China Mobile Limited (941) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Welcome to China Mobile Limited's 2022 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 presentation, I'll first brief you on our overall results for the first half of 2022. Then Mr. Dong Xin, our CEO, will talk about our operating performance. Finally, Mr. Li Ronghua, our CFO, will brief you on our financial results. We saw notable results in our development in the first half of 2022. First, we maintained a favorable trend in our operating performance and mark new milestones on our journey to achieve high-quality development. Second, with further promoted value operated operations and achieved significant results, our transformation business gained strong growth momentum. Third, we accelerated the development of digital intelligent new infrastructure and continue to enhance sci-tech innovation capabilities. Fourth, we extended enterprise reforms in greater breadth and depth and strengthened open cooperation to achieve mutual benefits. Fifth, we attach utmost importance to shareholders' returns and share the fruits of digital-intelligent transformation. Sixth, we strive to tap into the enormous opportunities in the blue-ocean digital economy and aspire to become a world-class enterprise. By way of reference, we provided results of key performance indicators for the first half of 2022 in this table. In the first half of 2022, despite the headwinds and challenges posed by COVID-19, alongside other complexities in the external environment, we made every effort to seize opportunities arising from the [indiscernible] digital economy. We did this by embedding ourselves in the aspiration to become a world-class information services and sci-tech, innovation enterprise. We adopted a scientific approach to our reform and development as well as COVID-19 prevention and control. Our business performance maintained a favorable growth trend. We marked new milestones in a journey to achieve high-quality development. Operating revenue amounted to CNY 496.9 billion, up by 12% year-on-year. Net profit stood at CNY 70.3 billion up by 18.9% year-on-year. Our profitability remained in the leading position amongst top-tier global telecommunications operators. Return on equity was 11.3%, maintaining our industry-leading position. We further promoted value-oriented operations and achieved significant results. CHBN revenue grew across the board. Contributions of HBN revenue to service revenue reached 40%, capturing an increase of nearly 9 percentage points in less than 3 years' time and shown a further optimized revenue structure. Our transformation business gained strong growth momentum, benefiting from the rapid growth of digital content, smart home, 5G solutions for vertical industry sectors, mobile cloud and other information service businesses. Our digital transformation revenue reached CNY 110.8 billion, up by 39.2% year-on-year, accounting for 26% of service revenue. It has become a key revenue growth driver showing a strong upward trajectory as we broke new ground in the information services market as part of our new phase of our development. We leaned on our differentiated advantages in the convergences of cloud and network, cloud and back data, cloud and intelligence, and cloud and edge computing to further optimize our industry-leading mobile cloud products and technology. We are fast becoming a top-tier player in the mobile class base. In the first half of 2022, mobile cloud revenue maintained very rapid growth and reached CNY 23.4 billion, up by 103.6% year-on-year. We continue to gain influence in the industry. For the customer at home markets, the number of monthly active customers of mobile cloud drive exceeded 140 million and ranked second in the industry. It's revenue reached CNY 2.9 billion, up by 131% year-on-year. For the business market, our public cloud dedicated cloud, and public administration cloud have seen rapid surges in industry rankings. We have significantly increased our resources and capabilities. Our proprietary core products have proven to be secure and controllable. We've achieved industry leadership in integrated cloud network edge computing capabilities. Our market expansion achieved significant progress. As of the end of June 2022, we've signed over 3,500 cloud services major contracts, generating revenue of over CNY 13 billion. We completed a number of model industry clouds for sectors, including public administration, education and health care. We systematically created a new information infrastructure centering around 5G, computing force network and smart mid-end platform. In the first half of 2022, we spent an overall CapEx of CNY 92 billion. For 5G, we continue to expand the depth and breadth of 5G coverage while promoting 5G network co-construction and sharing with CBN. These efforts enabled us to consolidate our 5G leadership. In the first half of 2022, 5G-related CapEx amounted to CNY 58.7 billion. We have commissioned a cumulative 1 million 5G base stations, including 300,000, 700 megahertz 5G base stations. For computing force network, we actively responded to the Eastern data and Western computing national strategy and transformed our CFN from a conceptual prototype to an industrial practice. We strengthened our 4+3+X data center facilities with a total of 429,000 IDC cabinets available for external use. We promoted the constructions of N+31+X mobile