Unicom Leads Phone Carriers’ Retreat Amid Sales Decline

China Unicom (Hong Kong) Ltd. fell the most in 16 months in New York, leading a retreat in Chinese mobile phone companies, after reporting 2014 earnings that fell short of analyst estimates.

American depository receipts of China Unicom, the nation’s second-largest wireless carrier, slid 5.2 percent to $15.59, the steepest drop since October 2013. China Telecom Corp Ltd. declined 3.8 percent and China Mobile Ltd., the world’s biggest phone company by users, slumped for a third day. The Bloomberg index of the most-actively traded Chinese companies in the U.S. fell 0.7 percent.

Sales at Hong Kong-based China Unicom decreased 3.5 percent to 284.7 billion yuan ($45.4 billion), missing the 286.7 billion yuan average of 29 analyst estimates compiled by Bloomberg. Chinese carriers are racing to provide faster downloads to the nation’s half-billion mobile Internet users in an economy that’s expanding at the slowest pace in 24 years. Unicom added the lowest-ever number of new users for its third-generation and fourth-generation high-speed mobile service in January.

“China Unicom’s January subscriber number was very weak,” Jun Zhang, head of China Research at Rosenblatt Securities Inc., said by phone from San Francisco. “I think 2015 sales might grow slightly, but the current consensus may still be too high as 4G user growth might not be as good as expected. If the user base starts to decline, revenue will lack a long-term growth driver and the stock will not perform well.”

Subscriber Additions

China Unicom’s annual net income of 12.1 billion yuan also came in below estimates for 12.6 billion yuan. Unicom added just 884,000 users of its 3G and 4G service in January, compared with 2.5 million in July.

The Chinese government may set a growth target of around 7 percent for gross domestic product in 2015, the official Xinhua News Agency reported, after the nation’s economy expanded by 7.4 percent in 2014. Consumer sentiment worsened for a second month in February, data from MNI and Westpac Bank showed last week.

“With the mobile subscriber market saturating and the traditional voice business continuing to decline, the traditional subscriber-driven business growth is under pressure,” China Unicom Chairman Chang Xiaobing said in a statement Tuesday. Average revenue per user will remain “stable” compared with 2014, company President Lu Yimin said during an earnings call.

China Unicom and China Telecom last week won government licenses for high-speed FDD-LTE service, more than a year after China Mobile received approval for its TD-LTE technology.

‘Far Ahead’

“China Mobile has already deployed a majority of their 4G network in major cities, and by the end of last year they already built 700,000 4G base stations, so their network coverage and user base is already far ahead of China Telecom and Unicom,” Zhang said.

ADRs of China Telecom fell to $62.43, while China Mobile slipped 3.9 percent to $64.75. The Bloomberg China-US Equity Index dropped to 111.03.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the largest U.S. exchange-traded fund that tracks mainland Chinese stocks, declined 2.7 percent to $35.75. The iShares China Large-Cap ETF, the largest Chinese ETF in the U.S., retreated 2.6 percent to $42.70.

(A previous version of this story removed an incorrect reference to a recommendation cut.)

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE