According to the research report released by Guangda Securities, it maintains a 'buy' rating for ChinaComService (00552). Considering the slowdown in capital expenditure due to the demand for cost reduction and efficiency improvement by the three major carriers, the forecast for net income attributable to the parent company in 2024-2025 is lowered by 14%/18% to RMB 3.769/3.978 billion. The forecast for net income attributable to the parent company in 2026 is increased to RMB 4.181 billion, with a year-on-year growth rate of 5.2%/5.5%/5.1%, corresponding to EPS of RMB 0.54/0.57/0.60. The company has effective cost control and continues to improve gross margin. The company seizes the opportunity of AI algorithm construction and industrial digital transformation, and accelerates the layout of strategic emerging businesses.

Event: The company released its interim results for 2024. In 1H24, it achieved a revenue of RMB 74.4 billion, a year-on-year increase of 1.7%, driven by the customer market and ACO business. The gross profit in 1H24 was RMB 8.1 billion, a year-on-year increase of 3.6%, with a gross margin of 10.9%, a year-on-year increase of 0.2 percentage points. This is a continuation of the recent positive trend, which is the result of the company's strengthened cost control combined with the contribution of high gross margin business income. The net income attributable to the parent company in 1H24 was RMB 2.1 billion, a year-on-year increase of 4.4%, with a net profit margin of 2.9%, an increase of 0.1 percentage points. The accounts receivable in 1H24 was RMB 59.1 billion, a year-on-year increase of 10.5%, with more than half of the increase coming from customers with good credit backgrounds and low risks. This is due to the extended acceptance and audit cycles of projects by upstream customers in the macro pressure environment.

The main points of view of Everbright Securities are as follows:

The operators are actively responding to new demands, and the gross margin in the non-operator customer market has improved significantly:

1) In 1H24, the revenue in the operator market was RMB 40 billion, a year-on-year increase of 0.1%. Among them, the company actively responded to the operators' new demands in AI algorithm construction and industrial digitalization, and the TIS business remained stable and improved. The strategic emerging businesses such as smart cities, digital infrastructure, and green low-carbon development are developing rapidly, with a year-on-year increase of more than 34% in new contracts signed in 1H24. 2) In 1H24, the revenue in the non-operator customer market was RMB 32.4 billion, a year-on-year increase of 2.5%. The gross profit increased by 12.1% year-on-year, which was the result of the company's control of low gross margin businesses and the development of commodity distribution business, focusing on the expansion of strategic emerging businesses. 3) In 1H24, the overseas market revenue was RMB 2 billion, a year-on-year increase of 26%. With the easing of epidemic control measures, overseas demand has rebounded, and positive progress has been made in operations in the Middle East and Asia-Pacific regions. In the future, the company will focus on the "four major regions, four types of customers, and four types of businesses," aiming for continuous high-quality development in the fields of communications, new energy, and photovoltaics.

Taking advantage of its comprehensive integrated service capabilities, ACO business is the primary driver of revenue growth.

In 1H24, the revenue of the telecommunications infrastructure service (TIS) was 37.7 billion yuan, a slight decrease of 0.1% year-on-year, and the contribution to revenue accounted for 50.6%. Among them, the company seized the opportunity of the construction of the operator's smart computing center and achieved a year-on-year growth of 1.9% in TIS revenue in 1H24, under the situation of reduced capital expenditure of the operator's customers. The revenue of business process outsourcing service (BPO) in 1H24 was 22.2 billion yuan, a year-on-year growth of 2%, and the contribution to revenue accounted for 29.8%. The revenue of application, content, and other services (ACO) in 1H24 was 14.6 billion yuan, a year-on-year growth of 6.0%, and the contribution to revenue accounted for 19.6%, becoming the first driving force for revenue growth. The gross profit margin of ACO in 1H24 increased by 11.3% year-on-year, which was due to the company's control of low-profit projects, adherence to high-quality development, and improvement of gross profit margin in system integration, software development, and system support business of ACO.

The layout of strategic emerging businesses has achieved remarkable results, with a significant increase in new contract signings in 1H24.

The company focuses on digital infrastructure, green and low-carbon, smart cities, and emergency safety fields, and new productive forces are forming at an accelerated pace. The amount of new contract signings for strategic emerging businesses in 1H24 increased by more than 40% year-on-year, accounting for over 35% of the total new contract signings. In terms of digital infrastructure, we grasp the demand for large-scale models and cloud computing, focus on smart computing, supercomputing, and cloud business, and the amount of new contract signings in 1H24 increased by more than 35% year-on-year. In the green and low-carbon area, we provide upgraded services such as electrical utilities infrastructure and supporting facilities, new energy, energy services, and carbon management to customers in five major industries, and the amount of new contract signings in 1H24 increased by more than 60% year-on-year.

Risk Warning: Slowdown in 5G construction; increasing pressure on gross profit margin of operator business; slowdown in non-operator business.