Good evening, everyone. Welcome to China Tower's 2024 full-year results earnings call. This is Edgar Fu, Investor Relations Director of China Tower. Let me introduce the member of management joining us today, Mr. Zhang Zhiyong, the Executive Director and Chairman, Mr. Chen Lei, Executive Director and General Manager, and Mr. Hu Shaofeng, Chief Accountant.
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Please be reminded that the results presentation can be downloaded from our IR website. I will remind you that this call might contain forward-looking statements that involve several risks and uncertainties. Examples of these statements include our expectations regarding future growth, including our future outlook, capital allocation, and future operating performance, and any other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements.
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Please note that all lines have been placed on mute to prevent any background noise. After the conclusion of the opening speech, there will be a Q&A session. Please follow the instructions given at the time if you would like to ask questions. The following speech and Q&A session will be conducted mandatory with English consecutive interpretation. Now I would like to transfer the call to Mr. Zhang Zhiyong, Chairman of China Tower.
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Good evening, everyone. This is Zhang Zhiyong. Welcome for joining us for the China Tower's 2024 annual results earnings call. Here we have our management, including our General Manager, Chen Lei, and CFO, Mr. Hu Shaofeng. We will have the first part of the presentation, which is the overall review. After the review of our 2024 results, they will answer your questions.
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On slide number five, for this year to understand our overall performance in 2024, we have performance highlights here.
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The highlights of the company's performance for the year were mainly reflected in the following five aspects. First, the overall operating performance was strong, with net profit increased by 10% year on year. Second, our sustained revenue growth supported by multi-pillars, and the revenue contribution of two wings businesses through the total revenue increased to 13.7%. Third, different digital intelligence governance. We have upgraded 230,000 telecommunication towers to digital towers to serve thousands of industries. Fourth, we also empowered business development through application of research outcomes. R&D expenses increased by 40%. Lastly, certainly increased our shareholder returns. Our full-year dividend payout ratio increased to 76%.
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On slide number six, in terms of the key indicators, the company operating revenue in 2024 was RMB 97.7 billion and increased of 4% year on year. Net profits was RMB 10.7 billion and increased of 10%. And EBITDA was RMB 66.56 billion and increased of 4.7% year on year. As of the end of 2024, the number of tenants reached 3.791 million, and the tower tenancy ratio was 1.81, increased by 1.1%. The level of collocation was further enhanced. Also in 2024, the company's cash flow level improved significantly. Net cash flow generated from the operating activity of the year was RMB 49.47 billion and increased of RMB 16.6 billion year on year. Pre-cash flow was RMB 17.5 billion and increased of RMB 16.4 billion year on year.
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On slide number seven, in 2024, the company seized the opportunity brought by the Tower Power, Digital China, and Dual Carbon goals, and the developments of the various business net expectations, while overall performance grew steadily. This slide also showed our revenue structure. The revenue from the TSP business reached RMB 84.1 billion, accounting for 86% of total revenue. Revenue from the two wind business was RMB 13.39 billion, with this contribution of total revenue increased to 13.7%, which is a 1.5% increase. The business developments of our one core and two winds have therefore been further fortified.
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Regarding the TSP business, the company has actively seized the development opportunities brought about by 5G network registrations and also coverage. This also continued to improve resource coordination and sharing and enhanced professional operational capabilities, allowing the TSP business to sustain steady growth. The overall TSP business revenue increased by 2.4%. For tower business, this continued to differentiate and consolidate the foundation for 5G construction. 412,000 5G base stations were built during the year, bringing the total number of 5G base stations to 2.759 million. More than 95% of 5G projects were delivered through collocation. TSP tenancy ratio also increased by 2.4% year on year. The company also assisted our operators in constructing 5G network intensively and effectively.
For our DAS business, it scratched the opportunities through 5G network coverage in depth to expand the DAS markets and also give full play to the advantage of coordinated site entry, construction, and co-build and co-share to promote the expansion of the DAS markets. During the year, 2.53 billion sq m of area of buildings were added, with total coverage reaching 12.68 billion sq m. The newly added coverage for the subway and high-speed railway tunnels was 5,243 km, with total coverage reaching 29,315 km. The area covered by the DAS business continued to expand.
