China Mobile Limited (941) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, all friends in Hong Kong. Welcome to China Mobile's 2022 Annual Results Briefing. In the last 2 years, the briefing was conducted online due to COVID-19. Today, we are able to meet in person again. We are so happy to be able to meet with you in person. In today's presentation, I'll first brief you on our overall results for 2022. Mr. Dong Xin, our CEO, will talk about our operating performance. Finally, Mr. Li Ronghua, our Chief Financial Officer, will walk you through our financial results. Overall performance for 2022 can be highlighted in the following 7 areas: first, we continue to achieve outstanding performance; second, our business transformation achieved remarkable results; third, we accelerated the build-out of the 2 new elements; fourth, our site innovation bore fruit; fifth, we continuously expanded open collaboration; sixth, our dividend payment continue to increase; seventh, we will implement our business strategy steadily for long-term success. By way of reference, we provided results of key performance indicators for 2022 in this table. In 2022, despite various hurdles and challenges brought about by the complex and changing macro environment, we worked closely together as a team to build new infrastructure, integrate new elements and instigate new growth momentum as we accelerated establishment of world-class powerhouse. We achieved stable to rising growth and continue to score outstanding business results. Operating revenue continued record to double-digit increase with net increase maintaining favorable growth despite a large base. We also achieved all-around enhancements to customer value, corporate value and shareholder value. Operating revenue reached CNY 937.3 billion or 10.5% growth. All CHBN markets grew across the board. Net profit was CNY 125.5 billion, an increase of 8%. Net profit as a percentage of service revenue remained stable at a persistently high level. We continue to maintain industry-leading ROA and ROE. We achieved remarkable results in business transformation. The total number of connections stood at 2.94 billion. This is the first time we disclosed this number, by the way. So you can see from this table, things connections grew rapidly as opposed people connections. CHBN revenue as a percentage of total subs revenue reached 39.8%, an increase of 8 percentage points. In 7 years, our revenue structure has further optimized. Thanks to the rapid expansion of 5G applications, Mobile Cloud, digital content, smart home and other businesses, digital transformation revenue reached CNY 207.6 billion, up 30% year-on-year and contributing 79.5% incremental service revenue. Its share of sales revenue increased to 25.6%. While we maintained favorable growth in overall revenue, our revenue structure is more balanced, stable and healthy, showing a strong upward trajectory for sustainable growth and significantly improved resilience. We strive to establish differentiated advantages in the convergence of cloud and networks, cloud and big data, cloud intelligence and cloud and edge computing. Mobile Cloud revenue reached CNY 50.3 billion, up by 100.8% and which industry cloud revenue reached CNY 41.2 billion, up 114%. Mobile Cloud drive revenue reached CNY 5.5 billion, up 59.5%. Our comprehensive strength in this area puts us among top-tier players in China. We have continuously strengthened our resources, technologies, capabilities and ecosystem. We've built a total of 8 3AZ high-quality resource pools in Mobile Cloud, offering a diversity of 1-point access resources. We developed called architecture with more than 1,300 proprietary intellectual property rights. In addition, we also provided more than 100 scenario-based solutions. We have also continuously boost our industry influence in the customer and home markets. The number of monthly active users, Mobile Cloud Drive closed 170 million, the second largest in the industry. In the business market, the market share of our public cloud revenue, top 6 in China, with our dedicated cloud and edge cloud ranked first and first, respectively. We systematically built new information structure centering around 5G, CF and capability middle platform. We enjoy comprehensive leadership and dual-gigabit premium network. For 5G network, we deepened collaboration with CBN in construction and sharing the 5G network spend to achieve mutual benefits. We coordinated our 700-megahertz, 2.6-gigahertz and 4.9-gigahertz frequency resources with a scientific approach. We continuously coverage across urban area, counties, et cetera, nationwide, establishing the world's largest 5G assay network and further solidifying our leadership position in 5G and put into use accumulatively 1,285 million 5G base stations and providing service to 330 million 5G network customers and developed more than 18,000 network commercial use cases across various industries effectively, meeting the growing demand in data consumption in the mass market empowering a wide array of industry in our business market. We precisely built our fiber broadband network to address different scenarios in different regions. This has improved our broadband capability effectively and earned us a strong reputation. Our OLT platform to urban area nationwide boost 100% gigabit capability. In townships and villages, the corresponding number reached 90%. Our gigabit broadband coverage reach 280 million households. Inspection with the quality of our service continue to improve. The capability and quality of corporate dedicated line continued to improve and the bandwidth has exceeded 74.7 T. We continue to optimize CF and planning. We have taken proactive actions to implement the natural strategy of Eastern data and Western computing and turned CFN from a conceptual prototype into