On Apr 7, 2015, we issued an updated research report on China Unicom (Hong Kong) Limited CHU.
China Unicom reported weak financial results for the fourth quarter of 2014 wherein both earnings and revenues deteriorated year over year.
The company’s service revenues, in particular, have been hit by a slowdown in overall industry revenue growth, the implementation of VAT reform and the transformation of its marketing model. Moreover, we are concerned about stiff competition that can potentially affect China Unicom’s ARPU.
Meanwhile, China Unicom is eyeing a 4G network based on FDD-LTE technology. We believe the high capital investment made by the company toward rolling out a TDD-LTE based service might weigh on the carrier’s profitability.
To add to the woes, access line loss, significant capital investment and high operating expenses can also be a drag on the company’s profits.
However, it is not all bleak for the company. China Unicom is committed to provide faster broadband network, improve service quality and offer bundled services. Recently, the company finally received the much awaited FDD-LTE licenses to operate 4G services across the country. With Internet penetration still very low, 4G will provide a huge opportunity for China Unicom. Though initially expensive, the rollout of 4G should eventually be accretive to the company’s future growth.
Notably, 3G remains a compelling opportunity and represents the single biggest driver of long-term growth at the company. In the fourth quarter of 2014, China Unicom added 3.4 million 3G/4G subscribers. In 2014, the company increased its 3G/4G base stations by 158,000 to 565,000. However, the carrier continues to lag rival China Mobile Limited CHL in 4G investments and subscriber addition.
China Unicom currently carries a Zacks Rank #5 (Strong Sell).
Stocks that Warrant a Look
Better-ranked stocks in this sector include ViaSat Inc. VSAT and InterDigital, Inc. IDCC. Both the stocks sport a Zacks Rank #1 (Strong Buy).
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