Analyst Sees Upside to Wireless Operator China Unicom (CHU)

Hong Kong-based S&P analyst David So released a note today on Chinese wireless operator China Unicom (ticker: CHU). So believes that the anticipated Chinese telecom industry consolidation / restructuring as a result of the issuance of 3G licenses could potentially breakup Unicom's network assets and provide upside for the stock. So raised his price target on Unicom to US $9.50. Key extract from So's note to clients:

In our opinion, the outlook for China Unicom is mainly dependent on the degree of industry consolidation/restructuring that could take place in the next 12 months. This is largely a function of the number of 3G licenses to be issued by the government. Indeed, there have been speculation surrounding the potential disposal of one or both of Unicom’s wireless networks to the fixed-line carriers (who have expressed interests in them) for the government to rationalize the telecoms sector. We see these potential events as positive catalysts for China Unicom given that we believe its breakup value (estimated at HK$95 bln based on our DCF valuation) is worth more than the current market value of the company. The other positive catalyst, in our view, is the CDMA business maintaining its ARPU and subscriber growth rate by capturing the high ARPU subscribers from China Mobile (ticker: CHL).

Downside risks to our target price and recommendation include intense competition from China Mobile (941 HK, HK$38.00, 4-STARS) and the Personal Access System (PAS) offerings from the two fixedline operators (CHA, CN) in addition to higher-than-expected 3G capex/opex.

CHU 1-Yr Price Performance: