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What were the reasons for the continuous improvement of operating results and efficiency after the 4G investment peak of domestic telecommunications operators in the first half of 2016? And what were the reasons for the significant growth of free cash flow by more than ten times compared with the same period of last year?
During the first half of 2016, the Group upheld the management philosophy of "innovation and transformation, seeking steady yet progressive growth and efficient development". Against the backdrop of the macro-economic downturn and the decrease in service charges, the Group endured the unfavourable impact and captured opportunities in the domestic telecommunications operator market whilst persisting in the development of the "Two New Markets" of the domestic non-operator market and overseas market, resulting in continuous optimization in revenue structure of business and customer. The Group achieved total revenues of RMB42,176 million, representing a year-on-year growth of 12.3%. Profit attributable to the equity shareholders of the Company was RMB1,386 million, representing a year-on-year growth of 9.1%, with a noticeable increase in the growth rate when compared to 2.7% in the same period last year. The quality of our business development continued to improve.

The Group adhered to the "value driven" appraisal principle and delivered remarkable results with the continuous strengthening in the management of working capital. As a result, turnover days of accounts receivable were 124 days, achieving a year-on-year decrease of 16 days, driving the significant growth in free cash flow from RMB151 million in the same period last year to RMB2,385 million in the first half of 2016.
What were the reasons for the steady revenue growth in the domestic telecommunications operators market of the Company amid the decline in investment from them in the first half of 2016? Since the establishment of China Tower, what are their contributions to the Company's business?
The Group leveraged on both "CAPEX and OPEX-driven" businesses as the dual growth drivers to accelerate the development of domestic telecommunications operator market, and recorded a steady increase in our overall market share. Revenue from such market amounted to RMB27,240 million, representing a year-on-year growth of 14.4% and accounting for 64.6% of the total revenues. Among that, revenue from China Telecom was RMB16,435 million, representing a year-on-year growth of 3.7% and accounting for 39.0% of the total revenues.

Besides, the Group thoroughly expanded the domestic telecommunications operator market other than China Telecom by strengthening high-end marketing, capturing good opportunities arising from the strategic cooperation between China Telecom and China Unicom and capitalizing on the preferential treatment and non-competition arrangements with the China Tower. As a result, domestic telecommunications operator customers other than China Telecom became the main business growth driver in the first half of 2016 and revenue from such customers amounted to RMB10,805 million, representing a significant increase of 35.9% as compared with the same period last year, and accounting for 25.6% of the total revenues, an increase of 4.4 percentage points compared to that of last year. Among that, revenue from the China Tower achieved the fastest year-on-year growth and was the biggest contributor to incremental revenue among the domestic telecommunications operators. Revenue from China Unicom also recorded a significant growth over the same period last year.
How was the development of domestic non-operator market in the first half of 2016? And how did it support the overall development of the Company in the first half of 2016?
During the first half of 2016, the Group's revenue from the domestic non-operator market was RMB12,784 million, representing a year-on-year increase of 5.0% and accounting for 30.3% of the total revenues. In particular, revenue from TIS services and ACO services of domestic non-operator market recorded a year-on-year increase of 53.2% and 22.6%, respectively, constituting the main revenue growth drivers for the domestic non-operator market and one of the major factors in supporting the overall development of the Company in the first half of 2016.

With a focus on key sectors including government, energy, transportation and internet, the Group continued to achieve breakthroughs in construction for data centre, low voltage communication projects and urban communication pipelines relocation, and the internal synergistic development and promotion of the six major group-level products (including smart city, smart security, smart industrial park, intelligent building, cloud computing services and e-certification) also achieved substantial progress. The Group adhered to its "value-driven" development philosophy and enhanced its risk awareness amid the current economic conditions, and exercised more stringent selection and control on the expansion of products distribution business during the first half of this year. Revenue from such business in the domestic non-operator market recorded a year-on-year decrease of 31.8%.
How was the overall development in overseas market during the first half of 2016?
During the first half of 2016, the overseas business of the Group resumed steady development and realized a revenue of RMB2,152 million, representing a year-on-year increase of 35.9% and accounting for 5.1% of the total revenues, which reversed the downward trend of revenue in the last two years. We closely followed the national "Belt and Road" Initiative and the "10 Major Plans of Sino-African Cooperation", and proactively promoted our "China-Africa Partnership Program in Trans Africa Information Superhighway" Project, which has been identified as a key project of the relevant ministry of the PRC government in 2016. In addition, the Group has entered into a letter of intent for multilateral cooperation with domestic financial institutions, equipment vendors and the governments and operators of African countries for such project. During the first half of this year, the Group has been steadily pushing forward the implementation of turnkey projects such as national fiber cable backbone network project (Phase III) in Tanzania and proactively utilizing financial instruments such as accounts receivable factoring to facilitate the settlement of overseas projects and avoid operational risks.
How were the development of TIS, BPO and ACO businesses in the first half of 2016?
During the first half of 2016, the Group's telecommunications infrastructure ("TIS") services was the main driver to the growth of our operating results. Coupled with the healthy growth of both the "core businesses" (including management of infrastructure for information technology, general facilities management and supply chain(1)) of business process outsourcing ("BPO") services and the applications, content and other ("ACO") services, as well as the effective management of the products distribution business(1), the Group continued to optimize its overall revenue structure.

