On Jun 11, we maintained our Neutral recommendation on
China Unicom (Hong Kong) Limited
). The company's significant progress in expanding economies of
scale in 3G, broadband network and other businesses will likely
lead to improvements in its overall revenue and earnings.
However, certain risk factors are likely to weigh on the stock in
the near term. The Beijing-based communication service provider
holds a Zacks Rank #2 (Buy).
China Unicom has enough growth potential thanks to its expansion
into new markets and bundled service offerings. The company is
expected to achieve a leading position in 3G and integrated
innovation, and focus on its operating efficiency over the next
few years. We expect to see higher profitability in 2013, backed
by new developments and reforming moves. The company continues to
focus on capital investment with 80% of the spending targted at
mobile broadband and transmission network, and 20% at the
development of 3G infrastructure and IT system.
We believe that China Unicom will accomplish its set target of
selling 90 million units of 3G smartphones in 2013, which is
nearly 50% higher than last year. The 3G subscriber base is
growing rapidly, attributable to more iPhone sales and offering
of low-cost premium plans. The company is consistently teaming up
with international big brands like
), Research In Motion Limited and Samsung to expand its 3G
business that stands as the prime contributor to its revenue
growth. These efforts will eventually leading to higher average
revenue per user.
Apart from the strength in the wireless division, China Unicom is
also fortifying its position in the fixed-line business. The
company is poised to benefit from development and enhancement of
fiber optic service in its broadband business. Lucrative
acquisitions are also aiding the company in gaining major control
over the wireline sector in the domestic arena.
Despite these positives, we prefer to stay on the sidelines
considering a rise in the monthly average churn stemming from a
highly competitive environment, constant declines in local access
lines, steep operating expense and a leveraged balance sheet.
Foreign telecom companies worth taking note of include
Nippon Telegraph and Telephone Corporation
Shenandoah Telecommunications Co.
). Both the stocks carry Zacks Rank #1 (Strong Buy).
CHINA UNICOM (CHU): Free Stock Analysis
NOKIA CP-ADR A (NOK): Free Stock Analysis
NIPPON TELE-ADR (NTT): Free Stock Analysis
SHENANDOAH TELE (SHEN): Free Stock Analysis
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