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UPDATE 2-China Unicom posts lower annual profit, tough 2017 looms
March 15, 2017 / 9:39 AM / 9 months ago

UPDATE 2-China Unicom posts lower annual profit, tough 2017 looms

* 2016 net profit falls 94 percent to 630 million yuan

* Expects 2017 capex of 45 bln yuan vs 72.1 bln in 2016

* Chairman says govt’s determination for reform is strong (Adds chairman quotes from press conference)

By Sijia Jiang

HONG KONG, March 15 (Reuters) - State-owned China Unicom Hong Kong Ltd on Wednesday reported a drop in revenue and profit for 2016, and is bracing for further challenges this year as the Beijing government calls on telecommunications network operators to lower rates.

Chinese Premier Li Keqiang last week called on telcos to “raise speed, drop prices” by evening out local and long-distance domestic call charges and removing domestic roaming charges. The impact could see China Unicom booking a net loss of about $103 million in 2017, estimated analysts at Jefferies.

China Unicom said at an earnings briefing on Wednesday that eliminating roaming charges would reduce its revenue by 1.58 billion yuan per quarter.

For 2016, the company’s net profit fell 94 percent to 630 million yuan ($91.15 million), matching an estimate it disclosed in January. Revenue fell 1 percent to 274.20 billion yuan.

China Unicom said it would not pay a dividend for 2016.

The telco blamed the decline on additional operating and support expenses after disposing of network signal towers, as well as a substantial increase in sales and marketing costs.

“We are determined to improve quality and enhance efficiency, eliminate excess capacity and de-stock based on the practical situation,” China Unicom said in a statement to Hong Kong’s stock exchange.

The telco’s capital expenditure in 2017 will drop 38 percent from last year to 45 billion yuan as the company needs time to prepare for 5G spending and ensure it does not repeat the mistakes it made with 4G, China Unicom Chairman Wang Xiaochu said at the earnings briefing.

The company has racked up heavy expenses to market its fourth-generation (4G) mobile network technology, weighing significantly on its bottom line.

Last year “was an expensive year for China Unicom to catch up on its missed opportunities in 4G”, said Nomura analyst Joel Ying.

Chairman Wang said China Unicom aimed to add 60 million 4G users in 2017, the same number as in 2016.

Wang also said a pilot mixed-ownership programme for state-owned enterprises, in which China Unicom will be among the first to take part, is pending government approval, and so he was unable to provide an update on the matter.

“One thing that is for sure is the central government’s determination for reform is strong,” he said.

China’s three state-owned telecom operators transferred their tower assets into a joint venture, China Tower Corp, in October 2015 as the government worked to improve efficiency.

“The most important purpose of mixed ownership is to change problems with the system ... that can greatly improve efficiency,” Wang said.

The proportion of 4G subscribers to mobile billing subscribers rose 22.1 percentage points to 39.6 percent in 2016, with the potential for growth still “enormous”, the company said.

China Unicom’s stock closed up 0.1 percent ahead of the earnings announcement, versus a 0.2 percent drop for the benchmark Hang Seng Index. ($1 = 6.9116 Chinese yuan renminbi) (Reporting by Sijia Jiang; Editing by Christopher Cushing and Himani Sarkar)

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