China Unicom swings to small profit

China Unicom (Hong Kong) Limited, the country’s second-biggest mobile operator, swung to a profit in the fourth quarter on higher-end subscribers using more data and said it planned to spend a third more this year to upgrade its network. The country’s three mobile operators — China Mobile, China Unicom and China Telecom Corporation — have been trying to boost their average revenue per user (ARPU) in the world’s largest wireless market, where the bulk of subscribers are 2G users. China’s carriers typically have to dole out hefty handset subsidies to attract higher-end 3G users in the hope that they will ultimately spend more surfing the internet and downloading content in addition to making calls and sending text messages. “Profit in the fourth quarter fell sharply sequentially mainly because we lost business in the 2G and fixed line sectors and our 3G and broadband revenues did not grow enough to offset that,” China Unicom’s chief financial officer Li Fushen told a news conference on Thursday. “Another reason is our cost increase, which includes handset subsidies,” he said. In the fourth quarter, China Unicom eked out a net profit of about 10 million yuan ($1.6 million), much lower than the third quarter but swinging from a net loss of 426 million yuan in the last three months of 2010, China Unicom executives told Reuters. For the full year, China Unicom posted a net profit of 4.23 billion yuan, lower than a forecast of 5.45 billion yuan from Thomson Reuters, but 14 per cent higher than the year-ago figure of 3.70 billion yuan. China Unicom had 205.97 million mobile subscribers in February, of which about a fifth are 3G users, more than China Mobile’s 8.6 per cent but lower than China Telecom’s one-third. China Unicom plans to spend 100 billion yuan in 2012, a third more than in 2011 as it upgrades its network to attract more higher-end 3G subscribers, executives said. It was the first Chinese carrier to offer Apple Inc’s iPhone, but that exclusivity ended earlier this year when Apple sealed a contract with smaller rival China Telecom. China Unicom said 2011 ARPU of mobile subscribers was 47.3 yuan, up 8.2 per cent from a year earlier. The firm’s results came days after China Mobile reported a full-year net profit rise of 5.2 per cent and China Telecom posted a 7.5 per cent increase. China Unicom’s shares had fallen 20 per cent since the beginning of the year, lagging its competitors. “We remain cautious on China Unicom,” Alen Lin, an analyst at BNP Paribas Securities Asia in Hong Kong, wrote in a report to clients yesterday. “We continue to believe the high cost of driving rapid 3G growth would offset any upside from improved subscriber profile. This is again validated through the poor profitability.” Lin rates the shares hold and said he couldn’t comment beyond his report when contacted today. China Unicom fell 3.1 per cent to HK$12.72 as of 9:30 a.m. in Hong Kong trading. The stock has declined 22 per cent this year, compared with a 12 per cent gain for the benchmark Hang Seng Index. Earnings before interest, taxes, depreciation and amortization as a per centage of revenue shrank to 30.3 per cent in 2011 from 34.7 per cent a year earlier, the carrier said. The EBITDA margin won’t fall below last year’s level, Lin said. “We need to improve the quality of our network,” as the company is seeking to add more 3G users this year than rival operators in China, President Lu Yimin said at the conference. The network investment will “eliminate blind spots in urban areas” extend coverage to developed townships,” the company said in the statement. “There are more iPhone and smartphone users on the network, so they have to expand capacity, coverage, and improve network quality,” Kelvin Ho, a Hong Kong-based analyst at Yuanta Securities Co., said. “They have to spend more, or the window of opportunity will be missed.”