In today's brutally competitive telecom environment, most cellular operators would give half their available spectrum to boast a subscriber base of 135 million customers, hold a 34% share of their target market, and have earnings growth of 20%.
Unfortunately for China Unicom
Sure, China Unicom's results for the six months ended June 30 were pretty solid. Revenue increased 8.2% to roughly $5.9 billion, profits jumped 20% to $351 million, and the company added some 7.3 million new subscribers since the beginning of the year (a 6% gain, for those interested). I'll even discount the fact that the increase in profits was helped by a 38% ($35 million) reduction in interest expense.
Sounds pretty decent, right?
Well, not in comparison with China Mobile. China's largest mobile operator recently reported operating metrics that were superior in each area, despite growing off a bigger base. First-half revenue jumped roughly 20% to $17.2 billion and net profits climbed 25% to $3.8 billion. The mobile behemoth was able to increase its subscriber base by 11% -- or 25.8 million new users -- since the start of the year, and now has approximately 274 million subscribers, or a 66% share of the Chinese wireless market.
Need I mention that China Mobile now grabs 4 out of 5 new subscribers in the market?
But before anyone starts thinking that China Unicom could be considered a value play, I would like to point out that shares of the company trade at 13 times fiscal 2007 estimates, roughly in line with its projected growth rate, while carrying a yield of 1.6%. In contrast, China Mobile trades at 14 times fiscal 2007 estimates, a 12% discount to its growth rate, and offers a yield of 2.4%.
Simply put, China Unicom continues to lose market share to China Mobile, continues to deliver weaker operating results, and is more fully valued than its competitor.
In my Foolish opinion, I think that investors should consider hanging up on shares of China Unicom and dial up their investment in market leader China Mobile.
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