China Telecom Corp Ltd

SSE:601728

Q2-2025 Earnings Call

[Huang Li Ping, executive]

Good afternoon, ladies and gentlemen, investors and analysts. I am Investor Relations Department, Managing Director of Mr. Huang Li Ping. Welcome all of you to come to China Telecom's 2025 Interim Results Investor Presentation.

First of all, let me introduce the management present today. They are Mr. Ke, Ruiwen, Executive Director, Chairman and CEO; Mr. Liu, Guiqing, Executive Director, President and COO; Mr. Tang Ke, Executive Director and Executive Vice President; Mr. Li Yinghui, ED, Executive Vice President, Financial CFO and Board Secretary. Today's meeting will be divided into two parts, including the results presentation and Q&A. The meeting will be conducted in Mandarin with simultaneous interpretation. During the meeting, please silence your handsets.

Next, we will please invite our Chairman, Ke Ruiwen, to introduce the 2025 interim results.

[Ruiwen Ke, executive]

Ladies and gentlemen, good afternoon. Welcome to the company's 2025 interim results presentation. Thank you for your continued attention and support to the company. Today's result presentation will be divided into two parts. First, I will introduce company's overall results and Mr. Liu Guiqing will introduce the company's business and financial performance.

In the first half, the company's development highlights was mainly reflected in the following certain aspects: first, stable growth in operating results; second, completed the construction of intelligent cloud system; third, accelerate the building of leading sci-tech enterprise; fourth, adhere to green and site secure development; fifth, deepen reform and open up to enhance governance capability; sixth, continue to enhance shareholders' return; sixth (sic) [ seventh ] comprehensive rate of cloudification, digital transformation and AI focused strategy.

The company sees -- the development of opportunity and vast potential brought by the new rounds of sci-tech revolution and industrial transformation fully embraced AI in strategic initiative, achieved stable growth in operating results and made new achievements in new quality development. In the first half, the company's service revenue increased 1.2%, surpassed the industry average growth rate. Net profit increased by 5.5%, maintained a growth rate higher than that of revenue.

EBITDA grew 4.9% with EBITDA margin lifting 1.2 pp, further enhanced profitability. ROE increased by 0.2 percentage points and shareholders' return continued to enhance. The company continued to promote the innovative [indiscernible] development of dual engine of fundamental businesses and Industrial Digitalization with fundamental business achieving steady growth and strategic emerging business developed rapidly.

In the first half, the company deepened value operation with high-value integrated subscriber reaching 63.54 million. AI app and handset subscribers exceeding 100 million. 5G subscriber penetration, 65.2%. Gbps subscriber penetration 30.5%. Revenue from strategic emerging key products maintained rapid growth with China Telecom Cloud revenue CNY 57.3 billion. Intelligent revenue increased 89.4%. Security revenue increased 18.2%. IoVT revenue increased 46.2%. Satellite revenue increased by 20.5% and quantum revenue increased by 171.1%.

The first technology, Xirang, as the core, the company has completed the construction of intelligent cloud system, leveraging cloud-network integration providing integrated intelligent cloud services compute platform data model and application. In terms of compute as a service, the company provide heterogeneous computing power services covering general intelligent, super and quantum computing with a total proprietary and accessed computing power reaching 77 EFLOPS. In terms of platform as a service, the company provides one-stop compute power scheduling and AI development service to meet customers' needs in training and inferencing.

In terms of data as a service, deeply integrated proprietary data set, open source data sets and third-party data sets. In terms of model as a service, the company's open sourced full-modal, full-service and fully domestic Xingchen large model as well as a third-party foundational large model and various industry-specific large model met diverse needs. In terms of application as a service, the company created standard AI products, launched industrial and agent services for net needs, served smart living for individual and households and empower digital and intelligent transformation of production and governance.

China Telecom Cloud has fully entered into a cloud new stage of development of intelligent cloud, providing comprehensive intelligent service to meet diverse needs of the intelligent era forming leading market advantage. The core of the intelligent cloud system is technology. The company focused on four major technology network, cloud and -- cloud network integration AI quantum security comprehensively promote technology innovation for AI from underlying infrastructure to upper layer application.

