The second largest mobile operator
, China Unicom
) announced the results of the first nine months of 2012 with
earnings per share of RMB 0.23 (or 3 cents), up 27.8% from the
Adjusted net income surged 33.3% over the year-earlier period,
to RMB 5.6 billion ($0.88 billion), on the back of strong revenue
growth and higher adoption of 3G plan.
Revenue & Subscriber
Total revenue (excluding deferred fixed-line upfront
connection fee) climbed 18.8% year over year to RMB 185.2 billion
($29.24 billion). Telecommunication service revenues, comprising
roughly 84% of the total revenue, were RMB 156.19 billion ($24.7
billion), up 13.3% from the year-ago period.
Healthy revenue growth was owing to rapid growth of the 3G and
fixed-line broadband businesses as well as strong sales of
) iPhones in spite of losing the exclusive right to distribute
China Telecom Corp.
) last year.
Total revenue from the mobile business increased 22.7% year
over year to RMB 122.07 billion ($19.3 billion). A large
contributor to the growth was the telecommunication service with
revenues of RMB 93.11 billion ($14.7 billion), up 22.7% year over
year. China Unicom added 29.827 million new subscribers to reach
229.487 million at the end of the first nine months of 2012.
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 42.72 billion ($6.75 billion) in the first nine months
of 2012, and accounted for 45.9% of service revenue from the
mobile business. The company's total 3G subscriber base reached
66.863 million, with 26.844 million new customers added during
the first three quarters of 2012.
Telecommunication service revenue from the GSM business fell
6.2% year over year to RMB 50.39 billion ($7.96 billion) driven
by growing data substitution and stiff competition. Subscriber
additions increased by 2.983 million to 162.624 million at the
end of the third quarter of 2012.
Revenue from the fixed-line business inched up 1.9% year over
year to RMB 62.48 billion ($9.9 billion). Telecommunications
services revenue from the fixed-line business also rose 1.9% year
over year to RMB 43.35 billion ($6.8 billion) backed by
consistent growth in fixed-line broadband business.
Telecommunications service revenues from the broadband
business was RMB 29.39 billion ($4.6 billion), up 12.6% from the
year-ago period. China Unicom added 7 million customers during
the reported period bringing the total number to 62.651
The local telephone business recorded service revenue of RMB
22.38 billion ($3.53 billion), down 14.3% year over year. Erosion
in fixed-line voice subscriber base continued with 3.0% decline
from the year-ago period, bringing the total customer base to
Total expenses crept up 18.3% year over year to RMB 177.9
billion ($28.3 billion) due to higher selling expenses, network
deployment costs, interconnection charges and depreciation
charges. Selling and marketing expenses increased 20.4% year over
year to RMB 25.38 billion ($4 billion) in the first three
quarters of 2012, mostly due to higher promotional spending on
handsets and applications.
China Unicom exited the first nine months of fiscal 2012 with
cash and cash equivalents of RMB 12.16 billion compared with RMB
15.11 billion in the end of fiscal 2011.
Operating cash flow grew 5.3% year over year to RMB 56.33
billion in the reported period.
China Unicom will continue to benefit from the ongoing
development strategy aimed at enhancing its growth and
profitability. The company expects to generate higher revenues by
accelerating large-scale developments of 3G and fixed-line
Nevertheless, high levels of marketing and promotional
expenditures would continue to hurt future profitability.
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
) and China Telecom.
We are maintaining our long-term Neutral recommendation on
China Unicom. The stock retains a Zacks #3 (Hold) Rank for the
short term (1-3 months).
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