China Unicom

China Unicom promises deeper reforms after sharp fall in profits

PUBLISHED : Friday, 21 October, 2016, 8:14pm
UPDATED : Friday, 21 October, 2016, 10:39pm

China Unicom, the country’s second-largest wireless network operator, plans to deepen reforms in its operations after reporting a widely anticipated sharp profit decline for the nine months to September 30.

In a filing with the Hong Kong stock exchange on Friday, Unicom said its total net profit in the past three quarters fell 80.6 per cent to 1.59 billion yuan (HK$1.83 billion), down from 8.18 billion yuan in the same period last year – confirming its profit warning on Tuesday.

The company mainly attributed the sharp drop to a 14 per cent year-on-year increase in selling and marketing costs, as well as a 32 per cent jump in network, operation and support expenses caused by the addition of a tower usage fee and higher energy charges and property rentals.

Unicom added, however, that the decline in profit was a “significant improvement” from the 3.36 billion yuan net loss recorded in the second half of last year.

Earnings before interest, taxes, depreciation and amortisation (ebitda) – a measure of a firm’s operating profitability – decreased 16.8 per cent year on year to 61.75 billion yuan.

Total service revenue advanced just 1.7 per cent to 182.75 billion yuan from 179.75 billion yuan a year ago.

Sales of telecommunications products, led by smartphones, fell to 24.39 billion yuan, compared with 32.16 billion yuan a year earlier.

We expect its return on invested capital to remain depressed as China Unicom reinvests into network quality and subscriber retention
Elaine Lai, Jefferies equity analyst

“China Unicom is a work in progress,” Jefferies equity analyst Elaine Lai said in a report. “We expect its return on invested capital to remain depressed as China Unicom reinvests into network quality and subscriber retention.”

According to Unicom, it will “persevere and firmly execute its focus strategies” as well as drive a gradual business turnaround.

“We will also deepen reform in systems and mechanisms” to improve efficiency, the company said.

Unicom reported that its total mobile subscribers at the end of September reached 262.074 million, of which 88.906 million are 4G subscribers. It also had 75.05 million fixed-line broadband subscribers.

“Mobile service revenue turned around its decline,” the company said.

It pointed out that 4G subscribers recorded a monthly average revenue per user of 79.3 yuan in the past three quarters.

Wang Xiaochu, Unicom’s chairman and chief executive, said in August that the company needed to expedite 4G network construction to keep pace with rivals China Mobile and China Telecom.

His laundry list of priorities also included reshaping Unicom’s brand image, improving customer retention efforts, and helping upgrade more of its 2G and 3G users to 4G.

Lai said bullish investors “argue that the upgrade of 2G subscribers would lift [Unicom’s] monthly average revenue per user”.

Unicom said last week that its parent, China United Network Communications Group, has been included in the first batch of state-owned enterprises selected by the National Development and Reform Commission to implement the government’s “mixed-ownership reform plan” involving potential strategic investors.

“Further announcements on reform may improve sentiment on the stock. But [Unicom’s] fundamentals are still weak,” Lai said last week.