Why China Unicom’s Stock Has Outperformed This Year

by Trefis Team
China Unicom
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China Unicom’s (NYSE:CHU) stock is up by close to 25% year to date, outperforming its rivals China Mobile and China Telecom, who have see their stocks remain essentially flat. Unicom’s strong performance is driven by some improvement in subscriber additions, positive sentiment surrounding China’s mixed-ownership reforms and the proposed IPO for the China Tower Joint venture. Below we take a look at some of the factors that drove the price increase.

Trefis has a $14 price estimate for China Unicom, which is in line with the current market price.

See our complete analysis for China Mobile | China Unicom | China Telecom

Customer Adds Are Improving

China Unicom has been improving its 4G coverage, partly leveraging a collaboration agreement with China Telecom. The carrier has also been transforming its sales and marketing model, by working along with Internet companies to leverage big data analytics and online customer touch points to better target customers, and reduce customer acquisition costs. The company added roughly 4.5 million subscribers this year (as of May 2017), marking an average of about 500k new customers adds per month. Moreover, as China Unicom’s networks have significant capacity, and its network operating costs are largely fixed in nature, much of the incremental service revenues from new customers could flow directly to the company’s bottom line.

IPO Of China Tower JV

The China Tower joint venture, which is the spin-off entity that runs infrastructure for Chinese carriers, intends to file for an initial public offering shortly. The company is reportedly looking to float between 10-20% of its shares, raising as much as $10 billion, most of which is likely to be returned to the three major carriers. China Unicom is likely to be a big beneficiary of this, as it holds roughly 28% stake in the entity. This could provide the carrier with a relatively strong cash infusion following the IPO.

Mixed Ownership Reforms 

The Chinese government has been looking to increase private investment into various sectors of the economy. China Unicom has been a contender for this mixed-ownership reform, given that it has been underperforming its peers in recent years. Reuters reported in mid-June that Internet giants Alibaba Group Holdings and Tencent Holdings are tipped to be among the investors who will invest roughly $10 billion into China Unicom’s Shanghai-listed affiliate, China United Network Communications Ltd. This should prove positive for the company, as it could reduce state ownership and increase management autonomy, while bringing in fresh capital for expansion.

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