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In the first half of 2018, both the total revenues and net profit of the Company achieved accelerating growth, of which revenue growth hit 6-year high, what were the measures taken by the Company to achieve encouraging overall operating results? And which market(s) contributed to the overall business development?
During the first half of 2018, the Group endeavoured to expand the domestic non-telecom operator market, solidified the fundamental of the domestic telecommunications operator market and proactively controlled the development of the products distribution business. As a result, the Group realized total revenues of RMB50,792 million, representing a growth of 13.2% year-on-year, in which the Core Businesses revenue increased by 17.1% year-on-year. Cost of revenues amounted to RMB44,616 million, up by 13.9% year-on-year. Gross profit was RMB6,176 million, representing a year-on-year increase of 8.2%. Due to the decreased service prices and increased costs in relation to labour, gross profit margin was 12.2%, representing a 0.5 percentage point decrease year-on-year. With the Group’s continued effort on controlling the selling, general and administrative expenses, such expenses amounted to RMB4,661 million and its percentage over the total revenues further decreased by 0.5 percentage point year-on-year to 9.2%. Profit attributable to equity shareholders of the Company grew by 8.6% year-on-year to RMB1,595 million, and the growth rate increased by 2.7 percentage points year-on-year. Net profit margin was 3.1%, decreased by 0.2 percentage point year-on-year. Basic earnings per share amounted to RMB0.230, representing a year-on-year growth of 8.6%. Due to the significant increase in free cash flow last year, free cash flow for the current period dropped from the same period of last year to RMB877 million, but still accounted for over 50% of the profit attributable to equity shareholders, which continued to stand at a healthy level.

The Group reaped fruitful results in market development by seizing the crucial opportunities in the domestic non-telecom operator market, the domestic telecommunications operator market and the overseas market, and all the three markets showed a stronger development impetus compared to the same period of last year, among which the domestic non-telecom operator market and the domestic telecommunications operator market both realized a double-digit revenue growth, while the revenue from the overseas market stabilized and recovered. During the period, the Group’s customer revenue mix continued to optimize. Among that, revenues contribution from both the domestic non-telecom operator market and the domestic telecommunications operators other than China Telecom continued to increase, and the proportion of Core Businesses revenues from these two markets over total Core Businesses revenue reached 30% for the first time, respectively.
In the first half of 2018, the accelerating growth in the domestic non-telecom operator market supported the Company's overall growth, what development and breakthroughs did the Company put forward? What will be the business outlook for the domestic non-telecom operator market in the future?
In the first half of 2018, the Group’s revenue from the domestic non-telecom operator market increased by 19.3% year-on-year to RMB16,396 million, indicating a remarkable acceleration as compared to the same period of last year and accounting for 32.3% of the total revenues. In the meantime, the Group continued to optimize its business structure. Excluding the products distribution business, revenue from the Core Businesses reported a rapid year-on-year increase of 29.0% to RMB14,448 million, accounting for over 88% of the revenue from such market. Internally, the Group carried out synergistic operation in research and development and launched more smart society products. Leveraging the “Capabilities Accumulation, Capabilities Enabling” initiative, the Group enriched integrated service capabilities for industry penetration through strengthening the collaboration among products, markets and businesses. Externally, the Group focused on key sectors such as government, electricity and transportation, endeavoured to broaden the cooperation for a continued “Capabilities Expansion”, and strengthen the “Smart Service Industrial Ecosystem Alliance”. By promoting its “Consultant + Staff” business model and demonstrating its integrated service capabilities, the Group leveraged its top-level design and high-end consultation to drive project development and achieved favourable results. The series of smart products, including the Smart City, Smart Town, Smart Park, Smart Security and Smart Highway, were successively launched in different regions across the nation, and the Group’s branding and competitiveness in the industry have been effectively enhanced.

The Group adopted a science-prioritized and technology-driven approach to promote business integration and consolidate its product capabilities, thus cultivating a series of products for smart society, building the “Big” Smart City IT structure, promoting product-oriented services such as Smart Safety and Smart Town, and initially establishing our cloud services (CCSYUN) and Internet of Things (“IoT”) platforms. In May 2018, the Group formally introduced China Comservice Smart Society Products successfully in the “7th China International Big Data Industry Expo”, which has been well recognized by the community and customers. In June 2018, China Information Technology Industry Federation ranked the Group 6th among “China’s Top 100 Software Enterprises 2018”, showcasing its entry to the software ecosystem and enhanced influence in the industry. Meanwhile, the Group is committed to the main development track of “Building Smart Society, Boosting Digital Economy, Serving a Good Life” for the domestic non-telecom operator market. The Group initiated the “Smart Service Industrial Ecosystem Alliance” through cooperation with the top scientific research institution in China, industrial partners and related technology and innovative enterprises, to consolidate resources along industry chain, accelerate the deployment of its financial segment, explore the integration of finance with industrial development, and jointly build a value-sharing ecosystem with its partners in an open, collaborative and win-win way, with a goal to boost development into a new phase.

