China Unicom (600050): MoM improvement in line with expectations
Event On October 21, 2019, the company released three quarterly reports. In the first three quarters, the company realized revenue of US $ 2171 trillion, which was replaced by 1.
18%, net profit attributed to mother 43.
16 ppm, an increase of 24 in ten years.
38%, net of non-attributed net profit 39.
69 ppm, a ten-year average of 11.
Brief Comment 1. The performance improved month-on-month and generally met expectations.
In the first three quarters of 2019, the company focused on cost control and accelerated Internet-based transformation. Net profit attributable to mothers reached 43.
16 ppm, an increase of 24 in ten years.
38%, achieving rapid growth.
In Q3 2019, the company achieved revenue of 721.
6.7 billion, revenue growth for the first time this year turned positive, reaching 2.
21%, 2019 Q1 and Q2 exceeded growth rates were -2.
Among them, the company’s mobile main business income was affected by speed reduction and fee reduction, and the cancellation of traffic roaming fees implemented in the second half of 2018 decreased by 6.
1%, but the decrease is narrower than the mid-term report.
The company’s industrial Internet revenue reached 24.3 billion, an increase of 40.
In the third quarter of 2019, the company realized a net profit of RMB 1.3 billion, an increase of 46 year-on-year.
61%, a significant improvement from the previous quarter.
The initial decrease in net profit after deducting non-return to motherhood is that the company’s scrapped assets in the first three quarters of 2018 caused asset disposal losses of up to 3.5 billion 杭州夜生活网 yuan.
Overall, we think the company’s third quarter report is in line with market expectations.
2. The new lease contract led to a significant increase in apparent expenses.
The company’s implementation of the new leasing standards has led to depreciation and amortization in the first three quarters of 2019, and financial expenses have increased, but rental expenses in network operation and support costs have decreased.
If the impact of the implementation of the new leasing standards is excluded, the company’s depreciation and amortization will gradually decline in the first three quarters of 20194.
5%, mainly due to the good control of capital expenditure in recent years.
Finance costs have fallen by 486 per year.
0%, mainly due to good free cash flow to help the company’s average interest-bearing 四川耍耍网 debt significantly reduced compared to the same period last year.
Network operation and support costs decreased compared to the same period last year4.
5%, mainly due to effective control of maintenance costs and electricity costs.
3. The 5G co-construction and sharing scheme will help the company accelerate 5G construction and reduce capital expenditures.
According to the “5G Network Co-construction and Sharing Framework Cooperation Agreement” signed by the company and China Telecom, the company will jointly build a 5G access network with China Telecom nationwide, with the core network being constructed separately.
The construction method of 5G access network is partition construction: Among them, the two parties will construct 5G networks in 15 cities (Beijing, Tianjin, Zhengzhou, Qingdao, Shijiazhuang 5 cities north, China Unicom operation company and China Telecom construction area ratio is 6:4; Shanghai, Chongqing, Guangzhou, Shenzhen, Hangzhou, Nanjing, Suzhou, Changsha, Wuhan, and southern Chengdu 10 cities. The ratio of China Unicom’s operating company to China Telecom’s construction area is 4: 6).
China Unicom Operating Company will independently build 9 cities in Guangdong Province, 5 cities in Zhejiang Province and 8 northern provinces outside the inherited area; China Telecom will independently build 10 cities in Guangdong Province, 5 in Zhejiang Province17 provinces in the south outside the city and potential area.
We believe that 5G co-construction and sharing will reduce the size of both parties’ capital expenditures. However, since co-construction and sharing can bring about construction speedup, it is expected that the respective capital expenditures of the two sides will need to increase from 2019 to 2021, but it may decline rapidly in the future.
Overall, China Unicom is more favorable.First, from the perspective of regional scope, the company’s undertaking is relatively long. Therefore, the overall control of the scale of capital in the future will help improve the company’s cash flow and reduce future depreciation.
Second, the two parties made it clear that they do not use settlement as a means of profit, so although the company’s network construction area is relatively small, there should not be too much pressure on settlement.
4. The company is expected to benefit from the four major industry trends. The performance growth will be the first to be more flexible. The mixed reform will be advanced in depth.
7%, profit reduced by 2.
500 million US dollars, “Yunnan model” is expected to promote replication in other provincial subsidiaries, and further release the mixed reform bonus.
Second, the company and China Telecom have reached a consensus on 5G co-construction and sharing. It has entered the substantive operation stage and is expected to reduce the company’s future capital expenditures and depreciation amortization. At the same time, it will accelerate the construction and application of 5G networks and promote cost reduction and efficiency.
Third, the company expects to build 410,000 new 4G base stations in 2019, more than 40,000 5G base stations, 4G capacity expansion and 5G commercial use, which is expected to drive the company’s B-side business to accelerate the development and the company is conducive to the development of industrial Internet.
Fourth, the unlimited package (up to speed limit) will be gradually phased out. It is expected that the company’s tariff reduction will be generally controllable in the future, and the company’s performance is expected to usher in improvement.
5. Profit forecast and rating: Considering the impact of speeding up and reducing fees and potential 5G investment, we cut the company’s net profit attributable to its parent to 58 in 2019-2020.
7.6 billion, 84.
60 ppm, EPS is 0.
19 yuan, 0.
27 yuan, corresponding PE is 32X, 22X, PB is 1.
24. Maintain the “overweight” rating.
Risk warning: increased competition, accelerated customer churn; speeding up and reducing fees, leading to a rapid decline in ARPU for users; 5G co-construction and sharing solutions fell short of expectations.