China Unicom bets on turnaround as net profit plunges 85pc
China Unicom, the country’s second-largest wireless network operator, yesterday said its turnaround effort “was on track as planned” this year, despite posting an 85 per cent year-on-year decline in net profit during the first quarter.
The company, which issued a profit warning on Monday, saw its shares rise to an intraday high of HK$9.65 in early trading, showing investor confidence in that plan. The stock closed up 1.06 per cent to HK$9.55 yesterday.
Nomura analyst Huang Leping said in a research note that the company’s first-quarter earnings result was “in line with its expectations”.
“We expect China Unicom’s service revenue to recover in the first half of this year, followed by a profit recovery in the second half,” Huang said.
Unicom said in a regulatory filing yesterday that its first-quarter net profit stood at 480 million yuan (HK$575.68 million), down from 3.16 billion yuan in the same period a year ago. It attributed the profit decline to higher expenses during the quarter.
Sales and marketing costs increased 15.7 per cent year on year to 8.68 billion yuan, while network, operation and support expenses jumped 36.6 per cent year on year to 13.26 billion yuan.
The first-quarter net profit, however, was a big improvement over Unicom’s 4.55 billion yuan loss recorded in the quarter to December.
Earnings before interest, taxes, depreciation and amortisation – a measure of a firm’s operating profitability – was down 21.2 per cent year on year to 19.97 billion yuan. Total first-quarter revenue decreased 5.3 per cent to 70.34 billion yuan from 74.3 billion yuan a year earlier.
Service revenue from mobile, fixed-line and related activities advanced just 1 per cent to 60.84 billion yuan from 60.25 billion yuan a year ago.
Unicom said it was now fully focused on growing its 4G subscriber base, which accounted for 59.3 million of its total mobile billing customers of 258.9 million. It also had 73.4 million fixed-line broadband subscribers at the end of March.
"We believe China Unicom is on the right track to recover its momentum, driven by its cooperaton with China Telecom in 4G network deployment," Huang said.
In January, Unicom and China Telecom agreed to an ambitious cooperation deal that aims to promote structural reforms in the mainland telecommunications industry and help advance the government’s “Internet Plus” strategy for broader online access nationwide.
Unicom and China Telecom aim to narrow the 4G network gap with China Mobile and lower their capital spending by sharing costs on the roll-out of 4G infrastructure in the country's rural areas.
Bernstein senior analyst Chris Lane said in a report that any adverse impact to China Mobile, the world’s largest wireless network operator by subscribers, from Unicom’s infrastructure development pact with China Telecom would be minor.
China Mobile is targeting 500 million 4G subscribers by the end of this year. It had 377 million 4G customers at the end of March, out of a total mobile subscriber base of 834 million.
Nomura expects Unicom’s total capital expenditure this year, including 4G network expansion, to reach 100 billion yuan, while that of China Telecom is expected to reach 98 billion yuan.