China Unicom (Hong Kong) Limited (HKG:0762)
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Earnings Call: H2 2022

Mar 8, 2023

Meng Shusen
Chairwoman and President, China Unicom

Ladies and gentlemen, and also our friends from Beijing who are joining online, good afternoon, I'm Meng Shusen. 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 resource 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. 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. Executive Director, Mr. Wang Junzhi. Senior Vice President, Mr. Liang Baojun. Senior Vice President, Mr. He Biao. Executive Director and CFO, Madam Li Yuzhuo. Mr. Liu Liehong, our chairman, will present the performance of the company in 2022. Ladies and gentlemen, friends online, good afternoon, everyone. It gives me great pleasure to return to Hong Kong after a lapse of three 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 all walks of life who have always cared about us and supported the development of our company. Today is also 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 main force and vanguard, the company has taken the initiative to serve and integrate into the strategic development of cyber power 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 advances 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 four new highs of operating development. First, operating revenue reached CNY 354.9 billion, an increase of 8.3%. Growth rate reached the highest in nine years.

We also achieved total profit, CNY 20.6 billion, and net profit, CNY 16.7 billion, year-on-year growth of 16.5%. After excluding non-operating profit and losses, the net profit scale reached new height 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 CNY 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. It has four distinctive 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 expands to five 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 2C to 2H, to C, to H, to B, and to G. Actively promoting deep integration of the new generation of digital technologies with the real economy. 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 continued to practice four...

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. 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 CNY 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 intermediate frequency base stations and 170,900 900 MHz 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 two years. In terms of government enterprise premium network, it covers nearly 150,000 commercial buildings in 307 cities across the country, attracting 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 one city and one pool of Unicom Cloud has increased by 300% to 170 cities. Investment in computing power reached CNY 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 are getting popular support. We have used 5G plus technology to open 5G maritime channel between Yantai, Dalian, solving the problem of no mobile phone signal in the 150 km C channel, which was widely praised.

We've also promoted joint construction and sharing with China Telecom, vigorously promoted cross-network roaming of 700 MHz base stations in remote areas. We launched commercial testing of live networks. 4G base stations reached 1.1 million. Cross-industry joint construction and sharing of infrastructure such as poles, roads, and pipelines is also making progress. Through 5G, 4G joint construction and sharing, the two sides have saved more than CNY 270 billion in investment. We saved more than CNY 30 billion in operating costs every year and reduced carbon emission by over 10 million tons. 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 won 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 Yinling exclusive service plan and a new youth brand, Unicom Wo Pai. Optimized hotline 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 continued to deliver a combination of measures. Uphold 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 resonant waves of China-style modernization and new generation of digital revolution, we deepened innovation and transformation and worked hard to open new situation. Our five 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 five 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. 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 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 quality 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 a digital home and serve smart life. Big computing builds up momentum. Unicom Cloud continued to double its growth, reaching CNY 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 safe data and wise cloud. Among them, public cloud market growth rate is the first. Has built National Drug Administration cloud serving national ministries and local governments, Liaoning 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 wisdom cloud, brand image and good reputation. Big data continues to take the lead. The introduction of the National 20 Data Measures 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 exceed CNY 3 trillion. The commercial space is very broad. Relying on the big data capability of concentration and leading technology, the company achieved revenue of CNY 4 billion, a year-over-year growth of 58%, with more than 50% of the absolute leading industry market share. We provide big data capability support for 25 ministries and commissions.

We serve digital government in 31 provinces, better support digital intelligent operation of governments at all levels. Longboard advantages of data governance and data security have become more prominent. We support the construction of a startup guarantee loan platform in Sichuan. With a provincial platform as the hub and 21 prefectures surface platforms as nodes, we create a new digital loan surface model of one-minute acceptance, three-minute review, zero manual intervention, and zero errand for the public, effectively easing the financing pressure of startup companies. Some entrepreneurs said that they thought it would take 10 days or half a month to get news, 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's 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 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 in the 5G private network, enabling equipment manufacturing, mining, clothing, and other industries. For example, in the 5G fully connected factory we built with Youngor, the delivery time of finished product has been reduced from 15 days to five days, ensuring that they can be delivered to consumers within one week, providing a Unicom solution to solve the pain points of the garment industry.

Recently, at the Barcelona Telecom World show, we made two major announcements. One is the world's first 5G RedCap 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 fields. It can reduce the cost to more than 50% of the existing 5G modules. Its performance in speed, delay, and reliability are higher than 3GPP standard, helping the 5G application to be light. The other is 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 scene 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, we'll 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 big security. The company has mobilized more forces, invest more resources, and gather more elements to set up a special department of network and information security and a 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 Assets Supervision and Administration Commission, we operate a 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 good team game, and build a cloud security market. We jointly build the first 5G security range in China with Pengcheng Laboratory, focusing on the layout of large security basic capabilities. Our revenue in big security has increased by nearly four times, and the accumulated security capacity serves more than 10,000 customers. Over the past year, company has made milestone progress in high-level technology and self-reliance and self-improvement with strong scientific and technological innovation force. China Unicom Science and Technology Association 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. AI-generated 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 deepen our collaborations to create better dividends for all. We have set up the capability to have one connection, one integration, and one operation model.

We combine 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. 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 upgrade it 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 yardstick 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 that's lasted for two decades and jointly held first industry joint investor explanation 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 China Unicom has ranked the first in A-share 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 full 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 sail 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 CNY 76.9 billion, of which the investment in the computing network will account for 19%, an increase of 20%. We'll strive to strengthen the digital base. We'll further increase investment in science and technology, create more specialized new products in our five major areas, enhance 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 companies, improving marketing capabilities, enhance 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'll 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 outlook, and accelerate the pace of Chinese modernization with digital, networked, 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.

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