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We believe that operator leaders are high-quality core assets with both technical and consumption attributes. The growth logic reconstruction in the 5G era is of great configuration value. In terms of revenue, the industry's policy of "speeding up and reducing fees" has come to an end, and the ARPU value is expected to rise reasonably after entering the "14th Five-Year Plan" stage of "high-quality development". In terms of cost, the return period of 5G investment is prolonged, and it is expected that the capital expenditure of operators will not increase significantly. Moreover, operators' emerging businesses such as cloud computing, IDC and Internet of Things are expected to continue to expand rapidly, bringing new growth momentum and opportunities for value revaluation. We are optimistic about the ROE and dividend increase of leading operators, but the current valuation is at the bottom, and the long-term allocation value is prominent. We recommend China Telecom (A shares+Hong Kong stocks) and China Unicom (A shares+Hong Kong stocks).

New policy: the bottom wheel rotates and the color of the industry background changes.

1) The penetration rate of 5G in China has increased rapidly, and the revenue growth rate of operators has rebounded. By the end of 20021,1 1, the number of mobile users of operators reached16.46 million, the number of users of 5G packages reached 703 million, and the penetration rate of users of 5G packages reached 42.7%. From 2020Q 1 to 20021Q3, the growth rate of telecom business income in China was 1.8%, 4.3%, 3.4%, 4.7%, 6.4%, 10.9% and 7.6% respectively, and the growth rate continued.

2) The policy no longer emphasizes "speeding up and reducing fees" and pays more attention to the high-quality development of operators. 202 1, 1 1, the Ministry of Industry and Information Technology issued the "Tenth Five-Year Development Plan for Information and Communication Industry" to encourage operators to research and innovate and develop the 5G industrial Internet. 2002165438+February, the meeting of heads of central enterprises emphasized that state-owned central enterprises should strive to achieve "two increases, one control and three promotion" in 2022. We believe that the ARPU upgrade and performance growth improvement of operators are expected to continue.

In the past, the assessment of operators focused on the number of users and market share, and there was a certain degree of excessive competition. We believe that with the scale of mobile network users approaching saturation and the changes in SASAC's assessment of operators, the competition among operators will be eased, and the establishment of * * * * will provide an important cooperation foundation for operators, and operators will pay equal attention to competition and cooperation, and will move from "user growth" to "ARPU growth".

New cycle: the investment return cycle is lengthened, and the cash flow and dividends are improved.

1) The investment return cycle is lengthened. During the 3G/4G period, China is in the stage of catching up with technology, and the investment return period is obviously shorter than overseas. In the era of 5G, China is in the leading position in the world, and it is expected that there will be a complete investment return period of 10 year. It is expected that capital expenditure will not increase significantly through the construction of * * * *.

2) Free cash flow is improved, and the dividend ratio is increased. China Telecom's 202 1 dividend rate is expected to increase from 40% to 60%, and it is expected to further increase to over 70% by 2023; China Unicom 202 1 started the interim dividend for the first time, and it is expected that the annual dividend yield will increase.

New drivers: The rapid development of cloud computing and IDC brings new growth drivers and opportunities for value revaluation.

From 20 18 to 2020, the CAGR of industrial Internet services of China Telecom and China Unicom were 10. 10% and 36.3% respectively, and the revenue proportion showed an increasing trend. Looking forward to the future, there are huge opportunities in the cloud computing industry, and the application fields of 5G 2B are promising. Operators are expected to give full play to the application of 5G in the fields of car networking, smart cities and industrial Internet. , thus opening up growth space and realizing value revaluation.

Risk factors:

The penetration rate of 5G users is less than expected; 5G construction and 5G application development are less than expected; The risk of operators restarting fierce price competition; Risk of policy changes related to national 5G and new infrastructure; The ARPU value of operators has not improved as expected; The development of emerging services such as cloud computing and IDC of operators is less than expected; The dividend ratio of operators did not increase as expected; The growth of free cash flow of operators is less than expected; Operators * * * can't enjoy the expected effect when they are built * *; Increase the risk of investment burden of operators.

Investment strategy:

We believe that operator leaders are high-quality core assets with both technical and consumption attributes. The growth logic reconstruction in the 5G era is of great configuration value. It is expected that policy support and industrial internet expansion will promote operators' income growth, while longer investment return period and * * * construction * * enjoyment will reduce the pressure on operators' capital expenditure, and the industry growth rate is expected to continue to improve, and cash flow and dividends are expected to continue to increase. At present, the understanding of operators in the market is very poor, and the investment ban in the United States has also affected the liquidity of operators in Hong Kong stocks, making the valuation of operators in the bottom area. We believe that the current configuration value of operators is outstanding, and recommend China Telecom (A shares+Hong Kong stocks) and China Unicom (A shares+Hong Kong stocks).

This article comes from the financial sector.