China Unicom (Hong Kong) Limited (762) Earnings Call Transcript & Summary

[Interpreted] Good afternoon, ladies and gentlemen. I'm Jacky, Company Secretary of China Unicom. Welcome to our results conference call. First of all, please allow me to introduce the management present today. Mr. Wang Xiaochu, Chairman and CEO; Mr. Chen Zhongyue, Executive Director and President; Mr. Liang Baojun, Senior Vice President. Now let's invite Chairman Wang to talk about our 2021 interim results.

[Interpreted] Good afternoon, ladies and gentlemen. It's my great pleasure to discuss with you China Unicom's results. Due to the pandemic, unfortunately, we still can't meet in person in Hong Kong today and need to discuss via a teleconference. Stay safe and healthy, everyone. In today's presentation, I will summarize our overall results in the first half of 2021. Mr. Chen Zhongyue will then discuss our operating and financial performance. Lastly, the management will take any questions you have. Highlights of the company's results in the first half are as follows. First, our revenue and profit growth accelerated on the back of determined innovative transformation and in-depth mixed-ownership reform. Second, we accelerated increase in shareholder returns and strived to unlock the potential investment value of the company. Third, our 5G-led mobile business transformation and innovative development delivered remarkable success. Fourth, our digital transformation empowered continuous robust growth in innovative businesses. Fifth, we deepened network co-build co-share and effectively enhanced our edges and returns. Lastly, we are going to seize new opportunities of the industry and endeavor to achieve high-quality development. In the first half, the company practiced new development philosophies, deeply implemented the strategy of Focus, Innovation and Cooperation, and sped up comprehensive digital transformation. Our revenue and profit growth accelerated. Our service revenue was CNY 148.7 billion, up by 7.5% year-on-year. Net profit was CNY 9.2 billion, up by 21% year-on-year. The company's growth quality and return kept improving in recent years. Our service revenue mix was further optimized. Industry Internet revenue contributed to 19% of our total service revenue, giving fresh impetus to our growth. Benefiting from sustained good control of CapEx and efficient operation, we had generated free cash flow of over CNY 170 billion over the past 4.5 years. Our net profit continued to grow at double digits. The company's fundamentals have further strengthened. The company has high regard for shareholder returns. Dividend per share grew at double digits over the past 3 years. To accelerate increase in shareholder returns, with due regard to the company's robust business development and strong free cash flow, the Board decided to distribute an inaugural interim dividend of RMB 0.12 per share in 2021. Meanwhile, the company will raise 2021 full year dividend payout ratio, with the magnitude to be decided by the Board in March next year, taking into account such factors as the company's profitability, cash flow, future capital requirements, et cetera. Based on public data from Bloomberg, the average of over 20 analyst target prices for the company is HKD 7.44 per share, showing huge potential investment value. Building on our solid results achieved in the first half, the company will endeavor to drive revenue, profit and dividend growth to unlock our potential investment value, creating greater value for our shareholders. In the first half, the company deepened 5G-driven growth and insisted on rational and orderly competition. We stroke an effective balance between value operation and scale development, driving transformation and innovative development of mobile business. We had 113 million 5G package subscribers, with a market share of 23%, which was 3.7 percentage points higher than our overall market share -- overall mobile market share. Following the turnaround last year, our mobile service revenue grew by 7.3% year-on-year in the first half. Our mobile ARPU increased by 8.5% year-on-year, demonstrating further success in our value-oriented operation. In innovative businesses, we formed Unicom Digital Technology to create integrated and differentiated edges. We actively nurtured and promoted innovative 5G+ vertical applications, and deepened