China Unicom is a state-owned telecom operator in China. China Unicom is ranked as the world’s third-biggest mobile provider.
China Unicom stumbles as profit misses forecast
Telecom stock sheds 7.6pc amid tough pressure to maintain growth in mainland subscribers
Shares in China Unicom, the nation's No2 mobile operator, had their biggest drop in value in more than three years yesterday after the company's third-quarter profit missed market estimates.
The stock closed down 7.6 per cent to end the day at HK$12.72 in Hong Kong trading, on a day the benchmark Hang Seng Index lost 1.2 per cent.
China Unicom has lost 22 per cent so far this year while the Hang Seng Index has gained 17 per cent.
The state-owned company registered 2.02 billion yuan (HK$24.9 billion) in net profit in the third quarter, or 27 per cent year-on-year growth. That compares with a forecast of 2.2 billion yuan in a Reuters poll and 2.21 billion yuan in a Bloomberg poll.
China Unicom said it faced "keen market competition" in raising the pace of user growth. As a result, marketing expenses increased 23 per cent to 25.4 billion yuan in the first nine months of the year, it said.
The company, along with mainland rivals China Mobile and China Telecom, are courting users with 3G networks that allow faster internet access.
Unicom had 66.9 million 3G subscribers as of the end of the third quarter, compared with market leader China Mobile's 75.6 million, according to data the companies released this month.
UBS analyst Jinjin Wang expects another weak quarter in the October-December period. "We expect net profit to be lower than 2 billion yuan in Q4 as it has been a low-profit quarter historically, mainly due to rising network-related costs," Wang said.
But Deutsche Bank, JP Morgan and UBS analysts all chose to maintain "buy" ratings on the stock and left their target price unchanged after the results, citing expectations of robust growth in its 3G subscriber numbers in the coming quarter.
JP Morgan analyst Lucy Liu, who has a target price of HK$15.60 for the stock, said cutting back on promotional incentives had helped stabilise the company's margins while the increase in 3G momentum would benefit its revenue growth.
"The potential pickup in 3G subscriber growth in the fourth quarter, driven by new data plans, should be a positive catalyst to the share price," Liu said.