China Unicom fell most in 5 months after Q3 earnings miss forecasts

PUBLISHED : Friday, 26 October, 2012, 11:35am
UPDATED : Friday, 26 October, 2012, 1:01pm

China Unicom (0762.HK), the nation’s No.2 mobile operator, posted the biggest intra-day decline in five month on Friday after its third-quarter profit result missed market estimates.

The stock lost as much as 7 per cent as of 10:45 am to HK$12.8 in Hong Kong trading, the biggest intra-day decline since May 16. The benchmark Hang Seng Index lost 0.63 per cent to 21,672.49 at the same time.

The state-owned firm posted 27 per cent year-on-year growth in third-quarter net profit to 2.02 billion from July to September. That compares to with a forecast of 2.2 billion yuan in a Reuters poll and 2.21 billion yuan in a Bloomberg poll.

Deutsche Bank analyst Alan Hellawell III, who has a target price of HK$19.3 on the stock, said the earnings was a “mild miss”.

“The mobile business was slightly weaker than our expectations. We ascribe Unicom’s 3Q net profit miss mainly to an increase in selling and marketing expenses on “back to school” promotions,” he wrote in a morning note. 

UBS analyst Jinjin Wang expects another weak quarter from October to December. "We expect net profit to be lower than 2 billion yuan in Q4 as Q4 has been a low-profit quarter historically, mainly due to rising network-related costs," Wang wrote in a morning note.  

Deutsche Bank, JP Morgan and UBS analysts, however, all chose to maintain "buy" ratings on the stock and left their target price unchanged after the earnings, citing robust growth in its 3G subscribers in the coming quarter.

JP Morgan analyst Lucy Liu, who has a target price of HK$15.6 for the stock, said stricter subsidy controls had helped stabilise its margin and the increase of 3G momentum will benefit its revenue growth.

“The potential pick-up in 3G subscriber growth in the fourth quarter driven by new data plans should be a positive catalyst to the share price,” Liu said in a morning note.