China Unicom’s latest profit warning could mark the bottom before a turnaround

When Wang Xiaochu took over as chairman and chief executive at China Unicom in August last year, he was widely expected to shake up the troubled operator’s network development plans and increase focus on 4G mobile expansion.

Analysts said they expected no quick turnaround effort from Wang, who previously led fixed-line network giant China Telecom in rapidly growing its 4G mobile subscriber base.

Their estimation certainly proved true after Unicom announced on Friday its second consecutive profit warning this year.

In a filing with the Hong Kong stock exchange, Unicom said it expected to report an 80 per cent year on year drop in interim net profit.

That would mark the company’s steepest decline in first-half net profit since its shares were listed in Hong Kong in 2000. Its previous record plunge in profit was 61.8 per cent in the first half of 2010.

Unicom said its projected net profit decrease was mainly caused by higher selling and marketing expenses during the first six months of this year.

The operator also cited higher energy charges and property rentals, as well as the payment of lease fees to China Tower Corp, its infrastructure-sharing joint venture with China Mobile, China Telecom and state asset-management firm China Reform Holding.