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Okay. Regarding the smart tower business, the company leverages its vast mid to high-point resource endowments and its professional operating and iterative development capability to further enhance the business. Fully serving the Digital China and Beautiful China strategy, the revenue from the smart tower business totals RMB 8.91 billion for the year and increased 22.4% year on year, with overall business achieving rapid growth. First, the company focused on key industries such as emergency responses, water conservation, and agriculture, and maintained the leading position in new market share in key scenarios such as disaster alerts and farmland protection. Second, the company also conducted in-depth research on product innovation and strengthened the construction and deployments of distributive platforms, as well as the algorithm research and development for mid to high-point scenarios, qualifying the fundamental capabilities of the platform to serve thousand industries.
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As for the energy business, the company centered around its core business such as battery change and power backup, and focused on the key industries and deepened the refinement and optimization of business operations. The energy business generated revenue of RMB 4.48 billion for the year, a year-on-year increase of 6.2%, and continuously built development momentum. Firstly, we tried to build strong advantage with optimized products and also promote the next generation battery exchange product. Secondly, we also upgraded the platform to strengthen supports. The company continued to iterate the battery exchange business and power backup platform. Thirdly, we also refined operations to uncover value. The company deepened full lifecycle asset management and implemented user operations with catererized management to enhance loyalty. Fourth, we also provide quality service to enhance capabilities. The company optimized its intelligence customer service and built a companion service system to improve our customer satisfaction.
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On slide number 11, in 2024, the company continued to deepen reforms to inject new impetus into high-quality development. Firstly, we have deepened the reform of system and mechanisms. The company attached great importance to the introduction and training of talent and optimized the incentive mechanisms for talent allocation. It also promoted regional reform to stimulate the vitality of the smallest production and operation units at the grassroots level. The company also comprehensively promoted the big construction and maintenance system and continued to centralize management. Secondly, to accelerate deployment in strategic emerging industries, the company continued to increase the revenue contributions of strategic emerging business. It also increased investment and placed greater effort into driving technological innovation and also actively expanded emerging areas such as DAS plus Bazel and edge computing.
Thirdly, to fully accelerate the development of digital transformation, the company also implemented digital transformation and upgrading in key areas such as one code for all for assets, intelligence operation and maintenance, and energy and carbon lean management, which accelerated the construction of digital enterprises.
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On slide number 12, we also improved our technological innovation capabilities steadily. The company continued to improve its technological innovation system and speed up the building of technological strengths. First, the company focused on providing technological support for key areas such as AI, green and low carbon, DAS, and edge computing network. We accelerated the application of innovation achievements. Secondly, the company also focused on the transformation of research outcomes. The number of granted patents for the whole year increased by 68% compared with 2023, and five international standards attained. We got five international standards attained. The outcome value of volume of scale promotion also rising by 113% year on year. Thirdly, the company also focused on innovation mechanisms and further promoted the four least management mechanism. In 2024, the R&D investments and the number of R&D staff grew by 40% and 60% respectively compared with 2023.
Four, the company also focused on collaborative and innovative synergies. That is including a fabric science and technological association and six science and technological innovation centers and operated in integration and innovation with scientific research institutions, renowned higher education institutes, and also leading enterprises to establish a quality innovation ecosystem with our partners.
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On slide number 13, the company has always attached great importance to returns to our shareholders. We have adopted an active, proactive dividend policy that insists on sharing the fruits of our business development with all shareholders. The company's recent share consolidation has officially come into effect on February 20, 2025, with every 10 shares being consolidated into one share. Upon this, the final dividend for 2024 is RMB 0.30796 per share, together with the income dividends already paid. The total dividend for the full year is RMB 0.414, sorry, the total dividend for the year is RMB 0.41696 per share, an increase of 11.5% from 2023, with the dividend payout ratio rising to 76%. Looking ahead, we will continue to accumulate development momentum, improve profitability, and create greater value for our shareholders.
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On slide number 14, which is more about ESG concepts. The harmonious and coexistence of the economy, society, and the environment is of concern to the company, and it has integrated the concepts of social responsibility into development. We have actively promoted green transformation and development, sought to reduce investment and carbon emissions through policy of co-building to share of base station, promoted the upgrading of communication towers into digital towers, and used the integrations of communication tower, used the integration of digital and intelligence technology to empower pollution prevention, ecological protection, and other fields. We also enhance social welfare, carry out emergency rescue, work for extreme weather conditions, and ensure the props establishments of communication lifelines, and also improve the construction of communication infrastructure in villages and remote areas, and also promoted and contributed to rural revitalization through digital empowerment.