The domestic non-telecom operator market is the growth pole for the development of the Group’s businesses. We will focus on the main track of “Building Smart Society, Boosting Digital Economy, Serving a Good Life”. To achieve this, we will integrate internal and external resources and strengthen our collaboration with industrial partners. On top of continuously solidifying our product-oriented services, we will speed up our development of platform-oriented products, explore ways for constructing platforms and ecosystems and establish a new branding for Smart Comservice. We will continue to focus on key industries such as electricity, transportation and information security, enlarge the industry scale and deepen the industry penetration, so as to provide integrated service solutions to our customers.
Amid the decline in CAPEX investment of domestic telecommunications operators in the first half of 2018, what were the reasons for achieving the steady growth in the domestic operator market? What will be the business outlook for the domestic operator market in the future?
In the first half of 2018, the Group insisted on the “CAPEX and OPEX-driven” businesses as the dual growth drivers to further penetrate and expand into the domestic telecommunications operator market, and consistently increased market share. Revenue from such market increased by 10.7% year-on-year to RMB32,950 million and accounted for 64.9% of the total revenues. Among that, revenue from China Telecom amounted to RMB18,368 million, representing a year-on-year growth of 0.5%, and accounting for 36.2% of the total revenues. Driven by the rapid revenue growth from domestic telecommunications operator customers other than China Telecom, aggregate revenue from those customers grew by 27.0% year-on-year to RMB14,582 million, with its percentage of the total revenues increased to 28.7%.

The domestic telecommunications operator market remains a fundamental for the Group’s business development, and we will focus on the main track of “Bolstering Cyberpower Strategy, Integrating into Ecosystem Construction, Serving Transformation and Upgrade”. To achieve this, we will integrate ourselves into operators’ ecosystem, keep abreast of the new technologies such as 5G and IoT and equip ourselves with accumulating technologies, resources and capabilities to enhance service quality, and further penetrate into CAPEX business and expand OPEX business. Meanwhile, we will seek to apply the new businesses and new models of the domestic non-telecom operator market to the development of the domestic telecommunications operator market, with a view to enhancing the capabilities to expand into the domestic telecommunications operator market and integrating ourselves into the new ecosystem for the domestic telecommunications operator market.
How was the overall development in overseas market in the first half of 2018? What is the Company's future outlook in the development for this market?
In the first half of 2018, the Group further optimized its overseas management structure by promoting the synergistic allocation of resources and enhancing service capabilities as well as risk prevention capabilities. With these efforts, the overseas market stabilized and revenue from such market resumed growth and increased by 4.6% year-on-year to RMB1,446 million, accounting for 2.8% of the total revenues. In tandem with developing traditional overseas telecommunications operator customers, the Group further expanded the overseas market of industrial customers by replicating its successful experience in China, in which key projects made a breakthrough and several large-scale projects in electricity, education and telecommunications, etc. in regions such as the Middle East and Southeast Asia made further progress.

For the overseas market, we will focus on the main track of “Serving ‘Belt and Road’ Information Infrastructure Construction, Promoting Smart Society Construction Overseas”. To achieve this, we will adapt to the political and environmental changes in domestic and international markets, strengthen the collaboration between our domestic product centres and external business partners, enhance cooperation with domestic operators and “Go Abroad” state-owned enterprises to jointly develop projects. We will leverage on different parties’ resources, focus on large-scale projects, and extend our domestic smart products and capabilities overseas, striving to achieve transformation and upgrade of our overseas business.
How was the change in the mix of the Company's TIS, BPO and ACO businesses in the first half of 2018 and what were the reasons for the change?
In the first half of 2018, all three businesses of the Group showed a stronger development impetus compared to the same period of last year. Revenue from TIS services amounted to RMB28,330 million, representing an expedited growth of 17.7% year-on-year, and accounting for 55.8% of the total revenues. For TIS services, the Group continuously improved its delivery quality and service capabilities, and captured the opportunities arising from the optimization of 4G network and the construction of broadband transmission infrastructures by domestic telecommunications operators, supporting them to build intelligent supreme networks with its high-quality integrated services. At the same time, focusing on the flourishing domestic demand for informatization construction, the Group stepped up its efforts in developing the TIS business of domestic non-telecom operator customers through cross-sector operation and penetration among businesses. Of the revenue from TIS services, the revenue from China Telecom recorded a year-on-year decline of 6.9%; the revenue from domestic telecommunications operator customers other than China Telecom had a rapid year-on-year growth of 31.6%; and the revenue from domestic non-telecom operator market grew sharply by 44.2% year-on-year, indicating a remarkable acceleration as compared to the same period of last year. The rapid growth in revenue from TIS services for domestic non-telecom operator customers strongly bolsters the positive development of the business and has become a new impetus for future business growth.

