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Amid the decline in CAPEX investment of domestic telecommunications operators in the first half of 2017, what were the reasons for achieving the sound operating results in the same period, particularly the steady growth in the domestic operator market? What will be the business outlook for the domestic operator market in the future?
During the first half of 2017, the Group overcame the challenges brought by the overall decline in the network construction investment of the telecommunications industry and maintained a stable fundamental operating performance by focusing on both the “CAPEX and OPEX-driven” businesses and firmly capturing the various opportunities in the domestic telecommunications operator market. At the same time, the Group also strived to expand the domestic non-operator market while proactively controlled the products distribution business. As a result, the Group realized total revenues of RMB44,888 million, representing a year-on-year growth of 6.4%. Cost of revenues was RMB39,179 million, up by 6.5% compared to that of last year. Gross profit was RMB5,709 million, representing a year-on-year increase of 5.9%. Profit attributable to the equity shareholders of the Company was RMB1,469 million, representing a year-on-year growth of 5.9%, and basic earnings per share amounted to RMB0.212. Free cash flow sustained at a high and healthy level and amounted to RMB2,002 million.

During the first half of 2017, the revenue from the domestic telecommunications operator market amounted to RMB29,758 million, representing a year-on-year growth of 9.2% and accounting for 66.3% of the total revenues. Among that, the revenue from China Telecom was RMB18,273 million, representing a year-on-year growth of 11.2% and accounting for 40.7% of the total revenues. Attributable to the revenue from China Tower recording a robust year-on-year growth of 57.7%, the revenue from domestic telecommunications operator market other than China Telecom increased by 6.3% compared to the same period of last year and amounted to RMB11,485 million, accounting for 25.6% of the total revenues which remained at the same level compared to the corresponding period of last year.

The domestic telecommunications operator market is the Group’s business development fundamentals. To secure a stable fundamental operating performance, we will adhere to the direction of the government’s supply-side structural reform, adjust our mindset of development, closely follow the opportunities brought by the transformations of operators, capture the window of opportunity from CAPEX and leverage OPEX as the driving force for growth. At the same time, we will focus on expanding high-value integrated maintenance business and assist operators to build intelligentized and superior networks. The Group will also seize the opportunities from integrated construction and maintenance of China Tower and reinforce its market share in such market. Through the provision of maintenance services and penetration into the operators’ ecosystem of businesses, the Group could facilitate the enhancement of our service value and customer loyalty. Meanwhile, the Group will extend its maintenance capabilities and experience of serving operators to speed up business deployment over other aspects, innovate business model, thus laying the foundation for future businesses expansion
The favourable growth in the domestic non-operator market supported the Company's overall growth in the first half of 2017, what development and breakthroughs did the Company put forward? What is the Company's future outlook in the development for this market?
During the first half of 2017, the Group’s revenue from the domestic non-operator market was RMB13,748 million, representing a year-on-year increase of 7.5% and accounting for 30.6% of the total revenues. In particular, the revenue from the Core Businesses from domestic non-operator market recorded a year-on-year increase of 20.3%, accounting for 81.5% of the total revenues from such customer and representing an increase of approximately 8.7 percentage points compared to that of last year. During the first half of the year, while the revenue from products distribution business of such customer decreased by 26.7%, the Core Businesses of such customer recorded rapid growth, contributing to almost 70% of the Group’s overall incremental revenues during the first half of 2017. Businesses with traditional advantages and businesses with potential both achieved favourable development in the domestic non-operator market and provided new impetus for the continuous growth of the Group’s performance. In respect of our market expansion, we focused on key industries including government, transportation, Internet & IT, electricity, construction and property, etc., and obtained 170 large-scale projects with a scale of more than tens of millions of renminbi each, demonstrating a continued breakthrough from the existing business scale. The Group’s effort in allocating resources to the targeted industries, further optimization of the sales and marketing mechanism, strengthening cooperation with operators to enhance our capabilities in synergistic development, has been bearing fruit gradually.

The domestic non-operator market is one of the new growth engines for the Group’s future development, and we will put more emphases of our development on such market. We will continue to leverage on our existing business capabilities into the development of such market, devote more efforts on resource allocation, optimize the sales and marketing mechanism and strengthen cooperation in wider aspects and cross-sector operation. We will focus on achieving breakthroughs in key customers as represented by the industry sectors such as electricity, transportation, information security, etc., with a view to enlarging revenue scale, nurturing pan-operators customer, as well as developing sustainable and recurrent businesses. In order to adapt to new market demands, we will continue to integrate resources, actively develop group-level products, and facilitate the commercialization of our projects and services, with a view to building our brand in the emerging ICT sector.
How was the overall development in overseas market in the first half of 2017? What is the Company's future outlook in the development for this market?
Due to the enhanced risk management of overseas businesses and active control of the development of overseas businesses with low efficiency by the Group, and impacts from cyclical fluctuations of overseas projects, the development of the Group’s overseas business experienced temporary fluctuations. During the first half of 2017, revenue from overseas business amounted to RMB1,382 million, representing a year-on-year decrease of 35.8% and accounting for 3.1% of the total revenues. Despite the temporary decrease in revenue from overseas business, the Group continued to build project reserves proactively for turnkey projects in Africa and the Middle East, featuring FTTH, education network, and the upgrade and transformation of power networks. The preparation work for the trials in the four East African countries on the “China-Africa Partnership Program in Trans Africa Information Superhighway” Project has also been progressing.

