China Communications Services Corporation Limited
(a joint stock company incorporated in the People's Republic of China with limited liability)

Press Release
24 August 2023
For Immediate Release

China Comservice Announces 2023 Interim Results

* * * *

HIGHLIGHTS:

• Continued to achieve high-quality operating results by implementing strategies progressively
• Operating efficiency improved comprehensively with gross profit margin continuing to rebound
• High-margin businesses fueled growth with technological innovation leading development
• Growth momentum emerging by focusing on strategic emerging industries
• Seize opportunities in digital economy by strengthening capabilities through reform and innovation

Financial Highlights (unaudited)

(Hong Kong, 24 August 2023) –– China Communications Services Corporation Limited ("ChinaComservice" or the "Company"), and its subsidiaries (the "Group") (HKSE code: 552), today announced its unaudited interim results for the six months ended 30 June 2023.

OPERATING PERFORMANCE

In the first half of 2023, the Chinese government accelerated the development of digital economy to promote the in-depth integration of the digital economy and the real economy. Leveraging its positioning as a "New Generation Integrated Smart Service Provider", the Group aims to build itself as a "First-class Smart Service Innovative Enterprise", focuses on strategic emerging businesses for future development, and strives to become the "Main Force in Digital Infrastructure Construction, Vanguard in Smart City Services, Leading Enterprise in Industrial Digitalization Services and Trusted Expert in Smart Operation". With high-quality development as the principle and value creation as the focus, the Group was committed to pursuing the steady development of its fundamental businesses while expediting the business expansion in the strategic emerging industries, leveraging technological innovation as the lead, enhancing its product and service values, advancing reform in key areas, continuously enhancing its core competitiveness, thus achieving steady growth in its operating results.

I. Steady Yet Improving Operating Results Achieved with Continuous Improvement in Quality and Efficiency

With the philosophy of "Effective Improvement in Quality and Reasonable Growth in Quantity", the Group seized the opportunities arising from the construction of Digital China and achieved steady growth in revenue, continuous improvement in both gross profit margin and net profit margin, as well as a sustained positive trend in indicators such as cash flow and shareholders' return. In the first half of the year, the Group's total revenues amounted to RMB73,170 million, representing a year-on-year increase of 5.7%, among which, service revenue ¹ amounted to RMB70,713 million, representing a year-on-year increase of 6.3%. Gross profit was RMB7,834 million, representing a year-on-year increase of 7.4%. Gross profit margin was 10.7%, representing a year-on-year increase of 0.2 percentage point, continuing the stabilization and recovery trend. Net profit² was RMB2,034 million, representing a year-on-year increase of 7.3%, and such growth rate continued to be higher than the revenue growth rate. Net profit margin was 2.8%, which stabilized and improved on a year-on-year basis. Free cash flow recorded a year-on-year improvement. Return on equity (ROE) was 10.0%³, representing a further enhancement on a year-on-year basis. Basic earnings per share were RMB0.294, representing a year-on-year increase of 7.3%.

1. Forging ahead with transformation and upgrade, the three major business segments maintained steady growth
During the first half of the year, benefited from the rapid growth of the digital infrastructure business, revenue from the Group's telecommunications infrastructure ("TIS") services amounted to RMB37,688 million, representing a year-on-year increase of 7.5%, accounting for 51.5% of total revenues, being the largest contributor to revenue growth by business segment in the first half of the year. Among which, the growth was steered by high-value consultation and design businesses, with the business quality of the segment improving continuously. Revenue from business process outsourcing ("BPO") services was largely stable and increased slightly, and amounted to RMB21,729 million, representing a year-on-year increase of 0.9%, accounting for 29.7% of total revenues. Revenue from applications, content, and other ("ACO") services amounted to RMB13,753 million, representing a year-on-year increase of 8.6%, accounting for 18.8% of total revenues, and maintained a favorable growth momentum. Among which, revenue from software development and system support grew rapidly by 31.5% year-on-year, signifying market recognition of the Group's capability in terms of its software and digital services.

