Earnings Call: H1 2021

Aug 11, 2021

Good afternoon, ladies and gentlemen. Welcome to China Mobile's Limited's 2021 Interim Results Briefing. To prevent the spread of COVID-nineteen, we continue to communicate our results by way of telephone conference. We'd appreciate your understanding on this. In today's briefing, our first review on our overall results for the first half of twenty twenty one. Then Mr. Dongxing, our CEO, will talk about the operating performance. Finally, Mr. Li Rong Hua, our CFO, We will talk about our financial results. Highlights of our operating performance in the first half of twenty twenty one are summarized following 7 areas. 1st, we continue to make encouraging progress on transformation and upgrade with business performance demonstrating favorable trends in all aspects. 2nd, we advanced the comprehensive and integrated development CHBM markers with value oriented operating practices using notable results. 3rd, We've further implemented the 5 gs plus plan and our 5 gs business is now on fast track of development. 4th, We expediated constructions of new infrastructure and laid a solid foundation for digital intelligence transformation capabilities. 5th, we increased shareholders' returns and continuously create value for shareholders. Safe, we strive to promote full fledged digital intelligence transformation, and we are taking solid steps towards becoming information services and Scintech Innovation Enterprise 7th, we applied for renminbi shares Isoo, sharing the promising future of digital economy. By way of reference, we've provided results of key caters for the first half of twenty twenty one in this table. In the first half of twenty twenty one, facing a complex and volatile internal external business environment, we drove our digital intelligent transformation in an all around manner. With our all out efforts to implement the 5 gs plus plan, promote a comprehensive and integrated development of our CHBM markets and actively explore the blue ocean digital economy, we continue to make encouraging progress on transformation and upgrade with business performance demonstrating favorable trends in all aspects. Service revenue reached 393 point 2,000,000,000 representing a year on year growth rate of 9.8 percent outperformed industry average by 1.1 percentage points. This growth rate surged significantly. Net profit stood at 59,100,000,000 by 6% year on year, which reversed downward trend in the past 2 years. EBITDA achieved a rebound and amounted to RMB162 1,000,000,000, up by 11.2% year on year. Our key performance indicators achieved outstanding performance. Service revenues increased by 9.8% year on year, a rate that hit record high in 10 years. Mobile ARPU stabilized and rallied achieving positive growth of 3.8% year on year. The number of 5 gs network customers reached 127,000,000 with penetration rate rapidly increasing. Revenues from DICT and smart home value added services both rapidly increased and our profitability continued to stay at a leading for system and promoted the comprehensive and integrated development of CHBM markets. Our value oriented operating has yielded notable results. Custom market resumed positive growth of 0.7%. Home, business and new markets rapidly increased by 33.7%, 32.4% and 22.6% respectively. Play. Revenue from the non customer market as a percentage of total service revenue was 35%, up by 3.6 percentage points over 2020. The revenue structure is further optimized. We've quickened our pace to transform ourselves into an information services and site innovation enterprise and our new drivers remained robust. Revenue from the new businesses amounted to 80,100,000,000 up by 38.3 year on year. It took up about 20% of our total service revenue, up by 3 percentage points over 2020. Revenue from smart home value added services amounted to 10,100,000,000 up by 35.6% year on year. As a percentage of home market revenue, It went up by 1.5 percentage points over 2020. Revenue from DICT amounted to 33,400,000,000 up by 59.8% year on year. As a percentage of business market revenue, it went up by 7.2 percentage points over 2020. We have further implemented our 5 gs plus plan and our 5 gs business is now on fast track development. In the consumer market, we focused our efforts on cultivating 5 gs network customers with an integrated strategy involving our value proposition such as products, terminals, network access and tariff packages to boost 4 gs to 5 gs switching and effectively increase customer value. The number of 5 gs package customers and 5 gs network customers reached 251,000,000 and 127,000,000 respectively in the first half of twenty twenty one. 5 gs ARPU amounted to 88.9. 4 gs versus 5 gs after migration, ARPU moved up by 10%. 5 gs DoU amounted to 20.7 gig. For the business market, we continue to utilize 5 gs business showcases to gain traction and brought in an additional 100 headquarterlevelindustryleading demo projects with key customers from different industries. We continue to proactively drive the scale and value monetizations of 5 gs business and by launching quality commercialized projects, we are able to create a sound business model for 5 and converted into actual business opportunities. Overall, in the first half of twenty twenty one, we signed an addition of 900 contracts of provincial level feature projects and kickoffs in addition to 4.52 5 gs dedicated network projects. 