China Unicom (CHU) misses profit estimates; wireless competition intensifies (1Q05 earnings)

| About: China Unicom (CHU)

China Unicom (ticker: CHU), a China wireless operator, reported Q1 2005 earnings results last week. Details:

Q1 Results:
(all percentage changes and comparisons are year on year, unless stated otherwise, assumes conversion of RMB 8.2765 : US $1)

  • Total operating revenue rose 7.0% to $2.5 billion.
  • Sales and marketing expenses rose 1.0% to $557.3 million.
  • G&A expenses rose 9.0% to $328.8 million.
  • Operating expenses rose 11.9% to $2.3 billion.
  • Operating income declined 26.2% to $224.3 million.
  • Net income declined 26.1% to $128.4 million versus consensus of $129.3 million.

Revenue Breakdown
(all percentage changes and comparisons are year on year, unless stated otherwise, assumes conversion of RMB 8.2765 : US $1)

  • GSM rose 1.8% to $1.5 billion.
  • CDMA rose 16.0% to $803.6 million.
  • Data and Internet fell 11.5% to $100.5 million.
  • Long distance rose 18.9% to $53.1 million.


  • China Mobile (ticker: CHL) and China Unicom are battling for more budget-conscious users in smaller cities now that the bigger cities are saturated.
  • Unicom has been losing market share to China Mobile, which has twice as
    many customers and tends to attract bigger spenders.
  • At the lower end,
    Unicom faces pressure from the limited-roaming services offered by
    China's two big fixed-line carriers China Telecom (ticker: CHA) and China Netcom (ticker: CN).
  • All four of China's state-run carriers await an expected
    industry restructuring aimed at reducing competition and setting the
    stage for the introduction of third-generation (3G) wireless services.

Prospects (language from 6-K filing)

....In the first quarter of 2005, the Company faced with intense market competition. The Company insisted on market-orientated approach and strengthened basic management. Transformation of development model was propelled proactively. Business and revenue grew steadily. Tariff and ARPU were stabilised. Marketing expenses were also controlled effectively. The Company will continue to insist on rational, pragmatic and proactive development strategies. Emphasis will be paid to efficient development of the GSM and CDMA network. Advantages of being an integrated operator and in CDMA 1X wireless data service will be focused. Market competition order will be maintained. Corporate management will be strengthened in order to propel continued and stable development of the Company. Better return will thus be created to the shareholders.

Caution statement (language from 6-K filing)

....The Board wishes to remind investors that the financial statements and the financial outlines for the first quarter ended 31 March 2005 are based on the Group’s internal records and management accounts. The financial statements for the first quarter ended 31 March 2005 have not been reviewed or audited by the auditors. The financial statements for the first quarter ended 31 March 2004 are extracted from the unaudited financial statements already disclosed by the Group and has been restated, and the financial statements for the year ended 31 December 2004 are extracted from the audited financial statements as contained in the 2004 Annual Report and has been restated. Investors are cautioned not to unduly rely on financial data, statistics and comparison for the first quarter ended 31 March 2005. In the meantime, Investors are advised to exercise caution in dealing in the shares of the Company.

CHU chart.


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Tagged: , Wireless Communications, China, Earnings
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