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Deals by the top three telecoms firms for telecommunications towers and related assets from China Tower Corp is expected to buoy their earnings prospects, according to analysts. Photo: Reuters

China’s telecoms sector poised for generally upbeat interim earnings

Rapid adoption of 4G by China’s mobile users and diminishing risks of tariff intervention have buoyed prospects for top three firms

China Mobile

If the telecommunications industry was the sole barometer of mainland China’s overall economic health, then the news would be more about a robust expansion rather than the sobering account of a lingering slowdown.

“Chinese mobile users have upgraded to 4G rapidly,” Chris Lane, a senior analyst at Bernstein, an investment management and research firm, said in a report. “The average mobile user has increased mobile spending over the year, by a larger magnitude than what they had expected themselves last year.”

The mainland’s “Big Three” telecommunications network operators will release their earnings reports for the first six months this week, and anticipation is high for generally upbeat results.

China Mobile, China Unicom and China Telecom announced last month separate five-year lease deals for telecommunications towers and related assets from China Tower Corp, the infrastructure-sharing joint venture they formed two years ago, which is expected to provide a boost to their earnings.

In addition, the risks of further tariff intervention by the government and entry of a fourth mobile operator have diminished, Daiwa Capital Markets analyst Ramakrishna Maruvada said in a report.

“We reiterate our positive sector view with buy ratings on China Mobile, China Unicom and China Telecom,” Maruvada said.

China Mobile, the world’s largest wireless network operator, is widely predicted to report healthy interim results on Thursday, following a solid second-quarter performance.

China Mobile reported 837.038 million total subscribers at the end of June this year, of which 428.541 million were 4G users. Photo: EPA

Bernstein’s Lane said: “This will the strongest quarterly growth seen by China Mobile since the third quarter of last year, and the second strongest since at least the first quarter of 2010.”

He estimated China Mobile to record an 8.4 per cent increase in second-quarter net profit to 36.2 billion yuan (HK$42.1 billion), up from 33.4 billion yuan in the same period last year. Revenue is forecast to advance 4.6 per cent to 164.9 billion yuan from 157.7 billion yuan the previous year.

During the first quarter, China Mobile posted a net profit of 23.9 billion yuan and revenue of 177.5 billion yuan.

China Mobile reported 837.038 million total subscribers at the end of June, of which 428.541 million were 4G users. The operator also signed up 3.189 million fixed-line broadband subscribers in June, which boosted its total fixed-line broadband user base to 65.8 million.

Jefferies equity analyst Elaine Lai said in a report that the fixed-line subscribers added by China Mobile in June was the highest monthly number recorded in the domestic telecommunications sector in the past five years. “The last highest [monthly] net addition was 1.45 million by China Telecom, back in March 2011,” Lai said.

China Telecom and Unicom are slated to report their interim earnings next week.

Unicom last month said it expected an 80 per cent year on year decline in its interim profit for the second quarter.

Bernstein has forecast an 81.2 per cent second-quarter net profit decline to 700 million yuan, down from 3.8 billion yuan in the same period last year. Revenue is expected to grow 3.6 per cent to 62.2 billion yuan from 60 billion yuan a year ago.

Lane said “the negative second-quarter results will be the bottom for [Unicom], as top-line recovery

begins to take hold over the next few quarters”.

Unicom reported 260.703 million total mobile subscribers at the end of June, including 72.417 million 4G users.

According to Lane, China Telecom “should continue gaining mobile subscriber share” and see a jump in second-quarter profitability amid Unicom’s efforts to catch up in 4G network deployment.

Bernstein estimated a 5.3 per cent rise in China Telecom’s second-quarter net profit to 6.3 billion yuan, up from 6 billion yuan in the same period last year. Revenue is projected to grow 5.9 per cent to 78.7 billion yuan from 74.3 billion yuan the previous year.

This article appeared in the South China Morning Post print edition as: Telecoms sector likely to buck economic headwinds
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