China Netcom Group Corp (Hong Kong) Ltd, the nation's second-largest operator of fixed-line telephones, said 2005 profit rose more than fourfold after the company acquired networks from its parent. The shares surged after the news.

 

Net income increased to 13.9 billion yuan (US$1.7 billion), or 2.1 yuan (26 US cents) a share, from a restated 2.7 billion yuan (US$330 million), or 0.48 yuan (6 US cents), a year earlier, the Beijing-based company said in a statement yesterday to the Hong Kong stock exchange during the trading break. Sales rose to 87.2 billion yuan (US$10.77 billion) from a restated 83.5 billion yuan (US$10.31 billion).

 

The company's 12.8 billion yuan (US$1.58 billion) purchase of networks from parent China Communications Group Corp helped bolster earnings as mobile-phone companies win the bulk of new subscribers. Chief Executive Officer Edward Tian is also expanding Internet services and targeting rural areas where fewer people own phones.

 

"Even if you strip out the gain from acquisition, the business has still shown pretty strong growth," said Francis Lun, general manager at Fulbright Securities. "We believe the market will react positively to this and we expect the share price to move steadily upward."

 

Dong Jing, a spokesman at Netcom, couldn't be reached for comment. Netcom stock rose as much as 6 percent and was 5.6 percent higher at HK$14.15 yesterday afternoon in Hong Kong.

 

China Netcom on October 31 completed the acquisition of the networks in the northern provinces of Heilongjiang, Jilin, Shanxi and Inner Mongolia, which have a combined population of 122 million. As of June 30, the four networks had a total of 28.9 million fixed-line users and about 2.8 million broadband users.

 

The company was expected to post profit of 10.1 billion yuan (US$1.25 billion), according to the median estimate of 19 analysts surveyed by Thomson Financial.

 

"If you look at the net profit after stripping out the gain from the acquisition, it's about in-line with analyst consensus," said Marvin Lo, analyst at BNP Paribas Peregrine Securities.

 

The acquisition takes Netcom's total subscribers to more than 114 million and gives it more than 10 million broadband users, the company said in a statement on September 12.

 

(China Daily March 22, 2006)