Hot Topics
Q.1. What was the latest operating performance of the Company?
In the first half of 2024, with the in-depth implementation of the development strategies for digital economy in the country, digital economy has become an important support and key driving force to promote the development of new quality productive forces. Amid the complex external environment and fierce market competition, the Group leveraged its positioning as a "New Generation Integrated Smart Service Provider", firmly grasped the development opportunities of digital economy, united hearts and efforts and forged ahead with determination. With technological innovation as the lead, the Group continued to improve its core competitiveness and expand deeply into the strategic emerging industries, thereby achieving "Effective Improvement in Quality" and "Reasonable Growth in Quantity" as well as further improvement in the level of high-quality corporate development.
The Group adhered to its overall roadmap of "value-driven, seeking steady yet progressive growth and high-quality development", by which our total revenues steadily increased and our efficiency indicators continuously improved. In the first half of the year, the Group's total revenues amounted to RMB74,412 million, representing a year-on-year increase of 1.7%, among which, service revenue amounted to RMB72,855 million, representing a year-on-year increase of 3.0%. Gross profit amounted to RMB8,116 million, representing a year-on-year increase of 3.6%. Gross profit margin was 10.9%, representing a year-on-year increase of 0.2 percentage point. Profit attributable to equity shareholders of the Company amounted to RMB2,125 million, representing a year-on-year increase of 4.4%, and the net profit growth rate was higher than the revenue growth rate. Net profit margin was 2.9%, representing a year-on-year increase of 0.1 percentage point. Return on equity (ROE) was 9.9%. Basic earnings per share were RMB0.307, representing a year-on-year increase of 4.4%.
Q.2. Why has the Company's gross profit margin increased in the past two to three years? And what would be the trend going forward?
In the first half of 2024, the Group recorded gross profit of RMB8,116 million, representing an increase of 3.6% over RMB7,834 million in the first half of 2023. The Group's gross profit margin in the first half of 2024 was 10.9%, representing an increase of 0.2 percentage point from 10.7% in the first half of 2023 and demonstrating the continued increase in gross profit margin. While catering for the scale of its development, the Group put stronger emphasis on improving quality and efficiency and guided its subsidiaries through appraisal to select and develop high-margin projects. At the same time, the Group continuously strengthened project management as well as cost control, and strove to enhance the value creation capability of its businesses. As a result of the above measures, gross profit margin continued to improve. With the Group's deepening deployment in digital economy, new infrastructure construction and industrial digitalization sector, it is expected that the proportion of high-value businesses will gradually increase and thereby driving the trend of the Group's overall gross profit margin to improve.
Q.3. What were the major measures that the Company implemented to reduce the cost and improve the efficiency?
In the first half of 2024, the Group carried out a number of measures to strictly control the costs and expenses, and implemented various work to improve the quality and efficiency, and achieved favorable results. The cost of revenues of the Group amounted to RMB66,296 million, representing a year-on-year increase of 1.5%, and the cost of revenues as a percentage of the total revenues decreased from 89.3% in the first half of 2023 to 89.1%. Among which, direct personnel costs amounted to RMB3,808 million, representing a decrease of 1.6% from RMB3,871 million in the first half of 2023. The Group has always kept a reasonable control over its total headcount, continuously optimized the employee structure and reasonably controlled staff costs, resulting in a decline in direct personnel costs. Subcontracting charges amounted to RMB41,233 million, representing an increase of 2.3% from RMB40,303 million in the first half of 2023. The Group further strengthened management over subcontracting and improved its self-sufficient delivery capabilities, thus making the continuous decrease in the growth of subcontracting charges. Materials costs amounted to RMB12,337 million, representing an increase of 3.8% from RMB11,886 million in the first half of 2023. The Group further strengthened the management of general contracting projects and enhanced the control of material costs through optimizing its internal procurement system and carrying out centralized procurement, resulting in a continuous slowdown in the increase in material costs.
For the selling, general and administrative (SG&A) expenses, the Group continued to increase investment in research and development (R&D), and R&D expenses as a percentage of total revenues increased to 3.1% in the first half of 2024; excluding R&D expenses, SG&A expenses as a percentage of total revenues would decline by 0.2 percentage point to 5.7%, which continued to be under good control.