2. Integrating itself into the ecosystem of customers, the development in the three major markets remained robust

(A)	Focusing on new businesses in domestic non-operator market and reinforcing its development quality. The Group focused on strategic emerging industries and strengthened its core products, services and capabilities that fit the industry development and the ecosystem of customers. By deeply exploring the business needs such as digital government, digital transformation of enterprises, intelligent computing centers, electricity infrastructure and ancillary facilities as well as photovoltaic construction, and leveraging the Group's "Consultant + Staff + Housekeeper"4 service advantages and "Platform + Software + Service"5 capability advantages, the development quality of such market continued to be reinforced. In the first half of the year, revenue from the domestic non-telecom operator ("domestic non-operator") market 6 amounted to RMB31,623 million, representing a year-on-year increase of 3.6%.
(B)	Keeping abreast of the changing needs in domestic telecommunications operator market to drive revenue growth. The Group actively responded to the changing needs of domestic telecommunications operator customers in data center, computing power network and industrial digitalization, and gave full play to the advantages of its differentiated capabilities in software research and development, system integration and support services, etc. The Group kept enhancing its proficiency in project management and in delivering projects in high quality to facilitate the transformation and upgrading of the operator customers, collaborating with operators to develop the incremental potential for digital economy and building a symbiotic and win-win ecosystem. In the first half of the year, revenue from domestic telecommunications operator market amounted to RMB39,977 million, representing a year-on-year increase of 7.5% and accounting for 54.7% of the total revenues, making it the largest contributor to revenue growth among all customer groups7.
(C)	Steady growth achieved in overseas market through optimizing deployment and enhancing quality. Centering on key regions along the "Belt and Road", the Group developed high-quality projects, proactively promoted the cooperation with Chinese companies in the ecosystem, and provided overseas customers with construction services of digital infrastructure, photovoltaic and new types of energy storage, resulting in a continuous increase in the proportion of high-value businesses and operating efficiency enhancement. Revenue from overseas market amounted to RMB1,570 million, representing a year-on-year increase of 1.2%.

II. Focusing on New Momentum, Strategic Emerging Businesses Achieved Robust Development

As the construction of Digital China advanced at full speed and the industrial informatization market grew at a robust pace, the Group catered to the needs of the government, industry and enterprise customers, focused on expanding the strategic emerging industries, including digital infrastructure, smart city, green and low-carbon, and emergency management and security, and actively fostered new growth momentum. In the first half of the year, the value of the new contracts from strategic emerging industries recorded a year-on-year growth of over 30% and accounted for more than 27% of the total new contracts value, becoming a major contributor to total contracts growth.

In the field of digital infrastructure, the Group grasped the opportunities in respect of the construction of data centers, intelligent computing centers and supercomputing centers presented by the national "East-To-West Computing Resources Transfer" project and AIGC⁸. And it also closely followed the main development direction of clustering, low-carbon transformation and computerization of data centers, as well as the opportunities in the construction of operators' cloud and industrial cloud, with a focus on new digital infrastructure, including data center and computing power network, cloud business and enterprise-level 5G+. The Group established the Digital Infrastructure Industry Research Institute, conducted in-depth customer insights, and strengthened its products and solutions empowerment, enabling it to successfully undertake several general contracting projects with contract value of over RMB100 million each.

In the field of smart city, steered by the top-level design of smart cities, the Group capitalized on the advantages of its "Consultation + General Contracting + Software + Platform + Service" integrated service capability, and put extra efforts in the development of key areas such as digital government, enterprise digital transformation and smart transportation. The Group built professional teams that catered to customers' core needs, continuously improved quality of localized delivery and operation to form standardized cases and replicated and promoted such cases rapidly. The Group contributed to the intelligentization of urban management, and was shortlisted in the "2023 Digital Government Industry Mapping" published by the China Academy of Information and Communications Technology, demonstrating its growing brand influence.