the comprehensive cooperation with strategic investors and industry leaders. Our industry Internet business maintained strong growth momentum, with revenue reaching CNY 28 billion in the first half, up by 24% year-on-year. It has become our key revenue growth driver. Going forward, the company will continue to enhance our proprietary capabilities in platform development, R&D centralization, product standardization, proprietary integration and delivery, striving to achieve higher quality growth in the digital era. To seize the new opportunities in the industry, the company proposed to spin off CUSC, a subsidiary specialized in Internet of Vehicles operation in the A-share market. After being spun off as an independent-listed company, CUSC's financing capability and operation flexibility will be strengthened, accelerating its business growth and enhancing its competitiveness. As a controlling shareholder, China Unicom will benefit from its value unlocking. In the future, strategic cooperation between China Unicom and CUSC can create strong alliance with synergetic advantages to promote mutual growth. For 5G network deployment, the company maintained a focused approach. By working closely with China Telecom, we continue to deepen network co-build co-share, delivering permanent achievements. In the first half, we sped up in-depth and indoor coverage in urban areas and achieve 5G coverage of major counties and affluent towns. We added about 80,000 shared 5G base station with China Telecom, with the total number of 5G base stations in use reaching over 460,000 with industry-leading 5G network speed. Going forward, the company will conduct dynamic investment with due regard to technology advancement, value chain maturity, market and business demand, et cetera. 5G CapEx budget for the full year is CNY 35 billion. The number of 5G base stations in use is expected to reach 700,000 by the year-end. Our 5G network co-build co-share with China Telecom has effectively boosted investment return for both companies. Our network edges and customers' perception were significantly enhanced. The 2 operators altogether achieved cumulative CapEx savings of over CNY 86 billion and substantial savings in other costs, including tower usage fee, network maintenance costs and utility charges, et cetera. For 4G network sharing, the number of shared base station reached 460,000, leading to a cumulative CapEx savings of CNY 24 billion. Customers' experience saw a substantial improvement. Meanwhile, we continued to promote co-build, co-share and co-maintain of transmission and other resources, and actively engaged in new co-build co-share cooperation with cable, power, high-speed railway and oil industries, et cetera, to maximize investment efficiency. The company continued to deepen comprehensive digital transformation. We have basically established the core capability of 5 middle platforms, resulting in centralized and unified IT service capabilities as well as an efficiently centralized and integrated innovation system. Our centralized IT advantage is fast turning into an operational edge. Internally, we leveraged data to power up business development, customer service, network operation and supervision management, allowing the company to greatly improve its productivity and develop a professional digital team of more than 15,000 talents during the process. Externally, we can better satisfy the nationwide service needs of government and enterprise customers, the mobility needs of individual customers and the information consumption upgrade needs of household customers, forging differentiated new edges. Going forward, facing a new blue ocean of the digital economy spawned by new technology like 5G, the company will seize the critical window, firmly implement the strategy of focus, innovation and cooperation, accelerate comprehensive digital transformation, strengthen intelligent operation and services, deepen mixed-ownership reform and continuously expand in network co-build, co-share and co-maintain. We will fully enhance growth quality and operating efficiency and are dedicated to building an exceptional smarter and brighter China Unicom, creating greater value for shareholders, customers and society. Next, we will have our President, Mr. Chen Zhongyue, to introduce the company's operating and financial performance in the first half of 2021.