We also built a solid foundation for integrity and co-governance based on a governance system with clear rights and responsibility. The company also continuously improves risk and internal control mechanism, which disclosed important information in a true, accurate, and complete manner and protects the right to inform for all investors.
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Okay. On the last slide, which is also slide number 15, looking ahead, the company will continue to adhere to the philosophy of shared development, deepen the implementation of the one core and two-way strategy, and also strengthen its core competitiveness. In terms of TSP business, the company will closely follow the progress of digital infrastructure construction and coordinate resources to promote the continuous and stable developments of the TSP business. As for the two-wings business, we will actively implement the digital intelligence governance and green and low carbon transformation and development to scale up the business rapidly and create greater value for our shareholder customer as well as our society. This concludes the prepared remarks for today, and myself, Mr. Chen Lei, and CFO, Mr. Hu Shaofeng, will be happy to answer your questions.
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The Q&A session will now begin. If anyone would like to ask a question, please press star one on the telephone keypad. Thank you.
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The first question comes from ZTE Corporation's Su Yu, please go ahead, thank you.
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Maybe first translate the question from CICC into English. I have two questions. The first question, first of all, congratulate to the company, we have a pretty good 2024 results with good revenue growth and profitability also improved, as well as improved EBITDA margin. I would like to ask, looking into 2025, do we have any revenue expectation or target in 2025? That's my first question. The second question is more about the CapEx. As we can see, in terms of the power business, where in 2024 we have built more than 568,000 of 5G base stations in 2023, but this number decreased to 412,000 5G base stations in 2024. At the same time, the CapEx in 2024 was actually higher than 2023. I would like to know why, and also I would like the company to provide any CapEx guidance in 2025.
That's the two questions I would like to ask. Thank you.
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Excuse me,
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Thank you very much for your long-term interest in our company. First of all, in terms of business development, we continue to deepen our one core and two-way strategy. While China is developing itself into a cyber power, as you know, 5G network is expanding its coverage in terms of its breadth and depth, and these two are running in parallel, actually. Regarding TSP business, last year there was the Dual Gigabit project and also the Broadband Frontier project as a result. Again, in terms of breadth and depth of coverage, both have expanded. In relation to the paper or documents on signal upgrade, altogether 11 main categories of scenarios are covered, in which they include 120,000 important places where there are specific signal requirements for both uploading and downloading in the range of 220-450 G, that is the enhanced requirement for connected or continuous coverage.
There are also broader coverage in areas like escalators, elevators, yards, car parks, and so on. Our colocation capabilities have improved as well. By using coordinated entry, resource coordination, I think all these have achieved very good outcome and effect for us. As a result, our revenue has enjoyed stable growth. TSP business also enjoyed stable growth. In relation to our TSP business, it has been steady and stable. For yard, it has grown fast in the medium rate.
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Let me turn to our smart power business. While we are seeing the development of digital China, digital intelligence governance, we can also capitalize on our own resource endowment, and we enjoy advantages and strengths in the middle to high sites or points. We focus on the four major industries, and as a result, we know them quite a lot in great depth. By using our resource endowment, we're able to make our customers become more and more sticky, their stickiness has improved, and we empower our customers as well. As a result, we are getting new contracts in new areas that are covered. All these have generated very good outcomes in terms of both the platform as well as algorithm. Last year, we saw rapid growth for our smart power business. In the future, we believe this trend is going to continue.
In other words, growth will continue to be fast in low double-digit range. When our scale continues to increase, we believe that our growth will continue to be strong.
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Let me turn to our energy business. Now the trend is one of green mobility. Our core business in this regard is battery exchange and power backup. Regarding battery exchange, we are focusing a lot on the food delivery guide, and we make use of our power exchange and also recharging capabilities, and we keep on doing iterations, targeting at these food delivery workers. Nowadays, there are more and more electric bikes. When we are able to deliver recharging as well as power backup services, these can satisfy the needs in relation to green mobility. Regarding power backup, we focus on the major key industries. What we are offering is that we make sure that they would be supplied with the power they need by offering power backup capabilities. Our service is one that is very informatized.