122 projects were large, DICT projects with the contract amount each exceeding 10,000,000. These projects help brought in additional DICT revenue of more than 6,000,000,000. By way of reference, we've provided some typical cases of China Mobile's 5 gs industrial applications in Appendix 4. We continue to make forward looking deployment plans and make targeted investments, proactively promoting the constructions of new infrastructure. In the first half of twenty twenty one, we spent an overall CapEx of 86,000,000,000. Major areas of investments include the constructions of a premium 5 gs network, cloud based infrastructure, 4 plus 3 ex data centers as well as promoting smart transformations of our networks. Based on the principle of and sharing to create mutual benefits. We have orderly made progress on the construction and sharing of the 700 megahertz network in collaboration with CBN, completing the centralized procurement of the master unit and antennas of the wireless network on behalf of partnership. In the second half of twenty twenty one, we proactively forged ahead with the constructions of the 5 gs network, rationally utilize the spectrum resources of 700 megahertz, 2.6 gigahertz and 4.9 gigahertz, promote multi band coordination and achieve efficient resource deployment. We target to build a cumulative more than 700 1,005 gs base stations by the end of 2021, offering good coverage into urban areas of cities and counties as well as key villages and towns and key areas across countries in general. Looking ahead, we'll emphasize progression to the computer power network including such network in the overall planning of the next generation new infrastructure and establishing a diversified computer power resources system managed by both centralized and dispersed approaches. At the same time, we redoubled our efforts to achieve in key technologies and cultivated the 1st computer power ecosystem. We've quickened our pace to extend comprehensive reforms for cloud business in order to nurture differentiated advantages in terms of convergences of cloud and network, cloud and big data, cloud and intelligence and cloud and edge computing. Our cloud business demonstrated industry leading growth. We are committed to ensuring our leading positions over resource and product capabilities. We've optimized our N plus 31 plus N deployment plan and self developed more than 2 10 types of products. We are committed to ensuring a leading position over self directed innovation capabilities. Our operating systems, elastic computing, storage and cloud management platforms were all managed independently. Besides being committed to ensuring our leading positions over basic service capabilities, we've also provided full coverage dedicated cloud based networks and over personalized, customized, secure and reliable services. The number of Ancai yuan users reached 100 16,000,000 representing a net additions of 13,190,000 from the end of last year. Revenue from mobile cloud increased rapidly and reached 9,700,000,000, up by 100 and 18.1% year on year. Public cloud revenue share was ranked top 10 in the industry, achieving a breakthrough. We remain committed to implementing reforms, fostering innovation and facilitating opening up and cooperation. Our efforts bore fruit and we achieved remarkable results. On system reforms with the goal of Establishing China Mobile as a world class model enterprise, we systematically further reforms to key areas such as governance, staff deployment and incentive mechanisms in order to build new momentum towards high quality developments of our organization. On technological innovation, we took a leading role in the evolution's 5 gs technologies and owned a standard related patent pipeline that's put out in the camp of top tier global operators. We constantly enhance ability to self direct digitalization in various views including artificial intelligence, blockchain, IoT, cloud computing, security and super SIM. On open collaboration, we proactively built extensive networks and deepened strategic partnerships with local governments, large enterprises and public institutions. We joined forces with renowned higher education institutions, science research institutions to make further contributions on top notch innovation. Further, we deepened to operations with industry partners and step up efforts to further develop the relative circle and partnership network. On chip network. On empowerment of mid term platforms, we've preliminarily built our smart mid term business plus data plus technology platform with the characteristics of telecommunications operators and selling features of China Mobile. We also proactively developed capabilities to support various business scenarios and launch China Mobile's smart mid term platform gateway and branding. Currently, there are 2 0 8 types of capabilities on the mid end platform and they are deployed on average nearly 7 1,000,000,000 times each month for the first half of the year. On the front of sustainable development, we've unveiled to write paper on 2 Square Free Energy China Mobile Carbon Peak Carbon Neutrality Action Plan. Our objectives are to save energies in our operations through technological innovation, raise the proportions of clean energy we use and bring into play our operational advantages to realize and energize the empowerment of helping to reduce carbon emissions to create higher returns with shareholders and share the results of its operating gains after giving full considerations to its profitability, cash flow generation and future development needs, the company has decided to pay HKD1.63 per share for the 2021 interim dividend, representing an increase of 6.5% year on year. The company will strive to achieve favorable growth in full year dividend per share and continuously create greater value for shareholders. This. At present, a new wave of technological