an industry deployment. As we continue to refine the intensive and architectural structure, 4+N+31+X. We increased our number of IDC cabinets to 467,000. We rapidly expanded the diversity of our computing resource capabilities. And the total number of such facilities exceeded 710,000 and represent a net increase of 230,000. And we also delivered total computing capacity of 8 flops, a net increase of 2.8 flops with devised plans to national policy asset, exploring in the typical scenarios which corporate areas, including Eastern data and Western computing, supercomputing, et cetera. We saw rapid development of our capability in middle platform. We focus on scaling our capability in middle platform while showing its precise operation. This enhances our ability to apply the platform capabilities, both internally and externally. As of the end of 2022, we have included 889 middle platform capabilities with a deployed 13.74 billion times per month on average. The number of deployments has increased by 84.4% year-on-year. And through the monetization of our capabilities, we generated a value of over CNY 10 million, having a cost saving of CNY 3.8 billion for the year. We innovatively created a new information services system that integrates connectivity, force and capability. Key product deployment achieved notable results. In the mass market, we have 6 products with customer base ranked #1 in the industry and 13 products with respective customer bases of over 100 million, driving the growth of mobile and household customer ARPUs. In the business market, we have 5 products with respective revenues of over CNY 10 billion. And we had an industry-leading number commercial use cases expense by industry, driving the rapid growth of business market revenue. We proactively devised plans for development of and released the evolution rotor China Mobile MIGU. We also developed a range of technologies, applications, multiple sectors including duties manifest on steps of main sports in the Winter Olympics and interacted cultural tourism. Based on the industry-leading and digital intelligence foundation, we set up the exploration of competing force products and completed the computing force upgrade of 5 key products, including Mobile Cloud Drive and Cloud Games, and build-up of comprehensive CFM product system for our corporate customers. Meanwhile, we expect our progress to pursue the complete asset strategy for the mass market, actively promoting intelligent computing force as an essential service serving the whole society. We have laid a strong foundation for providing AI services with our leading competing force infrastructure, strong computing network core capabilities, massive data resources and extensive AI applications. We are well positioned to capture the potential. We enhanced the mechanisms and systems for research and development and invested CNY 21.7 billion in R&D. Our Sci-tech Innovation Bore Fruit. We attained notable results in the development of strategic technological capabilities, we will grant approval from the Ministry of Science and Technology to build a relevant platform. We have successfully developed a number of proprietary products dramatically, including basic chips and IoT operating systems. Our innovation capabilities in 6G, AI and other self-developed competencies have continued to expand. Regarding patents and starting, we have established ourselves as a leader in this aspect with a total of 197 5G international standards stacking project and applying for over 4,100 5G patents. We released the world's first systematic 6G network architecture, starting to show our influence globally. We also made significant breakthroughs in core digital intelligence technology, particularly in the area of AI, cloud computing, blockchain, video positioning and other. We also continuously expand the open cooperation in the area of enterprise reforms. We've made solid progress in reforms to the organization and mechanisms. We further improved corporate governance and market-oriented and management mechanism. promote reforms to incentive mechanisms and effectively stimulate our For open collaboration and ecological construction through strategic cooperation, capital cooperation, innovation, collaboration, ecosystem and other ways, we have strengthened our industry innovation, capital supply, ecological and value chain, expanding the digital intelligent ecosystem around the 2 new elements. The company always takes into account the interest of shareholders and the future development of the company and strive to create higher returns for the shareholders and share the fruits of development on the basis of maintaining the long-term value of shareholders and ensuring the long-term development of the company. The Board recommends a dividend payout ratio of 67% for full year 2022. It also recommends a final dividend payment of HKD 2.21 per share for the year ended 31st December 2022. Together with the interim dividend of HKD 2.20 per share already paid, total dividend for the full year of 2022 amounted to HKD 4.41 per share, an increase of 8.6% from that of 2021. To create higher returns for our shareholders and share the fruits of our operating gains, after giving full consideration to the company's profitability, cash flow generation and future development needs, the profits to be distributed in cash in 2023 will increase to 17% or above of the profit attributable to equity shareholders of the company for that year. The company will strive to create more value for shareholders. At present, with the new way of technological revolutions and industry transformation, our society moved at high speed towards new phase of development driven by information and criticized by the deep integration of information and energy. The integrated information technology has become a key catalyst