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China Unicom Ltd. is expected to report a 23 percent rise in 2004 net profit, driven by growth in subscriptions to its code division multiple access, or CDMA, and global system for mobile, or GSM, telecommunications networks.
The average net profit of last year estimate of 22 analysts polled by Thomson Financial is 5.175 billion yuan (US$0.625 billion), compared with 4.217 billion yuan a year earlier.
Last year, China Unicom, the Hong Kong and Shanghai-listed unit of China's second-largest mobile operator, added 8.87 million CDMA subscribers and 11.7 million GSM subscribers, ending the year with 27.81 million CDMA and 84.27 million GSM users.
Analysts tend to place less importance on profit growth at Chinese telecom companies than at companies in other sectors as acquisitions have been a key factor in boosting their earnings. Instead, they look for guidance on trends in pricing competition, average revenue per user and capital expenditure commitments.
China Unicom is the only company in the world to operate both CDMA and GSM networks, and its dual-network strategy remains a concern.
"The dual-network strategy, with its concentration on the CDMA service, runs the high risk of diluting the company's focus on its main profit contributor ---- the GSM service," said Citigroup analyst Rohit Sobti.
Analysts Edison Lee and Jeffrey Tan of Credit Suisse First Boston (CSFB) said: "Unicom has its own dual problems: underinvestment in GSM and insufficient supply of low-end CDMA handsets."
While China Unicom added a respectable number of subscribers last year, analysts said a high churn rate because of competitive services offered by its main rival, China Mobile Ltd., would squeeze its margins further.
CSFB expects China Unicom's earnings before interest, tax, depreciation and amortization (EBITDA) margin for its GSM service to slide to 48.8 percent in the fourth quarter, down from 53.1 percent in the first quarter, and average 51.1 percent for the year. It sees the EBITDA margin for its CDMA operation falling to zero from 1.8 percent in the first quarter of the year, averaging 1.3 percent for the year.
However, China Unicom's share price may not correspond to its financial results in the near term, as many investors are more focused on the uncertainties hanging over China's telecom industry.
The sector is widely expected to be restructured, as the government devises industry regulations and paves the way for the introduction of 3G services.
China is the world's largest telecom market, with about 340 million mobile users at the end of January and a mobile penetration rate of 25.9 percent.
China Unicom owns the largest CDMA network in the world. It also has the second-largest subscriber base among global CDMA operators and has the third-largest subscriber base among both GSM and CDMA service providers worldwide. It had 86.06 million GSM users and 28.871 million CDMA subscribers at the end of February.
(Shenzhen Daily March 23, 2005)
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