China Telecom's Full-Year Profit Soars
By LORRAINE LUK
HONG KONG--China Telecom Corp., the country's largest fixed-line operator by subscribers, reported a jump in full-year net profit as the company's year-earlier result was weighed by an impairment loss associated with its mobile business.
China Telecom has been trying to boost its competitiveness in the mobile business after buying rival China Unicom (Hong Kong) Ltd.'s code division multiple access business in 2008 as part of a government mandated restructuring of its telecom sector.
But despite the purchase, China Telecom has still been a laggard in the mobile business compared with China Mobile Ltd. and China Unicom. Analysts said competition in the industry is likely to rise further this year and operators will be bogged down by higher marketing expenses and rising network depreciation costs.
Net profit for the 12 months ended Dec. 31 rose to 14.42 billion yuan (US$2.11 billion), from 884 million yuan a year earlier, when the company booked a 24.17 billion yuan impairment loss on property, plants and equipment mainly associated with the mobile business. The year-to-year jump was in line with expectations.
Stripping out the one-off impairment loss and amortization of non-cash connection fees, the company said its adjusted profit for last year was 13.27 billion yuan, down 34% from an adjusted profit of 20.07 billion yuan in 2008.
Revenue rose 12% to 209.37 billion yuan from 186.53 billion yuan.
China Telecom said it plans to increase its capital spending slightly this year on high-growth broadband and value-added mobile services amid rising competition in China's telecommunications industry, which it said poses serious challenges for the company. China Telecom plans capital spending of 39 billion yuan this year, up slightly from 38.04 billion yuan in 2009.
To boost its competitiveness, the company plans to offer Research In Motion Ltd.'s Blackberry devices in China in May and Palm Inc.'s Pre handsets in July, Chairman and Chief Executive Wang Xiaochu said at a news conference.
China Telecom is the second Chinese mobile operator to sign a deal with Canada-based RIM to offer Blackberry devices. China Unicom offers Apple Inc.'s iPhones. China Telecom hopes Blackberry devices will help attract more affluent customers in Chinese cities. RIM has offered Blackberry handsets to big businesses in China since 2006 through China Mobile, the world's biggest telecom operator by subscribers.
Average revenue per user--a key industry gauge to determine the long-term growth rate of telecom operators--for China Telecom's mobile business fell to 59.50 yuan in 2009 from 63.40 yuan a year earlier because of tough competition, the company said.
Mr. Wang said the company will continue its efforts to make its mobile business profitable, and that he expects it to turn a profit in 2011.
Mr. Wang reiterated the company expects its core profit—which excludes items such as impairment and amortization of upfront connection fees—bottomed out in 2009 and will resume growth this year. The company said selling, general and administrative costs in 2009 rose 47% to 40.51 billion yuan from 27.5 billion yuan a year earlier, mainly driven by handset subsidies of 10.1 billion yuan in the 12 months ended Dec. 31.
Last year, handset subsidies accounted for 33.6% of the company's mobile revenue, lower than the company's previous guidance of 37%.
China Telecom plans to lower its handset subsidies as a proportion of mobile revenue this year, Mr. Wang said. The company plans subsidies of more than 10 billion yuan to meet its target of adding 30 million mobile subscribers in 2010, including eight million third-generation, or 3G, subscribers.
China Telecom said it had 56.29 million mobile subscribers at the end of December, of which 4.07 million were 3G users. It maintained its target of having more than 100 million mobile subscribers in 2011.
To mitigate the decline in its fixed-line voice business, China Telecom has been focusing on increasing its revenue from value-added services.
Mr. Wang said the company is offering mobile payment services in 18 cities by cooperating with Chinese banks. But he said "China Telecom has no plan...and I think no need to invest in a Chinese bank for mobile payment services. We are already cooperating well with the local banks."
The comments came after China Mobile said this month it planned to buy a 20% stake in Shanghai Pudong Development Bank Co. for 39.8 billion yuan to expand into mobile payment services.
Showing posts with label China Telecom. Show all posts
Showing posts with label China Telecom. Show all posts
Monday, March 22, 2010
Sunday, January 3, 2010
China Telecom
The last major development in the Telecommunication Industry in China was in 2008, when China Unicom bought over China Netcom, with China Unicom’s CDMA unit heading over towards China Telecom. This gave China Unicom access to the Fixed Line market, as well as the broadband market, while China Telecom gained access to the mobile market. Most of China Netcom’s fixed line business is in the North of the country, while China Telecom’s fixed line business is in the South. By diversifying into the mobile sector, China Telecom is able to further increase its revenue. China Telecom’s network operates on a CDMA, while the China Mobile and China Unicom operate on a GSM network. The difference will be explained in the next section.
China Mobile also has access to the internet sector, despite it not having a market share in the fixed line sector. It gained this access via its acquisition of China Tietong in 2008.
Difference between CDMA and GSM
CDMA and GSM are essentially the same thing, with CDMA’s 3G network boasts speeds between 300kbps to 700kbps, while GSM’s 3G network speeds are between 275kbps and 380kbps. The SIM card that we have all come to learn to love is used for GSM phones, while their equivalent for CDMA phones are R-UIM cards. This however, is not available on all carriers, with some carriers linking the number to a phone, meaning that when changing phones, the old phones must be deactivated for the new one to be activated.
The weakness of CDMA is that it is not as good in rural areas, and the charge is significantly higher should they wish to contract GSM cells to provide roaming services for them.
The above information is taken from Wisegeek. Please visit their site for more information on the differences.
Narrowing Down to 2 Carriers
China Mobile’s business model is heavily dependent on their mobile income, and China has a history of breaking up large companies in order to increase competitiveness. As such, any intervention by the Chinese government would most likely be detrimental to China Mobile, considering that the fixed line and internet sector is evenly distributed as compared to the mobile sector.