for human stabilization progress and the engines for the digital economy to prosper. The new cycle of growth not only present opportunities for the company but also settle higher standards in terms of providing better quality service to our customers. Faced with both opportunities and challenges, we will fully, accurately and comprehensively align with the new principles to ensure we contribute to the new development. We will steadfastly put our 1-2-2-5 strategy into practice, anchoring ourselves to world-class information services and Sci-tech innovation enterprise, while speeding up the shift from quantitative leadership based on scale to qualitative leadership based on improving effectiveness and efficiency. And from delivering business results in the short term to achieving growth in the longer term, we'll systematically build a new information infrastructure centering 5G, CFG and capability middle platform while developing a new information service system connectivity, computer force and capability. And we will unleash benefits through innovation, customer recognition, reforms, talents and ecosystem. In doing so, we aim to achieve high quality and sustainable development and strive to maintain favorable growth in revenue and net profit to consistently create greater value for our shareholders and customers. 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. As mentioned by Mr. Yang just now, in the last year, with the support of society, China Mobile able to achieve outstanding performance and our operating performance have achieved very good results. I'm delighted to present our operating performance now. In 2022, all CHBN markets recorded growth across the board. By way of reference, we have shown in this table the revenue data of the CHBN markets. For the customer market, we deepened the integrated management of data assets, applications and customer benefits and strengthened the coordinated development of HBM markets. We have started to increase the scale and value of our customer base, this result of integrated development. By the end of December 2022, our mobile customer reached 975 million with a 3-year high net additions of 18.11 million. Mobile ARPU was CNY 49, up by 0.4%. Well, not very much but actually, it's not an easy cost. Customer market revenue reached CNY 488.8 billion, up by 1.1%. The integration of customer benefits and operations led to dual uplift in scale and revenue, with customers using benefit products reaching 287 million and revenue reaching CNY 16.3 billion, up by 66.6%. For home market, we tap into the value potential of our gigabit network and cloud-based applications. And we see rapid growth in scales of customers and revenue. Household broadband customers reached 244 million -- net and 25.78 million, which is an industry-leading figure. Household customer blended ARPU increased by 5.8% to CNY 42.1. Revenue from this market was CNY 116.6 billion, up by 16%. Gigabit broadband customers of 38.33 million, an increase of 145.8%. The contribution of smart home key products continue to increase, with mobile HD revenue growing 33.6% to CNY 25.2 billion, and that was a total of 2,978 HDICT benchmark showcases. And for the business market, we focus our efforts on the integrated development of network, cloud and DICT, comprehensively bolstering the competitiveness of information services. And revenue of this sector was CNY 168.2 billion, up 22.6%. We speed up the usage of 5G to empower digital transformation across different industries. The value related for DICT, CNY 36.5 billion and 5G dedicated network revenue increased to -- increased 107.4% to CNY 2.6 billion. IoT revenue, CNY 13.4 billion, up 35.5%; big data revenue go up 96.1% to CNY 3.2 billion. And we have rapidly enhanced the service capacity for special security products, our presence in the new areas of TV and 2G showed initial results. And the number of ROV connections exceeded 200 million, and the total contract amount of digital government projects reached CNY 20 billion. For the new market, we focus on international business, equity investments, digital content and fintech. Revenue was CNY 38.5 billion, an increase of 26.9%. We make our international business revenue, CNY 16.7 billion and revenue from digital content amount to CNY 21.3 billion. Fintech throughout the industry chain achieved a business scale of more than CNY 50 billion. We have also devised plan for industrial Internet and new equity investment reached CNY 690 million. And for CapEx, in 2022, the figure, CNY 185.2 billion, accounting for 22.8% of sales revenue and decreasing 1.6 percentage points year-on-year. And actually, as mentioned previously about management, the peak investment carriers of CapEx will end in 2022. In 2023, we expect CapEx to stand at around CNY 183.2 billion. CapEx as a percentage of revenue will continue to decline. CapEx will be spent primarily on areas including maintaining leading connection, quality, optimizing competing force resources, building out and improving capabilities and supporting CHBN business development. Of this CapEx, 5G network will amount to around CNY 83 billion, and we expect the number of 5G base station will reach an cumulative number of 1.65 million by the end of this year. CapEx for computing network will be CNY 45.2 billion, and we expect the total number of new additional cloud service deployment will exceed 240,000. New additional IDC cabinets available for external use will exceed 40,000. In 2023, we'll continue to ramp up R&D investments. We will accelerate the upgrade of Sci-tech innovation, embracing our originality and pioneership. We attach very importance to science management, focusing on promoting classified management and hierarchical division of labor and smart management. Resource efficiency has been continuously improved, as service