Q.4. The Company emphasizes on seizing opportunities from digital economy and actively expanding strategic emerging industries, what are the specific aspects of the strategic emerging industries? And how did they drive the Company's business development?
Currently, there is an accelerating emergence of new quality productive forces that integrate digital technologies such as cloud computing, big data, and artificial intelligence. Meanwhile, the digital economy has become a crucial pillar for creating new development paradigms, offering vast market opportunities through societal digital transformation. In light of these new circumstances and opportunities, the Group will persist in value-led as well as innovation and transformation-driven approach, enhancing the quality and efficiency of traditional businesses, and further developing the strategic emerging businesses by focusing on new sub-segments, service models and trend of focal points.
The Group targeted the demands from governmental, industrial and corporate customers and, through consolidating its advantageous resources, focused on exploring strategic emerging industries including digital infrastructure, smart city, green and low-carbon, as well as emergency management and security. In the first half of 2024, the value of new contracts from strategic emerging industries recorded a year-on-year growth of over 40%, accounting for over 35% of the total new contracts value. The strategic emerging businesses have become the primary driving force for corporate development. From the perspective of customer mix of new contracts for strategic emerging businesses, domestic non-telecom operator ("domestic non-operator") accounted for the largest portion, and reached 66% in the first half of 2024, which was the major growth driver for such market.
In the field of digital infrastructure, by capitalizing on its integrated general contracting service capabilities of full-process consultation, design, and construction and maintenance, the Group focused on demand for intelligent computing, supercomputing and cloud business and endeavored to advance in three major sectors, including data center, cloud business, and 5G+. In the first half of the year, the value of new contracts in such field recorded a year-on-year growth of over 35%. The Group successfully undertook the construction of multiple computing hubs for "East Data, West Computing", while successively undertaking various intelligent computing, supercomputing center and AI computing power projects for industries such as finance, energy, manufacturing and Internet, etc., facilitating the scale development of segments such as cross-border e-commerce, data elements and artificial intelligence, etc., thereby contributing to the Chinese modernization of digital infrastructure.
In the field of smart city, with the accumulation of rich industry experience, and steered by the top-level planning of smart cities, the Group fully capitalized on the advantages of its "Consultation + General Contracting + Software + Platform + Service" capabilities to empower business expansion in fields such as smart government affairs, city governance, industrial economy and livelihood services, promoting the intelligentization of city management and services and elevating the level of city operation and management and public services. In the first half of the year, the value of new contracts in such field recorded a year-on-year growth of over 40%. The Group won bids for a number of large EPC general contracting projects in the fields of digital government, smart transportation, smart education and enterprise digital transformation, and replicated its advanced management experience in social governance overseas.
In the field of green and low-carbon, under the guidance of the national "Dual Carbon" strategy, the Group transferred and extended its advantages in traditional services to green and low-carbon businesses, and fully capitalized on its "Consultation, Construction, Operation and Maintenance, and Digitalization Capabilities" to provide upgraded services such as intelligent electricity infrastructure and ancillary facilities, new energy construction, energy usage services and carbon management to the five key industries of energy and electricity, information and communications, construction, industrial manufacturing, and transportation, thereby promoting the deep integration of the digital economy and the green economy. In the first half of the year, the value of new contracts in such field recorded a year-on-year growth of over 60%. Among the projects with contract value of over RMB100 million in strategic emerging businesses, green and low-carbon projects accounted for more than half and continued to achieve new breakthroughs.
In the field of emergency management and security, the Group deeply explored various sub-sectors within the field of emergency management and network information security, and strove to improve the standard of informatized management. In respect of emergency management, the Group developed various products for production safety as well as disaster prevention and mitigation catering to the needs of customers covering emergency management, chemical industry parks, forestry, water conservancy and enterprises in highly hazardous industries, etc., and such products were successfully replicated and promoted. In respect of network information security, the Group undertook multiple industrial cybersecurity projects for the national key information infrastructure in the field of information and communications, finance, healthcare and energy, etc., and provided customers with products for cybersecurity operation and products for information security. In the first half of the year, the value of new contracts in such field recorded a year-on-year growth of over 40%.
