China Unicom (Hong Kong) Ltd (CHU)

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China Unicom Limited (CHU)

FY08 Interim Results Call

August 25, 2008, 04:00 AM ET

Executives

Tong Jilu - Executive Director and CFO

Chang Xiaobing - Chairman and CEO

Analysts

Jeffrey Tan - Credit Suisse

Helen Zhu - Goldman Sachs (Asia) L.L.C.

Presentation

Tong Jilu - Executive Director and Chief Financial Officer

Good afternoon, ladies and gentlemen. I would like to welcome you to China Unicom's 2008 Interim Results Announcements. Our Chairman and CEO, Mr. Chang Xiaobing, join today's meeting and we update you about the proposed two transactions, the disposal of CDMA business and merger with China Netcom.

Firstly, I will share with you the main achievements and financial results of the company in the first half of 2008. In the first half of 2008, for the continuing operations that included GSM business and fixed-line business, total revenue reached RMB35.14 billion, up 4% from the same period of last year; EBITDA, RMB15.88 billion, slightly down 0.6%; pre-tax profit, RMB5.13 billion, up 1.2%; net profit, RMB3.77 billion, up 8.9%.

According to Hong Kong financial reporting rules, the CDMA business that was proposed to be disposed is reported as discontinued operations. The net profit for discontinued operations is RMB655 million. The company total net profit was RMB4.42 billion and basic earnings per share was RMB0.324.

For first half of 2008, revenue from continuing operations reached RMB35.14 billion, up 4% from last year, in which GSM revenue accounted for 92.6% of the total revenue and fixed-line revenue account for 7.4%. Value-added service businesses, they were the main source of growth with revenue of RMB8.08 billion, up 22.9%.

For the first half of 2008, the total cost and expenses for the continuing operations reached RMB30 billion, year-on-year up 4.5%, 0.5 percentage points higher than the growth rates of total revenue. The G&A and other expenses was up 7.9%, mainly driven by the rising energy prices and rental cost. The selling and marketing expenses were up 3.4% but remained flat as a percentage of the revenue comparing to last year.

In first half of 2008, the EBITDA margin for continuing operations was 45.2%, down 2.1 percentage points from first half of 2007 but up 0.5 percentage points from second half of 2007. Pre-tax profit reached RMB5.13 billion, year-on-year up 1.2%; net profit reached RMB3.77 billion, year-on-year up 8.9%.

In first half of 2008, we have taken measures in multiple areas to actively develop the market and have realized quality growth of GSM business.

As of June the 30th of 2008, total GSM subscribers reached 127.6 million, year-on-year up 12.1%. Total minutes of use reached 185.9 billion minutes, up 13.1%. In first half of 2008, revenue from GSM business reached RMB32.52 billion, year-on-year up 3.9% in which GSM service revenue reached RMB32.5 billion. MOU per subscriber per month reached 249.6 minutes, staying flat comparing to last year. Average revenue per minute was RMB0.175, year-on-year down 7.8%, mainly driven by the new roaming tariff adjustments since April 2008.

In the first half of 2008, total costs and expenses from GSM business reached RMB27.36 billion, year-on-year up 3%, 0.9 percentage points lower than revenue growth rates. EBITDA margin was 43.6%, down two percentage points comparing to last year.

In the first half of 2008, the value-added service business continued to grow rapidly. The GSM SMS volume has increased 6.9% comparing to the same period of last year. The number of Ringback Tone subscribers has increased by 20.8% while we continued to develop the maximum [ph] value-added services such as SMS and Ringback Tone were promoted to GPRS or related applications as priority. Currently, GPRS services are available nationwide in 31 provinces and we have established roaming agreements with 20 operators in 12 countries. As a result, GPRS penetrations reached 17.3%.

In the first half of 2008, revenue from GSM value-added services reached RMB7.85 billion, year-on-year up 21.6%. The VAS revenue as a percentage of the total GSM service revenue has increased from 20.6% in the first half of 2007 to 24.1%, of which SMS revenue grew 12.7%, Ringback Tone revenue grew 40%, GPRS revenue reached RMB448 million.

The fixed-line business has focused on expanding data, Internet application, and enterprise information services. The international incoming long-distance call minutes have increased 20.1%. Leased lines and circuit bandwidth increased 21.9% comparing to the same period of last year. Service revenue for external sources reached RMB2.62 billion, year-on-year up 5.6%. Pre-tax profit reached RMB350 million. EBITDA margin increased 2.7 percentage points.

The company continued to execute its planned sales and marketing strategy for the CDMA business, try to minimize the impact of its spending disposal and has achieved a stable operation of CDMA business.

As of June the 30th of 2008, CDMA subscribers reached 43.17 million, year-on-year up 8.2%. MoU per subscriber per month was 243 minutes. ARPU was RMB51.1. Revenue from CDMA business reached RMB15.53 billion, year-on-year down 2.3%, in which service revenue reached RMB13.11 billion, down 0.8%. Total costs and expenses, RMB14.65 billion. Profit before tax was RMB880 million and net profit reached RMB655 million.

In the first half of 2008, the company has spent RMB730 million in CapEx. In order to enhance GSM networks, improve coverage and network quality, the company has decided to increase the GSM CapEx from early announced RMB18.7 billion to RMB35 billion for 2008. Total CapEx for 2008 is adjusted to RMB47.25 billion. The operational cash flow from continued operations was RMB14.22 billion and free cash flow was RMB6.92 billion.

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