The company continued to breakthrough in key core technologies, strengthen high-quality technological supply and achieve breakthroughs in key technologies such as compute power integrated scheduling and training, inferencing and acceleration. It innovatively proposes the Triless architecture, realizing the triple decoupling of resources, frameworks and tools.

The company continued to upgrade the foundation large model innovatively built the AI for technology system, breakthroughs promotes breakthrough of joint computing involving tens of billions of massive data tackle key technology for high-quality dataset construction governance. It also have launched the PRC first open-source model foundational security guardrail with protection capability reaching an industry-leading level.

The company continued to promote intelligent transformation and upgrade economy and society through sci-tech empowerment. The company deeply promoted AI+ action, transforming sci-tech achievement into AI+ products. Starting the internal application, it has developed over 160 AI applications across 21 key areas, including customer service channel operation and cloud operation to facilitate cost reduction, the entertainment and quality of efficiency for the enterprise.

Based on internal applications, the company accelerated external empowerment of AI applications fully integrated into open since of government industries and SOEs accumulatively create over 80 industry large models and more than 30 AI engine applications, empowering over 20,000 industry customers, including numerous central SOEs. In the first half, intelligent revenue reached CNY 6.3 billion, maintaining rapid growth.

In terms of data elements, the company's Xinghai data core platform fully integrate AI capabilities, providing comprehensive technical support for data element circulation, intelligent data processing and data security. The Xinghai Big data series products deeply integrated company's proprietary data with public data and industry data, accelerating the release of data element rally and assisting various enterprise in building high-quality data sets and promoting efficient circulation of data elements throughout the society.

The company has steadily promoted Quantum+, gained control of QuantumCTek, deployed upstream quantum information technology aggregate industry chain partners continuously enrich the Quantum+ product supply, accelerate application implementation and promote the high-quality development of quantum technology and industry. In the field of Quantum Communications, the business scale quantum encrypted calls and quantum intercoms has expanded with a number of Quantum Communication subscribers exceed 6 million, serving over 3,000 industry customers.

In the field of quantum computing, the company served the research and development of super conducting quantum computing chip providing quantum computing service and quantum disciplined teaching and research service for industries and central enterprises.

The Tianyan Quantum Computing Cloud platform record over 30 million times of visits covering users in more than 60 countries and regions. In terms of quantum measurement, quantum precision measurement technology products are accelerating the application. The demand for typical applications such as low-altitude detection and exploration is flourishing.

Adhere to the principle of network as foundation, cloud as a core, the company fully leveraged the edge of cloud network integration grabs the direction of intelligent development, in particular to adapt the traffic and flow requirement of the network in the new AI era and accelerate the intelligent upgrade of digital information infrastructure, providing solid foundation for AI development.

In the first half, the company's CapEx was CNY 34.2 billion, and its percentage of revenue continued to decline. Facing the intelligent cloud system, on one hand, we will moderately advance the deployment of compute infrastructure. Based on the 10,000 GPU cluster in Beijing-Tianjin-Hebei and the Yangtze River Delta will build super-node shaped cluster at the GuangdongHong Kong-Macao Greater Bay Area reaching 43 EFLOPS of proprietary intelligent compute and [indiscernible] partners compute, accelerating the upgrade of AI to AIDC.

On the other hand, we compressively deepened building co-sharing, strengthened the capability of fundamental connectivity network, built a high-quality network with high mid- to low-band coordination and 4G/5G integration, continuously promote upgrade of 5G-A network capability and officially commercialized nationwide.

By promoting the co-building and co-sharing of the backbone industry, we enjoyed more CapEx savings. The company proactively implemented the concept of green development, accelerate green transformation of digital information infrastructure, carry out green renovation of facilities, rooms and green upgrades of base stations, deepened the innovative application of energy-saving technologies such as AI for promoting transformation of energy consumption structure. Green electricity consumption exceed 1.4 billion kilowatt hour.

The company innovatively promoted coordinate development of compute and electricity. In the first half, the greenhouse emission per unit of total volume of telecom service achieved double-digit decline. At the same time, the company strengthened the empowerment of green products and service, promote expansion of key products such as environmental protection, cloud platform and green lighting and its green ICT service over multiple fields such as environmental monitoring, smart manufacturing.

