Chinese Wireless Carriers Q2 Earnings: What To Watch

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The three major Chinese telecom carriers – China Mobile (NYSE:CHL), China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) – are expected to report their Q2 2016 earnings shortly. We expect the results to be a mixed bag, amid sequentially lower subscriber and 4G adds as well as potential pressures to ARPU, given the Chinese government’s tariff reduction requirement and unused data rollover policy. It is also possible that the carriers could report lower product sales, amid a slowdown in smartphone sales in China and the absence of high-profile device launches. Network operation and support expenses will be another key factor to watch, as carriers have seen these costs mount following the transfer of their tower assets to the China Tower joint venture, which was formed in 2014. That said, these costs could moderate going forward, as the three carriers recently inked separate 5 year contracts with China Tower, which could see per-tower lease fees fall by as much as 15%. Below we take a look at a few company-specific trends to watch when the carriers report earnings.

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  • China Mobile could see its revenue growth slow amid stronger competition for 4G customers from its smaller rivals China Unicom and Telecom. That said, the carrier’s ongoing transformation of its sales and marketing model could drive operating margins. The carrier should also benefit from strong customer growth in its fledgling wireline broadband business (5.2 million adds in Q2, roughly 2x the other carriers combined)
  • China Unicom’s wireless subscriber growth was the lowest of the three carriers for the quarter, and the company’s margins could also be impacted by its smaller subscriber base compared to last year and potentially higher network operation and support expenses.
  • China Telecom is likely to see year-on-year revenue growth, driven by its robust subscriber gains over the last year as well as its stronger 4G user mix (43% of total subs). That said, the carrier’s operating profits will be a key factor to watch as its selling general and administrative expenses and network costs trended upwards during the last quarter.

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