While capturing the opportunities arising from the 4G construction and capacity expansion of fiber optic broadband of domestic telecommunications operators and the enlarged construction scale of the China Tower, we also vigorously explored the demand for construction of informatization projects from domestic non-operator customers and overseas customers. Revenue from TIS services amounted to RMB21,687 million, representing a year-on-year growth of 20.3% and accounting for 51.4% of the total revenues. Among that, the revenue of TIS services from domestic telecommunications operators and overseas customers recorded a year-on-year growth of 13.9% and 21.0%, respectively, whereas the revenue of TIS services from domestic non-operator customers achieved a significant growth of 53.2% compared to the previous year.

Revenue from BPO services amounted to RMB16,144 million, representing a year-on-year growth of 0.6% and accounting for 38.3% of the total revenues. Among that, revenue from management of infrastructure for information technology ("Network Maintenance") secured a rapid year-on-year growth of 14.2%. After integration and cultivation, the Group's supply chain business grew favourably and recorded a year-on-year revenue growth of 23.9%, whereas revenue from products distribution business decreased significantly by 20.2% under the proactive control of the Group.

The Group grasped the demand for informatization construction of our customers, and revenue from ACO services amounted to RMB4,345 million, representing a year-on-year growth of 24.5%, representing a significant increase in the growth rate as compared with the same period last year and accounting for 10.3% of the total revenues.

(1) Since 2016, the Group sub-divided the former distribution business under the BPO services into supply chain business and products distribution business.
Given the Chinese government is promoting the reform of State-owned Enterprises, what new initiatives did the Company put forward in the first half of 2016?
During the first half of 2016, the Group continued to promote deepened reforms to adjust and optimize the management mechanism for its overseas operations and set up a new operating entity for overseas business. We actively promoted the synergistic operation of supply chain business, officially commenced the operation of China Comservice Supply Chain Management Company Ltd. and created a unified brand of "中通福" for its distribution chain stores. The Group further expanded into the northern China market by commencing the formal operation of Inner Mongolia Autonomous Region Communications Services Company Limited and studying the feasibility of establishing new branches for our northern China business, with a view to strengthening our business development in the northern China market.
What's the dividend policy of the Company?
The Company has been devoted to maintaining a relatively stable and sustainable dividend, and increase return to our shareholders in consideration of our results performance.

The Board distributed a final dividend of RMB0.1011 per share for the financial year ended 31 December 2015, representing a dividend payout ratio of 30%. Moreover, in view of the Group's outstanding operating results and free cash flow for the year and its confidence in future development, the Board also distributed a special dividend of RMB0.0101 per share for 2015. Taking into consideration the above factors, the Company's total dividend for 2015 is RMB0.1112 per share, representing a year-on-year growth of 19.4%. (Please refer to "Dividend History" for more details)

 

Basic Information

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, in commitment of "building world-class networks for the informatization services", providing integrated support services in the informatization sector. 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 outsourcing services (BPO) covering management of infrastructure for information technology, general facilities 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)
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)
Who are the major customers of China Comservice?
All major telecommunications operators in China, namely, China Telecommunications Corporation, China Mobile Communications Corporation, China United Network Communications Group Company Limited, and China Tower Corporation Limited are our customers. We also provide services to domestic non-operator customers and overseas customers. In the first half of 2016, revenue from domestic telecommunications operator customers accounted for 64.6% of total revenues, revenue from domestic non-operator customers accounted for 30.3% of total revenues and revenue from overseas customers accounted for 5.1% of total revenues.

While further developing domestic telecommunications operator market, the Group has also endeavored to expand the domestic non-operator market. The Group proactively provides services, such as smart cities solutions, municipal infrastructure, intelligence building and cloud computing data center construction, to key customers such as government agencies and customers in the industries of construction and property, 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 Africa, the Middle East and Southeast Asia. (Please refer to "Our Business" for more details)
Who are the major shareholders of China Comservice?
China Telecommunications Corporation is our controlling shareholder which holds 3,559 million domestic shares, representing 51.4% of our total issued shares. In addition, China Mobile Communications Corporation, China United Network Communications Group Company Limited and China National Postal and Telecommunications Appliances Corporation hold 608 million, 236 million and 131 million domestic shares, representing 8.8%, 3.4% and 1.9% of total issued shares respectively. The public holding is 2,391 million H share, representing 34.5% of our total issued shares. (Please refer to "Shareholding Structure" for more details)
What are the Telecommunications Infrastructure Services (TIS) provided by China Comservice?
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 and support systems. The Group also provides integrated solutions for ancillary communications networks and integrated informatization solutions for domestic non-operator customers such as government agencies, industrial customers and SME's, as well as overseas customers. (Please refer to "Our Business" for more details)
What are the businesses under Business Process Outsourcing (BPO) Services?
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 imformation technology ("network maintenance"), general facilities 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)
What are Applications, Content and Other (ACO) Services?
ACO means Applications, Content and Other services. The Group provides system integration, software development, system operation and maintenance support, value-added services to the domestic telecommunications operators, industrial customers and etc. (Please refer to "Our Business" for more details)
Does the Company provide share options to its employees?
As a long term incentive and according to the regulations of the government, our Company adopted a share appreciation rights (SAR) scheme to align the interests of target employees with the Company. Under the scheme, a SAR constitutes the right to receive an amount of cash equivalent to the appreciation, if any, in the fair market value of an H share of our Company and the exercise price of the SARs. No shares will be issued under the scheme; accordingly, the shareholding of the shareholders of the Company will not be diluted by any grant of SARs.

 

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Last Updated: 03 Oct 2016