Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

The second largest mobile operator, China Unicom (CHU - Analyst Report) 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 - Analyst Report) iPhones in spite of losing the exclusive right to distribute iPhones to China Telecom Corp. (CHA - Snapshot Report) 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 - Snapshot Report) 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).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GROUP DXYN 15.84 +7.90%
BOFL HOLDING BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%