China Unicom Profit Beats Estimates on Cheap Smartphones

China Unicom Hong Kong Ltd. (762), the nation’s second-largest mobile-phone company, posted fourth- quarter profit that beat analyst estimates as it boosted users through low-priced smartphones and reduced subsidies.

Net income rose to 1.64 billion yuan ($264 million), from 14 million yuan a year earlier, based on figures derived from 12-month earnings the Beijing-based company reported yesterday. Profit surpassed the 1.41 billion-yuan average of eight analyst estimates compiled by Bloomberg.

Chairman Chang Xiaobing pared costs by luring new smartphone subscribers with low-cost devices priced at 1,000 yuan or less after the company lost its advantage as the only Chinese carrier to offer Apple Inc. (AAPL)’s iPhone with a service plan. The greater variety of devices has helped Unicom close the gap with larger China Mobile Ltd. (941), which operates a third- generation service that isn’t compatible with popular handsets like the iPhone. China Telecom Corp. started offering subsidized Apple handsets last March to gain share.

“The handset subsidies were much less than expected even though they launched iPhone 5 last quarter,” said Ricky Lai, an analyst at Guotai Junan International Holdings Ltd. in Hong Kong, who cited his estimate of 7.5 billion yuan in subsidies for the full year compared with the company’s 6.1 billion yuan figure. “We expected handset subsidies would be much higher when they started sales of the new iPhone.”

China Unicom said yesterday that 3G handset subsidies as a percentage of service revenue were cut to 10 percent last year, from 18 percent in 2011.

Revenue Gains

Revenue rose 20 percent to 63.7 billion yuan in the fourth quarter. That compares with the 65.5 billion-yuan average of analyst estimates.

Unicom rose 3.7 percent to HK$10.74 at 9:57 a.m. in Hong Kong trading, poised for the largest gain since Aug. 23. The stock has dropped 18 percent in the past year, compared with a 6 percent advance for the city’s benchmark Hang Seng Index.

Unicom had 76.5 million 3G subscribers at the end of December, lagging behind the 87.9 million for market leader China Mobile, according to data the companies released in January. The smaller operator, which also offers fixed-line broadband Internet services, had a mobile customer base of 239.3 million, or 34 percent of China Mobile’s 710.3 million.

China Mobile on March 14 reported fourth-quarter net income climbed 6.1 percent to 36 billion yuan, beating analyst estimates. China Telecom on March 20 reported profit that surpassed analyst estimates as customers using the iPhone helped boost sales of wireless data.

“China Unicom is the most competitive one among the three operators,” Tony Yang, an analyst at BOCI Research Ltd. in Hong Kong, wrote in a note to clients on March 20. “China Unicom’s 3G advantage will last till mid-2014,” when its 3G subscriber base will reach 150 million to 200 million, he wrote.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net