In other words, we are able to increase customer stickiness by doing that. We are providing a lot of service-based or service-type power backup capabilities. Together with power generation, power backup, and battery exchange, we are able to further develop our business into the model of an energy butler. Again, we are capitalizing on our resource endowment, hoping to be able to become an integrated energy service provider. By our colocation capabilities, we believe that, again, we can enjoy very rapid growth for our energy business in the range of a low double-digit growth rate.
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Thank you. Overall speaking, in terms of our business growth, we believe that we will be able to see a stable and steady trend. We believe that growth rate will be low single digits. Colocation is actually a very important business model for us. Through our one core business, we are able to enhance our colocation and sharing with our customers. In this way, we can achieve three goods and one goal. Goal in the sense that we are able to lower cost for both ourselves as well as our customers. In terms of our products, our marginal costs can come down, while marginal utilities can increase. In this way, we can improve our efficiency and do a better job of cost control. Looking at our two-way and one core business development, we are capitalizing on our resource endowment and also resource sharing and colocation.
We are making use of the bigger operation and maintenance systems that we built for further enhanced sharing. In this way, we believe that our profit is going to show a high single-digit growth rate. Thank you.
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I was going to ask you a question about CapEx. For last year, CapEx were RMB 31.9 billion. Basically, CapEx were spent in four major areas. This is the same as past years. The first one is newly built sites or new construction and also colocation augmentation. The second one is the replacement of existing tower sites. The third area is about our two-way business, especially the smart tower business. The fourth area is IT and integrated overall production needs. In terms of our tower sites, last year, the number of tower sites have increased. That is to increase our coverage, both in terms of breadth and depth. As a result, our DAS investment has risen a lot.
If you refer to the first category of our KYC spend, i.e., newly built sites, construction and augmentation, CapEx increased 5.4%, of which the increase in DAS investment was very big. In the future, we'll continue to make investment in order to satisfy the overall 5G development trend and also to increase the depth and breadth of our coverage of tower sites. In this way, we can also make sure that we tie in our work with the high-speed network development to satisfy 5G A, 5G plus, industrial 5G development needs, and also to tie in our work with the Yangtze project for operational action. We are going to expand and increase our coverage in high-speed rail, in subway, car parks, elevators, and escalators as well. In 2025, we believe that CapEx is going to be more or less the same as last year.
In some areas, there will be more; in some areas, there will be less. Overall speaking, all these are to be done to satisfy customers' needs and also to enhance our future business capabilities.
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Our management just mentioned about the 2025 guidance on the DAS business growth. We should be able to have low to mid-teens improvement in terms of the revenue in 2025. Thank you.
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The next question comes from Charlie of HSBC, please.
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Okay. Let me translate the question from Charles from HSBC first. I have two questions. The first question is more about tower. In 2024, the tower revenue increased, which is less than 1%. Is that related to the DSP decreasing their capital investment in the tower business or in the 5G infrastructure? Also, in 2025, how is the tower business outlook? I would like to know more about the outlook in 2025. Also, do you have a sense of how many 5G base stations will be added on our tower in 2025? The 5G advance opportunities, would that be providing more construction demand to the company? That's my first question. My second question, which is about the Q4 revenue, which was quite good compared to the year before, as well as better than Q1 to Q3. May I know the reason why?
I would like to know more about the two-way business guidance in 2025. It seems our management already answered the two-way revenue guidance in 2025 in the last question. I do not think that he needs to continue to answer the two-way business and revenue growth guidance. Thank you.
development trend. Thank you.
Let me first answer your question concerning our tower business revenue. Last year, in terms of competition as well as the number of tower sites, there was development of substantial scale. For our tower business revenue, it was up 0.9%. All these have to do with 5G development because in the process of 5G development, both the function as well as the value have increased and enhanced. For our tower business, basically, it is also affected by two other expense items. First of all, the site rental expenses came down, and also the power generation expenses also came down. Concerning the tower site rental expenses, because we are now able to achieve better coordination and liaison with the property owners, and for the whole industry, now there is also coordinated entry into sites. Rental expenses have come down.
