Following the fulfillment of conditions and receipt of
China Unicom (Hong Kong) Limited
) confirmed the acquisition of 100% stake in Unicom New Horizon
Telecommunications Company Limited from the parent company China
United Network Communications Group Company Limited, aka, Unicom
Group. The acquisition was announced in late November.
CHINA UNICOM (CHU): Free Stock Analysis
TELEFONICA S.A. (TEF): Free Stock Analysis
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The acquired assets include fixed-line telecommunications network
across 21 southern China states and cities. These properties are
currently under lease with Unicom Group. The lease will expire on
December 31, 2012.
With this transaction, China Unicom gained control over all the
domestic fixed-line telecommunications businesses and assets of
the state-controlled Unicom Group. This will result in improved
organizational planning and efficiency for China Unicom, giving
it a competitive edge over its peers.
Based in Beijing, China Unicom is the second largest wireless
operator in the country, with 8.06% stake being controlled by
Spanish Telecom giant
). China Unicom operates through two business segments: mobile
(56% of 2011 service revenues) and fixed-line (44% of 2011
We believe that China Unicom will be able to boost its earnings
and unlock greater long-term value for its stockholders with this
deal. The company is also expected to benefit from the ongoing
development strategy that is aimed at enhancing its growth and
profitability. China Unicom expects to generate higher revenues
by accelerating large-scale developments of 3G and fixed-line
Nevertheless, the company incurs high levels of marketing and
promotional expenditures that will likely hamper profitability in
the future. Further, we remain concerned about the precipitous
decline in the landline business as well as intense competition
in the domestic wireless market.
We maintain our long-term Neutral recommendation on the stock.
China Unicom currently holds a Zacks #3 Rank, reflecting a Hold
rating for a period of 1-3 months.