China Unicom (CHU), China 's second largest mobile operator, announced its first half 2010 results with earnings per share of RMB 0.11 ($0.016 per share) falling 61.6% year over year. Adjusted net income plunged 62.2% year over year to RMB 2.11 billion ($0.31 billion) driven by higher spending on mobile phone subsidies.
This significant year-over-year decline in profitability can be traced to high costs associated with 3G service deployments and network expansion, intense domestic competition as well as sustained erosion in fixed-line voice business.
Revenue Break-Down
Revenues upped 7.6% year over year to RMB 82.11 billion ($12.04 billion). Telecommunication service revenues grew 6.3% year over year to RMB 79.23 billion ($11.62 billion), representing approximately 96% of total revenue.
Total service revenue from the mobile business increased 17.7% year over year to RMB 41.05 billion ($6.02 billion). A large contributor to this was telecommunication service with revenues of RMB 39.09 billion ($5.73 billion), up 14.3% year over year.
In the first half of 2010, China Unicom’s 3G business telecommunications service revenues were RMB 3.97 billion ($0.58 billion). Telecommunications service revenues from GSM business increased 2.7% year over year to RMB 35.12 billion ($5.15 billion). Average revenue per user was RMB 42.9 ($6.29), up 2.9% year over year.
Growth in the wireless business was partly offset by a 2.4% year-over-year decline in fixed-line service revenues that reached RMB 40.11 billion ($5.88 billion). Telecommunications service revenues from broadband business increased 23.4% year over year while telecommunications service revenues from local telephone business (fixed-line telephone and Personal Handyphone System) dropped 13.6% year over year.
Expenses
Total expenses in the first half leaped 16.5% year over year to RMB 78.84 billion ($11.56 billion) on account of higher marketing/promotional expenses, network deployment costs and depreciation charges. Selling and marketing expenses rose 17.4% year over year, mostly due to higher promotional spending on 3G services.
Subscriber Statistics
In the first half of 2010, China Unicom had approximately 149.4 million GSM subscribers while its 3G subscriber base reached 7.56 million. The fixed-line broadband business achieved rapid growth with net addition of 5.209 million subscribers. Total subscribers reached 43.759 million in the reported period. However, erosion in fixed-line voice subscriber base continues with a loss of approximately 1.97 million customers in the first half, bringing the total customer base to 100.85 million.
Our Analysis
We believe China Unicom will continue to make significant progress in expanding its WCDMA technology based 3G services. 3G remains a compelling opportunity and represents the single biggest driver of the company’s long-term growth. The launch of integrated products as "WO Family" and new services such as application store and e-reading is expected to fuel growth in the second half of 2010. Continued improvement of the GSM network as well as enhanced network capacity will also drive growth in the mobile business.
China Unicom contends with a highly competitive domestic wireless market. The company remains significantly challenged by aggressive nationwide 3G service roll outs by its peers China Mobile (CHL) and China Telecom Corp. (CHA).
While we remain bullish on China Unicom’s future growth prospects in 3G wireless, the associated expenditures for nationwide network deployments are likely to impact short-term profitability, tighten free cash flow and impact margins. Moreover, the carrier’s 3G business has challenges ahead as its rivals promote 3G services at lower tariffs and higher subsidies.
We are currently maintaining our long-term Neutral rating on China Unicom. However, for the short term, we are recommending a Sell rating with Zacks #4 Rank based on intense competition and high promotional expenses.
CHINA TELCM-ADR (CHA): Free Stock Analysis Report
CHINA MOBLE-ADR (CHL): Free Stock Analysis Report
CHINA UNICOM (CHU): Free Stock Analysis Report
Zacks Investment Research
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Loading...
Posted In: Integrated Telecommunication ServicesTelecommunication ServicesWireless Telecommunication Services
Benzinga simplifies the market for smarter investing
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
Join Now: Free!
Already a member?Sign in