cloud infrastructure. The total number of cloud servers deployed has accumulated to 593,000. For smart mid-end platform, we strove to build an open, central-kitchen-like model for our smart mid-end platform and have seen positive early outcomes in terms of our ability to apply the capabilities internally and externally as well as the value delivered. At present, we have marketed 476 mid-end platform capabilities, which will deploy more than 11 billion times per month on average, up by 61.5% year-on-year. We have further improved the top-level design of technological innovation and continuously increased R&D investment. As a result, we have effectively unleashed ability and fertility of innovation and continuously enhance sci-tech innovation capabilities. We put a strong focus on addressing the company's strategy and new driving forces of the market. In the first half of 2022, our R&D investments amounted to CNY 8.2 billion, up by 20.3% year-on-year. We assumed a principal role in driving innovation and actively integrated into the National Technological Innovation system. We devoted ourselves to developing first-class regional technologies and serving as a leader in the model industrial chain, and we achieved a number of breakthroughs. We're an industry leader in patent and standard setting, we've a total of 177 5G international standard-setting projects and owning more than 11,000 authorized invention patents. These achievements allows us to sit in the group of top-tier global operators. We have rapidly enhanced our critical digital intelligence capabilities and achieved breakthroughs in various new technological innovation practices such as AI, IoT, cloud computing, blockchain, et cetera. We continue to advance enterprise reforms in greater depth and breadth and strengthened open cooperations to achieve mutual benefits. For system reforms, we further optimized our corporate governance and market-oriented operation system and steadily promoted reforms to innovation and incentive mechanisms effectively stimulating corporate vitality. We've seen breakthrough from mixed-ownership reforms at XinSheng Tech. We successfully introduced strategic investors implemented an employee share ownership scheme. For organizational evolution, we established a pan-terminal and omni-channel direct sales system alongside [indiscernible] grid-based reforms. For our business market, we will find a system that supports go-to-market initiatives and continue to enhance operational efficiency. For open cooperation and ecosystem construction, we're using different approaches such as fostering strategic collaboration, capital cooperation, joint innovation, promoting partnership with members of the ecosystem. We put a focus on promoting the digital industry and digitalization of industries and to [indiscernible] to establish closer ties with our partners, optimize our investment strategy, instill new elements into our joint R&D model and increase industry synergy, drawing on our new information service system, which features connectivity, computing force abilities. We also redoubled our efforts to extensively expand the digital ecosystem. To achieve higher returns for shareholders and share the fruits of our operating gains after giving full consideration to our company profitability, cash flow condition and future development needs. The company has decided to pay HKD 2.2 per share for the 2022 interim dividend, representing an increase of 34.9% year-on-year. The dividend payout ratio for 2022 full year will further increase from that of the previous year. In 2023, it will increase to 70% or above of the profit attributable to equity shareholders of the company for that year. At present, the fast-growing, all-encompassing and profoundly impactful digital economy features an information network as its critical infrastructure, data as its core element, Information technology as the major driver, and integration and innovation as its key strategic elements. In the digital economy, information has become a crucial factor that drives the progress of human civilization, as well as economic and social development. The development will create enormous growth opportunities for information services. China's digital economy is expected to grow from 39.8% of its GDP in 2021 to over 50% by 2025, with the scale of information services market expected to increase from CNY 12.5 trillion in 2021 to CNY 22.8 trillion over the same period. The growth trend presents valuable opportunities for the digital intelligent transformation of the company. In response to the evolving industry landscape as well as opportunities emerging from it, we will systematically create new information infrastructure centering on 5G, computing force network and smart mid-end platform, innovatively built a new information service system that consists of connectivity, computing force and abilities. With these, we'll continue to satisfy, drive and uncover market demand while enabling the digital-intelligence transformation of production, lifestyle and social governance, and redoubling our efforts to undergo the 2 advancements and 2 integrations. We strive to consistently create greater value for our customers and shareholders by providing quality information services and generating exceptional business results. That basically concludes my part of the presentation. Now let me turn it over to Mr. Dong Xin for operating performance.

