Raising dividend with lower CAPEX
　　China Unicom raised full year dividend payout to 55% in FY23 and also plan to reduce their FY24 CAPEX by 12% to RMB65bn or 18% of estimated FY24 service revenues. This is ahead of market expectation and is likely to support further improvement in shareholder return in the future. Significant earnings potential can be expected once the locally sourced AiDC was fully deployed into operation from FY24 onwards. Reiterate BUY.
　　Key Factors for Rating
　　4Q net profit increased by 37.3% YoY to RMB1.5bn , in line with the Company’s pre-announced number on 5 March 2024. Service revenue increased by 3.7% YoY to RMB82.7bn, in line with BOCI estimates.
　　4Q EBITDA declined by 6.4% YoY to RMB21bn and EBITDA margin trended down to 25.4% which we attribute to higher R&D and product development required for cloud/AI related businesses as the Company develop full stake proprietary products.
　　Management expect total CAPEX in 2024 to decline 12% YoY to RMB65bn, with at least RMB10bn dedicated to Calculating power (算力) networks that include nationwide calculating power pools for inference, training as well as generic computation processing power.
　　Total dividend payout for FY23 reached 55%, with final dividend of RMB0.1336 per share after RMB0.222 interim dividend.
　　Key Risks for Rating
　　Supply chain disruption may hinder the company’s initiatives on cloud service and industrial internet businesses. US sanction on financial investment continues to overhang the company’s valuation.
　　Valuation
　　Reiterate BUY and DCF based target price was unchanged at HK$7.47 despite 6.2% and 8.6% revision of 2024/25E estimated earnings as we also factor in lower CAPEX for 2024 at RMB65bn or approximately 18% of the Company’s estimated service revenues for the year. The reduced CAPEX not only helps to support the Company’s FCF but also potentially leads to higher dividend payout (currently at 55% in FY23).