[Interpreted] Thank you, Chairman Wang. First, let me introduce the company's operating performance in the first half of 2021. In mobile business, the company continues to drive value enhancement and scale development with 5G. We launched the innovative China Unicom app, forming an ecology while drawing traffic through omnichannel and touch points. The number of monthly active users reached over 100 million. We accelerated the scale development of broadband and mobile integration via 3 gigabit networks and leveraged privileges, content and financial tools to improve product value. We utilize Big Data to precisely drive existing customers upgrade. We are unlocking 5G customers value through coordinated development of terminal network and business. In the first half, the company registered net addition of 42.5 million 5G package subscribers with an industry-leading penetration rate, driving sustained mobile ARPU and service revenue growth. In fixed-line business, the company grasped the boosted demand for digitization, cyberization and intelligent transformation of the economy and society. By leveraging proprietary resources and edge such as 3-gigabit network resources, cloud + network + applications integrated servicing capability and efficiently centralized innovation product offerings, we actively empowered enterprise customers and enhanced smart family customer experience, driving integrated development of innovative and fundamental businesses. In the first half, with the rapid growth of smart family products and innovative businesses, our fixed-line service revenue grew by 8% year-on-year. The company focused on digitization to strengthen the development of broadband and mobile integration via 3-gigabit networks. We continued to strengthen the capabilities of our smart community and Smart WoHome platforms and promote our digital village platform service, sharpening the differentiated edges of our broadband business. In Northern China, we leveraged broadband to expand mobile and promoted the mutual growth dynamics. We achieved ultimate integration with high-quality service and drove paradigm shift with multiple SIM. In Southern China, we expand broadband to boost mobile and appropriately increased broadband investment to achieve focused coverage and spot transcendence. In the first half, our smart home products revenue increased by 13% year-on-year. The penetration of broadband and mobile integration went up by 6 percentage points year-on-year. In innovative business, the company innovated 5G application product system leveraging 5 major components, namely, industry private network, MEC, industry platform, customized service and terminal, to support over 15 industry applications. We integrated our own capability and expanded ecological cooperation to push forward the integrated and innovative development of 5G+ industry vertical applications. We actively explored business models and agilely addressed 5G industry customer needs. We successfully developed a number of 5G lighthouse projects in key areas such as industrial Internet, smart mining, smart medical and smart city, et cetera, with over 300 5G lighthouse customers nationwide. We are promoting faster 5G commercialization. In the first half, cumulative contract value of 5G industry application amounted to over CNY 1.3 billion. The company accelerated the building of proprietary innovation platform capabilities and key products. The competitiveness and business value of our innovative business continues to gain value and momentum. First, in IT service, our proprietary research capability in key verticals progressively improved and the business scale expanded rapidly. Second, the capability of our propriety IoT connection and equipment management platform was further strengthened. Third, our big data business is leading in the industry. The company developed China Unicom cloud as base for digital transformation and integrated innovation. Focusing on security and reliability, cloud network integration, dedicated customization and multi-cloud collaboration, we provide customers with integrated innovative solutions, including cloud resources, cloud platform, cloud service, cloud integration, cloud interconnection and cloud security, et cetera. For public cloud, we targeted medium, small and micro-sized enterprises and deepened cooperation with strategic investors. For private cloud, we consolidated our resources to focus on building PaaS with fully integrated capability, and offered secure and trusted private cloud service to government and enterprise customers, leveraging information technology innovation cloud and multi-cloud management capabilities. For industry cloud, we deployed nationwide backbone cloud pools, aggregating innovation capabilities such as data and AI. In the first half, China Unicom cloud revenue reached CNY 7.7 billion, up by 54% year-on-year. In IDC business, the company grabbed the growth opportunities brought by the state's new infrastructure strategy. We sharpened our competitive advantages striving for both return and scale enhancement. We built a multi-cloud intelligent network to provide customers with superior experience and all-round integrated solutions. We advanced efficiently centralized operation and leveraged our existing network resources and