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China Mobile, China Unicom FY Net Growth Likely Modest
By Loretta Ng

Of DOW JONES NEWSWIRES

http://sg.biz.yahoo.com/040318/15/3iuoa.html

HONG KONG (Dow Jones)--China's two giant mobile phone operators should report moderate earnings growth of about 10% for 2003, largely because the latest networks they purchased are located in less lucrative provinces.

Last year's SARS outbreak, intense competition for subscribers, and falling average revenue per user will combine with a growing reliance on prepaid customers in poorer parts of China to limit improvement in net profit, analysts said.

Locked in competition with a limited-range, cheap mobile phone alternative device called "Little Smart", China Mobile (Hong Kong) Ltd. (CHL) and China Unicom Ltd. (CHU), respectively the nation's No. 1 and 2 mobile phone operators, have been offering preferential tariff packages.

China Mobile is likely to report Thursday a net profit of CNY35.61 billion, according to a Dow Jones Newswires poll of eight analysts, up 8.8% from 2002's CNY32.74 billion.

Forecasts range between CNY34.20 billion from Citigroup Smith Barney and CNY36.50 from CLSA.

The biggest boost to China Mobile's earnings will come from the first full-year contribution from eight provincial networks acquired from its parent, which took effect in July 2002.

However, this deal, the company's fourth network acquisition since it listed in 1997, covered less wealthier parts of China than previous purchases.

The country's leading mobile phone company added 23.9 million customers, bringing its global system for mobile communications, or GSM, users to 141.6 million by the end of 2003.


Investors Looking For Higher Dividend

China Unicom, China Mobile's smaller rival, is likely to report on March 25 a net profit of CNY5.06 billion for 2003, according to a poll of 24 analysts conducted by Thomson First Call, up 11% from a year earlier.

Forecasts in the poll range between CNY4.56 billion from Bear, Stearns & Co. and CNY5.93 billion from Credit Suisse First Boston. Earnings are likely to be supported by China Unicom's first round of network acquisitions, covering nine provinces, in late 2002.

The company added 10.5 million users to its core GSM business and 10.7 million code division multiple access network subscribers last year, bringing total customers at the two networks to 63.9 million and 16.9 million respectively.

Late last year, it announced the acquisition of nine remaining networks from its parent for CNY3.2 billion in cash. The deal wasn't completed until the end of 2003 and won't be included in the company's earnings until 2004.

China Unicom's 2003 net profit won't just reflect a tough business environment, but also the impact of provisions to cover the falling value of its ailing paging operation, while the two-year-old CDMA business is unlikely to have reached breakeven for the full year.

A loss of some of its own GSM customers who switched networks as China Unicom tried to attract CDMA users probably also weighed on the bottom line last year, analysts said.

China Unicom has said it will focus on profitability at its CDMA division instead of subscriber growth.

It began scaling back subsidies for its handsets in January last year and then tried to lure customers by offering low-cost alternatives, purchased in bulk orders from local mobile phone vendors, and by launching a prepaid CDMA system. It will soon introduce dual-mode handsets, allowing users to switch between GSM and CDMA, in mid-2004.

Looking ahead, analysts said they are awaiting news on China Mobile's final set of network purchases. The company has said it is in discussions to buy the remaining 10 provincial mobile networks its parent company owns.

With both mobile operators close to exhausting their room for growth through acquisitions from their parents, analysts expect the companies to gradually develop into dividend-yield plays. The two will likely offer increasing dividends in future years.