In the new field of green and low-carbon, the Group remained committed to serving the national "Dual Carbon" strategic goal, and further developed the markets of different sub-sectors, including electricity infrastructure and ancillary facilities, photovoltaic construction, energy usage services and carbon management. By integrating 5G, Internet of Things (IoT), cloud computing, big data, artificial intelligence and other technologies as well as forging the Group's advantage in full life cycle integrated comprehensive services, it provided intelligentization and decarbonization services to customers in key industries, such as energy and electricity, transportation, real estate and construction, industrial manufacturing as well as information and communications. The Group commenced an all-round strategic collaboration with China Beijing Green Exchange in connection with the construction of green and safe data centers as well as informatized infrastructure network. Besides, it engaged 25 scientific research institutes and higher education institutions to carry out forward-looking joint cooperation between industries, universities and research institutes on "Dual Carbon", in a bid to support China's goal of green development.

In the field of emergency management and security, the Group focused on the scenario-based needs of regulatory authorities and key industry customers, increased synergistic research and development efforts, strengthened resource coordination and sharing, and focused on developing core products such as asset surveying and mapping, situational awareness, safe production supervision, risk monitoring and early warning as well as emergency rescue command, etc. The Group stepped up the nationwide promotion of the products and achieved mutual facilitation between research and development and market. It was selected in the "China Cybersecurity Industry Panorama" by AQNIU⁹ and successfully shortlisted as a representative vendor in the "China Cybersecurity Industry Momentum List"¹⁰ by ROARTALK.

III. Continuing to Build up Core Capabilities and Develop a First-class Smart Service Innovative Enterprise

1. Strengthening the drive from technological innovation and enhancing product competitiveness
The Group strengthened the leading role of technological innovation and continuously enhanced its core capabilities to firmly support its expansion into the strategic emerging industries and its effort to build a technology-based enterprise. The Group continued to increase its investment in research and development, optimized its technological innovation system, focused on industrial digitalization application research and development, and core professional technical fields such as IoT, blockchain, dual carbon energy-saving technology and cybersecurity, to create benchmark solutions and core products as well as improving research and development efficiency. The Group enhanced the efficiency in the collaboration between the research and development team, the marketing team, and the delivery team, and thus rapidly improved the efficiency in product promotion. The Group vigorously introduced high-end expert teams and technology talents, continuously strengthened its core competitiveness, with a view to driving high-quality development with technological innovation.

¹ Service Revenue = total revenues – revenue from products distribution – revenue from IT equipment supplies in system integration
² Net profit refers to profit attributable to the equity shareholders of the Company.
³ Return on equity is on an annualized basis.
⁴ "Consultant + Staff + Housekeeper" service model is a unique business model adopted by the Group in recent years. "Consultant" means that the Group acts as the "Consultant" to help its customers through leveraging its talents and product advantages, so as to turn customers' needs into feasible solutions or projects. "Staff" means that the Group, as appointed by its customers, assists them in the capacity of "Staff" in coordinating other stakeholders of the project, so as to promote the smooth implementation of the project and ensure that its customers' original expectation can be achieved. "Housekeeper" means that the Group provides a full life cycle management and accompanying service of the relevant businesses and creates values for customers.
⁵ "Platform + Software + Service" capabilities: utilize core foundation platforms, including cybersecurity and IoT, focus on various smart applications for customer scenarios and the integrated service capabilities covering consultation and planning, project construction, operation and maintenance, to provide customers with customized integrated solutions.
⁶ Since 2023, the Group has reclassified its revenue from China Broadcasting Network from the domestic non-operator market to the domestic telecommunications operator market. The relevant historical data have been retrospectively adjusted in order to increase the comparability, and the overall revenue in the first half of 2022 was not affected as a result of such reclassification.
⁷ Customers here are classified into three categories, including the domestic non-operator customers, domestic telecommunications operator customers and overseas customers.
⁸ AIGC refers to Artificial Intelligence Generated Content.
⁹ "AQNIU" is an influential third-party professional media and flagship think-tank in the domestic cybersecurity sector.
¹⁰ "China Cybersecurity Industry Momentum List" (《中國網絡安全產業勢能榜》) is an authoritative industry report jointly published by ROARTALK Cybersecurity Research Institute (嘶吼安全產業研究院), an industry think-tank, and the National Cybersecurity Industrial Park (Tongzhou Park).

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