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China Unicom

China Unicom insists turnaround soon, after record drop in interim profit

Firm hurt by higher sales costs and network, operations and support expenses, but chairman says its ‘most difficult period will soon be over’

PUBLISHED : Wednesday, 17 August, 2016, 9:20pm
UPDATED : Wednesday, 17 August, 2016, 10:32pm

China Unicom is aiming for a gradual turnaround on the back of an aggressive 4G network roll-out, following the steepest first-half net profit decline reported by the company since it was listed in Hong Kong in 2000.

“The company’s most difficult period will soon be over,” insisted Unicom chairman and chief executive Wang Xiaochu at a press conference on Wednesday.

Unicom, which issued consecutive profit warnings in the past two quarters, posted a 79.6 per cent fall in its interim net profit to 1.43 billion yuan (HK$1.67 billion), down from 6.99 billion yuan in the same period last year, due to higher sales and marketing costs as well as network, operations and support expenses.

The company’s previous record six-month profit plunge was a 61.8 per cent year on year drop to 2.53 billion yuan in the first half of 2010.

Its interim earnings before interest, taxes, depreciation and amortisation – a measure of a firm’s operating profitability – decreased 18 per cent year on year to 41.28 billion yuan.

Interim revenue slipped 3.1 per cent to 140.25 billion yuan from 144.68 billion yuan a year earlier.

The company braved short-term profit pressure, strengthened its fundamental capabilities and increased cost initiatives as appropriate to strive for a gradual turnaround
Wang Xiaochu, China Unicom chairman and chief executive

“The company braved short-term profit pressure, strengthened its fundamental capabilities and increased cost initiatives as appropriate to strive for a gradual turnaround,” Wang said.

Shares in Unicom rose to a high of HK$8.54 in early trading on Wednesday and closed at HK$8.40, up by 0.12 per cent, as investors already expected the first-half earnings to be bad.

Bernstein Research senior analyst Chris Lane said in a report that the period right after the announcement “of the largely negative result may prove to be the best time to acquire [Unicom shares] for investors looking to capture the ‘recovery’ opportunity”.

“Chairman Wang is likely to once again charm investors with his confidence that the recovery is well underway, and that growth will return in 2017,” Lane said.

Jefferies forecast Unicom’s revenue this year to hit 260.18 billion yuan, below the market’s consensus estimate of 286.39 billion yuan.

Wang said Unicom needed to expedite 4G network construction to keep pace with rivals China Mobile and China Telecom.

Jefferies equity analyst Elaine Lai said in a report that Unicom has lost “high-value subscribers” over the past two years to China Telecom and China Mobile, which led 4G network development on the mainland.

China Tower Corp, the infrastructure-sharing joint venture of the three telecommunications operators, and a collaboration with China Telecom on rural 4G network deployment have helped Unicom accelerate its 4G services expansion, Lai said.

According to Wang, Unicom has about 30 billion yuan earmarked for 4G network deployment in the second half, which would enable it to have a total of 680,000 4G base stations by the end of this year.

Wang said Unicom was keen to sign up more high-value 4G subscribers in the second half amid new smartphone launches in the market. He revealed having had “a long discussion” with Apple chief executive Tim Cook on Tuesday. Wang said the iPhone remained in high demand on the mainland, bolstering Cook’s rosy market prediction for the iPhone last month.