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

Ladies and gentlemen, and also our friends from Beijing, who joined online. Good afternoon. I'm Mung Shu Sung. I'm delighted to gather here with you again so that we can have face-to-face interactions. I'm also very grateful for your long-term support and concern towards China Unicom. On behalf of the management of the company, I would like to welcome all of you to 2022 results announcement by China Unicom. Today, we have Hong Kong, Beijing, on-site plus online mixed model. Our friends from the press can participate from Beijing. The whole session will take about 60 minutes. First of all, I would like to invite our Chairman to deliver his speech. And then we will have interactions from inputs in Hong Kong and Beijing. We will use Chinese and also provide English simultaneous interpretation. I would like to remind all of you to turn off your mobile phones or turn them into vibration mode. All along, we have attached great importance to interactions with our friends from the press. First of all, allow me to introduce to you who are present from the Board and our senior management. They are Chairman and CEO, Mr. Liu Liehong; Executive Director and President, Mr. Chen Zhongyue; and then Executive Director, Mr. Wang Junzhi; Senior Vice President, Mr. Liang Baojun; Senior Vice President, Mr. He Biao; Executive Director and CFO, Madam, Li Yuzhuo. Next, Mr. Liu Liehong, our Chairman, will present the performance of the company in 2022.

Ladies and gentlemen, friends online. Good afternoon, everyone. First of all, it gives me great pleasure to return to Hong Kong after a lapse of 3 years to hold the press conference and have face-to-face communication on behalf of China Unicom, I would like to extend a warm welcome to all investors, analysts and friends from the media attending today's press conference. I would like to extend my heartfelt thanks and greetings to friends from works of life who have always cared about us and support the development of our company. Today is also the International Women's Day. I would like to take this opportunity to extend my congratulations to all the ladies here. The year 2022 was the first year of China Unicom to anchor its new positioning and implement new strategies. It's also a transformation year for the company to fully enter new blue ocean of digital economy. Over the past year, guided by strategy of strengthening foundation, maintaining integrity innovation, integration and opening up and taking the mission of national team, MainForce and Vanguard. The company has taken the initiative to serve and integrate into the strategic development of cyberpower and Digital China with a more solid network foundation, accelerated business development outstanding achievements in innovation and transformation and greatly improved scientific research capacity. All these events have opened a new situation for the company to accelerate our transformation into a leading digital technology enterprise in the era of digital economy. We've achieved new breakthroughs in our business performance. In 2022, we realized 4 new highs of operating development. First, operating revenue reached RMB 354.9 billion, an increase of 8.3%. Growth rate reached the highest in 9 years. We also achieved total profit RMB 20.6 billion and net profit RMB 16.7 billion year-on-year growth of 16.5%. After excluding nonoperating profit and losses, the net profit scale reached new heights since we were listed. Third, proportion of industrial Internet in service revenue exceeded 20% for the first time. Proportion of digital business revenue reached a record high. Fourth, EBITDA reached RMB 99.2 billion, a new high since we went public. Our development model has been transformed and upgraded. Today's China Unicom is accelerating its transformation from a traditional pipeline operator to a digital technology leader has 4 distinct features. First, it extends from connecting people to connecting man-machine objects and accelerates the development of the Internet of Things and Industrial Internet. Second, it gives priority to the connection business and expense to 5 major business of big connection, big computing, big data, big application and big security to further enhance core functions. Third, service sector has expanded from to 2C to 2H to C2H2B and 2G actively promoting deep integration of the new generation of digital technologies with a real economy and continuously enhance its ability to serve the digital government, digital society and economy. Fourth, it has shifted from a market-driven development model to one that combines market and innovation-driven development. Its core competitiveness and sustainable development capability have been significantly enhanced. In the past year, we continue to practice for our basic skills adhere to principle of strengthening the foundation of the Internet and strengthening the foundation of services and consolidated and tamped down the foundation for our long-term development. We've built a solid digital foundation and make sure we're the first mover. The network is our capital and foundation, and we continue to strengthen construction of digital information infrastructure, focusing on 5G broadband, government and enterprise computing power for quality networks. Capital expenditure in the year reached RMB 74.2 billion, strong input to significantly improve network quality, build a solid base for digital information infrastructure, while revenue continues to grow capital expenditure as a percentage of revenue further declines. In terms of 5G premium network, 310,000 5G immediate frequency base stations, 170,000 900 megahertz base stations were added. The scale and coverage of 5G intermediate frequency are comparable to that of the industry. We now have 1.17 million 5G base stations accounting for about 30% of the world's total. In terms of broadband premium networks, the Northern part has maintained its lead with 2.14 million new 10G PON optical network ports and 80% residential coverage in Southern cities, laying a solid foundation for the rapid growth of broadband users in the past 2 years. In terms of government enterprise premium network, it covers nearly 150,000 commercial buildings in 307 cities across the country, attracted more than 50,000 industry users to settle in, constantly consolidating the industry leading dedicated line brand and increasing revenue of dedicated lines. In terms of computing power premium network, our strategy of number in the East and number in the West has been actively implemented. IDC resource supply capacity in hotspots has been effectively enhanced coverage rate of 1 city and 1 pool of Unicom cloud has increased by 300% to 170 cities and investment in computing power reached RMB 12.4 billion. From feedback of our customers, we can see more and more people liking our network quality and reputation and image of a company with significantly improvement in our network quality and getting popular support. We have used 5G+ technology to open 5G maritime channel between Yantai, Dalian solving the problem of no mobile phone signal in the 150-kilometer sea channel, which was widely praised. We've also promoted joint construction and sharing with China Telecom, vigorously promoted cross-network roaming of 700 megahertz base stations in remote areas, we launched commercial testing of live networks. 4G-based stations reached 1.1 million and cross-industry joint construction and sharing of infrastructure, such as post roles and pipelines is also making progress. Through 5G, 4G joint construction and sharing. The 2 sides have saved more than RMB 270 billion investment. We saved more than RMB 30 billion in operating cost every year and reduced carbon emission by over 10 million tonnes. We improved the level of service, high standards to shape service reputation. We are committed to creating full connectivity of high-quality services and service reputation want more praise, further giving full play to advantages of integrated and intensive operation, problem solving rate of intelligent customer service exceeded 98%. Intelligent service accounted for 83.2%. Customer perception improved significantly. And the effective complaint rate of the Ministry of Industry and Information Technology hit a record low. We continue to strengthen customer care. We launched yield in exclusive service plan and a new youth brand, Unicom WAPI. Optimize hot line operation, 31 provinces according to the daily call rate of the industry has been leading, improved our service system and improved service effectiveness, customer satisfaction rate for solving problems increased by 22 percentage points. In the past year, we continue to deliver a combination of measures. For the principle of the Internet, expand digitalization and intelligence fully embrace the release of value dividends from the new blue sea of digital economy at a faster pace. Faced with the strategic opportunities and fast blue sea brought about by the simultaneous and resident waves of China style modernization and new generation of digital revolution. We deepened innovation and transformation and worked hard to open new situation. Our 5 major responsibilities and business accelerated. Our development structure has been optimized. Industry Internet business scale and growth rate have increased. Foundation for development is more solid, supply level of networks, product services that meet the new demands of the digital economy has been continuously improved. Progress has been made in development of 5 major sectors, achieving landmark results. Value of the major links has grown. We have overcome adverse impacts such as COVID-19, achieved sound growth in the individual and household markets and led the way in making new breakthroughs in value of scale of connectivity. At the moment, the number of users for large-scale connectivity has reached 860 million over 320 million have moved to the Internet over 200 million adopted 5G plans of over 100 million broadband users penetration rate of gigabit broadband user has reached 15%. 390 million households were connected to the Internet of Things, taking the lead in realizing things exceeding humans. Revenue of Internet of Things increased by 42%. We are committed to creating more diversified and more useful innovative products, deepening the structural reform of the supply side of products for the individual and family market and the rapid growth of personal Smart Life and Unicom Smart Home businesses bring new experience of policy upgrading to our customers. Not long ago, we won the Smart Home Best Practice Award at the 2023 Mobile World Congress, which is also the international recognition of China Unicom's ability to deeply cultivate the digital home and serve Smart Life. Big computing those up momentum. Unicom Cloud continued to double its growth, reaching RMB 36.1 billion in revenue in 2022, up 121% year-on-year. The 7.0 version of Unicom Cloud was launched to further strengthen the brand image of SafeData and Wise Cloud. Among the public cloud market growth rate is the first. As built National Drug Administration cloud serving national