Unicom cost cuts pay off with underlying profit rising 34pc

China Unicom, the smaller of the country's two mobile operators, beat expectations with a 34 per cent gain in underlying first-half profit on various cost-control measures.

Profit before one-time items rose to 3.77 billion yuan as revenue grew 5.1 per cent to 49.1 billion yuan.

Net profit fell 24 per cent to 2.13 billion yuan from 2.8 billion a year earlier after the company booked a one-time revaluation loss of 1.64 billion yuan from a US$1 billion convertible-bond issued to SK Telecom. Earnings per share were 16.6 fen, down from 22.2 fen a year earlier. No dividend was announced.

'The first-half performance was mainly driven by various cost-cutting measures such as reduction in sales and marketing expenses and CDMA handsets subsidies,' said Wong Chi-man, a telecommunications analyst at China Everbright Securities. 'China Unicom needs to clear its own market position when facing competition from China Mobile, its sole rival in the market.'

China Unicom cut its marketing expenses on both GSM and CDMA businesses by 8.2 per cent in the first half to 9.32 billion yuan, which accounted for 19 per cent of total revenue. Even so, total costs and expenses still grew 1.9 per cent to 43.5 billion yuan.

Earnings before interest, tax, depreciation and amortisation gained 8 per cent to 16.7 billion yuan. Ebitda margin was maintained at 34 per cent in the first half.

China Unicom added 6.7 million new users on its bigger GSM mobile service in the first half to bring the total to 112.57 million. Its smaller CDMA business added 2.6 million users for a total of 39.06 million users.

The company would link its CDMA handset subsidies to users' monthly contributions to attract higher-spending users, chairman Chang Xiaobing said in the announcement.

A government policy that mobile operators should introduce calling-party-pays pricing to lower tariffs and attract more users, dragged down average revenue per user (arpu) as most of the newly added users were relatively low spenders, Unicom president Shang Bing said.

CDMA average revenue per user, which measures the monthly spending of each user, fell 12.4 per cent, or 8.50 yuan, to 59.60 yuan in the period, while minutes of usage declined 7.7 minutes, or 2.8 per cent, from a year earlier to 265.1 minutes.

The CDMA business, which accounted for 33 per cent of total revenue, increased operating profit 116 per cent to 636 million yuan from 294 million yuan a year earlier as sales and marketing costs were cut by 14 per cent. Revenue rose to 16.22 billion from 15.75 billion a year earlier.

Operating profit at the company's core GSM business rose about 25 per cent to 4.7 billion yuan from 3.7 billion yuan, as revenue gained 5.4 per cent to 30.96 billion yuan.

The GSM arpu dropped 5.4 per cent from a year earlier to 47.30 yuan, as minutes of usage increased 7.4 per cent to 247.8 minutes.

Unicom increased revenue from mobile value-added services 17.4 per cent to 9.4 billion yuan.