Q.5. In the past two years, the domestic non-operator market of the Company has had positive development, what services does the Company provide in such market?
The Group kept abreast of the trend brought by the reform of societal digitalization, seized the development opportunities of the digital transformation, and focused on strategic emerging industries represented by digital infrastructure, green and low-carbon, smart city as well as emergency management and security. Persisting in leading through consultation and design as well as empowerment by digitalization advantages, the Group leveraged its advantages of "Consultant + Staff + Housekeeper" services and "Platform + Software + Service" capabilities to provide customized and multi-scenario solutions to customers in government, energy and power, construction, transportation and other industries, increasing the value of business from such market remarkably. In the first half of 2024, revenue from the domestic non-operator market amounted to RMB32,409 million, representing a year-on-year increase of 2.5%, which was the largest contributor to revenue growth by customer in the first half of the year. Moreover, the Company focused on optimizing the business mix, controlling the development of low gross profit margin businesses, such that gross profit margin of domestic non-operator market increased significantly in the first half of 2024.
In the first half of 2024, the amount of new contracts from domestic non-operator market increased by about 10% year-on-year. Among which, new contracts from strategic emerging businesses increased by more than 45% year-on-year, accounting for more than half of the new contracts in such market, driving the overall development of the market significantly, and showing good development prospects.
Q.6. What strategy did the Company adopt to maintain a stable revenue in the domestic telecommunications operator market as the CAPEX of the domestic telecommunications operators has decreased significantly?
By persisting in the "CAPEX + OPEX + Smart Applications" development strategy, the Group overcame the difficulties brought by the domestic telecommunications operators' declining network investment, and actively served the new business needs of domestic telecommunications operators such as computing power network construction, 5G network construction and optimization, green transformation and industrial digitalization, assisting its customers to fortify their network quality and providing solid support for its customers to achieve high-quality development. In the first half of 2024, revenue from such market amounted to RMB40,024 million, representing a year-on-year increase of 0.1% and accounting for 53.8% of total revenues.
The Group further integrated itself into the ecosystem of operators in the domestic telecommunications operator market and seized the opportunities from traditional businesses and transformation. The Group grasped opportunities in AI computing power construction, industrial digitalization, 5G+ and new infrastructure construction, with a view to penetrating traditional CAPEX businesses. The Group explored the market potential of network maintenance, property management and supply chain services, and strived to increase the OPEX market share. It fully supported operators' demand for industrial digitalization in the course of transformation by proactively engaging in the market expansion of 5G industrial applications, industrial digitalization and network information security, and it assisted operators to achieve green development by supporting "zero carbon" data center construction, green retrofit of old machine rooms, and "Dual Carbon" energy-saving platform construction, which ultimately stabilized the fundamentals of business from the domestic telecommunications operators.
Q.7. How was the Company's development in overseas market? And what is the Company's outlook in the development of the overseas market?
The Group actively responded to the digital economy needs of countries along the "Belt and Road" by strengthening synergistic expansion and ecological cooperation with "Go Abroad" Chinese enterprises and focusing on the four key regions of Asia Pacific, the Middle East, Africa and Latin America to provide our customers with digital infrastructure construction, new energy construction, smart products and services as well as industry informatization solutions, securing multiple important projects. In the first half of 2024, the overseas market maintained rapid growth, with revenue reaching RMB1,979 million, representing a year-on-year increase of 26.0%.
The Group will further seize the opportunity to expand overseas market in the global post-pandemic era, by focusing on key regions, customers and businesses. The Group will coordinate its development with safety, and promote the safe and efficient development of overseas market by enhancing quality, strengthening management, and controlling risks.
Q.8. What were the Company's performance in businesses of TIS, BPO and ACO?
In the first half of 2024, revenue from the Group's telecommunications infrastructure ("TIS") services amounted to RMB37,666 million, which remained largely stable as compared to the same period of last year, accounting for 50.6% of total revenues. Revenue from business process outsourcing ("BPO") services amounted to RMB22,163 million, representing a year-on-year increase of 2.0%, accounting for 29.8% of total revenues. Revenue from applications, content and other ("ACO") services amounted to RMB14,583 million, representing a year-on-year increase of 6.0%, accounting for 19.6% of total revenues, which was the largest contributor to revenue growth by business segment in the first half of the year.
