HONG KONG (Dow Jones)--China Unicom (Hong Kong) Ltd. (CHU) fell as much as 4.6% on the Hong Kong stock exchange Monday morning, after the Chinese telecommunications operator said Friday it expects its 2009 net profit to fall by more than 50%.
The announcement, which was issued after markets in Asia closed, suggests the restructuring of the domestic telecommunications industry in late 2008 led to more competition and weakened the company's profitability.
At the midday break, its shares were down 3.8% at HK$8.46, off an intraday low of HK$8.39. The Hang Seng Index was down 0.6%.
China Unicom which provides mobile, fixed-line and broadband services in China, cited a one-off disposal gain in 2008 and high costs and expenses for its new third-generation mobile business for the expected drop in earnings. China Unicom is scheduled to issue its earnings before the end of March.
China Unicom sold its code division multiple access mobile operations to China Telecom Corp. (CHA) in October 2008, which generated an after-tax gain of CNY27.57 billion ($4 billion) for 2008. China Unicom's 2008 net profit rose 58% to CNY33.91 billion from CNY21.44 billion in 2007.
Analysts said the profit warning from China Unicom wasn't surprising given the one-off disposal gain and 3G startup costs. However, they said the company's profit will likely continue to fall this year, as marketing expenses for its 3G services will rise further with intensifying market competition.
"This (profit warning) does not come as a surprise as we have expected a 67% earnings decline (for 2009)," said Elinor Leung, analyst at CLSA," However, even excluding one-off items, core earning is expected to fall 20% in 2009 due to declining fixed-line business and 3G startup cost."
Leung said China Unicom's decline in core earnings will likely worsen in 2010 as it ramps up its 3G subscriber base.
"We expect 2010 earnings to fall by another 20% this year given higher depreciation and marketing expenses," she said, as the company's capital expenditure surged to a record CNY110 billion in 2009 due to the launch of 3G services, which will likely result in a CNY4 billion-CNY5 billion increase in depreciation this year.
