Recent Subscriber Gains, Cost Reductions To Drive China Unicom’s Results

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China Unicom

China Unicom (NYSE:CHU) is expected to publish its results for the first nine months of 2017 on October 27. The company has already released preliminary figures, projecting a strong 155% increase in net profits, driven by service revenue growth and lower costs. In this note, we take a look at some trends that could drive the company’s results for the quarter.

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

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Subscriber Growth, Lower Costs Will Drive Earnings

China Unicom’s wireless billing subscriber additions have been relatively strong this year, with the company adding a total of 13 million users over the first three quarters of the year. While total adds over Q1 and Q2 were about 5.6 million, Q3 additions were significantly stronger at 7.4 million. This was likely driven by the company’s new sales and marketing model, which uses big data and analytics to better target customers and cut costs, as well as its improving 4G coverage. The company expects overall service revenues (wireless and wireline) to grow by 4.1% to RMB 187.9 billion for the nine-month period. Wireless ARPU could also see an improvement in local currency terms, amid a higher mix of high-speed customers (58% of total wireless subscribers were on 4G as of September) and increasing data usage. The company expects net profits to expand by 155% to RMB 4.1 billion, driven by lower customer acquisition costs and lower handset subsidies.

Update On Mixed Ownership Reform

The Chinese government has been looking to revitalize state-backed companies with private investments, under the “mixed ownership” reform scheme. Under this program, China Unicom’s Shanghai-listed unit, China United Network Communications, will raise investments totaling about $12 billion from a host of investors, including Internet majors Tencent, Baidu and Alibaba and some well-capitalized state-backed firms such as China Life. The move should be beneficial for Unicom, as it could improve the company’s management autonomy while potentially allowing it to play a role in areas such as payments, cloud computing, big data and the Internet of Things, leveraging its partnership with technology giants. We will be looking for updates on how the reforms are progressing.

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