With the in-depth promotion of the Digital China strategy, the pace of digital information infrastructure construction has accelerated, driving the competition in digital construction sector to evolve towards a higher level and greater refinement. Amid the complex external environment and fierce market competition, the Group seized the opportunities arising from 5G, new infrastructure construction as well as industrial digitalization, and enhanced its integrated comprehensive smart service capabilities, thus making the revenue from TIS services remain largely stable. The Group further consolidated its resources and promoted specialized operations, resulting in the steady growth in BPO services that possess attributes such as strong customer loyalty and short cash conversion cycle. By strengthening technological innovation consistently, the Group aggregated its capabilities in research and development as well as product development, and focused on the business opportunities in informatization construction such as smart city upgrade, enterprise digital transformation and emergency management. As a result, the Group effectively fulfilled the customers' demand for digitalization and drove the business development of system integration and software development, making the revenue from ACO services continue to maintain solid growth momentum.
Q.9. Which areas did the Company invest research and development in? What were the results?
By deeply implementing the innovation-driven strategy and unwaveringly promoting self-reliance and self-enhancement in technological innovation, the Group empowered the cultivation of new quality productive forces by technological innovation to facilitate high-quality corporate development. In the first half of 2024, the Group accelerated the optimization and reform of the technological innovation system to strengthen synergistic research and development. Also, the Group established the Technological Innovation Committee, with which a team of more than 300 group-level technological experts was formed in order to continuously optimize the management and support system for technological innovation and further reinforce the foundation of technological innovation.
In the first half of the year, the Group made key deployment in strategic emerging industries and future industries, and continuously increased its investments in technological research and development, with research and development expenses totaling RMB2,314 million, representing an increase of 11.1% year-on-year. In the fields of digital infrastructure, smart city, green and low-carbon, as well as emergency management and security, the Group targeted the intelligent, security and scenario-based demands from customers and developed various key products for industries. In the field of artificial intelligence, the Group targeted key customers in the sectors of communications, government, emergency management, e-commerce, transportation and campus, etc., and developed various artificial intelligence applications. Currently, the Group has accumulated more than 3,600 authorized patents and more than 9,700 software copyrights. A number of core products and solutions were selected as major projects and pilot demonstration projects of national ministries.
By leveraging the technological innovation to speed up its business transformation and promoting deep integration of its technologically innovative products and services, the Group developed integrated service capabilities with green, intelligent and secure elements which feature technological significance to continuously improve the value of its businesses. The Group capitalized on the "Industry Center + Regional Platform" marketing matrices across the country to strengthen the promotion and commercialization of technologically innovative products continuously. In the first half of the year, revenue from software development and system support increased by 11.4% year-on-year and contributed 24% of revenue growth.
Q.10. What was the dividend paid by the Company? What's the dividend policy of the Company?
Considering the sound operating results and cash flow for the full year, and to further increase shareholders' return, the Company increased the dividend payout ratio from 40% in 2022 to 42% for the financial year ended 31 December 2023, and pay a final dividend of RMB0.2174 per share, representing a year-on-year increase of 12.1%. Please refer to "Dividend History" for more details.
The Company attaches great importance to the returns of shareholders. Taking into the consideration of the long-term interest and sustainable development of the Company, and with the support of the Group's profitability, the Company strives to maintain the continuity and stability of the dividend policy. In the past 10 years, we have adhered to the policy of "continuous growth, steady enhancement" to pay dividend. The factors to be considered by the Company when formulating the dividend distribution plan are as follows:
1. Current and expected operating results and cash flow performance;
2. Future business development strategies and operating position, as well as future capital needs;
3. Daily working capital needs;
4. Expectations of shareholders and investors; and
5. Other factors that the Board deems appropriate
Basic Information
Q.1. What kind of Company is China Comservice?
