Unicom Posts Stable Profit, Revs Up - Analyst Blog
October 31 2011 - 12:20PM
Zacks
China Unicom (CHU), China's
second largest mobile operator, announced results for the first
nine months of 2011 with earnings per share of RMB 0.18 ($0.27 per
share), which is flat year over year.
Adjusted net income inched up 0.3% year over year to RMB 4.263
billion ($0.656 billion). High costs associated with 3G service
deployments and network expansion were compensated by strong
revenues.
Revenue & Subscriber
Total revenue climbed 23.5% year over year to RMB 155.92 billion
($24 billion). Telecommunication service revenues, comprising
roughly 89% of the total revenue, were RMB 137.80 billion ($21.2
billion), up 13.2% from the year-ago period.
Healthy revenue growth was credited to strong sales of
Apple Inc.'s (AAPL) iPhones as China Unicom enjoys
the exclusive right to distribute the device in China since October
2009.
Total revenue from the mobile business
shot up 44.8% year over year to RMB 93.96 billion ($14.46 billion).
A large contributor was the telecommunication service with revenues
of RMB 75.89 billion ($11.68 billion), up 25.63% from the prior
year-period. China Unicom added 21.61 million subscribers in the
first nine months to reach 189.034 million.
China Unicom’s 3G business is growing at a faster pace since its
introduction in October 2009. 3G business telecommunication service
revenues were RMB 22.19 billion ($3.41 billion) in the first nine
months of the year. The company’s total 3G subscriber base reached
30.230 million, with 16.170 million new customers added in the
first nine months.
Telecommunication service revenue from the GSM business inched
up 1% year over year to RMB 53.70 billion ($8.26 billion). Net
subscriber additions were 5.438 million to 158.804 million at
September 30.
Revenue from the fixed-line business
grew 2.2% to RMB 61.29 billion ($9.43 billion). Telecommunications
services revenue from the fixed-line business rose 2.3% year over
year to RMB 61.24 billion ($9.42 billion) backed by the rapid
growth in fixed-line broadband business.
Telecommunications service revenues from the broadband business
was RMB 26.09 billion ($4.01 billion), up 18.1% from the year-ago
period. In the first nine months of the year, China Unicom added
7.313 million customers bringing the total number to 54.537
million.
The local telephone business recorded service revenue of RMB
26.129 billion ($4.02 billion), down 14.8% from the year-ago
period. Erosion in fixed-line subscriber base continues with the
loss of approximately 2.060 million customers over the first nine
months, bringing the total customer base to 94.575 million.
Expenses
Total expenses climbed 24.3% year over year to RMB 150.271
billion ($23.13 billion) on the back of higher selling expenses,
network deployment costs, depreciation charges and inflation rate.
Selling and marketing expenses rose 20.6% year over year to RMB
3.524 billion ($0.54 billion), mostly due to higher promotional
spending on 3G and broadband services.
Liquidity
At the end of September 30, China Unicom had cash and cash
equivalents of RMB 14.778 billion compared with RMB 10.591 billion
in the year-ago period.
Our Analysis
China Unicom’s 3G business is performing well and has surpassed
its full-year 3G user target of 25 million. The company is also
poised to benefit from the stabilization in the fixed-line business
and expansion of fiber optic service in the fixed-line broadband
business. Hence, China Unicom expects to generate revenues faster
by accelerating large-scale developments of 3G and fixed-line
broadband.
On the other side, high levels of marketing and promotional
expenditures and a precipitous decline in the landline business
might hurt profitability going forward. Additionally, increased
operating expenses coupled with higher depreciation and
amortization will have an adverse effect on the company’s
profitability, free cash flow and margins.
Further, China Unicom remains significantly challenged by
aggressive nationwide 3G service rollouts by its peers,
China Mobile (CHL) and China Telecom
Corp. (CHA).
We recently upgraded our long-term recommendation from
Underperform to Neutral on the stock. The stock retains a Zacks #3
Rank (Hold) for the short term (1–3 months).
APPLE INC (AAPL): Free Stock Analysis Report
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