China Unicom's (CHU) Earnings For Nine Months Of 2016 Fall

China Unicom Hong Kong Ltd. (NYSE:CHU) reported disappointing financial results in the first nine months of 2016. Net income in the first nine months of 2016 was approximately $236 million, a significant plunge of 80.6% year over year. This dismal performance can be largely attributed to a 32% increase in network, operation & support expenses along with 10.5% increase in other operating expenses.

China Unicom competes intensely in the Chinses telecom market with other large telecom operators like China Mobile Ltd. (NYSE:CHL) and China Telecom Corp. Ltd. (NYSE:CHA) . In addition, Taiwanese telecom giant Chunghwa Telecom Co. Ltd. (NYSE:CHT) has expressed its willingness to enter into the mainland China telecom market. China Unicom currently carries a Zacks Rank #5 (Strong Sell).

Revenues

Total revenue was down 2.3% year over year to approximately $30,745.6 million in the first nine months of 2016. In the reported period, total Service revenue came in at approximately $27,125.9 million (constituting 88.2% of the total revenue), up 1.7% year over year. Revenues from Telecom Product Sales were about $3,619.8 million, down by a substantial 24.2% from the year-ago period. Within the Service segment, Mobile revenues were approximately $16,273.6 million, inching up 0.1% and Fixed-Line Revenues were $10,673.3 million, growing 3.9% year over year. Other service revenues grossed $179 million, surging 17% year over year.

Expenses and Margins

In the first nine months of 2016, total operating expenses increased 3.6% year-over-year to around $30,102.6 million. Operating profit in the reported period was $643 million, down a considerable73.3% year over year. Operating margin was 2.1% compared with 7.7% in the prior-year period. EBITDA in the first nine months of 2016 came in at around $9,165.4 million, slumping 16.8% year over year. EBITDA margin was 29.8% against 34% in the prior year.

Liquidity and Cash Flow (up to first half of 2016)

As of Jun 30, 2016, China Unicom had approximately $3,182.1 million of cash & marketable securities and $7,976.4 million of total debt outstanding in its balance sheet. In the first half of 2016, China Unicom generated approximately $6,289.5 million of cash from operations, up 9.5% year over year. Free cash flow was around $3,574 million, up a whopping 181.9% year over year.

Subscribers Statistics

As of Sep 30, 2016, China Unicom had 262.074 million (up 3.1% year over year) mobile subscribers, of which, 88.906 million were super-fast 4G users. The company added 44.750 million 4G subscribers in the first three quarters of 2016 and gained 9.757 million overall mobile customers. Mobile billing subscriber average revenue per user (ARPU) was around $7 and 4G ARPU was around $11.77.

Fixed-line broadband subscriber base totaled 75.05 million, rising 4.7% year over year. The company added a net 2.72 million fixed-broadband subscribers in the first three quarters of 2016. Fixed-line local access subscriber base was 69.027 million, down 9.8% year over year. The company lost net 4.831 million fixed-access subscribers in the first three quarters of 2016.

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