China Unicom Hong Kong Limited ( CHU ) - the second largest mobile operator in China - announced financial results for the first half of 2014 with net income of RMB6.7 billion ($1.1 billion) that surged 26.4% year over year on strong revenue growth and higher adoption of 3G plan. Earnings per share also increased 22.7% year over year to RMB0.27 (4 cents per share).
Revenue & Subscriber
Total revenue (excluding deferred fixed-line upfront connection fee) climbed 3.6% year over year to RMB149.57 billion ($24.3 billion) in the first half of 2014. Telecommunication service revenues, comprising roughly 81% of the total revenue, were RMB126.97 billion ($20.7 billion), up 9% year over year.
Healthy revenue growth was attributable to rapid growth of 3G and fixed-line broadband businesses. However, China Unicom has lost its exclusive right to distribute Apple Inc.'s ( AAPL ) iPhones to China Telecom Corporation Limited ( CHA ).
Total revenue from the mobile business increased 11.7% year over year to RMB81.34 billion ($13.2 billion).
Revenues from the fixed-line business increased 4.5% year over year to RMB45.21 billion ($7.4 billion) given the company's effort to upgrade its broadband speed, improve service quality and accelerate the development of high speed bundled service.
Telecommunications service revenues from the broadband business were RMB24.89 billion ($4.1 billion), up 10.2% from the prior year.
Total expenses crept up 2.6% year over year to RMB140.73 billion ($22.9 billion) due to higher selling expenses, subsidy, interconnection charges and depreciation charges. Selling and marketing expenses increased 16.9% year over year to RMB23.82 billion ($4 billion) in the first half due to higher promotional spending on handsets and applications.
China Unicom exited the first half of 2014 with cash and cash equivalents of RMB19.3 billion ($3.1 billion) compared with RMB 21.51 billion ($3.47 billion) at the end of 2013. Operating cash flow was RMB41.73 billion ($6.8 billion) in the first half of the year.
China Unicom will continue to benefit from the ongoing development strategy aimed at enhancing growth and profitability. The company expects to generate higher revenues by accelerating large-scale developments of 3G and fixed-line broadband services. Further, China Unicom seeks to enhance data volume growth and improve customer service to achieve a higher profit margin and gain competitive edge over rival China Mobile Limited ( CHL ).
China Unicom currently carries a Zacks Rank #5 (Strong Sell).
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