Market Overview

One Of China's Biggest Wireless Telecoms Issued A 'Profit Warning'

Share:
Related CHU
25 Stocks Moving In Tuesday's Pre-Market Session
38 Stocks Moving In Wednesday's Pre-Market Session
Related AAPL
Consumer Discretionary Q4 Earnings: U.S. Consumer Appears Strong Amid Heightened Global Uncertainty
Apple Bull Weighs Impact Of Taiwan Semiconductor Guidance Cut, Battery Replacement
Digital giants in crosshairs of EU tax (Seeking Alpha)

Seven years ago, China Unicom (Hong Kong) Limited (ADR) (NYSE: CHU) solidified a deal with Apple Inc. (NASDAQ: AAPL) to bring iPhones to China.

Over the past 10 years, China Unicom has risen more than 50 percent. However, shorter-term, the telecom service provider has seen much more volatility. Looking at the five-year chart, the stock is down roughly 35 percent. For the year-to-date period, the stock is up 5 percent; however, over the past full year, the stock is down almost 27 percent.

china_0.jpg

2016's First Quarter: Profit Warning From China Unicom

On Monday, China Unicom circulated a profit warning for the Q1'16.

The document read in part, "In the first quarter of 2016, the Group's operation was on track as planned. Our mobile business has achieved initial success in overcoming operational challenges and the Group expects a net addition of mobil billing subscribers of approximately 6.61 million during the period, successfully turning around the downward trend in mobile subscribers in the past consecutive months."

Related Link: Apple To Pay $24.9 Million Under Settlement Agreement With Marathon Patent Group Subsidiary

However, following the positive notes, the crux of the notice appeared, "The first quarter of 2016, the profit attributable to the equity shareholders of the Company is expected to be approximately RMB 480 million, down significantly by around 85 percent as compared to the same period of last year mainly because selling and marketing expense increased by an expected 16 percent year-on-year, and the addition of tower usage fee, higher energy charges and property rentals, etc. led to an expected 37 percent increase year-on-year in network, operation and support expenses."

Analyst's Take

HSBC Global Research analysts, led by Neale Anderson, summarized the situation, "The key catalyst remains strong operating momentum – at a lower cost."

"Unicom's KPI update in the announcement suggested solid subscriber and top-line trends in the quarter, and we expect this to continue. We believe this should also drive a reduction in the selling expenses that pushed profits down in the first quarter, as the benefits of its more focused wireless network coverage and strategy become more apparent to users."

Subsequently, HSBC cut 2016 estimates by 5.7 percent for EBITDA and 35 percent for net income, but reaffirmed the firm's broadly positive stance on the company, "However, our 2017 estimates are largely unchanged, and we increase our medium-term estimates slightly: we expect the costs of Unicom's turnaround to decline as its brand momentum improves."

"Unicom remains our preferred stock in China telecom services," the analysts concluded.

Latest Ratings for CHU

DateFirmActionFromTo
Nov 2018MizuhoUpgradesUnderperformNeutral
Oct 2018Credit SuisseDowngradesOutperformNeutral
Oct 2016Deutsche BankDowngradesBuyHold

View More Analyst Ratings for CHU
View the Latest Analyst Ratings

Posted-In: Analyst Color Long Ideas Emerging Markets Price Target Reiteration Markets Analyst Ratings Tech

 

Related Articles (AAPL + CHU)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
MDRXKeyBancUpgrades0.0
ANETNomuraUpgrades260.0
CNPRBC CapitalUpgrades34.0
FISVOppenheimerUpgrades88.0
FNDUBSUpgrades37.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

TD Ameritrade Q2 Earnings Conference Call: Full Transcript

Barclays Getting Bearish On Ag: Downgrades Potash, Mosaic, Lowers Targets On Agrium, CF