ministries and local governments, the earning province government and also Guangzhou government. Serving large e-commerce platforms and other benchmarking projects and supported more than 20 state-owned enterprises, such as China Life Insurance. Independent research and development innovation level further improved our independent controllable cloud full stack products to achieve 100% self research, more than 90% of domestic mainstream hardware and software products through the authority of product quality testing and safety ability certification, we have also set up a security number with the cloud, brand image and good reputation. Big Data continues to take the lead. The introduction of the National Article 20 on data has laid a solid policy foundation for the marketization of data elements. By 2025, the scale of China's big data industry is expected to go exceed RMB 3 trillion. The commercial space is very broad. Relying on the big data capability of concentration and leading technology, the company achieved revenue of RMB 4 billion year-on-year growth of 58%, with more than 50% of the absolute leading industry market share. We provide big data capabilities support for 25 ministries and commissions. We serve digital government in 31 provinces, better support digital intelligent operation of governments at all levels. One pool furnishes of data governance and data security have become more prominent. For example, we support the construction of a start-up guaranteed loan platform in Sichuan with a professional platform as the hub and 21 prefectures, service platforms as notes, we create a new digital low-service model of 1 minute acceptance, 3-minute review, 0 manual intervision and 0 error in for the public, effectively easing the financing pressure of start-up companies. Some entrepreneurs said that they thought it would take 10 days or half a month to get news, but the result was they got approval on the same day, efficiency was amazing. The application to achieve navigation. By the end of the year, the company has built a total of 16,000 5G industry application projects fully activated the energy of 5G governance and innovation, upgraded the construction of 5G plus industrial Internet and 5G fully connected factory to company's strategy and built more than 5,000 5G plus industrial Internet projects and more than 1,600 5G fully connected factory projects. We have created a number of benchmark cases of 5G industrial Internet and the 5G private network enabling equipment manufacturing, mining, clothing and other industries. For example, in the 5G fully connected factory we built with Yago, the delivery time finished product has been reduced from 15 days to 5 days, ensuring that they can be delivered to consumers within a week, providing a Unicom solution to solve the pain points of the government industry. Recently, at the Barcelona Telecom World Show, we made 2 major announcements. One is the world's first 5G recap commercial module aiming at the industry pain points such as high price and high power consumption of 5G modules. It is mainly applied in industrial electric power and Internet of vehicles and other fuels. It can reduce the cost to more than 50% of the existing 5G modules. The performance in speed delay and reliability or higher than 3GPP standard helping a 5G application to be light. The others, China Unicom 5G industrial edge computing network integrated machine. In order to better promote 5G industrial network from external to internal network, technology from single to integration and seen from peripheral to core. We launched the integrated edge computing power, network and application, which is free from the constraint of large network and realizes flexible connection in the future will fully lead the integration of innovation of digital technology with 5G and contribute more Unicom solutions to the industry. Rapid development of major security or patent security. The company has mobilized more forces and invest in more resources and gather more elements to set up a special department of network and information security and network security research institute with support team of more than 1,200 people under the guidance of the Ministry of Industry and Information Technology and the state-owned asset Superficial Administration Commission, we operate the China network security industry innovation and development alliance and work with nearly 400 partners to build strong network. Gather security and ecological partners to play a good team game and built a cloud security market. We jointly built the first 5G security range in China with Pong Chan Lab, focusing on the layout of large security-based capabilities. Our revenue in base security has increased by nearly 4x and the accumulated security capacity serves more than 10,000 customers. Over the past year, the company has made milestone progress in high-level technology and self reliance alliance and self-improvement with strong scientific and technological innovation force China Unicom Association for Science and Technology was established and 16 academic people were appointed as special experts. At the Science and Technology Committee, greater investment has been made in scientific and technological innovation. Research and development spending increased by 43%, leading the industry in terms of R&D investment. Number of patents granted increased by 50%, and we have obtained the outstanding contribution enterprise in scientific and technological innovation. It proves that our efforts was not unnoticed, so that we can continue to follow this path with