OUTLOOK: China Unicom 2000 net profit 1.12-1.36 bln yuan vs 839 mln
HONG KONG (AFX-ASIA) - China Unicom is expected to report tomorrow a net profit of 1.12-1.36 bln yuan for 2000, up from 839 mln a year earlier, analysts said. The main driver of sales and profit growth will have been the cellular phone business, while the paging operations' results are expected to show little change from last year. The paging operations are, however, a valuable source of new mobile phone subscribers. In the first half, the company posted a net profit of 171.22 mln yuan. This was achieved despite a one-off payment of 1.194 bln yuan compensation to local and foreign investors following the termination of "China-China-Foreign" arrangements, which allowed for foreign investor participation in China's telecommunication sector despite an official ban on such involvement. Walllace Cheung, an analyst with DBS Securities, said he is looking for a 2000 net profit of 1.14 bln yuan, with an EBITDA of 10.72 bln. He expects the number of China Unicom mobile phone subscribers rose to 12.77 mln at end-2000, up 206 pct from a year earlier. This strong growth in subscriber numbers would have required increased promotional activities, particularly given the fierce competition evident in the mainland China mobile phone market. Cheung estimates China Unicom's marketing spend at 3.50 bln yuan in 2000, more than double the 1999 level. China Unicom's paging business is expected to have grown at a more modest rate than the phone operations, with subscriber numbers at end-2000 estimated at 44.52 mln, up 1.02 mln from 1999, he said. "However, the paging division is of declining significance for the company and the average revenue per user (ARPU) dropped 13 pct to 16 yuan a month in 2000," he said. Cheung said he rates China Unicom an "outperform" and has a price target for the shares of 12.80 hkd. Craig Racine, analyst with ING Barings, said he is looking for the company to report a net profit of 1.36 bln yuan on revenues of 23.9 bln yuan for 2000. The mobile phone operations are expected to have contributed around 55 pct of China Unicom's 2000 turnover and the paging operations 35 pct, he added. Racine said China Unicom's ARPU from its mobile phone subscribers is likely to have fallen to 129 yuan a month from 167 in 1999, due to the rising proprtion of low-end users in its subscriber base. Looking ahead, Racine said China Unicom may face a 2.70 bln yuan funding shortfall as a result of the likely switch to a one-way charging system next year, under which only callers will have to pay for calls. Racine said his house has a "buy" recoomendation and a price target of 12.60 hkd for China Unicom's shares. Leon Chik, an analyst with Dresdner Kleiwort Wasserstein, said he expects China Unicom to report a net profit of 1.12 bln yuan. The analyst said the earnings improvement is mainly attributable to the rise in the number of mobile phone subscribers, a growth trend he sees continuing. "The company has around 12.7 mln mobile phone subscribers and it is likely to increase to 23 mln by the end of this year," he said. China Unicom's fixed line operations, which are still at an early stage of development, are expected to have contributed 926 mln yuan of the company's revenues last year, Chik said. "It will be more important for the company in the future ... the company is putting a lot of effort into growing the business," he said. The analyst sees good growth in both the fixed line and cellular operations. "The telecom networks for China Unicom have not reached their full capacity ... the growth potential is stronger (than that for its main competitors)," he said. Chik said he has an "add" recommendation on China Unicom shares. At present, China Unicom provides fixed-line and paging services throughout mainland China and mboile phone services in 12 provinces, comprising Guangdong, Jiangsu, Zhejiang, Fujian, Liaoning, Shandong, Hebei, Hubei, Anhui, Beijing, Shanghai and Tianjin.
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