capabilities to capture Internet sector customers, while optimizing customer mix by actively expanding customers in financial and government sectors. In the first half, our IDC revenue was CNY 11 billion, up by 9% year-on-year. In terms of investment, we focus on high-value and high-demand areas and actively engage in private capital cooperation. Full year CapEx budget is CNY 2.7 billion. The number of cabinets available is expected to reach 310,000. This year, the company synergistically advanced reform and comprehensive digital transformation, aiming to raise vibrancy, promote growth and enhance efficiency. First, we developed a platform to aggregate traffic, forming a smart living new ecology, integrating communication, lifestyle, entertainment and financial services. Second, we systematically promoted the reform of 6 professional functions to enhance the efficiency of smart operational systems, facilitating faster implementation of digital intelligence new operation. Third, we deepened mixed-ownership reform, systematically advanced market-oriented reform among subsidiaries and introduce digital talents. The transformation of operating mechanism was accelerated, releasing the intrinsic value of the company. Next, let's go on to our financial performance in the first half of 2021. This table shows our key financial information in the first half. Operating revenue was up by 9.2%. Net profit increased by 21%. The company's growth quality continued to enhance. Let's look at the detailed analysis next. Operating expenses increased by 9.7%, which was slightly higher than our operating revenue growth due to the higher initiatives in resources and talent for 5G and innovative businesses, paving the way for sustainable business growth. Of which, depreciation was basically flat, mainly benefiting from our good control of CapEx in recent years and network co-build co-share. We continued to promote incentive mechanism reform to strengthen performance-based compensation and draw innovative talents. Employee benefit went up by 13% year-on-year. Next, let's take a look at the detailed analysis on G&A and other operating expenses and network, operation and support expenses. The company capitalized on the opportunities of digital transformation and appropriately stepped up cost initiative to promote capability enhancement and scale development of innovative businesses. G&A and other operating expenses increased by 17% mainly due to higher technical support expense and cost of IT services for innovative businesses, which together increased by CNY 2.7 billion, but driving CNY 5.4 billion increase in industry Internet revenue and further enhancing our capabilities and potential. Going forward, the company will be devoted to promoting the scale and profitability enhancement of innovative businesses. As our business and network scale continue to grow, network pressure is mounting on network cost. The company has taken multiple measures to strengthen meticulous management, striving to achieve stable network operation and support expenses as a percentage of revenue for the full year. We continue to expand network co-build co-share with China Telecom. Second, we in-sourced network operations. Third, we promoted AI to push smart operations. Fourth, we accelerated 2G and 3G network streamlining and frequency reduction. Fifth, we fully leveraged the favorable new infrastructure policies. Sixth, we actively engaged in energy conservation and emission reduction. For CapEx, we insist on focus and cooperation to enhance network edges with high investment efficiency. First, we focus on the deployment of premium 5G gigabit fiber network and innovative business investment. Second, we focus on the coverage of enterprise premium network and commercial buildings. Third, we focus on high-value areas. In addition, we continuously extended co-build, co-share and co-maintain as well as private capital cooperation to drive profitable and fast business growth. In the first half, our customers' overall satisfaction significantly improved, with 5G consumer satisfaction ranking #1 in the industry. In the future, the company will continue to invest efficiently, with a full year CapEx budget of CNY 70 billion. With the execution of digital transformation and advantage of mixed-ownership reform being unleashed, the company's financial position was further optimized. Our cash flow generating capability remained strong. Since 2017, the company has accumulated free cash flow of over CNY 170 billion. Our liability-to-asset ratio declined from 62.9% in 2016 to 38.8% in June this year. The company's financial strength was further enhanced, helping us to capture new 5G opportunities, create new value, boost shareholder returns and counter risk in the future. Looking into the second half, the company will adhere to the strategy of focus, innovation and cooperation. We will further improve market-oriented operation, enhance systematic innovation capability and accelerate digital transformation. We will endeavor to shape the 5 new development edges, comprising high-quality services, high-quality development, highly effective governance, high-tech engine and high vitality operations, striving for leapfrog in the high-growth development. This is the end of my presentation. Thank you.

