China Unicom Meets 3G Goal - Analyst Blog
August 23 2011 - 10:15AM
Zacks
China's second largest mobile operator China
Unicom (CHU) added 2.12 million subscribers in July, up
1.2% from the prior month. This takes the company’s total customer
base to 183.74 million.
The company’s GSM subscriber base expanded to 158 million with
the net addition of 0.25 million customers, while its 3G subscriber
base increased to 25.82 million with the net addition of 1.87
million in July. 3G subscriber addition was higher in July than
1.86 million in June.
China Unicom is confident of expanding its 3G user base beyond
its expected 25 million by the end of the year. We believe this
target has already been achieved. Further additions would indicate
the outstanding growth prospects in China Unicom’s mobile 3G
business, which would lead to increased average revenue per
user.
The company’s 3G business is performing well and is expected to
sustain the momentum well into the future as the biggest growth
driver. For the full year, capital spending on the 3G network is
estimated at RMB 73.80 billion.
We believe China Unicom will continue to make significant
progress in expanding economies of scale in 3G, broadband and other
businesses that will likely improve its overall revenue and
profitability. The company is offering 3G services in collaboration
with Research In Motion Limited’s (RIMM)
Blackberry phones.
However, China Unicom remains significantly challenged by
the
aggressive nationwide 3G service rollouts by its peers
China Mobile (CHL) and China Telecom
Corp. (CHA). In addition, high levels of marketing and
promotional expenditures related to 3G service deployments could
hurt profitability. Further, increased operating expenses, coupled
with higher depreciation and amortization, will have an adverse
effect on the company’s profitability, free cash flow and
margins.
Moreover, China Unicom is offering handsets at subsidized rates
with lower 3G service plans for multi-year contracts to retain
existing customers and add new ones. This will weigh on the
company’s future overall average revenue per user and increase
operating costs.
We are currently maintaining our long-term "Underperform" rating
on China Unicom. The stock retains a Zacks #3 ('Hold') Rank for the
short term (1–3 months).
CHINA TELCM-ADR (CHA): Free Stock Analysis Report
CHINA MOBLE-ADR (CHL): Free Stock Analysis Report
CHINA UNICOM (CHU): Free Stock Analysis Report
RESEARCH IN MOT (RIMM): Free Stock Analysis Report
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