Profit Soars at China Unicom - Analyst Blog
October 31 2012 - 12:20PM
Zacks
The second largest mobile
operator, China Unicom (CHU) announced the results
of the first nine months of 2012 with earnings per share of RMB
0.23 (or 3 cents), up 27.8% from the year-ago period.
Adjusted net income surged 33.3%
over the year-earlier period, to RMB 5.6 billion ($0.88 billion),
on the back of strong revenue growth and higher adoption of 3G
plan.
Revenue &
Subscriber
Total revenue (excluding deferred
fixed-line upfront connection fee) climbed 18.8% year over year to
RMB 185.2 billion ($29.24 billion). Telecommunication service
revenues, comprising roughly 84% of the total revenue, were RMB
156.19 billion ($24.7 billion), up 13.3% from the year-ago
period.
Healthy revenue growth was owing to
rapid growth of the 3G and fixed-line broadband businesses as well
as strong sales of Apple Inc.'s (AAPL) iPhones in
spite of losing the exclusive right to distribute iPhones to
China Telecom Corp. (CHA) last year.
Total revenue from the mobile
business increased 22.7% year over year to RMB 122.07 billion
($19.3 billion). A large contributor to the growth was the
telecommunication service with revenues of RMB 93.11 billion ($14.7
billion), up 22.7% year over year. China Unicom added 29.827
million new subscribers to reach 229.487 million at the end of the
first nine months of 2012.
China Unicom’s 3G business is
growing at a faster pace since its introduction in October 2009 and
has become the major driver of revenue growth. 3G business
telecommunication service revenues were RMB 42.72 billion ($6.75
billion) in the first nine months of 2012, and accounted for 45.9%
of service revenue from the mobile business. The company’s total 3G
subscriber base reached 66.863 million, with 26.844 million new
customers added during the first three quarters of 2012.
Telecommunication service revenue
from the GSM business fell 6.2% year over year to RMB 50.39 billion
($7.96 billion) driven by growing data substitution and stiff
competition. Subscriber additions increased by 2.983 million to
162.624 million at the end of the third quarter of 2012.
Revenue from the fixed-line
business inched up 1.9% year over year to RMB 62.48 billion ($9.9
billion). Telecommunications services revenue from the fixed-line
business also rose 1.9% year over year to RMB 43.35 billion ($6.8
billion) backed by consistent growth in fixed-line broadband
business.
Telecommunications service revenues
from the broadband business was RMB 29.39 billion ($4.6 billion),
up 12.6% from the year-ago period. China Unicom added 7 million
customers during the reported period bringing the total number to
62.651 million.
The local telephone business
recorded service revenue of RMB 22.38 billion ($3.53 billion), down
14.3% year over year. Erosion in fixed-line voice subscriber base
continued with 3.0% decline from the year-ago period, bringing the
total customer base to 92.621 million.
Expenses
Total expenses crept up 18.3% year
over year to RMB 177.9 billion ($28.3 billion) due to higher
selling expenses, network deployment costs, interconnection charges
and depreciation charges. Selling and marketing expenses increased
20.4% year over year to RMB 25.38 billion ($4 billion) in the first
three quarters of 2012, mostly due to higher promotional spending
on handsets and applications.
Liquidity
China Unicom exited the first nine
months of fiscal 2012 with cash and cash equivalents of RMB 12.16
billion compared with RMB 15.11 billion in the end of fiscal
2011.
Operating cash flow grew 5.3% year
over year to RMB 56.33 billion in the reported period.
Our Take
China Unicom will continue to
benefit from the ongoing development strategy aimed at enhancing
its growth and profitability. The company expects to generate
higher revenues by accelerating large-scale developments of 3G and
fixed-line broadband services.
Nevertheless, high levels of
marketing and promotional expenditures would continue to hurt
future profitability. Further, we remain concerned about the
precipitous decline in the landline business as well as intense
competition in the domestic wireless market, in particular from
China Mobile (CHL) and China Telecom.
We are maintaining our long-term
Neutral recommendation on China Unicom. The stock retains a Zacks
#3 (Hold) Rank for the short term (1–3 months).
APPLE INC (AAPL): Free Stock Analysis Report
CHINA TELCM-ADR (CHA): Free Stock Analysis Report
CHINA MOBLE-ADR (CHL): Free Stock Analysis Report
CHINA UNICOM (CHU): Free Stock Analysis Report
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