Analysis
Performance wise, for year ended 2008, China Mobile’s has a profit margin of 29% and an EBITDA margin of 57%. On the other hand, the profit margin for China Unicom was 4% and EBITDA margin of 39%. China Telecom had the worst performance among the 3, with a profit margin of 1% and an EBITDA margin of 32%. EBITDA would have increased to 47% and 45% for China Unicom and China Telecom respectively if impairment cost was taken out of consideration.
There was no breakdown provided into segments for China Mobile, but for China Unicom, their GSM revenue contributed to 43% of total sales while fixed line was 55% of total sales. China Telecom had a total of 52% of sales contributed by fixed lines, 2% contributed my mobiles and 22% contributed by the internet.
For 1H2009, for China Telecom, the YOY operating profit decreased by 24%, while YOY profit for the period decreased by 29%. The decrease is attributed to higher operating expenses. Operating Revenue increased by 13 billion RMB, an approximate increase of 14%. Mobile Voice services accounted for 8.7% of operating revenue, with Wireline Voice and Internet Services accounted for 39.8% and 23.7% of total revenue respectively. There was a decrease in the revenue of Wireline services from 50,485million RMB to 41,060million RMB for 1H2009.
For 1H2009, for China Unicom, the YOY profit decreased by 41%. Although Expenses were approximately the same as 1H2008, the Operating Revenue decreased by 7%, resulting in the large decrease in YOY profit. 44.8% of operating revenue was attributed to GSM revenue, while 52.6% was attributed to fixed lines. There was an increase of 1.84billion RMB in GSM revenue, while a decrease of 5.138billion in fixed lines.
Projected P/E for 2009
China Telecom – 13.2
China Unicom – 16.1
China Mobile – 11.6
I believe that China Telecom’s ability to increase operating revenue is a key performance indicator for me. Furthermore, as a market leader in the South for fixed lines, as well as being one of the market leaders for Internet services, it will gain a steady stream of income. I believe that China Telecom’s Mobile sector will provide an increasing percentage of its operating revenue. China Unicom’s decrease in operating revenue is a cause of worry, mainly because after selling off the CDMA network to China Telecom, it has another competitor in the Mobile sector, while gaining control of the less lucrative North in fixed lines would mean that its growth would have been reduced.
*Disclaimer: I am vested
China Mobile also has access to the internet sector, despite it not having a market share in the fixed line sector. It gained this access via its acquisition of China Tietong in 2008.
Difference between CDMA and GSM
CDMA and GSM are essentially the same thing, with CDMA’s 3G network boasts speeds between 300kbps to 700kbps, while GSM’s 3G network speeds are between 275kbps and 380kbps. The SIM card that we have all come to learn to love is used for GSM phones, while their equivalent for CDMA phones are R-UIM cards. This however, is not available on all carriers, with some carriers linking the number to a phone, meaning that when changing phones, the old phones must be deactivated for the new one to be activated.
The weakness of CDMA is that it is not as good in rural areas, and the charge is significantly higher should they wish to contract GSM cells to provide roaming services for them.
The above information is taken from Wisegeek. Please visit their site for more information on the differences.
Narrowing Down to 2 Carriers
China Mobile’s business model is heavily dependent on their mobile income, and China has a history of breaking up large companies in order to increase competitiveness. As such, any intervention by the Chinese government would most likely be detrimental to China Mobile, considering that the fixed line and internet sector is evenly distributed as compared to the mobile sector.
Analysis
Performance wise, for year ended 2008, China Mobile’s has a profit margin of 29% and an EBITDA margin of 57%. On the other hand, the profit margin for China Unicom was 4% and EBITDA margin of 39%. China Telecom had the worst performance among the 3, with a profit margin of 1% and an EBITDA margin of 32%. EBITDA would have increased to 47% and 45% for China Unicom and China Telecom respectively if impairment cost was taken out of consideration.
There was no breakdown provided into segments for China Mobile, but for China Unicom, their GSM revenue contributed to 43% of total sales while fixed line was 55% of total sales. China Telecom had a total of 52% of sales contributed by fixed lines, 2% contributed my mobiles and 22% contributed by the internet.
For 1H2009, for China Telecom, the YOY operating profit decreased by 24%, while YOY profit for the period decreased by 29%. The decrease is attributed to higher operating expenses. Operating Revenue increased by 13 billion RMB, an approximate increase of 14%. Mobile Voice services accounted for 8.7% of operating revenue, with Wireline Voice and Internet Services accounted for 39.8% and 23.7% of total revenue respectively. There was a decrease in the revenue of Wireline services from 50,485million RMB to 41,060million RMB for 1H2009.
For 1H2009, for China Unicom, the YOY profit decreased by 41%. Although Expenses were approximately the same as 1H2008, the Operating Revenue decreased by 7%, resulting in the large decrease in YOY profit. 44.8% of operating revenue was attributed to GSM revenue, while 52.6% was attributed to fixed lines. There was an increase of 1.84billion RMB in GSM revenue, while a decrease of 5.138billion in fixed lines.
Projected P/E for 2009
China Telecom – 13.2
China Unicom – 16.1
China Mobile – 11.6
I believe that China Telecom’s ability to increase operating revenue is a key performance indicator for me. Furthermore, as a market leader in the South for fixed lines, as well as being one of the market leaders for Internet services, it will gain a steady stream of income. I believe that China Telecom’s Mobile sector will provide an increasing percentage of its operating revenue. China Unicom’s decrease in operating revenue is a cause of worry, mainly because after selling off the CDMA network to China Telecom, it has another competitor in the Mobile sector, while gaining control of the less lucrative North in fixed lines would mean that its growth would have been reduced.
*Disclaimer: I am vested
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