China Unicom (Hong Kong) Limited (CHU): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
We are maintaining our Neutral recommendation on China Unicom. The company registered top and bottom-line growth in the first quarter of 2014 owing to strong contribution from its 3G and broadband businesses. We expect future performance of the company to be aided by the well-performing mobile and broadband business, the expansion of 3G network and strong sales of iPhones. We expect the company to continue with its subscriber addition owing to network expansion, low tariffs and bundled offerings. Further, a speedy rollout of the faster HSPA+ network and collaborations with handset manufacturers could create tailwinds going forward. Nevertheless, we remain concerned about stiff competition, which can affect the company's ARPU. The carrier continues to lag behind rival China Mobile in 4G investments and subscriber addition. Additionally, access line loss and high operating expenses can be a drag on its profits.

Overview:

Beijing-based China Unicom Hong Kong Limited (previously known as China Unicom Limited) provides a wide range of telecommunication services throughout China. With approximately 30% share of the total mobile phone users in China, the company is the second largest wireless operator in the country, behind China Mobile. Spanish Telecom giant Telefonica currently holds a 5.01% stake in China Unicom.

China Unicom's primary source of revenue is wireless service, which is based on the global system for mobile communications (GSM) technology standard. Other telecom services provided by the company include domestic calling, international long distance, Internet services, value-added services, information technology services and advertising and media services.

China Unicom announced its restructuring deal in Jun 2008 to merge with China Netcom, a fixed-line service provider in China. The company officially completed its merger with China Netcom on Oct 15, 2008. As a result, China Netcom became a wholly owned subsidiary of China Unicom.

As part of the merger deal with China Netcom, China Unicom disposed its CDMA wireless business to China Telecom, the largest fixed-line operator in China, for approximately RMB43.8 billion (US$6.4 billion). China Unicom is now focused on strengthening its position in the domestic 3G wireless market, launching innovative services and bundling fixed-line and mobile offerings to subscribers. The combined company is considered the most established in China in terms of international networking with 27 cross-continental cable systems and 19 international submarine systems.

Following the completion of its merger with China Netcom, the company restructured its reporting segments by merging data, Internet and long-distance (previously reported separately) together with the fixed-line business. As a result, China Unicom's continued operation now consists of two reporting segments, namely, mobile business (70% of 2013 revenues) and fixed-line business (30% of 2013 revenues).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: CHU , GSM

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