China Unicom Posts Strong Profit Growth, Outlines Mixed-Ownership Reform Plans

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China Unicom

China Unicom (NYSE:CHU), China’s second largest Chinese wireless carrier, published its first half 2017 interim results on Wednesday, August 16, reporting strong earnings growth amid soaring mobile data consumption and a growing mix of 4G customers. Unicom also formally announced its mixed ownership reforms, indicating that a group of companies including Alibaba, Tencent and Baidu will invest about $11.7 billion into its Shanghai listed affiliate. Below is a brief overview of the earnings and what the new investments into the company could mean.

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

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China Unicom’s service revenues grew by about 3.2% year-over-year in local currency terms, although there was a slight decline in dollar terms, on account of the 5% year-over-year depreciation of the RMB. The growth was primarily driven by the company’s expanding 4G user base (~52% of total wireless subscriber base, versus 24% a year ago). Wireless ARPUs also saw an improvement, rising by 2% year-over-year to RMB 48, as data usage per handset grew by 300% year-over-year. China Unicom’s profitability also improved, driven by lower handset subsidy costs (down 54.7% year-over-year) and its move to transform its sales and marketing model by leveraging big data and analytics to better target customers and reduce customer acquisition costs.

The Chinese government has been looking to revitalize state-backed companies with private investments, under the so-called mixed ownership reform scheme. China Unicom indicated that its Shanghai-listed unit, China United Network Communications, will be raising investments totaling about $11.7 billion from a host of investors including Chinese Internet majors Tencent, Baidu and Alibaba and some other state-backed firms. The move could prove positive for China Unicom, as it would effectively reduce state ownership and increase management autonomy while bringing in fresh capital for expansion. There are likely to be several strategic benefits as well, as Unicom intends to cooperate with these strategic investors in areas such as content aggregation, payments, cloud computing, big data and the Internet of Things.

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