1H earnings increased 7.33% YoY to RMB2.034bn, in line with BOCI estimates and ahead of market consensus, thanks to improving revenue mix with gross margin expansion. Enjoying 80% market share in IDC/EPC design and engineering consultancy national wide, CCS is running at the forefront of digital infrastructure build up. We see the share attractive trading on 6.5 FY23 earnings with FY23 dividend yield expected at 6.8%. Reiterate BUY, target price unchanged at HK$4.90.
　　Key Factors for Rating
1H earnings increased 7.33% YoY to RMB2.034bn, 0.8% higher than BOCI estimates and ahead of market consensus. 1H revenue increased by 8.9% YoY to RMB75.4bn, 3% lower than BOCI estimates largely due to slowdown in BPO or business process outsourcing revenue growth, which only increased 0.9% YoY that accounted for 30% of the group’s total revenue in 1H23. Management expect full year growth of BPO revenues should still be lower than other two segment （TIS and ACO） due to the low margin nature of the segment. Improving revenue mix and grow their higher margin business faster is part of the management strategy to improve long-term gross margin. Gross margin increased 0.1ppt to 10.7% with gross profit increased 7.41% YoY.
Sales to domestic telcos increased 7.5% YoY with RMB2.78bn incremental revenues on the year-on-year basis that contributes 71% of the group’s year on year incremental revenues; when examined on product mix, TIS revenues increased 7.5% YoY by RMB2.639bn, accounting for 67% of the group’s total revenue growth.
The TIS revenue growth include 15.3% and 31.5% growth in design and software development revenues as the Company target Cloud, Data Centre and 5G+ as their key growth driver and focused on digital infrastructure （data center, intelligent computing center, cloud）， dual-carbon （green retrofit of old machine rooms） and industrial digitalisation.
　　Key Risks for Rating
Macro economy headwinds may become factor to slow down IT spending from enterprises and municipal government.
　　Valuation
　　Reiterate BUY, target price unchanged at HK$4.90. We see the share attractive as it trade on 6.5 FY23 earnings with FY23 dividend yield expected at 6.8%.
　　Heading
1H23 result review