In relation to the power generation expenses, this has to do with an improvement in the network and also our standards and capability enhancement in our operation and maintenance system. As a result, the fair value of our towers has increased. As I said just now, tower business revenue was up 0.9%, and this can also be transferred into our profitability by realizing our functions and our enhancement in value. If you talk about our one core business, this is closely related to the needs arising from the wide and deep coverage of 5G network. Also, as mentioned earlier, there are a number of specialized state projects. As a result, for our 5G and also tower business development, we believe that they will enjoy a steady and stable development trend. We mentioned also 5G A, 5G Plus, and also the Yangtze project.
For all these, these will improve and enhance the development capability for our tower business as well. If you take 5G A as an example, we believe that there is going to be an increase in demand arising from equipment, construction, and also the need for multiple users and hotels to be connected to each other. In terms of 5G needs, they come from population needs and also needs for more traffic or increased traffic, and also the need of passing deeper and wider connection and coverage. We believe that our tower business is going to enjoy a stable and steady growth and development. Do not forget that our network is one that is integrated or integrating both indoor and outdoor to form one stretch of network.
While we are achieving very broad and deep coverage, at the same time, we also look at applications of various industries which are actually growing. All these present a very big room for growth and development for our DAS business. In the future, we believe our DAS business is going to see a growth of double digits. For our one core business, we believe that while China is developing itself into a cyber power, business opportunities for our one core business will be flourishing. With 5G development in which our customers are boosting the demand with their increase in need and also with technological evolution, we think that with continuous 5G coverage development, our one core business is going to enjoy more and more business opportunities as well. Thank you.
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Now let me talk about our revenue growth, especially in Q4. Last year, in terms of our revenue growth, as you rightly pointed out, the increase in Q4 was comparatively bigger. This is related to our strategy and our enhanced development and strategy in relation to our one core business. The increase in revenue is within our expectation. First of all, if you talk about our TSP business, last year it was up in terms of revenue, it was up 2.4%, energy business up 6.2%, smart power business up 22.4%. In Q4, there was a particularly big increase in revenue, especially for our smart power business. Smart power business growth is the biggest. Last year, we focused a lot on serving our state in relation to natural disasters related projects, emergency response related projects, and we also worked on some of the space projects.
We delivered organizational safeguard and protection, and we also carried out a number of boutique projects which are exclusive. In Q3 and Q4, we completed the delivery of such projects, mainly related to natural disasters and emergency response. As a result, the revenue for Q4 arising from such projects was actually realized because those projects were completed in delivery in Q3 and Q4, so revenue was booked and realized in Q4 in the amount of RMB 388 million. In terms of both year-on-year comparison and also quarter-on-quarter comparison, there is both increase. For smart business, sorry, smart power business, our revenue in Q4 was RMB 2.84 billion. In Q3, it was RMB 2.09 billion. In 2023 Q4, it was RMB 2.1 billion. There was an increase by 34.2% on a year-on-year basis, on quarter-on-quarter basis, 35.7%. For this year, 2025, we believe that the same trend will be seen.
In other words, there will be rapid growth in our revenue.
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The next question comes from Duan Bing of Nomura Securities, please go ahead.
and what is the overall margin trend? Thank you.
Okay. This question is coming from Duan Bing from Nomura. Thanks for taking my question. I have two questions. The first question is more about accounts receivable in 2024. It seems the company is still facing some challenges on the accounts receivable collection in 2024. Will the company still be facing such challenges in 2025? What kind of measure will the company do to improve the cash collection from your customers? That's the first question. The second question is more about EBITDA margin. In 2024, there is some improvement in terms of EBITDA margin, but we can also see that for some items, for example, the SAR costs still have some degree of increase in 2024. I would like to know whether the company is also facing different cost pressure in 2025 in terms of different operating expenses. Thank you.
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I have a question, the second question in relation to EBITDA and EBITDA margin, and I will defer to Mr. Hu Shaofeng to answer your first question. Let me talk about EBITDA and EBITDA margin. Regarding EBITDA margin, last year it increased. For EBITDA, it showed a growth by 4.7%. EBITDA margin up 0.5%. That is because of our positive business development as well as our cost control. In the future, for our company, EBITDA margin and EBITDA both will grow. We will accelerate our development of our energy business, our smart tower business, and also our one core business. At the same time, we will continue to strengthen cost control so that we can keep our operating expenses and costs under good control. For our one core and two wings business, they are in different stages of development. Our one core business is more mature.