The Group’s revenue from BPO services amounted to RMB16,608 million, representing a year-on-year increase of 4.7% and accounting for 32.7% of the total revenues. In pursuit of high-quality development, the Group continued to proactively control the products distribution business, and as a result, revenue from products distribution business decreased by 28.9% year-on-year and its proportion to the total revenues decreased to 5.3%. Excluding the impact of such factor, the Core BPO services grew healthily and realized a revenue of RMB13,894 million, up by 15.3% year-on-year. The Group achieved breakthroughs in the areas of synergistic operation for logistic business, building integrated capabilities for distribution channels, constructing unified platform for property management and uplifting standard of its integrated maintenance capabilities continuously. All the above measures have accelerated the development of the Core BPO services.

The Group’s revenue from ACO services amounted to RMB5,854 million, indicating a rapid growth of 18.2% year-on-year and its proportion to the total revenues increased to 11.5%. During the period, the Group increased R&D investment, strengthened the competitiveness of its products including the software and industrial applications, launched a series of smart society products and focused on establishing industrial ecosystems. Leading by its design and consultation businesses as well as capitalizing on its core software products, the Group further promoted the development of other businesses by providing its customers with integrated solutions. The synergistic effect and mutual interaction created between businesses and cross-region operation have become increasingly prominent, allowing the ACO services to effectively drive sound development of both TIS services and BPO services.
How were the changes in gross profit margin and net profit margin in the first half of 2018 and what were the reasons behind?
In the first half of 2018, due to the decreased service prices and increased costs in relation to labour, gross profit margin was 12.2%, representing a 0.5 percentage point decrease year-on-year. With the Group’s continued effort on controlling the selling, general and administrative expenses, such expenses amounted to RMB4,661 million and its percentage over the total revenues further decreased by 0.5 percentage point year-on-year to 9.2%. Profit attributable to equity shareholders of the Company grew by 8.6% year-on-year to RMB1,595 million, and the growth rate increased by 2.7 percentage points year-on-year. Net profit margin was 3.1%, decreased by 0.2 percentage point year-on-year.
What was the free cash flow in the first half of 2018? Could the healthy and favourable cash flow be continued going forward?
In the first half of 2018, due to the significant increase in free cash flow last year, free cash flow for the current period dropped from the same period of last year to RMB877 million, but still accounted for over 50% of the profit attributable to equity shareholders, which continued to stand at a healthy 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 was the latest dividend paid by the Company? What's the dividend policy of the Company?
The Board distributed a final dividend of RMB0.1176 per share for the financial year ended 31 December 2017, representing a dividend payout ratio of 30%. Moreover, in view of the Group's outstanding operating results and free cash flow for the year, as well as the business development needs, the Board distributed a special dividend of RMB0.0235 per share for 2017. Taking into consideration of the above factors, the Company's total dividend for 2017 is RMB0.1411 per share, representing a total dividend payout ratio of 36%. (Please refer to "Dividend History" for more details)

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.

 

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 comprehensive solutions 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 process 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 Group Co., Ltd., China United Network Communications Group Company Limited, and China Tower Corporation Limited are our customers. We also provide services to domestic non-telecom operator customers and overseas customers. In the first half of 2018, revenue from domestic telecommunications operator customers accounted for 64.9% of total revenues, revenue from domestic non-telecom operator customers accounted for 32.3% of total revenues and revenue from overseas customers accounted for 2.8% of total revenues.

While further developing domestic telecommunications operator market, the Group has also endeavored to expand the domestic non-telecom 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 transportation, electricity, internet & IT and construction, 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 Group Co., Ltd., China United Network Communications Group Company Limited and China National Postal and Telecommunications Appliances Co., Ltd. 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-telecom 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 Core Business Process Outsourcing (Core BPO) Services of the Company?
Core BPO services of the Group are BPO services excluding products distribution service, i.e. management of infrastructure for information technology ("network maintenance"), general facilities management and supply chain services. In recent years, the Group has focused on "optimizing structure, sustaining growth, strengthening capabilities and enhancing efficiency" along the way of its business development, and further optimized the business structure by continuing to proactively control products distribution business with low efficiency.
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 and system support, value-added services to the domestic telecommunications operators and domestic non-telecom operator customers, including government agencies, industrial customers and small and medium enterprises. (Please refer to "Our Business" for more details)
What are the businesses under Core Businesses of the Company?
Core Businesses of the Group include telecommunications infrastructure services, business process outsourcing services (excluding products distribution), as well as applications, content and other services. In recent years, the Group has focused on "optimizing structure, sustaining growth, strengthening capabilities and enhancing efficiency" along the way of its business development, and further optimized the business structure by continuing to proactively control products distribution business with low efficiency. In the first half of 2018, the Group's revenue from the Core Businesses achieved double-digit growth of 17.1% and its contribution to the total revenues recorded a year-on-year increase of 3.2 percentage points to 94.7%, demonstrating a high-quality development.

 

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Last Updated: 5 Oct 2018