revolution, industry transformation characterized by digital network and Intelligent features has emerged and the digital economy has become the major driving force of growth. With 5 gs at the forefront, a new generations of information technology is integrating into the economy, society and people's likely at an accelerated pace giving rise to new factors, new models and new products. An enormous blue oceans of business opportunities is taking shape. It is expected that the contributions of digital economies to China's GDP will increased from 38.6 percent in 2020 to more than 50% in 2025. Revenue from China's information sector, we have grown from RMB10.8 trillion in 2020 to more than RMB20 1,000,000,000,000 in 2025. That will translate into tremendous opportunities for our digital intelligent transformation. Looking ahead, we are here to the strategy of becoming a world class enterprise by building a dynamic powerhouse following the path of digital intelligence the nation to strive for high quality growth. We'll develop innovative digital intelligence products and promote an extension of product offerings from the realm of telecommunication services to depth of information services. We strengthened our digital intelligent networks and build up a network system that is categorized by the convergence of cloud and network as well as the high level automation and intelligence. We established a digital intelligence mid term platform to support innovation and the digital intelligent organization equipped with sound systems and talented teams to satisfy the needs of our digital intelligence transformation. In addition, we'll nurture digital intelligent ecosystems and proactively create a digital intelligent cluster to bring together different forces and unlock the potential of the digital space on a broader scale and at a deeper level. With our all out efforts in the 5 areas above, we'll make every endeavor to develop our 2nd curve of growth and create new growth drivers in the process of promoting the digital intelligent transformation of the economy and society, thus generating greater value for our shareholders and customers. In response to the 14th 5 year plan, we've made steadfast efforts to work on the 2 promotions and 2 integrations and take solid steps towards becoming a world leading information services and scientific innovation enterprise. We strive to achieve the following goals by 2025: operating revenue achieving favorable growth, Profitability continuing to maintain at a leading level amongst 1st tier global operators. The service capabilities of our mobile cloud, Phoenix 3 big data platform, NGLTN, AI platform entering the camp of top tier industry players and the proportion of revenue from new businesses related to information services recording remarkable growth. In order to grab the window of opportunities to develop the information services market, promoting implementations of strategies of becoming a world class enterprise by building a dynamic powerhouse, advanced digital intelligence transformation, cultivate a digital intelligent ecosystem with new vitality and build a new momentum towards high quality development, The company proposed to apply for the renminbi share issue. The board approves the proposal, which subsequently approved by our shareholders at an extraordinary general meeting. Other related work is in progress and will be implemented upon approvals from the relevant regulatory authorities in accordance with relevant procedures. That basically concludes my part of the presentation. Now let me turn it over to Mr. Dongxing for operating performance. Thank you, Chairman Yang. I'm delighted to present our operating performance in the first half of twenty twenty one. In the first half of twenty twenty one, we saw comprehensive development of the CHBA market encouraging growth momentum of our overall business. By way of reference, we've shown in this table the revenue data of our CHB end markets. I'll now go through the latest developments of all these 4 markets in more details. For the customer market, we promoted the integration of data sets applications and customer benefits and took a steadfast approach to drive the uptake in both quantity and quality of our 5 gs business, stimulating the upgrade of consumption of information and communication services. Leveraging our value propositions of 5 gs services and customer benefits, We enhanced our brand management of GoTone, M Zone and Easy Own effectively boosting customer value and loyalty. As of the end of June 2021, the number of mobile customers reversed downward trajectory and recorded growth, reaching 946,000,000 and representing net additions of 3,590,000. Of these, the number as with integrated benefit products reached 110,000,000. Mobile ARPU stood at 52.2, up by 3.8% year on year. Thanks to the stable customer base and the upturn in mobile ARPU, Revenue from customer market resumed growth and reached RMB255,500,000,000 up by 0.7% year on year. For the home market, we've quickened our pace to set up a server suite that combines full gigabyte network connections with cloud based locations. We have taken a consistent approach to obtain leadership in broadband, TV and smart home services using quality, content and applications as their respective driving says we record rapid growth in our customer base and revenue. The number of household broadband customers reached 205,000,000 with net additions of 13,390,000. Of these, our digital set top box Mobahe reached a total of 154,000,000 customers with penetration rate of 0.7 33.7% year on year to 50,100,000,000 with the growth rate heating record high