-tier global telecommunications operators. In terms of breakdown of revenue growth by business, as shown in the financial statements, the increase in service revenue is mainly due to the growth in wireline broadband and applications and information services, of which the incremental revenue contributions from wireline broadband and applications and information services amounted to CNY 10.8 billion and CNY 21.6 billion, respectively. Revenue from wireless data traffic, SMS and MMS showed a slight increase, while voice services revenues record a slight decrease. As for the breakdown of revenue contributions by CHBN markets, the incremental revenue contributions from the customer market, home market, business market and new market reached CNY 1.8 billion, CNY 12.6 billion 17.9 billion and CNY 2.7 billion, respectively. Going forward, we'll continue to drive the comprehensive and integrated development of our CHBN markets, advance digital intelligence and information, promote continuous enhancement to business structure and accelerate a shift of growth drivers. We continue to promote low-cost and high-efficiency operations. We have taken measures to strengthen cost control across the board, covering every expected resource factors and processes, and engaging more staff members. We've made conscious efforts to reduce costs, enhance efficiency, and these efforts yielded substantive results. In respect of the results of major course items, network operations and support expenses went up by 11.4% to CNY 121.1 billion. The increase mainly attributable to the investment ramp-up 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, et cetera. The corresponding operation and maintenance expenses have also gone up. Depreciation and amortization increased by 14.9% to CNY 99.5 billion. We've adjusted the residual value rate of certain assets to further enhance the quality of assets. Also excluding associated impact, depreciation and amortization grew by 5.7% year-on-year on a comparable basis. Employee benefits and related expenses increased by 14% to CNY 55.9 billion. The government introduced a one-off social insurance reduction exemption policy during the COVID-19 outbreak last year, resulting in a lower base comparison in the same-period rates of 2020. Meanwhile, we have further increased resources to nurture and recruit management talents for the business and new markets as well as R&D talents in the [ views ] of 5G and AICDE. Selling expenses decreased by 3.1% to CNY 30.4 billion. The decrease mainly due to accelerating channel transformation where we strengthened centralized online operations and fully utilized big data for precision marketing. The efficiency of the utilization of marketing resources further improved. Benefited by favorable growth in revenue and sound cost control, our profit level continued to rise. EBITDA increased by 11.2% year-on-year to CNY 162 billion. EBITDA as a percentage of services revenue increased by 0.5 percentage points to 41.2%. Net profit reached 59.1 billion. Basic earnings per share increased by 6% year-on-year to RMB 2.89. The company continued to record favorable cash flow. In the first half of 2021, net operating cash flow increased by 1% to CNY 161.6 billion. Free cash flow went up by 28% year-on-year to CNY 75.6 billion. Our capital structure maintained stable and healthy with corporate credit ratings equivalent to China sovereign ratings. Overall, in the first half 2021, we recorded favorable growth in revenue and profit, achieved effective cost control, abundant cash flow and a stable and healthy capital structure. In the second half of 2021, we'll further increase revenue, cost control, tap into potential and raise efficiency, ensuring to achieve full year performance targets. Moreover, we'll continue to strengthen the management of funds, assets and capital, continuously enhancing company value. In the meantime, we'll further strengthen risk management and control, building a solid foundation for the sustainable and healthy development of the company. This is the end of our presentation and analysis on our 2021 interim results. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]