China Comservice (China Communications Services Corporation Limited) is a leading service provider in the informatization sector in the PRC that positions itself as a "New Generation Integrated Smart Service Provider", leverages its strength as "Builder of Digital Infrastructure", "Provider of Smart Products and Platforms", "Provider of Industrial Digitalization Services", "Guard of Smart Operation" ("1 Positioning, 4 Roles"), the Group commits to "Building Smart Society, Boosting Digital Economy, Serving a Good Life". The Group provides integrated comprehensive smart solutions for the informatization and digitalization sectors. It is also the largest telecommunications infrastructure service provider in the PRC. Our services include telecommunications infrastructure services (TIS) covering design, construction, and project supervision and management; business process outsourcing services (BPO) covering network maintenance, property management, supply chain and products distribution; applications, content and other services (ACO) covering system integration, software development and system support, value-added services and other services. (Please refer to "Corporate Profile" and "History" for more details)
Q.2. When was China Comservice listed?
The Company was listed on the Stock Exchange of Hong Kong on December 8, 2006. The offering price was HK$2.20 per share. (Please refer to "Share Information Overview" for more details)
Q.3. Who are the major shareholders of China Comservice?
China Telecommunications Corporation is our controlling shareholder which holds 3,393 million domestic shares, representing 48.99% of our total issued shares. In addition, China Mobile Communications Group Co., Ltd., China United Network Communications Group Company Limited, State Grid Information & Telecommunication Group Co., Ltd. and China National Postal and Telecommunications Appliances Co., Ltd. hold 608 million, 236 million, 166 million and 131 million domestic shares, representing 8.78%, 3.41%, 2.40% and 1.89% of total issued shares respectively. The public holding is 2,391 million H share, representing 34.53% of our total issued shares. (Please refer to "Shareholding Structure" for more details)
Q.4. Who are the major customers of China Comservice?
All major telecommunications operators in China, namely, China Telecommunications Corporation, China Mobile Communications Group Co., Ltd., China United Network Communications Group Company Limited, China Radio and Television Network Co., Ltd and China Tower Corporation Limited are our customers. We also provide services to domestic non-telecom operator (the "domestic non-operator") customers and overseas customers. In the first half of 2024, revenue from domestic telecommunications operator customers accounted for 53.8% of total revenues, revenue from domestic non-operator customers accounted for 43.5% of total revenues and revenue from overseas customers accounted for 2.7% of total revenues.
While further developing domestic telecommunications operator market, the Group has also endeavored to expand the domestic non-telecom operator market. The Group proactively provides services, such as smart city solutions, municipal infrastructure, intelligence building and data center construction, to key customers such as government agencies and customers in the industries of construction, Internet & IT, transportation, electricity, etc.
Other than China, the Group's business also covers dozens of countries and regions globally, and its overseas customers are mainly located in the emerging markets including Asia Pacific, the Middle East and Africa. (Please refer to "Our Business" for more details)
Q.5. What are the businesses under Telecommunications Infrastructure (TIS) Services of the Company?
The Group is the largest telecommunications infrastructure service group in the PRC, providing a full range of telecommunications infrastructure services to telecommunications operators in China and overseas. These services include planning, design, construction and project supervision for fixed line, mobile, broadband networks and supporting systems. The Group also provides construction services of ancillary communications networks, integrated solutions for informatization and intelligentization solutions of industries to domestic non-operator customers such as government agencies, industrial customers and SMEs, as well as overseas customers. (Please refer to "Our Business" for more details)
Q.6. What are the businesses under Business Process Outsourcing (BPO) Services of the Company?
The Group is the largest integrated provider of business process outsourcing services in the communications industry in China. The Company can provide customers with all-round quality outsourcing services including management of infrastructure for information technology ("network maintenance"), general facilities management ("property management"), supply chain and products distribution services. The target of our services includes domestic and overseas telecommunications operator customers, government agencies and enterprises customers. The Group focused on OPEX-driven business of domestic telecommunications operators, and strengthened the synergistic operation and brand building of OPEX-driven business. (Please refer to "Our Business" for more details)
Q.7. What are the businesses under Applications, Content and Other (ACO) Services of the Company?
The Group provides information system integration and project implementation, industrial digitalization application and solutions, proprietary software and platform product development, digitalization business and IT system support as well as value-added services to customers including domestic and overseas telecommunications operators, government agencies and enterprise customers. (Please refer to "Our Business" for more details)
updated 8th October, 2024
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