China Unicom
(
CHU
), China's second largest mobile operator, announced first quarter
2012 results with earnings per share of RMB 0.04 (or 6 cents),
which missed the Zacks Consensus Estimate of 19 cents. However,
earnings saw a three-fold jump from the year-ago earnings of RMB
0.01 per share.
Adjusted net income showed an enormous increase from RMB 145
million to RMB 1.0 billion ($158.6 million). High costs associated
with 3G service deployments and network expansions were compensated
by strong revenues.
Revenue & Subscriber
Total revenue (excluding deferred fixed-line upfront connection
fee) climbed 24.8% year over year to RMB 61.19 billion ($9.7
billion). Telecommunication service revenues, comprising roughly
82% of the total revenue, were RMB 49.99 billion ($7.92 billion),
up 13.9% from the year-ago quarter.
Healthy revenue growth was credited to rapid growth of the 3G
and fixed-line broadband businesses as well as strong sales of
Apple Inc.
's (
AAPL
) iPhones despite losing exclusive right to distribute iPhones to
China Telecom Corp.
(
CHA
) last year.
Total revenue from the
mobile business
shot up 42.3% year over year to RMB 40.45 billion ($6.41 billion).
A large contributor was the telecommunication service with revenues
of RMB 29.26 billion ($4.64 billion), up 25.6% year over year.
China Unicom added 9.827 million subscribers to reach 209.487
million at the end of the first quarter.
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 12.53 billion ($1.99 billion), which accounted for 42.8% of
service revenue from the mobile business, up from 24.4% in the
year-ago quarter. The company's total 3G subscriber base reached
48.860 million, with 48.860 million new customers added during the
quarter.
Telecommunication service revenue from the GSM business fell 5%
year over year to RMB 16.73 billion ($2.65 billion). Net subscriber
added were 0.986 million to reach 160.627 million at March 31.
Revenue from the
fixed-line business
inched up 1.1% year over year to RMB 20.56 billion ($3.26 billion).
Telecommunications services revenue from the fixed-line business
also rose 1.1% year over year toRMB 20.55 billion ($3.26 billion)
backed by the consistent growth in fixed-line broadband
business.
Telecommunications service revenues from the broadband business
was RMB 9.60 billion ($1.52 billion), up 13.6% from the year-ago
quarter. China Unicom added 2.637 million customers in the quarter
bringing the total number to 58.288 million.
The local telephone business recorded service revenue of RMB
7.57 billion ($1.2 billion), down 14.7% from the year-ago quarter.
Erosion in fixed-line subscriber base continues with the loss of
approximately 0.497 million customers, bringing the total customer
base to 92.354 million.
Expenses
Total expenses crept up 22.6% year over year to RMB 59.87
billion ($9.49 billion) due to higher selling expenses, network
deployment costs, interconnection charges and depreciation charges.
Selling and marketing expenses increased 20.1% year over year to
RMB 8.15 billion ($1.29 billion), mostly due to higher promotional
spending on 3G and broadband services.
Liquidity
China Unicom exited the first quarter with cash and cash
equivalents of RMB 17.942 billion compared with RMB 24.757 billion
in the year-ago quarter.
Operating cash flow surged 45.4% year over year to RMB 17.032
billion in the reported quarter.
Our Take
China Unicom expects to generate revenues at a faster clip by
accelerating large-scale developments of 3G and fixed-line
broadband services. Although we are encouraged by China Unicom's
future growth prospects in its 3G wireless market, high levels of
marketing and promotional expenditures could hurt profitability
going forward.
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 Underperform recommendation on
China Unicom. However, 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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