again. Household Broadband Blended ARPU amounted to 41.1%, up by 16.2% year on year. For the business markets, we focus on key areas such as smart City, smart transportation and industrial Internet and further promoted the integrated development of network, cloud and DICT. In the first half of twenty twenty one, revenue from business market reached RMB73.1 billion, up by 32.4% year on year with the growth rate hitting record high again. The number of corporate customers reached 15,530,000 with a net additions of 1,690,000. While we may redoubled efforts to develop our cloud business, We've continuously improved the planning of the constructions of a new infrastructure such as data centers, developed industry leading connections plus computing capabilities and continuously facilitating standard upgrades and promotion. IDC revenue grew by 27 percent to renminbi11,800,000,000. Revenue from dedicated lines increased by 7.7 and year on year, totaling 13,500,000,000. ICT revenue reached 8,000,000,000, up by 57.3 since year on year. The number of IoT smart connections reached 980,000,000. For the new market, we strive to draw on the spirit of innovation, entrepreneurship and originality and expand Scale of our new businesses, we continue to expedite development of our international business, digital content, finance technology as well as equity, investment and other operations achieved notable results. In the first half of twenty twenty one, revenue from new market reached 14,500,000,000 up by 22.6% year on year. We obtained in the turnaround growth rate was also a record high of which revenue from international business reached 6.8 1,000,000,000 up by 19.5 percent year on year. Revenue from digital content reached 7,700,000,000 up by 25.1% year on year. The monthly active users of the Migu Video across all platforms increased by 14.5% year on year. The number of users of our video connecting tones exceeded 100 18,000,000 and the number of monthly active users of end wallet recorded year on year growth of 31.5%. Our equity investments income accounted for 11% of our net profit. We are now in a critical development stage for extensively applying 5 gs across industry sectors and serve the wider society. We'll make every to provide premium 5 gs, easy to use 5 gs, open 5 gs and secure 5 gs services leading the scale development of 5 gs business. We will facilitate multi band coordination by constructing a multi dimensional network with a multi spectrum comprising 2.6 gigahertz, 4.9 gigahertz at 700 megahertz. We target to build over 700,000 5 gs base stations by the end of this year. We strengthened our cloud network convergence, taking steps to deepen convergences of cloud, network, edge computing, big data and intelligence. We also take measures to realize public, private network convergence, designing and constructing our network space, market development and demand and at the same time accelerate the commercializations of high quality development of 5 gs dedicated networks. To ensure compatibility of capabilities, we'll boot up a suite of capabilities comprising network, platforms, applications and device for the 5 gs industry. As part of our efforts to promote replicable applications, We will develop narrow based and standardized solutions and speed up the transformations of business showcases into commercialized projects. We'll also take steps to enable customizable functions while we segment corporate customers according their willingness and ability to pay and optimize our on demand business model. We continue to enhance industry cooperation in the three areas the fostering joint innovation, sharing basic capability and driving industry maturity. We'll also ensure security and reliability of 5 gs services by implementing full lifecycle security management and offering all in one to create solutions. We are committed to consolidating our position in the market with supreme products and making use of scientific management to enhance efficiency. Day. In the first half of twenty twenty one, we expanded our customer base with 9 products, each attracting over 100,000,000 customers. Our products such as cloud products, anti Yun, CN Passport, Migu Music, cloud based games, cloud based VR and SuperSim saw accelerated development. We've currently agreed a point using scientific management and a classified management approach being gradually applied to various business lines and tools allowing coherent coordination between local operations and specialized teams and across specialized teams when it comes to market development and capability enhancement. This approach delivered remarkable results. Looking forward, we'll develop more and better flagship products through self directed R and D, collaboration, acquisitions, equity investments and other measures, placing a focus on products compatibility with their company's strategic core, core capabilities, the needs for innovation and transformation and other development directions. We will strengthen scientific management and At the same time, continue to reinforce synergy from strategy formulation, market developments and capability enhancement and build differentiated and classified management system covering various views. We precisely manage our organization and aspects such as resource allocation, service assurance, assessment targets and organizational settings taking into account the differences across local operations, First, continuously enhancing management standard and operating results. In a view of favorable business results and business development trend in the first half 2021, we've revised our full year telecommunication service