Good day, and thank you for standing by. Welcome to China Unicom 2021 Interim Results Analyst Briefing Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] And now I'd like to hand the conference over to Mr. Jacky Yung, Company Secretary of China Unicom. Thank you. Please go ahead.

Thank you, Enba. Good day, ladies and gentlemen. Welcome to China Unicom's 2021 Interim Results Global Investor Conference Call. Today with us on the line, we have Mr. Wang Xiaochu, Chairman and CEO of the company; Mr. Chen Zhongyue, Executive Director and President, and Mr. Liang Baojun, Senior Vice President. [Foreign Language] In the first half of 2021, the company achieved a service growth in revenue and net profit. Service revenue increased by 7.5% year-on-year and net profit significantly increased by 21% year-on-year to CNY 9.2 billion. We believe most of you might have seen the company result presentation on the website, and for time convenience, the management will not go through the presentation and we'll go straight to the questions of your interest. [Foreign Language] Enba, could you please pass on the first question from investors. Thank you.

Our first question comes from Danny Chu from Bank of America.

Congratulations on the results. I have 3 quick questions. My first question is, I saw the announcement about the potential IPO of a smart connection technology. Is there any reason why we consider A Share instead of listing this entity on the Hong Kong market? And a related question would be, a while ago, I believe management has talked about the potential IPO of our cloud business. Are there any update on that potential IPO as well? That would be my first question. Second question is on Page 9 of our presentation. I saw that both our operating revenue as well as the net profit in terms of the year-on-year growth rate far exceed the market expectation. Can management walk us through what areas do you think that the market is being too conservative? As a result, the market results kind of like, I mean, exceed the market expectation. That would be my second question. And the last question is about the dividend. Again, we are glad that the company announced an interim dividend for the first time. Should we interpret that, given the company said that we are going to raise our dividend payout ratio -- but the exact ratio will be announced down the road. Should we expect our payout ratio to be similar to our peers given that China Telecom they announced their FY '21 dividend payout ratio to be 60%? That would be my 3 questions.

Thank you, Danny. [Foreign Language]

[Foreign Language]

[Interpreted] Thank you, Chairman. The Chairman would like to explain that we have quite a number of this type of company, innovative company, to be getting listed. And the company has chosen the Smart Connect to be the first one because, relatively speaking, it is smaller, and also, it is not so integrated with the fundamental business of the company. And he expect that the approval process for getting listed in the Asian market will be simpler and easier than the Hong Kong Stock Exchange. He thinks it's a good step, one, for the company to try to put forward the first #1 spin off. And in fact, in future, the company will not rule out the possibility of spinning off the other company in Hong Kong Stock Exchange.

[Foreign Language]

[Interpreted] And the Chairman would like to explain that the company has no plan to separately list out only the cloud business. Instead, the company will be looking at our Digital Technology Co. Ltd., the subsidiary, which will cover a number of this type of new business, including the cloud, Internet offering and Big Data, and also trade, et cetera. And then the company will, in time, to spin off the company in this as a whole.

[Foreign Language]

[Interpreted] And President Chen would like to explain the -- answer the question, too. And he would like to emphasize that the reason why we could have the revenue growth and profit growth exceeding market expectation, mainly because we successfully implement the scale development, the value enhancement strategy. And for example, he would like to lay out the mobile subscriber number. Instead of the first half of last year, it has been a net loss of 8 million. But in the first half of this year, it is 4 million net add, and the ARPU CNY 44.4 increased by 8.5%. Very good. And also the fixed line broadband subscriber, we have achieved 4 million net adds in the first half of this year. And while we can see, about the broadband and also the smart home value business, the revenue increased by 13%, while the fixed line revenue increased by 8%. More importantly is also the innovative business, we have continued to successfully fast growth, all this contribute to our robust revenue and profit growth.

[Foreign Language]

[Interpreted] And President Chen would like to respond to the third question regarding the interim dividend. It's the first time the company paid the interim dividend. And mainly because the company has achieved very favorable operating results as well as the cash flow. And whether the company in the full year will follow the peer company to increase the build and payout ratio to debt level, it depends on the company's final outcome on the profit and also the cash flow. And President would like to emphasize the company has high regard for the return to the shareholders. Thank you, Danny.

Our next question comes from James Wang from UBS.

[Foreign Language]

[Interpreted] Thank you. Three questions from the investor. First of all, he congratulated the company for the -- on the good results. And the first question, he would like to point out that the profit growth in the first half of 21% is very robust, and he would like to know about the trend in the second half. And he also like to mention that China Telecom has given guidance about in the coming 2 to 3 years' time, they are able to maintain double-digit growth. And he wish to see the company whether we can also make the same guidance. The second question from him, he noticed about the China Telecom, China Mobile, all of them are getting back to the Asian market for offering, and will be introducing strategic investors. He would like to see how the company will maintain some differentiated edges on competition in the respect of the government enterprise customer businesses. The last question from him is about the EBITDA. He had noticed the company for the past several half years, the EBITDA basically remains relatively flat. And he wish to know when the company will be able to achieve EBITDA increases.

