Earnings Alert: 1H22 results in line; solid growth of industrial digitalisation business
- 1H22 adjusted net profit grew by 12% y-o-y, in line
- Industrial digitalisation revenue increased by 17.5% y-o-y, accounting for 26.6% of total service revenue
- Targets to achieve double-digit revenue and adjusted net profit growth for FY22
- Maintain BUY on attractive dividend yield of 8% and solid growth outlook, with TP raised to HK$4.5
1H22 results highlights
Operating revenue grew by 10.5% y-o-y to Rmb242bn, with service revenue up by 8.8% y-o-y to Rmb221bn. Revenue from industrial digitalisation increased by 17.6% to Rmb59bn, contributing to 26.6% of total service revenue, up by 2ppts. Revenue from e-Surfing cloud increased by 100.8% y-o-y to Rmb28bn.
Mobile ARPU increased by 0.7% y-o-y to Rmb46 in 1H22, thanks to 24.1ppts increase in the 5G penetration rate to 60.3%.
EBITDA increased by 5.3% y-o-y to Rmb69.8bn, with service EBITDA margin contracting 1ppt to 31.6%. Adjusted net profit (excluding the one-off after-tax gain from the disposal of the subsidiaries) increased by 12% y-o-y to Rmb18.3bn. The company proposed an inaugural interim dividend of Rmb0.12 per share (pre-tax), representing a payout ratio of 60% in 1H22.
Management reiterated mobile and 5G package subscribers net-adds target of 15m and 80m in FY22, respectively. We expect 5G penetration to increase from 50% in FY21 to 69% in FY22 and 80% in FY23, leading to mobile ARPU improving by 1.4% and 0.9% in FY22 and FY23, respectively.
Industrial digitalisation business will continue to be the key growth driver, supporting the development of the digital economy in China. China’s digital economy is expected to grow from 39.8% of GDP in 2021 to more than 50% by 2025. The company targets to achieve 30% service revenue contribution from the industrial digitalisation business in FY24.
Capex increased by 54.2% y-o-y to Rmb41.7bn in 1H22, with the proportion of capex spending on industrial digitalisation business expanding 9.3ppts. FY22 capex budget is unchanged at Rmb93bn, representing a 7% y-o-y increase.
The company targets to achieve double-digit revenue and comparable net profit (excluding the one-off after-tax gain from the disposal of the subsidiaries) growth in FY22.
We have kept our earnings estimates largely unchanged for FY22 while raising the forecast by 1.8% for FY23 with a slightly higher service revenue assumption. We forecast adjusted net profit to grow by 11%, 10%, and 9% in FY22, FY23, and FY24, respectively. We maintain BUY on CT for its attractive dividend yield of 8% and strong earnings growth with a higher TP of HK$4.5, as we rolled the valuation forward to FY23. Our TP is pegged to a 12x FY23 PE (12x FY22 PE), in line with its historical average.