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China Telecom (Hong Kong) (CTHK) yesterday reported interim net profits of 3.47 billion yuan (about HK$3.22 billion), topping most analysts' forecasts.

 The results were buoyed by 1.08 billion yuan interest income on a cash pile.

 Explaining what he labelled a 'good' performance for the six months to June 30, chief executive Shi Cuiming pointed to the fundamentals of its three mainland cellular businesses.

 'The main driver of the performance was the big increase in subscribers,' he said.

 Hong Kong's largest red chip added 1.16 million new subscribers in the first half of the year in addition to about one million users obtained by purchasing its parent's cellular assets in Jiangsu, Jiangsu Mobile, nearly three months ago.

 By the end of June this year, CTHK had 5.45 million customers.

 CTHK did not exist in the first half of last year, making comparisons with performance in the corresponding six months impossible.

 The company did not propose an interim dividend.

 CTHK had sales during the first six months of 11.36 billion yuan, and the operating profit was 3.74 billion yuan.

 The company chose to record its interest income as an exceptional item, probably because it was unlikely to be so large in the second half of the year, analysts said.

 The company spent $22.47 billion buying Jiangsu Mobile on June 4 and has about 18 billion yuan cash on hand.

 Most analysts had been expecting net profit in the region of 2.5 billion to three billion yuan.

 HSBC telecoms analyst David Gibbons said revenues and interest income were 'a little ahead of expectation and margins a little stronger', though it remained 'difficult' to see the full picture because of the lack of comparisons with last year.

 Average monthly revenue per user (ARPU) continued its downward trend in all the provinces apart from Guangdong, where the company said the figure was skewed upwards by revenues from international calls.

 ARPU across its operations fell from 470 yuan a month last year to 464 yuan in the first half of this year.

 ING Baring Securities analyst Gautam Kapoor said average minutes of use per subscriber were down more than he expected and, given that connection fees were also forecast to fall, these were 'two areas to watch'.

 However, he was 'positive' about CTHK and had a buy on the stock.

 CTHK was in talks with the global underwriters of last October's initial public offering, Goldman Sachs and China International Capital Corp, on how to tackle the impending unlocking of 580 million shares held by Hong Kong firms.

 The companies can sell stock, roughly equivalent to 5 per cent of CTHK, after October 23.

 CTHK vice-chairman Li Ping said there had been 'no further discussions at this stage' on talks with Cable & Wireless about further acquisition of shares in Hongkong Telecom.

  CTHK shares fell 70 cents to close at $10.20 yesterday.



Interest gains lift CTHK profits