WSJ on China Netcom (CN)

Despite internal strife, the resignation of its CFO, the dissolution of its international division, and concerns about the outcome of a much-anticipated telecom industry restructuring The Wall Street Journal suggests that China Netcom (ticker: CN) looks to be in good shape. Here are the key points (full article here -- WSJ subscription required):

Strong First-Half 2005 Financial Results

• Revenue rose nearly 7%.
• Revenue from broadband services rose 54% (vs 38% in the same period for China Telecom).
• Profit rose 28% (partly due to cost cutting).
• Continued strong broadband-Internet subscriber growth.

Analyst Sentiment

• Lehman Brothers recently raised its price target on the stock and has an "overweight" rating.
• ABN Amro analyst Helen Zhu sees further upside.
• Analysts believe that despite restructuring concerns China Netcom may be an attractive short term investment.

Positives

• Broadband penetration lower in northern provinces where Netcom operates. Potential for growth.
• Netcom management expects to receive a wireless license from the government.
• Netcom recently acquired telecom businesses in four Chinese provinces where it didn't previously operate. Netcom bought the assets from its parent China Network Communications at a 25% discount. Management believes this could increase EPS by nearly 14% this year.

Concerns

• Acquisitions will take time to nurture.
• Lehman Brothers says the average revenue per user (ARPU) in the newly acquired provincial areas is lower than in other locations where Netcom operates.
• Outcome of restructuring unclear (speculation that Netcom may merge with China Unicom).
• Internal strife.
• No explanation for recent departure of CFO Fan Xingcha.
• Analysts speculate CEO Tian may soon leave as well.

CN chart.