), China's second largest mobile operator, announced first half of
2012 results with earnings per share of RMB 0.14 (or 2 cents), up
27.3% from the year-ago period.
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Adjusted net income increased 31.5% to RMB 3.5 billion ($0.56
billion) from RMB 2.6 billion in the year-ago period on the back of
strong revenue growth.
Revenue & Subscriber
Total revenue (excluding deferred fixed-line upfront connection
fee) climbed 20% year over year to RMB 121.69 billion ($19.28
billion). Telecommunication service revenues, comprising roughly
84% of the total revenue, were RMB 102.39 billion ($16.2 billion),
up 13.3% from the year-ago period.
Healthy revenue growth was credited to rapid growth of the 3G and
fixed-line broadband businesses as well as strong sales of
) iPhones in spite of losing the exclusive right to distribute
China Telecom Corp
) last year.
Total revenue from the mobile business increased 32.9% year over
year to RMB 79.75 billion ($12.6 billion). A large contributor was
the telecommunication service with revenues of RMB 60.48 billion
($9.6 billion), up 23.4% year over year. China Unicom's subscriber
base expanded 20.7% year over year to 219.249 million at the end of
the first half.
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 26.90 billion ($4.26 billion) in the first half, which doubled
from the year-ago period and accounted for 44.5% of service revenue
from the mobile business. The company's total 3G subscriber base
reached 57.530 million, with 17.511 million new customers added
during the first half.
Telecommunication service revenue from the GSM business fell 6.3%
year over year to RMB 33.58 billion ($5.32 billion) driven by
growing data substitution and stiff competition. Subscriber
additions increased 2.6% to 161.719 million at the end of the first
Revenue from the fixed-line business inched up 1.5% year over year
to RMB 41.53 billion ($6.6 billion). Telecommunications services
revenue from the fixed-line business also rose 1.5% year over year
to RMB 41.50 billion ($6.6 billion) backed by consistent growth in
fixed-line broadband business.
Telecommunications service revenues from the broadband business was
RMB 19.40 billion ($3.1 billion), up 13.0% from the year-ago
period. China Unicom added 4.876 million customers during the
reported period bringing the total number to 60.527 million.
The local telephone business recorded service revenue of RMB 15.07
billion ($2.39 billion), down 14.7% 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 92.569
Total expenses crept up 19.6% year over year to RMB 117.12 billion
($18.55 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 16.38
billion ($2.59 billion) in the first half, mostly due to higher
promotional spending on handsets and applications.
China Unicom exited the first half with cash and cash equivalents
of RMB 18.625 billion compared with RMB 18.177 billion in the
year-ago period. Debt-to-capitalization ratio increased to 35.4% as
of June 2012 from 34.2% as of December 2011.
Operating cash flow grew 3.3% year over year to RMB 35.54 billion
in the reported period.
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
) 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