determination. The Internet is connected and data roaming covers nearly -- our AI generating content is the new content generation model, creating a lot of new opportunities for the company. We continue to focus on the enhancement of our computing power, so that towards AIGC, we can set a very solid foundation so that we can create a new toolbox for creating digital technological innovation and integration so that we can support AIGC to achieve accurate computing and set up a customer service system and launch integrated AIGC, Metaverse technology 5G, new products and also expand the scenarios for application of AIGC. We have set a very good team game and focus on integration. We continue to open up our company and follow the new ecology model. We deepened our collaboration to create better dividends for all. We have set up the capability to have one connection, one integration and one operation model. We combined 19 -- 17 subsidiaries and also 19 Internet companies and also experts from 9 major industries from various cities and provinces. So as to create even greater value for our customers so that we can better integrate into local economies, 27 provinces and 109 major enterprises have already signed strategic collaboration with us so that we can provide services to more than 230,000 administrative villages. We have achieved great synergy, and we are operating in more than 140 international entities. In terms of data roaming, we cover nearly 250 countries and regions. With Tencent, Ali, Jingdong, Baidu and other investment partners, we comprehensively upgraded and promote value creation together. We actively embrace the reform of comprehensive registration system, subsidiary smart net tech plans to be spun off and listed on Science and Technology Innovation Board so that we can share better dividends and strive to contribute towards connectivity force so that we can be a network power and a digital China. We actively explore valuation remodeling, and we use a new aspect to measure the value of the company. We are very concerned about the realization of the value of the capital market, and we actively explore the reshaping and upgrading of the valuation system. We took the lead in changing the monthly disclosure index has lasted for 2 decades and jointly our first industry joint investor exploration activity. We're pleased to see that the capital market has responded positively to the company's future development prospects. As the first central enterprise responding to explore reshaping the evaluation system. The company's capital market performance has been bright with volume and price rising together and the stock price also increased by more than 90% since the low point. Since November last year, Asia trading volume of Unicom has ranked the first in Asia market. We will also continue to reshape valuation system together with the capital market and bring good returns to shareholders and the market by constantly increasing the value of the company. The company is committed to sharing the dividends of its long-term development with its shareholders while continuing to drive good growth in revenue and profit and maintain sustainable development. Taking for account of the sound business development of the company, we recommend a final dividend of RMB 0.109 per share. Together with an interim dividend, RMB 0.165 per share already paid, total dividend for the year would be RMB 0.274 per share, an increase of 26.9%, payout ratio rising to 50%. In the future, the company will grasp relationship between short-term, medium-term and long-term development and on the basis of accumulating momentum for the company's long-term and steady growth, it will become an entity to create greater value for our shareholders. We keep pace with the trend and advancing with the times. It is the most precious opportunity in the market. We'll follow the trend and ride it. We will set sale on the east wind of the reshaping of the valuation system and actively contribute to the high-quality development of modern capital market. In 2023, we will further expand investment with capital expenditure reaching RMB 76.9 billion, of which the investment in the computing network will account for 19%, an increase of 20%. We will strive to strengthen the digital base for further increase investment in Science and Technology, create more specialized new products in our 5 major areas, and hence, our core competitiveness and enhance our innovation driven capacity. We will further strengthen the business service system with a focus on reinforcing and strengthening our company's improving marketing capabilities, enhanced market driving force, strengthen digital transformation, comprehensively promote our digital system from easy-to-use to comprehensive easy-to-use transformation, enhance digital enabling production and operation capacity, we do a better job of paving the way and provide the first link for the digital economy. We will do a better job as enablers to enable the digital transformation of thousands of industries to further serve as an escort and build the most reliable defense line of cybersecurity for the development of digital economy. We'll continue to fully implement 1+9+3 strategic planning system, make new progress in promoting high-quality development with a new look and accelerate the pace of Chinese modernization with digital network and intelligent technology. We look forward to working with our shareholders, customers and friends who have supported China Unicom to share the dividends of high-quality development. Thank you very much.