Thank you, Mr. Yang. I'm delighted to present our operating performance in the first half of 2022. In the first half of 2022, our CHBN markets grew across the board. By ways of reference, we have shown in this table the revenue data of CHBN markets. For the customer market, we promoted the integrated management of data access, applications and customer benefits in greater depth, and enhanced the coordinated development between the customer market and HBN markets. As of the end of June 2022, our mobile customer base reached 970 million, of which 5G network customers reached 263 million. Mobile ARPU amounted to CNY 52.3, up by 0.2%. Revenue for customer market increased by 0.2% to CNY 256.1 billion. In terms of customer benefits, we achieved dual uplift in both customer scale and income. Our benefits post a customer base of 241 million and generate income of CNY 8.33 billion, up by 119.6%. For the home market, thanks to our efforts to leverage combined strength of our full-gigabyte network connections and cloud-based applications, we saw favorable growth in both customer scale and revenue for this business line. Revenue from the home market increased by 18.7% to CNY 59.4 billion. Household customer blended ARPU increased by 4.6% to CNY 43. Household broadband customers reached 230 million, of which 181 million were mobile users, where 26.6 million gigabyte broadband customers with all our optical line terminal, OLT platforms, in the urban areas of cities and counties and over 88% of those in townships and villages equipped with gigabyte capacity. We've expanded scale of key smarthome products with a total of 1,667 HDICT leading showcases. For the business market, we advanced the integrated development of our network, cloud and DICT and comprehensively fostered our competitiveness in information service industry. Revenue from business market amounted to CNY 91.1 billion, up by 24.6%, with mass replicated 5G vertical industry applications across a wide range of industries such as smart factories and signed agreements of cumulative over 11,000 5G commercial projects across multiple sectors. Industry cloud continued to deliver very rapid growth with more than 1.2 million customers and revenue increasing by 93.9% to CNY 18.9 billion. We regarded the to V and to G markets independent competitive use. We've accumulated more than 195 million Internet of Vehicle connections and provide a public administration informatization solutions for nearly 200 cities across 27 provinces. For the new market, we focused on advancing our coordinated development of the 4 key areas of international business: Equity investments, digital content and fin-tech. Revenue registered a record growth rate of 36.5% and reached CNY 19.9 billion, of which revenue from international business and digital content amounted to CNY 8.1 billion and CNY 11.6 billion, respectively. The first half of 2022, our industry chain finance business grew to a scale of nearly CNY 30 billion. We've also set forth development plans or industrial Internet. Investments has accumulated to CNY 177 billion after additions of equity investment of CNY 500 million. As always, we put a strong focus on customer needs, and have made all round enhancement to our operations. We've advocated the development of sales alliance and attained growth of new channels, [indiscernible] coordinations of 3 major brands, spinning out our differentiated advantages. Making use of smart technologies approaches, we empower network operations, products, services and management support, striving to enhance the quality of our network, products and customer touchpoints. In the second half of 2022, we focused on quality enhancement, ensured attainment of our full year targets. We'll also quicken our pace to strengthen our capabilities, laying a solid foundation for future development. By way of reference, we've listed our major full year business targets on this slide. Now let me turn it over to Mr. Li Ronghua for financial performance. Thank you.

