China Unicom’s profit to jump a whopping 73%

Check out what triggered this momentum.

According to Maybank Kim Eng, China Unicom’s net profit is set to increase to For FY12F, we are expecting a net profit increase of 73% YoY to CNY7.3b vs. consensus of CNY7.1b. (For 4Q12F, it estimates the net profit to increase by about CNY1.86b YoY to CNY1.87b).

Here’s more:

The reason for the significant earnings growth in 4Q12 on a YoY basis is that China Unicom was over aggressive to gain 3G subscribers in 4Q11.

It has also announced a positive profit alert yesterday after market closed. Based on the preliminary estimate of unaudited results, the company expected the profit attributable to equity holders for FY12F to increase over 50% YoY. 

The reason for the significant earnings growth in 4Q12 on a YoY basis is that China Unicom was over aggressive to gain 3G subscribers in 4Q11. Action: Current share is now trading at 31x PER on our FY12F estimate (or 21x PER on our FY13F estimate), which should have largely factored in the strong earnings growth.

However, we maintain cautious on the PRC telco sector as the market leader, China Mobile, is likely to lower 3G tariff and to increase subsidy and marketing promotions to speed up its 3G migration progress, which may negatively affect the industry.