revenue and net profit guidance from stable to healthy growth provided early this year to favorable growth. By way of reference, we've list our major full year business targets on this slide. We'll continue to pursue the strategy of becoming a world class enterprise by building the dynamic powerhouse, drive digital intelligence transformation in an all around manner and strive to achieve our full year targets. Now let me turn it over to Mr. Li Rong Hua for financial performance. Development and recorded growth in both revenue and profit. Service revenues was 393,200,000,000, up by 9.8% year on year. Sales of products revenue amounted to 50,400,000,000, up by 59.4% year on year. While we continue to strengthen cost management, we have appropriately increased our investments to support future transformation. Operating expenses increased by 15.2% year on year. Benefited by the optimizations of our well management product portfolio and the enhancement to the rates of return, interest and other income went up by 7% year on year. For the investments of Solsys, SPD Bank, China Tower, etcetera also brought contributions to our returns. Income from investment accounted for using the equity method reached RMB6.5 billion increasing by 8.8% year on year. As a result, our net profit increased by 6% year on year to RMB59.1 billion. Our profitability continued to stayed at a leading level amongst top tier global telecommunications operators. In terms of breakdown of revenue growth As shown in the financial statements, the increase in service revenue is mainly due to the growth in wireline, broadband and applications information services of which the incremental revenue contributions from WiLAN Broadband and Applications and Information Services amounted to 10,800,000,000 and 21,600,000,000 respectively. Revenue from wireless data traffic, SMS and MMS showed slight increase while voice services revenues record a slight decrease. As for the breakdown of revenue contributions By HBM Markets, the incremental revenue contributions from the customer market, home market, business The new market reached 1,800,000,000, 12,600,000,000, 17,900,000,000 and 2,700,000,000 respectively. Going forward, we will continue to drive the comprehensive and integrated development of our HBM markets, advanced digital intelligence transformation, promote continuous enhancement to business structure and accelerate the shift of growth drivers. We continue to promote low cost and high efficiency operations. We've taken measures to strengthen cost control across the board, covering every aspect of resource factors and processes is engaging more staff members. We've made conscious efforts to reduce calls, enhance efficiency and these efforts due to substantive results. In respect of the results of major cost items, network operations and support expenses went up by 11.4 percent to 121,100,000,000. The increase mainly attributable to the investment ramp up in areas such as smart family, DICT and the construction of smart mid term platforms addressed accelerating transformation. In addition, We expanded the scale of our 5 gs networks and data centers, etcetera. The corresponding operation and maintenance expenses have also gone up. Depreciation and amortization increased by 14.9 sent to RMB99.5 billion. We've adjusted the residual value rate of certain assets to further enhance the quality of assets. After excluding associated impact, depreciation and amortization grew by 5.7% year on year on a comparable basis. Employee benefits and related expenses increased by 14% to 55,900,000,000. The government introduced a once off social insurance reduction exemption policy during the COVID-nineteen outbreak last year resulting in lower base comparison in same pillar rates of 2020. Meanwhile, we have further increased resources to nurture and recruit management talents for the business and new markets as well as R and D talents in the fields of 5 gs and AICDE. Selling expenses decreased by 3.1 percent to 30,400,000,000. The decrease mainly due to accelerating channel transformation where we strengthened centralized online operations and fully utilized big data for precision marketing. The efficiency of the utilizations of marketing resources further improved. Benefited by favorable growth in revenue Sound cost control, our profit level continued to rise. EBITDA increased by 11.2% year on year to RMB162 1,000,000,000. EBITDA as a percentage of service revenue increased by 0.5 percentage points to 41.2%. Net profit reached 59,100,000,000. Basic earnings per share increased by 6% year on year to 2.8 9 Renminbi. The company continued to record favorable cash flow. In the first half of twenty twenty one, net operating cash flow increased by 1% to 161,600,000,000. Free cash flow went up by 28% year on year to 75,600,000,000. Our capital structure maintained stable and healthy with corporate credit ratings equivalent to China suffering ratings. Overall, in the first of 2021, we recorded favorable growth in revenue and profit, achieved to cost control, abundant cash flow and a stable and healthy capital structure. In the second half of twenty twenty one, we further increased revenue, cost control, tap into potential and raise efficiency, ensuring to achieve full year performance targets. Moreover, We'll continue to strengthen the management of funds, assets and capital, continuously enhancing company value. In the meantime, we'll further strengthen risk management and control, building a solid foundation for the sustainable and healthy development of the company. This is the end of our presentation and analysis on our 2021 interim results. Thank you.