Thank you, Mr. Dong. I'm delighted to present our 2022 interim financial results to you. The first half of 2022, we continue to promote our transformational development and record a favorable growth in both revenue and profit. Operating revenue was CNY 496.9 billion, up by 12% year-on-year, of which service revenue was CNY 426.4 billion, up by 8.4% year-on-year. Revenue from sales of products and others amounted to CNY 70.5 billion, up by 39.8% year-on-year. While continue to strengthen cost management, we appropriately increased our investment to support business transformation. Operating expenses increased by 10.9% year-on-year. Benefited by the optimizations of wealth management product portfolio and the enhancement to the rates of return, interest and other income went up by 20.3% year-on-year. For the investments of associates, SPD Bank, China Tower, et cetera, also brought contributions to our returns. Income from investments accounted for using the equity method reached CNY 6.2 billion. As a result, our net profit increased by 18.9% year-on-year to CNY 17.3 billion. Our profitability continued to stay at a leading level amongst top-tier global telecom operators. In terms of breakdown revenue growth for business, the increase in telecom service revenue was mainly attributable to the growth of wireline broadband and applications and information services, of which incremental revenue contributions from wireline broadband and applications and information services amounted to CNY 7 billion and CNY 28.7 billion, respectively. As for breakdown of revenue contribution by CHBN markets, incremental revenue contributions from customer market, home market, business market and new market reached CNY 0.5 billion, CNY 9.4 billion, CNY 18 billion and CNY 5.3 billion, respectively. Going forward, we'll continue to drive comprehensive and integrated development of our CHBN markets, advance digital intelligent transformation, promote continuous enhancement to our business structure and shifts of growth drivers. As part of our consistent efforts to reduce cost and enhance operational efficiency, we implemented multiple initiatives to control cost expenses while adding new streams of income and increasing revenue. This initiative achieved favorable outcomes. Network Operations support expenses went up by 14.1% to CNY 138.2 billion. The increase is mainly attributable to investment ramp-up in areas such as smart family, DICT, and the construction of smart mid-end platform to support our accelerating business transformation. In addition, we expanded the scale of our 5G and computing force network, et cetera. The corresponding operations and maintenance expenses have gone up. Depreciation and amortization was CNY 99.5 million, which was at the same level as last year. After excluding the impact of the adjustment to residual value of certain assets in the first half of 2021, depreciation and amortization grew by 8.7% year-on-year on a comparable basis. Employee benefits and related expenses increased by 14.4% to CNY 63.9 billion. This is mainly because we further increased resources to nurture and recruit management talent for the business and new markets as well as R&D talents in the use of 5G and AICDE. Selling expenses decreased by 13.8% to CNY 26.2 billion. The decrease was mainly attributable to accelerating channel transformation, where we have strengthened our online sales and service capabilities. Efficiencies of utilization of marketing resources further improved. At the same time, some off-line marketing and promotional activities were restricted due to COVID-19. Benefited by favorable growth in revenue and sound cost control, profit level continued to rise. EBITDA increased by 7.4% year-on-year to CNY 173.9 billion. EBITDA accounted for 40.8% of telecom service revenue. Net profit increased by 18.9% year-on-year to CNY 70.3 billion. Basic earnings per share increased by 14.1% year-on-year to CNY 3.29. The company continued to record favorable cash flow. Net operating cash flow reached CNY 147.3 billion. Free cash flow was CNY 55.2 billion, the year-on-year decrease is mainly attributable to 2 factors: First, we took active step to mitigate the impact of COVID-19 and proactively take measures to fulfill economic and social responsibilities. We've slowed down the cash collections and [indiscernible] payments were viewed to supporting upstream and downstream operations along the industrial chain. Second, we started up the promotions of new infrastructure layout and capital expenditure was completed at a quicker need. Our capital structure maintained stable and healthy with corporate credit ratings equivalent to China sovereign ratings. Overall, we delivered the following performance in the first half of 2022. The double-digit growth in revenue and profit, effective cost control, abundant cash flow as well as stable and healthy capital structure. In the second half of 2022, we'll further deepen value-oriented operating practices and strengthen centralized management, ensuring the attainment of the full year performance targets. Moreover, we'll continue to further improve management of funds, assets and capital efficiency, stimulating the company's fertility and value creation. In the meantime, we further strengthened risk management and control, ensuring sustainable and healthy development of the company. This is the end of our presentation and analysis on our 2022 interim results. [Statements in English on this transcript were spoken by an interpreter present on the live call.]