[Foreign Language]

[Interpreted] Chairman would like to answer the first question. He wish to point out that all 3 operators in China, nowadays, we have quite a large scale of revenue already on a high level. And given that the fundamental business of the 3 operator, a value to the sector, and now all 3 of us are counting on the innovative business to drive the revenue growth. And so he see to maintain the revenue for double-digit growth consistently for a few years -- in the coming few years, it may not be easy and it may be a challenge. And however, for profit, he is so confident that the second half of this year, we will be able to maintain more or less the same level of profit growth at the first half year.

[Foreign Language]

[Interpreted] Our Senior Vice President, Mr. Liang, would like to address the second question. And he wish to point out that the company will leverage about our centralized unified innovative system and which, in particular, comprising about our digital technology company. We will integrate the various capability into trying to formulate the businesses. Also, we will leverage the mixed-ownership reform and also our tenants. And in particular, we will integrate our platform to strengthen our capability to service including 5G + ABCDE, including the artificial intelligence and big data and computing, and also the edge computing, et cetera. And in particular, we would like to cooperate with the ecosystem to try to strengthen our service.

[Foreign Language]

[Interpreted] And Chairman would like to address about the EBITDA and EBITDA margin. He would like to point out that, in fact, it is so easy for the company to achieve EBITDA increase or EBITDA margin increases if we are going to slow down or reduce our investment or initiative in the innovative businesses or, for example, ABCDE investment. However, the company would emphasize, we would like to achieve -- or achieve long-term sustainable growth. As a result, we need to invest in this type of businesses. And he expect, one day, it will come for the revenue increases in these businesses. And when business will exceed the investment in this business, then the profit will come and EBITDA will increase.

Our next question comes from Edison Lee from Jefferies.

[Foreign Language]

[Interpreted] Thank you. Yes, sorry. Two questions from the investor. The first one, he has noticed about the industrial Internet business of our company. The growth have slowed down, and he would like to know about the outlook about the growth in these businesses. Also, he noticed about although the company profit increased a lot, however, the EBITDA is flat. It means the profit may have come from the nonoperating income, in particular, the share of net profit of associates. He love to know more about the color about this associated company profit.

[Foreign Language]

[Interpreted] Chairman would like to explain that further industry Internet businesses, in the first half year, it may look this growth has been slowed down a bit. And in particular, the reason is because the company have emphasized and put more focus on trying to strengthen our digital transformation, to strengthen our own capability. And by September end, we will have finished about this process and then business will get to normal. And the Chairman is confident that the second half growth rate of our industry business will be better than -- higher than the first half year. And -- however, we would like to point out that in the long run, of course, given that our scale of the industry Internet business growing, and so as a result, although the absolute value of our growth will be increasing. However, the percentage level of the growth will be slowing down.

[Foreign Language]

[Interpreted] Chairman would like to explain that given that the company has successfully decreased the financial expense, we also achieved more and more share of the net profit of associated companies. So our profit increased very robustly. As a result, we are in a good position to invest more in the innovative businesses for our future growth. And so we will take this golden opportunity, while the EBITDA would be flat but our profit will be increasing.

[Foreign Language]

[Interpreted] And regarding our share of net profit in association or joint venture, the most performing best one will be the Merchants Union, and they have been contributing quite remarkable profit to the company for development.

[Operator Instructions] Our next question comes from the line of Neale Anderson from HSBC.

I have one question about medium-term cash flows, please. With the co-build co-share network, it looks like your telecom CapEx could be structurally lower for the next several years and even longer. So my question is whether you expect CapEx to be quite a bit lower in the future or whether your investment in new businesses, particularly data centers, et cetera, will make up some of that gap and the CapEx won't actually change that much over time?

Yes. Thank you, Neale. [Foreign Language]

[Foreign Language]

[Interpreted] And chairman would like to explain that it really depends on whether we can obtain some good investment opportunity. For example, if the investment talking about a very low return and which is even less than the bank interest income, then, of course, Chairman would recommend paying the dividend back to the shareholders. However, he personally, in time and hopefully, we can get some very good investment opportunity with good returns.

Our next question comes from Kai Qian from CICC.

