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China Unicom Top & Bottom Lines Soar

Zacks Equity Research

China Unicom Hong Kong Limited (CHU), China's second largest mobile operator, announced the results for full-year 2013 with adjusted net income of RMB 10.4 billion ($1.68 billion) that surged 46.7% year over year on strong revenue growth and higher adoption of 3G plan.

Revenue & Subscriber

Total revenue (excluding deferred fixed-line upfront connection fee) climbed 18.5% year over year to RMB 295.0 billion ($47.65 billion) in 2013. Telecommunication service revenues, comprising roughly 81% of the total revenue, were RMB 238.56 billion ($38.52 billion), up 13.5% year over year.

Healthy revenue growth was attributable to rapid growth of 3G and fixed-line broadband businesses. However, China Unicom has lost its exclusive right to distribute iPhones to China Telecom Corporation Limited (CHA).

Total revenue from the mobile business increased 25.9% year over year to RMB 207.52 billion ($33.51 billion). A large contributor to growth was the telecommunication service with revenues of RMB 151.13 billion ($24.41 billion), up 19.9 % year over year. China Unicom added 41,671 million new subscribers to reach 280.983 million at the end of 2013.

China Unicom’s 3G business is growing at a fast pace since its introduction in Oct 2009 and has become the major driver of revenue growth. 3G business telecommunication service revenues were RMB 89.80 billion ($14.50 billion) in 2013, up 50.2% year over year and accounted for 59.4% of telecommunication service revenues. The company’s total 3G subscriber base reached 122.600 million, with 46.144 million new customers added in 2013.

Telecommunication service revenues from the GSM business decreased 7.4% year over year to RMB 61.34 billion ($9.90 billion) due to growing data substitution and stiff competition. Subscribers at the end of 2013 were 162.856 million, showing a 4.47 million year-over-year decline.

Revenues from the fixed-line business increased 3.9% year over year to RMB 86.56 billion ($13.98 billion) due to company’s effort to upgrade its broadband speed, improve service quality and accelerate the development of high speed bundled service.

Telecommunications services revenues from the fixed-line business also rose 3.9% year over year to RMB 86.48 billion ($13.18 billion) backed by consistent growth in fixed-line broadband business.

Telecommunications service revenues from the broadband business were RMB 45.99 billion ($7.42 billion), up 10.6% from the prior year. China Unicom added 6.107 million customers during the reported year, bringing the total number to 64.647 million.

The local telephone business recorded service revenues of RMB 26.28 billion ($4.2 billion), down 10.4% from the prior year. The company’s total fixed line broadband band subscriber base reached 87.643 million, with a loss of 4.314 million customers.


Total expenses crept up 17.6% year over year to RMB 279.27 billion ($45.10 billion) due to higher selling expenses, subsidy, interconnection charges and depreciation charges. Selling and marketing expenses increased 22.7% year over year to RMB 42.99 billion ($6.9 billion) in 2013, mostly due to higher promotional spending on handsets and applications.


China Unicom exited 2013 with cash and cash equivalents of RMB 21.51 billion ($3.47 billion) compared with RMB 18.25 billion ($2.89 billion) at the end of 2012.

Operating cash flow grew 11.1% year over year to RMB 78.482 billion ($12.67 billion) in the reported year.

Our Analysis

China Unicom will continue to benefit from the ongoing development strategy aimed at enhancing growth and profitability. The company expects to generate higher revenues by accelerating large-scale developments of 3G and fixed-line broadband services. The company further wants to enhance data volume growth and improve customer service to achieve a higher profit margin.

China Unicom currently carries a Zacks Rank #1 (Strong Buy). Other stocks worth considering within this sector are SK Telecom Limited (SKM) and Level 3 Communications Inc. (LVLT). SKM carries the same rank as CHU, while LVLT holds a Zacks Rank #2 (Buy). 

Read the Full Research Report on LVLT
Read the Full Research Report on CHU
Read the Full Research Report on SKM
Read the Full Research Report on CHA

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