The company continued to build differentiated intelligent cloud security service, constantly strengthen its security protection system comprised of a secured infrastructure network, highly -- high-quality security data warehouse, security operation platform and security product and service covering cloud network edge and terminal. In first half, security revenue reached CNY 9.1 billion, representing an increase of 18.2%.

The company continuously explores the integrated innovation of security and AI, empowering each other, create the change more security corpus, continuously iterate the Jianwei Xingchen security large model using AI technology, enhancing critical infrastructure protection capabilities and accelerate intelligent upgrade of security service.

To address common security issues arising from the development of AI industry, we built a security guardrail for large model foundation, strengthen AI security governance and promote more secure and reliable and controllable AI. The company focused on the intelligent cloud system. Further comprehensively different reform continuously expands open up and cooperation perfect the governance system enhanced governance capabilities.

We comprehensively enhanced systematic open cooperation capabilities, promote deep level of cooperation in technology, digital information infrastructure, capital data and talent, introduce high-quality external resources into enterprise, integrate internal high-quality resources externally and build a fosters cooperative ecosystem. At the same time, we deepened the system and mechanism reform in areas such as sci-tech innovation, strategic emerging business, talent development and market-oriented operation, accelerate the establishment of production relations that adapted to new quality productive forces.

We proactively fostered a favorable environment for a wide range of talent to pursue their career and entrepreneurship, promoting modernization of corporate governance system and capabilities to continue to stimulating the motivation and motility of the company high-quality development. The company proactively fulfilled its social responsibility, providing communication assurance for important event and building an integrated space ground emergency communication system.

It vigorously support rural vitalization and universal services continue to bridge the urban rural digital divide. It [indiscernible] engage in public welfare, serving the wide public, it cares for employees, encouraging individual development and growth and credit with CSR awards for 6 years. The company high-quality development is in separate from long-term support from shareholders, analysts and media. We will, as usual, work hand-in-hand with everyone to share the fruits of development.

The Board has resolved a distributed interim dividend for 2025, represent 72% of profit attributable to equity holders with DPS of RMB 0.1812, an increase of 8.4%. Profit to be distributed in cash as a percentage of the profit attributable to equity holders of the company in 2025 will further increase compared to 2024.

In recent years, the company has fully implemented the clarification and digital transformation strategy, continuously promoting its corporate transformation from traditional telco to service-oriented, technology-oriented and secured enterprise constantly exploring new path to tech operative transformation and development with characteristics and take solid steps towards corporate high-quality development.

At present, global sci-tech innovation has entered an unprecedentedly period with new round of sci-tech regulation and industrial transformation represent AI and quantum technology accelerating its development and the company development enters a critical stage. The company sees the momentum and grabs direction and to upgrade the corporate strategy to cloudification, digital transformation and AI focus adhering to a customer-oriented approach driven by reform and open up with sci-tech innovation as a core, cloud network innovation at foundation, green and secure development as a bedrock, a smart digital platform as a whole and team as a route. It continues to promote high-quality development to achieve new results and constantly create new value for shareholders, customers and society.

My introduction ends here. Next, Mr. Liu, Guiqing will present the company's business and financial performance. Thank you.

[Guiqing Liu, executive]

Thank you, Chairman, Ke. Ladies and gentlemen, good afternoon. Next, I will introduce the company's business and finance performance for the first half. In the first half, the company's revenue across all business lines achieved steady growth. Operating expenses were effectively controlled and profitability continued to enhance.

Next, I will further introduce the development of various businesses. The company adhered to the customer-oriented approach, accelerating the intelligent integrated upgrade of fundamental business and continuously meeting customers' diverse scene-based AI demands. The company launched its self-developed AI agent, XingXiaochen, to empower intelligent upgrades of terminals, accelerate the scale development and intelligent terminals such as AI smart display and further upgrade to the beautiful home product portfolio, allowing users to enjoy multi-scenario smart home applications such as safe home, healthy homes, entertainment homes, low-carbon homes and smart homes, enriching new scenes for smart livings.

In the first half, the company's mobile communication service revenue increased 1.3%. Wireline and Smart Family service revenue increased by 0.2%. The value of mobile and broadband subscribers remained stable. The company has deeply cultivated the digital economy, digital society and digital government admin field with digital intelligence, promoting industry upgrades. In the first half, revenue from Industrial Digitalization reached CNY 74.9 billion.