chain, charge per tower, maintenance spend per household customer continued to decline. And the energy consumption units of telecom business has improved significantly. And we have proactively responsibility and received worldwide recognition. And in terms of environmental protection, we deepened green development and work towards goal of achieving carbon peaking and carbon neutrality. In terms of social responsibility, we have accelerated new infrastructure for the balances of enterprises and people, promote digital utilization plan, serve for the coordinated development of region and done our path to ensure important a safe release and risky work. In terms of corporate governance, we continue to deepen the constructions of compliance management and strengthen the risk and internal control management system. Looking ahead, we'll continue to put a steadfast focus on our strategic plans in 2023 and strive to maintain favorable growth in revenue and profit. By way of reference, we list our major full year business targets on this slide. So our target will be 1-2-2-5 strategy. 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 annual results performance to you. I wish to take this opportunity to thank all of you for your continued support throughout the year. In 2022, we continue to promote our transformational development and record favorable growth in both revenue and profit. Operating revenue was CNY 937.3 billion, up by 10.5%, of which sales revenue was CNY 812.1 billion, up by 8.1%. Revenue from sales and products amounted to CNY 125.2 billion, up by 29.3%. While we continue to strengthen cost management, we have appropriately increased our investment to support business transformation. Operating expenses increased by 10% year-on-year. Affected by fluctuations in market interest rates, income from management products declined with a year-on-year reduction of 6% in interest and under income. For the investments of associates, SPD banks, charters, et cetera, also brought contributions to our returns. Income from investment accounted for using the equity method reached CNY 11 billion. As a result, our net profit increased by 8% to CNY 125.5 billion. Our profitability continued to stay at a leading level amongst top-tier global telecommunications operators. In terms of breakdown of revenue growth by business, the increase in telecom service revenue is mainly attributable to the growth in wireless data traffic, wireline, broadband applications and information services, of which incremental revenue contributions from wireless, data traffic, wireline, broadband and applications and information services amounted to CNY 3.1 billion, CNY 10.8 billion and CNY 45.5 billion, respectively. As a breakdown of revenue contributions by CHBN markets, incremental revenue contributions from customer, home, business and new markets reached CNY 5.3 billion, CNY 16.1 billion, CNY 31 billion and CNY 8.2 billion, respectively. Going forward, we will continue to drive the comprehensive integrated development of our CHBN market as our digital intelligent transformation, promote continuous enhancement to our business structure and the shift of growth drivers. The company continued to enhance quality and efficiency, strengthening management, achieving favorable results in cost control. Network operations and support expenses went up by 13% to CNY 254.2 billion. The increase is mainly attributable to the investment ramp-up in areas such as smart family, DICT and the constructions of capacity, middle platform to support our accelerating business transformation. In addition, we have expanded the scale of our 5G and computing force network, et cetera. The corresponding operation and maintenance expenses have gone up. Depreciation, amortization increased by 3.6% to CNY 200.1 billion. Also excluding the impact of adjustment to value of certain assets in 2021, the figure grew by 9% on a comparable basis. Employee benefits and related expenses increased to 130.2%. This is mainly because we continue to adjust and optimize the employment structure and strengthened external introduction and internal training of digital intelligence talent. Selling expenses increased to CNY 49.6 billion, the increase mainly attributable to accelerating channel transformation, where we've strengthened our online app sales and service capabilities. The efficiency of the utilization of market resources has further improved. Selling expenses continue to decline as a percentage of revenue benefited by favorable growth in revenue and sound cost control, our profit level continued to rise. EBITDA increased by 5.8% year-on-year to CNY 329.2 billion. EBITDA accounting for 14.5% service revenue. Net profit increased 8% year-on-year to CNY 125.5 billion. Basic earnings per share was CNY 5.88. The company continued to record favorable cash flow. Net operating cash flow reached CNY 280.8 billion. Free cash flow was CNY 95.6 billion this year, which is a decrease from last year because the company proactively take measures for full economic and social responsibilities. We have slowed down cash collections but payments with a view of supporting upstream and downstream operations along the industry chain. Our capital structure maintained stable and healthy with corporate credit ratings equivalent to China sovereign ratings. In 2023, we are focused on strengthening our operations and management, setting about from 4 aspects of quality and efficiency, improvement in management, systematic management and risk prevention and control to continuously stimulate the company's ability in value creation and promote its high-quality and sustainable development. That's the end of our presentation today. Now we'd like to take your questions. [Statements in English on this transcript were spoken by an interpreter present on the live call.]