Lehman Lowers Rating on China Unicom Prior to Earnings Report (CHU)

| About: China Unicom (CHU)

Hong Kong-based Lehman Brothers analyst Lu Sun believes that the changing competitive dynamics in China's wireless services industry will hurt China Unicom (ticker: CHU). The following are extracts from a note to clients:


China Mobile’s aggressive land-grab strategy, new competition post 3G licensing, and the delay in industry restructuring (if any) are the key risk factors facing CU in 2006, in our view. We lower our 06 and 07 EPS forecast by 7.6% and 10.2%, and lower our recommendation to 2-EW. We see good support at Book Value/sh of HK$6.0.

Q4 2005 Earnings Preview:

  • CU is to report 2005 results on March 23 post close. We expect total rev. of RMB86.5bn, up 9%, and NP/EPS of RMB4.7bn/0.38, up 8% yoy.
  • 4Q05 may see a slight margin crunch due to higher SG&A expenses related to accelerating promotions & seasonality.
  • Expect 06 Capex guid of RMB22.4bn, up 13% from 05 level, owing to MOU gr. & GPRS upgrade.
  • Expect 05 dividend payout of 35%, @ a 2% yield.
  • Trading at 14.7x 06E PER, CU is at a 9.7% premium to Asian avg.
  • CHU 1-Yr Price Performance: