China Galaxy Securities: AI Layout in the Telecommunications Industry Expected to Outperform, Recommending Focus on Three Major Telecommunication Operators.

China Galaxy Securities released a research report stating that the profitability and cash flow assets of telecom operators are continuously improving, the asset value advantage is highlighted, dividends for shareholders are increasing, and the performance of operators is expected to exceed expectations, with the "harvest period" for 5G+AI promising. The development of cloud services by operators is thriving, and domestically produced large models are expected to help reduce costs and cooperate with the deployment of operator cloud services and assets of Beijing Vastdata Technology, driving rapid growth in the operator's second curve. Meanwhile, the development of domestically produced computational power is expected to drive the rapid development of the domestic computational power industry chain, with the leading role of state-owned enterprises continuously strengthening. It is recommended to pay attention to the three major telecom operators. Recent events: The three major operators recently announced initiatives to actively promote the "high-quality development and return to the quality enhancement" program, insisting on promoting high-quality development of the industry. Operators have introduced proactive action plans, strengthened market value management, and are committed to sharing the long-term development achievements of the company with investors, continuously enhancing the value of listed companies. Key points from China Galaxy Securities: The solid foundation of traditional basic business, internal benign circulation, intelligent network driving digital transformation breakthrough The user connectivity scale of the three major operators is steadily expanding, mobile Internet access traffic is growing rapidly, and they are actively expanding into households, government enterprises, and emerging markets. As of the end of February, the total number of mobile phone users for the three telecom operators and China Radio and Television reached 1.793 billion households, forming a massive user data benign circulation trend. The construction and application of 5G, gigabit optical networks, and other networks are continuously advancing, with a solid foundation in traditional business. The capital expenditure structure of operators is shifting towards IT, providing support for the development of innovative businesses and cloud services. By the end of 2024, Tianyi Cloud revenue reached 113.9 billion yuan (+17.1%); mobile cloud revenue reached 100.4 billion yuan (+20.4%); Unicom cloud revenue reached 68.6 billion yuan (+17.1%), and the profitability of cloud services remains at a high level of development. Operators are accelerating the construction of large-scale intelligent computing training centers and edge computing power, enhancing the supply of diverse computing power, significantly increasing the incremental intelligent computing scale, data center rack numbers are expected to grow substantially, and the intelligent network management is expected to drive new breakthroughs in digital transformation. 5G is globally leading, the transformation of old and new kinetic energy empowers new quality production, and AI layout is expected to exceed expectations The construction of 5G networks is steadily advancing, and the scale of gigabit users is continuously expanding. As of the end of February, the total number of 5G base stations reached 4.325 million, accounting for 34.1% of the total mobile base stations, an increase of 0.5% compared to the end of the previous year. The total number of fixed Internet broadband access users for the three operators reached 675 million households, with China leading the way in global telecommunications construction. The transformation of old and new kinetic energy empowers new quality production, with state-owned enterprise telecom operators as the "main chain" of the technology chain, continuously leading the way. Emerging businesses empower the creation of a new AI+ domestically produced ecology. As representatives of state-owned teams, operators have a large server cluster and strong computational power foundation, actively responding to the layout of the digital economy intelligence computing center, promoting faster development of domestically produced artificial intelligence. At the same time, operators have the largest flow pipe in China, with data advantages and interface advantages, and the popularization of AI applications will continue. From the perspective of technology ecosystem layout, operators have the potential to integrate resources and optimize industrial chain layout in emerging fields such as quantum technology and satellite services, constructing a more complete technology new ecology. Operators continue to promote share repurchase programs, dividends and dividends continue to increase, performance and valuation are expected to rise In order to further return to shareholders, the three major operators announced that they would repurchase shares when it is beneficial to protect the interests of all shareholders, emphasizing shareholder rights and returns. In terms of dividends and dividends, China Mobile Limited had the highest dividend payout rate of 73% in 2024, while China Telecom Corporation and China United Network Communications saw continuous increase in dividend payout rates, reaching 72% and 60% respectively. The dividend payout rate of operators is expected to gradually increase, showing investment value in the medium to long term. Risk warning: Uncertainties in changes in the global political and economic situation; Risks of AI+ development not meeting expectations, etc.