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China Telecom (Hong Kong) (CTHK) is today forecast to buck the corporate trend of falling earnings and report strong interim profits based on the healthy growth of its cellular phone business in the mainland.

 Comparisons with last year are difficult to make as the red chip did not exist then in its present form.

 Analysts' forecasts for the six months to the end of June fall in a wide range from 2.3 billion yuan (about HK$2.14 billion) to about 3.5 billion yuan, although most settle around the 2.5 billion to three billion yuan figure.

 The company said it would provide a pro-forma figure for last year but many observers think this will be almost useless as a guide.

 'Comparables between this and last year are few and far between,' Morgan Stanley Dean Witter analyst Jeff Camp said.

 HSBC analyst David Gibbons said there was 'no meaningful comparison' possible.

 Because of this, he said, people would focus on the immediate trading environment, which was 'strong'.

 By the end of last month, CTHK had a subscriber base of six million people in its three provinces of operation. Of those, 800,000 were added during June and last month, an official said in a recent interview.

 By comparison, at the end of May last year the company's subscriber base was just 2.7 million.

 One of the key problems in forecasting the interim result has been deciding what contribution from its Jiangsu asset injection CTHK would book. At the end of March, Jiangsu Mobile had more than one million subscribers.

 The acquisition took place on June 4 and cost US$2.9 billion in cash. It is likely the company will only book just less than a month of contributions from Jiangsu.

 But this allows it to profit from the interest income on the $2.9 billion up to that point.

 In this case, Deutsche Morgan Grenfell reckons net profit will be 2.9 billion yuan and a pro-forma for last year would have profit in the 2.6 billion yuan to 2.7 billion yuan range.

 Another factor which complicates distinguishing between this year and last year are tax and accounting changes.

 As an arm of the mainland Government, the company previously paid tax at a 9 per cent rate. CTHK will now face tax at a rate of 33 per cent.

 Despite its seemingly strong fundamentals, CTHK's share price has been battered with concerns of the impact of a yuan devaluation and a stock overhang of 580 million shares held by Hong Kong based corporates.

 These shares can be sold to the market from October 23 onwards under the agreement the companies made with CTHK at the time of its initial public offering.

 These concerns have pushed CTHK's price well below its $11.80 flotation price although it recently received support from the Government's Hang Seng Index stock buying programme.

 WI Carr analyst Fredson Bowers said he thought the possibility of a yuan devaluation was likely to push back the timing on any further asset injections.

 The firm would probably need to take on a loan to finance another asset injection from its parent China Telecom. Taking on a US dollar commitment with a devaluation possible would seem to be an unlikely scenario, he said.

 Mr Bowers said: 'It means an injection now will probably not happen until second half of 1999.' 



Mobile business seen driving CTHK interim