2H earnings increased 5.8% YoY on the back of 5.5% revenue growth mainly driven by domestic non-operators that accounts for 43% group sales in FY23. Being the primary IDC subcontractor in China, we expect the Company to benefit from rising demand on AiDC construction. With track record of 2ppt dividend payout increment per annum, 44% dividend payout indicate dividend yield of 7.5% based on 8.1% estimated earnings growth in 2024.
Key Factors for Rating
2H earnings increased 5.8% YoY to RMB1.55bn, 2.4% below our estimates and in line with consensus, on the back of 5.5% revenue growth to RMB75.445bn, beating BOCI estimates by 1.2%. Domestic non-operator market increased 6.3% YoY for the full year 2023 to RMB63.4bn, taking up 43% of the group’s total revenues 2023. The company focused on Strategic emerging businesses were the major growth drivers, contributing 90% of new contract growth in the domestic non-operator market. New contracts of strategic emerging businesses increased by 19% YoY in which, Green and Low-carbon and Smart City projects as main drivers.
Being the primary subcontractor of IDC construction, the Company completed IDC construction contracts for RMB12bn in 2023, up 35% YoY, half of which is built for telecom operators, with the other half for 3rd party IDC operators and major internet platform operators.
RMB0.2174 per share full year dividend declared, indicate dividend payout ratio of 42%. The dividend payout ratio saw steady increase by 2 percentage points per annum since 2020 at 36%.
Key Risks for Rating
Macro economy headwinds may become and factor to slow down IT spending from enterprises and municipal government.
Valuation
Reiterate BUY, target price lowered from HK$5.05 to HK$4.96 with minor revision of sales and earnings in FY24/25 with forward PE maintained at 8.1x. Declared 2023 dividend at RMB0.2174 per share indicates dividend yield of 6.64%.
Solid 2H with Margin Improvement
CCS reported 2H23 results on 27 March after the morning trading session in Hong Kong.
2H earnings increased 5.8% YoY to RMB1.55bn, 2.4% below our estimates and in line with consensus, on the back of 5.5% revenue growth to RMB75.445bn, beating BOCI estimates by 1.2%;
Telecom Infrastructure Service revenues increased by 1.6% YoY in 2H23 to RMB38.449bn. Revenues from ACO (Application, Content and Others) increased by 25.4% YoY in 2H23, accounting for 20.1% of the group’s total revenues, thanks to the rapid development of the company’s technological innovation and R&D in cloud computing, network security and industry internet applications.
Domestic non-operator market increased 6.3% YoY for the full year 2023 to RMB63.4bn, taking up 43% of the group’s total revenues 2023. The company focused on Strategic emerging businesses that were the major growth drivers, contributing 90% of new contract growth in the domestic non-operator market. New contracts of strategic emerging businesses increased by 19% YoY in which, Green and Low-carbon and Smart City projects as main drivers.
Being the primary subcontractor of IDC construction, the Company completed IDC construction contracts for RMB12bn in 2023, up 35% YoY, half of which is built for telecom operators, with the other half for 3rd party IDC operators and major internet platform operators.
Gross margins increased 0.3ppt despite rapid increase in subcontracting costs and raw material costs. Management expects gross margin to remain stable in the next few years.
RMB0.2174 per share full year dividend declared, indicate dividend payout ratio of 42%. The dividend payout ratio saw steady increase by 2 percentage points per annum since 2020 at 36%.