China Unicom warns of 85pc profit plunge as costs mount
China Unicom, the country’s second-largest wireless network operator, has warned investors that it expects to post an 85 per cent year-on-year drop in net profit for the first quarter amid a rise in operating expenses.
In a filing with the Hong Kong stock exchange after trading closed on Monday, Unicom said the downswing was mainly caused by a 16 per cent year-on-year increase in selling and marketing spending, as well as a 37 per cent year-on-year jump in network, operations and support costs in the quarter to March.
The company estimated its net profit to have reached 480 million yuan (HK$574.54 million) last quarter, which it said was “a significant improvement” from the 4.55 billion yuan loss it recorded in the quarter to December.
Despite that profit warning, Unicom’s total service revenue in the first quarter was estimated at 60.8 billion yuan.
That was buoyed by mobile service revenue of about 36.2 billion yuan and the addition of 6.61 million new mobile subscribers in the first quarter.
In a research note, Bernstein senior analyst Chris Lane said the higher sales and marketing costs and the other increased operating expenses reported by Unicom should come as no surprise to investors.
The company reported last month a sharp decline in both earnings and subscribers for last year even as management, led by chairman and chief executive Wang Xiaochu, pushed forward an aggressive turnaround strategy.
It had 286.66 million subscribers at the end of last year, fewer compared with 299.09 million a year earlier, due to more intense competition against China Mobile and China Telecom.
Lane described Unicom’s data on new subscribers last quarter as encouraging, and said he expected “continued positive net additions over the course of the year”.
“The [company’s] operating turnaround plan is on track,” Lane said.
The laundry list of priorities for Unicom this year included accelerating its 4G mobile network roll-out across the country, reshaping its brand image, improving customer retention efforts, and helping upgrade more of its 2G and 3G subscribers to 4G.
Wang is betting that Unicom will be able to catch up with its competitors in terms of 4G network coverage through the mainland telecommunications industry’s ambitious infrastructure-sharing joint venture, China Tower Corp.
China Mobile, Unicom and China Telecom in October agreed to sell and transfer assets worth a combined 214 billion yuan in that venture.
“The disposal of assets will facilitate the sharing of telecommunications towers among operators, thus promoting an efficient 4G roll-out,” Wang said last month.
There were already 164,000 towers delivered by the venture for shared infrastructure development last year.
Unicom’s share price fell as low as HK$9.82 on Monday after opening at HK$10.02 in early trading. The stock closed at HK$9.93, down 0.70 per cent.