China Unicom Earnings Grows Y/Y
China Unicom (CHU) announced first quarter 2013 earnings per share of RMB 0.08 compared with RMB 0.04 earned in the year-earlier quarter. The increase was backed by well performing mobile and fixed-line segments plus expansion of 3G network and strong sales of Apple Inc.'s (AAPL) iPhones.
Revenue & Subscriber
Total revenue (excluding deferred fixed-line upfront connection fee) climbed 15.4% year over year to RMB 70.60 billion ($11.23 billion).
Telecommunication service revenues, comprising roughly 81% of the total revenue, were RMB 57.06 billion ($9.07 billion), up 14.2% year over year. Total revenue from the mobile business increased 20.4% year over year to RMB 35.24 billion ($5.60 billion). China Unicom added 11.396 million new subscribers to reach 250.708 million at the end of the first quarter.
China Unicom’s 3G business is growing at a fast pace and has become the major driver of revenue growth. 3G business telecommunication service revenues were RMB 19.23 billion ($3.06 billion) and accounted for 54.6% of telecommunication service revenues. The company’s total 3G subscriber base reached 87.816 million, with 11.360 million new customers added in the quarter.
Revenues from the fixed-line business increased 5.4% year over year to RMB 21.66 billion ($3.44 billion). Broadband business revenues were RMB 11.21 billion ($1.78 billion), up 11.0% from the year-ago quarter. China Unicom added 2.373 million customers during the reported quarter, bringing the total number to 60.913 million.
Expenses
Total expenses crept up 13.7% year over year to RMB 68.07 billion ($10.82 billion) due to higher selling expenses, network deployment costs, interconnection charges and depreciation charges. Selling expenses increased 22.8% year over year to RMB 10.01 billion ($1.59 billion), mostly due to higher promotional spending on handsets and applications.
Liquidity
As of Mar 31, 2013 China Unicom had cash and cash equivalents of RMB 14.22 billion ($2.26 billion) compared with RMB 18.25 billion ($2.90 billion) at the end of fiscal 2012. Long-term bank loans were RMB 523 million ($83.20 million), down from RMB 536 million ($85.27 billion) in 2012.
Our Take
We believe that China Unicom will continue to make significant progress in expanding economies of scale in 3G, broadband and other businesses that will likely improve its overall revenue and profitability. The company is consistently teaming up with international big brands like Nokia (NOK) to expand its 3G business that stands as the prime contributor to its revenue growth.
Nevertheless, high levels of marketing and promotional expenditures would continue to hurt future profitability. Further, we remain concerned about the precipitous decline in the landline business as well as intense competition in the domestic wireless market, in particular from China Mobile (CHL) and China Telecom.
China Unicom retains a Zacks Rank #3 (Hold).
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