China Unicom Fiscal Year Net CNY4.57 Billion Vs CNY4.46 Billion

 

HONG KONG -(Dow Jones)- China Unicom Ltd. said Tuesday its 2002 net profit grew 2.5% on year to 4.57 billion yuan (US$1=CNY8.28) from CNY4.46 billion a year ago, lagging the 38% jump in revenue.

The results came in just below an expected net profit of CNY4.63 billion for 2002, according to the average forecast from a poll of 13 analysts conducted by Dow Jones Newswires.

Analyst forecasts for China Unicom's full-year net profit ranged from CNY4.36 billion at Goldman Sachs to CNY4.93 billion at Deutsche Bank.

The listed unit of China's second-largest mobile operator recommended a dividend of CNY0.10 per share - its first-ever since listing in 2000. This translates into a 28% dividend payout ratio.

The bottom-line performance lagged far behind its revenue growth for last year, which jumped to CNY40.58 billion from CNY29.39 billion a year earlier. This follows a 60% jump in the number of mobile users to 43.1 million across the company's 12 provincial networks by the end of last year.

Its operating margins slipped to 19% last year from 25% in 2001.

The growth in mobile user numbers comes not only from China Unicom's bread- and-butter global system for mobile communications business, or GSM, but also its year-old code division multiple access service, or CDMA.

The results statement didn't include the acquisition gain following its purchase of nine provincial networks from its parent as the deal was completed on Dec. 31, 2002.

Meanwhile, the dividend payout came in above market expectations of 20% and below, a view shaped by analysts' belief that China Unicom was still in a position of negative free cash flow.

However, analysts aren't impressed.

"It now turns out to be a yield of just about 2%, which I don't think is a big difference (from market expectations)," said a telecom analyst at a European brokerage. "Even if it is paying more out of its pocket, the market will question its sustainability."

Meanwhile, China Unicom didn't provide any other details on the company's full-year operational figures Tuesday.

However, analysts widely believe the sluggish net profit growth to be mainly due to the company's heavy outlay in promoting its CDMA service, especially as it entered the second half of 2002.

Also, the company's 2002 bottom line was likely eroded by higher depreciation charges and interest expenses, analysts said, though the company hasn't so far provided data for those categories.

Analysts said another possible major factor behind the weak 2002 profit growth is the amount of further provisioning, if any, on China Unicom's ailing paging division, which made a CNY632 million write-down in 2001.

"The company has many unknown variables and they are all pending answers," said ICEA analyst Bertrand Chui.

China Unicom is scheduled to meet analysts Wednesday at 0100 GMT and is widely expected to comment on its CDMA strategy for 2003.

The company needs to convince investors that it can strike a balance between attaining user growth and achieving profitability for its nascent money-losing CDMA business, analysts said.

"Tomorrow's focus will be CDMA and its operating performance," said ING Financial Markets analyst Leon Chik.

"I believe the details to be revealed are more important than the company's bottom line."