[Foreign Language]

[Interpreted] Thank you, Kai. And there are 3 questions from the investor. And first of all, beforehand, he congratulated the company on the good results. And the first one is he wish to see any plan by the company to disclose the EBITDA margin or profit margin of the IDC and cloud businesses in future because he expect by disclosing the profit margin, it will enhance the valuation appraisal by the investor. And the second question from him, he had noticed the company of cloud business revenue has been increasing quite robustly. However, which is still less than the China Telecom and China Mobile growth rate on the cloud businesses. And he wish to know any reason, specific reason, why we are -- our growth is not as good as CT and China Mobile. And the last question from him is regarding the co-share -- co-build co-share on the 700 megahertz, he wish to see any progress or plan on that.

[Foreign Language]

[Interpreted] Yes. And Chairman would like to thank the suggestion from the investor. And Chairman would like to say that when we consider about this type of EBITDA margin for different business segments, he would like to say that he tried to avoid putting the margin into too detailed or too small business segment. Because to achieve this type of segment affordability, we need to incur a lot of costs to try to divide all the exact cost or equity cost of the individual business segment. And he said, revenue is relatively better. But for profitability, it is a little bit more cost consuming. However, he like to say that in future, when this type of new business get into a bigger scale, then it will be a good, good position for the company to try to spend some cost or efforts in trying to derive some rough estimate of the profitability for different business segments.

[Foreign Language]

[Interpreted] And Chairman would like to point out that it's important to notice for cloud revenue definition, if an operator may have different definitions. And also, we need to be careful to look at the cloud revenue component or composition, because maybe some cloud revenue will be counting on the cloud service provided by the other suppliers or provider. And as a result, that cloud revenue will need to incur a lot amount of cost to be paid to the other providers.

[Foreign Language]

[Interpreted] And Chairman also like to point out that the company started cloud business at a later stage compared with the other 2 operator. And originally, we are counting on the SaaS to generate the revenue. While we are strengthening the base for our [ IaaS ], and we have completed already this year, and we have rolled out 200 products. And in fact, we are counting on the proprietary capability on the [ IaaS ] basis to promote our public cloud, which will generate a better profitability.

[Foreign Language]

[Interpreted] Yes. President would like to address the third question on the co-share of the 700 megahertz. He would like to say he's confident the regulatory authority will make a fair and actionable decision on the treatment about this low-frequency band allocation, and to ensure the high-quality development and also the fair competition among the operators.

[Operator Instructions] Our next question comes from [ Zhang Hong Ming ] from Huatai Securities.

[Foreign Language]

[Interpreted] Yes, thank you. Two questions from the investor. And he wish to know about the depreciation and [ amortization ] regarding the 5G equipment versus the 4G equipment, whether there's any difference. And also about this top efficient policy, and will there have any impact on our company's profitability and cash flow?

[Foreign Language]

[Interpreted] Yes. Chairman, I would like to explain that the investors really have for eye for detail. And the company all along for 2G, 3G and 4G equipment, we have a depreciation life of 7 years. However, for 5G, given that it is co-build co-share with China Telecom and they have 10 years depreciation life, as a result, the company will be aligned with the China Telecom 10 years for the 5G equipment.

[Foreign Language]

[Interpreted] And the Chairman explained that, in the short term, the impact will not be significant given that the asset size is still small compared with the overall asset of the company. However, in the long run, of course, this will be good to the profit, profitability. However, relatively speaking, the cash flow generated from the profit will be less.

Our next question comes from [ Huang Yu Yuan from Jongshing ].

[Foreign Language]

[Interpreted] Two questions from the investor. And the first one, he would like to, of course, congratulate the strong results -- strong growth result of the company. And he have seen that since the 2015, the CapEx peaked at that year, and thereafter, the CapEx has been controlled at a reasonable basis. And as a result, he would expect it will have generate and leading to the good result about depreciation and amortization this half year. He's talking about that. And he loved to see any chance in the coming future about having a decreasing depreciation and amortization, which will be very good for the cash flow. And the second question from him is regarding the 5G penetration has been increasing a lot in the first half year, and it also contributes significantly or favorably to the ARPU accretion. And he wish to see in the coming few quarter, whether the ARPU can continue about the robust increases quarter-over-quarter.