China Telecom Class served 5.14 million 2B customers. The company continues to upgrade its digital platform capabilities, covering the key areas such as smart cities, social and people's livelihood, emergency safety, launching over 250 applications since and 450 full stack solutions, continuously empowering digital transformation for key industry customers and helping customers to enhance quality, reduce cost and increase efficiency.

The company accelerates the digital and intelligent transformation of thousands of industry by empowering them with integrated intelligent cloud services with compute platform data model and application. In terms of compute power and platform, we continue to optimize compute power supply to provide customers to secure, reliable, intelligent and agile, green and low-carbon computing training, inferencing and other services.

AIDC maintained good growth with revenue increased by 7.4%. In terms of data, Xinghai data element platform has gathered 10 trillion tokens of model training data, forming high-quality data sets for 79 scenes in 6 industries as well as 36 integrated data products in areas such as financial service, urban governance and health care. In terms of models and application, the company launched smart terminals products such as AI handsets, AI smart displays and AI all-in-one machines and rich industry large models and agents and joined more than 30 central SOEs to create benchmarks for AI plus applications, empowering the digital and intelligent transformation of production and governance for enterprise.

The company continues to strengthen its security products and service capabilities with AI and quantum technologies, enhancing the intelligent level of data, operation and protect through security plus AI intelligence and building mechanisms for large model security detection and risk screening to achieve intelligent security protection.

The company accelerated the construction of a nationwide integrated quantum security infrastructure, launching over 40-plus Quantum+ products in solutions in government -- political and legal affairs, education, industry and other fields, creating a number of application demonstrations of integrated innovation between quantum technologies and industry.

In the first half, the company's security products maintained rapid growth. The Cloud Dam revenue increased by 52.7%. ZeroMile revenue doubled year-over-year. Security Brain exceeded 530 lines and Quantum business revenue increased by 171%. The company's new generation information and communication business is rapidly expanding. The IoVT has built high-quality video big data, innovated the business model for video data governance and formed full-link end-to-end security services with revenue increasing by 46.2%.

IoT and AI deeply integrated based on the intelligent connected ring vertical model. AIoT platform capabilities are upgraded and internet services for IoV, green energy saving, residential cities and public service and powered intelligent connections of everything. Satellite communications service continued to expand with over 22 million handsets direct-to-satellite devices. Direct-to-satellite vehicle service expanded to 6 automakers.

And Aviation Internet market share taking a leading position. Satellite business revenue increased by 20.5%. In low-altitude economy field, the company has built 1+1+3+N” capability system, empowering over 60 application scenes and implementing over 130 projects over more than 78 cities. The company continues to increase the global cloud-network resources and equal deployment, seizing opportunities for new strategic business to expand overseas.

International business remained rapid [indiscernible]. Revenue reached CNY 9.5 billion in the first half, representing an increase of 18%. The company's strategic imaging business continued to make breakthroughs in overseas market with overseas cloud revenue increase of 62%, earning recognition as a leader in the global overseas cloud services. Handsets direct-to-satellite services has commercially launched officially in Laos, expanding services to Southeast Asian countries.

The e-Surfing IoVT International Platform was officially released, collaborating with the industry ecosystem to provide open and cocreate intelligent video services for the global market. New progress has been made in overseas projects related to quantum security and IoT.

The company strengthened AI empowerment and refined management, deepened digital empowerment to reduce costs and enhance efficiency, continuously increase resources utilization with operating expense increased 0.9%, 0.4 p.p. lower than the growth rate of the operating revenues. In the first half, the company's financial strength continued to enhance with net profit margin increased by 0.3 percentage points year-over-year.

And ROE increased by 0.2 percentage points year-over-year. The capital structure remains sound and corporate credit rating was the highest AAA level. In the second half of the year, the company will fully implement the cloudification, digital transformation and AI for good strategy with development driven by innovation, comprehensively deepen reform, deepen AI+ action and accelerate infrastructure upgrade to promote the high-quality corporate development, established and improved the five problems, operation system, maintain favorable growth in service revenues, EBITDA and net profit for the full year and achieve rapid growth in intelligent revenues. This concludes the presentation. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]