According to the Smart Finance app, Zhongtai Securities released an article stating that all three major operators achieved positive revenue growth in the first half of 2024, with net income of 80.2 billion yuan, 21.8 billion yuan, and 6 billion yuan respectively, representing year-on-year growth rates of 5.3%, 8.2%, and 10.9%. The profit growth rate exceeded the revenue growth rate. In terms of income structure, in addition to the stable traditional personal and family businesses, the new business income also made efforts in the first half of the year, accounting for about 1/4 of the telecommunications business revenue and further optimizing the income structure. With the reduction in capital expenditures and the extension of depreciation schedules by operators in the future, dividends are expected to further increase.

The overall revenue and net profit of the operators in the first half of 2024 showed steady growth, with the continuous optimization of revenue structure. The first half-year revenues for China Mobile (600941.SH), China Telecom (601728.SH), and China Unicom (600050.SH) were 546.7 billion yuan, 266 billion yuan, and 197.3 billion yuan respectively, with year-on-year growth rates of 3.0%, 2.8%, and 2.9%. All three major operators achieved positive revenue growth, although the revenue growth rate slowed down. The respective net profits were 80.2 billion yuan, 21.8 billion yuan, and 6 billion yuan, with year-on-year growth rates of 5.3%, 8.2%, and 10.9%, and the profit growth rate exceeded the revenue growth rate. In terms of income structure, in addition to the stable traditional personal and family businesses, the new business completed a business income of 227.9 billion yuan in the first half of the year, representing an 11.4% year-on-year growth and accounting for 25.5% of the telecommunications business revenue, further optimizing the income structure. In addition, the operators' operating cash flow remained stable.

The C-end data traffic business is under pressure but is expected to improve, while the H-end user volume/ARPU remains stable. As for the B-end, the growth rate of operators in cloud computing is about 20%, mainly due to the high base and market demand shifting towards AI computing power. With all three major operators focusing on 'AI+' initiatives, it is recommended to pay close attention to the future realization of operator AI computing power/modeling. In the C-end, mobile data traffic was under pressure from January to June, mainly affected by macroeconomic and population mobility factors. Mobile personal ARPU saw a slight decline, which we believe was mainly due to the reduction in one-time corporate communication benefits. With the potential increase in application traffic from AIGC, it is expected to improve in the future. At the H-end, comprehensive fixed-line ARPU remained stable, mainly benefiting from the advancement of dual-gigabit bandwidth and penetration rate improvements. Overall, the H-end is expected to maintain relatively steady growth. For the B-end, the growth rate of operator cloud computing is about 20%, mainly due to the high base and market demand shifting towards AI computing power. With all three major operators focusing on 'AI+', it is recommended to closely monitor the subsequent realization of operator AI computing power/modeling.

The three major operators are expected to further increase dividends, as their capital expenditures shrink and their share of depreciation and amortization in revenue decreases, which will help improve profit margins. Both China Mobile and China Telecom have expressed plans to increase their dividend ratios to 75% over the next three years, and China Unicom is also expected to increase its dividend ratio. The reduction in capital expenditures and the lengthening of the depreciation period by the operators are both advantageous in improving profit margins. Currently, the dividend yields of Hong Kong-listed operators are higher than those of A-share operators, and a global comparative analysis shows that the PB and PE valuations of the three major operators are lower than the global comparative valuations. This combination of undervaluation, high dividends, and high dividend yields, combined with the future stable growth performance and the emerging business growth brought by AI computing power/modeling, highlights their overall strengths.

Risk Warning: Macroeconomic performance falls short of expectations; risk of bad debt provision for accounts receivable; intensified market and operational competition risks; C-end and H-end user base development is under pressure; risk of slower-than-expected progress in new B-end products; risks of industry and company data being outdated.