In terms of overseas market development, the Group believes that national policies support becomes more explicit as the implementation of the “Belt and Road” Initiative deepens, which implies a huge development potential for the future. We will capture the opportunities, especially those arising from Africa, the Middle East and Southeast Asia, and strive to develop businesses with competitive advantages. The Group will leverage on existing experience and project cases to develop the overseas market of various industries such as electricity, education, etc. With the goal to increase overseas market revenue scale and expedite the Group’s development, we will strengthen cooperation with financial partners and continue to push forward our “China-Africa Partnership Program in Trans Africa Information Superhighway” Project.
How was the change in the mix of the Company's TIS, BPO and ACO businesses in the first half of 2017 and what were the reasons for the change?
During the first half of 2017, although the revenue from the products distribution business recorded a year-on-year decrease of over 30%, the Group’s revenue from its Core Businesses, which includes TIS services, core BPO services, as well as ACO services, represented a year-on-year growth of 12.0%. The Group’s overall business structure was further optimized, and demonstrated remarkable results in its innovation and transformation.

During the first half of 2017, the Group’s revenue from TIS services amounted to RMB24,071 million, representing a year-on-year growth of 11.0% and accounting for 53.6% of the total revenues. We developed the domestic telecommunications operator market vigorously by capturing the important opportunities from the three domestic telecommunications operators including the window of opportunity for the construction of 4G network and fiber optic broadband network, etc., which assisted our customers to build superior and intelligentized networks, as well as capturing the construction and maintenance opportunities from China Tower . By focusing on the flourishing demand from informatization construction of various industry sectors in China, we stepped up our effort to develop the TIS business of the domestic non-operator customers through cross-sector operation and cooperation among businesses. Among the revenue from TIS services, the revenue from China Telecom recorded a year-on-year growth of 16.9%, and the revenue from domestic telecommunications operator customers other than China Telecom recorded a year-on-year growth of 6.4%, while the revenue from domestic non-operator customers recorded a year-on-year growth of 20.3%. Rapid growth of the revenue of TIS services from domestic non-operator customers strongly supported the favourable overall development of such business, and such customer is becoming the new impetus for the future growth of the overall TIS business.

The Group’s revenue from BPO services amounted to RMB15,864 million, representing a year-on-year decrease of 1.7% and accounting for 35.4% of the total revenues. The decrease was mainly due to the Group’s persistence in transformation towards high-end businesses and continuous proactive control on the development of the products distribution business, which caused the revenue from such business to record a year-on-year decrease of 30.6%. Excluding such factor, the OPEX-related businesses, which has been the Group’s development focus, recorded favourable development, and the revenue from the Core BPO services recorded a year-on-year growth of 13.2%, maintaining a double-digit growth momentum in the recent two years, and provided a stable source of revenue for the Group. Among that, the revenue from the maintenance business recorded a year-on-year growth of 17.0%, and the revenue from the supply chain business also recorded a year-on-year growth of 10.2%.

The Group’s revenue from ACO services amounted to RMB4,953 million, representing a year-on-year growth of 14.0% and accounting for 11.0% of the total revenues. The Group seized the intelligentization and informatization opportunities from customers, placed a strong emphasis on the development of high-value businesses and continued to facilitate the operation of its innovation fund. The commercialization of projects such as Smart Security, Smart Industrial Park, Cloud Security, etc., has achieved initial success. We proactively cooperated with external parties to create industrial ecosystem, and cooperated with renowned domestic and international manufacturers and organizations to jointly develop the big data business. We also had strategic cooperation with the government and industry partners in the quantum communications market of front edge technology.
The gross profit margin for the Company in the first half of 2017 was 12.7%, what were the reasons for the declining trend to be moderated?
In the first half of 2017, benefitting from the effective control of the products distribution business with lower efficiency and encouraging growth of high-value businesses, gross profit margin was 12.7% with a moderated downward trend. Selling, general and administrative expenses were RMB4,347 million, accounting for 9.7% of the total revenues and represented a continuous decline further from the corresponding period last year. Profit attributable to the equity shareholders of the Company was RMB1,469 million, representing a year-on-year growth of 5.9%, and net profit margin was 3.3%, maintaining at the same level as compared to the corresponding period last year.
What was the free cash flow in the first half of 2017? Could the healthy and favourable cash flow be continued going forward?
In the first half of 2017, free cash flow of the Group reached RMB2,002 million. After the continued substantial increase in the past 2 years, free cash flow of the Group continued to remain healthy and sustained at a high level.

The Group has always put great emphasis on working capital management and persisted to improve cash flow. The Group adhere to the effective value-driven appraisal principle and carry out working capital management initiative to strengthen management of accounts receivable, accounts payable, prepayment and project delivery. We believe that free cash flow will continue to be maintained at a relatively more reasonable and healthy level in the future.
What's the dividend policy of the Company? What was the latest dividend paid by the Company?
The Company has been devoted to maintaining a relatively stable and sustainable dividend, and increase return to our shareholders in consideration of various factors including the results performance and the business development needs.

The Board distributed a final dividend of RMB0.1098 per share for the financial year ended 31 December 2016, representing a dividend payout ratio of 30%. Moreover, in view of the Group's outstanding operating results and free cash flow for the year, the Board also distributed a special dividend of RMB0.0220 per share for 2016. Taking into consideration of the above factors, the Company's total dividend for 2016 was RMB0.1318 per share, representing a year-on-year growth of 18.5% and a total dividend payout ratio of 36%. (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 2016, revenue from domestic telecommunications operator customers accounted for 68.8% of total revenues, revenue from domestic non-operator customers accounted for 26.8% of total revenues and revenue from overseas customers accounted for 4.4% 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 businesses under Telecommunications Infrastructure (TIS) Services of the Company?
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 of the Company?
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 information 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 the businesses under Applications, Content and Other (ACO) Services of the Company?
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)

 

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Last Updated: 29 September 2017