For our two wings business, they are in the early stage of development, relatively speaking. Since they are developing more rapidly in a high growth stage, there would be an increase of expenses. Their EBITDA and EBITDA margin will be slightly lower than the overall EBITDA and EBITDA margin. When the two wings business become more and more mature, they will become stable, and as a result, EBITDA and EBITDA margin will gradually rise when time comes. In the future, we believe that the future trend is such that both EBITDA and EBITDA margin will gradually stabilize and will also pick up gradually. Next year, we believe that they will be the same, more or less the same as this year.
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Regarding our two wings business, even though the EBITDA margin is lower than the overall company's EBITDA margin, however, they are able to enhance and make contributions with the incremental margin enhancement. Actually, the marginal return from the two wings business is bigger than the overall total of our company. As a result, they do make good contributions to our overall profitability. Thank you.
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Let me comment on our accounts receivables. As of 31st December 2024, there was an increase in accounts receivables of RMB 16 billion. Regarding the three major TSPs, the increase in accounts receivables was RMB 12.5 billion. Actually, for their actual accounts receivables, there was an increase by RMB 1.98 billion. The main thing is about the notes receivable. The increase is RMB 10.5 billion. The duration of such notes is only within three to six months. Basically, we do not see too much risk involved in such notes receivables regarding the three main TSPs. Still, our company attaches a lot of importance and pays much attention to the accounts receivables issue.
What we are doing is to exercise a lot of stringent work in terms of the order signing, internal control of the orders, and giving comprehensive and full data concerning our revenue as well as our expenses, and speeding up our overall cash collection of the receivables. All these measures are what we have done in order to tackle the accounts receivables issue.
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There are also accounts receivables related to the non-TSPs. The amount was an increase of RMB 3.5 billion. For these, we attach a lot of importance to the control of such non-TSP related accounts receivables. We increased our work concerning debt collection or cash collection. We improved and we tightened our scrutiny and evaluation of all the cash collection terms for high-risk cases. We even did a more stringent job playing as the gatekeeper. Overall speaking, we focus a lot on enhancing our responsibility and work in our cash collection against these non-TSPs.
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I'm talking about the work that we will do in 2025 concerning accounts receivables. First of all, we believe that in terms of TSPs, debt collection or cash collection, because the Fed has already adjusted or modified the performance appraisal indicators and metrics from a basis on operating cash to creditability. I believe that this is very beneficial to us, especially concerning cash recovery from TSPs. As regards non-TSPs, actually, we have taken a lot of government projects involving these non-TSP customers. There are also special project debts or bonds that have been issued. We will continue to follow up more closely on the collection of such accounts receivables. Besides, we also enhanced our performance appraisal, putting more focus on cash collection and recovering of accounts receivables.
We believe that the total accounts receivables or outstanding amount in 2025 is going to go back to a more reasonable level. Thank you.
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First of all, thank you very much for your interest in our company. This evening we have answered quite a lot of questions already, but I know that there are still many questions that are yet to answer. There would be more chance to come for more communication. As you know, we have our IR team in Hong Kong. At the same time, we can arrange more face-to-face meetings in the form of reverse roadshow. Based on the questions asked, we will also think about our strategy and our business approaches. As said earlier, we will continue to deepen and also widen our 5G development work so that we can achieve wider and deeper coverage of 5G network.
In relation to the development of cyber power, digital China, and the dual carbon goals, we are lowering our costs and improving our efficiency by all the measures and efforts that we are putting in. Regarding our one core business, we believe that there will be stable and sound development. This year, our power business is going to achieve more or less the same results as in 2024. There would be double-digit growth for DAS business. For smart power and energy business, we believe that there will be record growth as well. There will be increase in EBITDA. EBITDA margin will be more or less flat. As regards to net profit, we anticipate a high single-digit growth. We hope that we will achieve growth as well in our operating profit margin. Just now, we already explained our accounts receivables related policy.
We will enhance our performance appraisal work and do more in customer communication so that we're able to pass on our pressure in recovering our debts and receivables all the way to saving it down. We hope that it will go back to a more reasonable level in terms of total accounts receivables. Basically, that's all I would like to say for this evening.