Monday, November 16, 2009

China - concern over the future prospects of China Mobile and China Unicom

[market watch] In the wake of mixed earnings from two of China's top telecommunications companies, analysts offered a downbeat outlook for the sector as competition grows more intense within an increasingly saturated market.

"We are still cautious on the Chinese telecos as we anticipate an increase in competition in the fourth quarter," Citigroup analyst Michael Meng said in a note Tuesday.

Meng's comment came as China Telecom Corp. reported a 34% on-year drop in January-September net income, due mainly to higher up-front costs to attract customers to its newly acquired cellular business from rival China Unicom Ltd.

China Telecom, the nation's largest fixed-line operator by subscribers, also saw average revenue per user eased slightly in the third quarter from the second.

Citi said investors shouldn't accumulate shares of the telecom in view of the risks arising from industry restructuring and an environment in which mobile phones are now cheaper than fixed-line service.

Citi was only slightly more upbeat on shares of China Mobile Ltd., maintaining its buy rating on the stock but cutting its price target to 94 Hong Kong dollars ($12.13) from 99 Hong Kong dollars to reflect a likely hit to earnings by slower subscriber growth. Shares of the company were at 77.50 Hong Kong dollars in late Wednesday trading.

China Mobile also announced earnings late Tuesday, reporting a 1.8% on-year rise in the nine months to September, with subscriber growth averaging 5.68 million a month during the period.

The new customers lifted China Mobile's total subscriber base to more than half a billion, but the company cautioned that it was likely to see slower customer-acquisition rates in the days ahead. It cited the economic slowdown, intensified competition after government-mandated industry restructuring, and a customer base that's glutted with phones.

China telecoms get glum reviews from most analysts

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