Unicom Shares Jump on Strong Profit Forecast

Shares of China Unicom (Hong Kong) Ltd., the nation’s second-largest wireless carrier, rose more than 4% on Monday after the company forecast strong gains in its first-half profit, even as it said it will still face strong headwinds in the second half of the year.

Unicom’s shares rose as much as 5.1% in early trading following the issue of its forecast after markets closed on Friday. The stock later pared some of those gains and was trading up 4.4% late in the morning session.

In its Friday report, the company said its first-half profit will total about 2.4 billion yuan ($360 million), up about 69% from a year earlier. But it added its total revenue will decline by about 1.5% to 138.2 billion yuan, partly due to intense competition in the fixed-line broadband business.

But it was cautious on the second half of the year, in part due to a state-mandated cancellation of all domestic roaming fees that is being implemented by all three wireless carriers.

“Looking ahead to the second half of this year, as the group will cease to charge mobile domestic long-distance and roaming (fees) from 1 Sept. 2017 onwards and market competition is expected to cyclically intensify, the group expects that the group’s financial performance in the second half will face increasing pressure,” Unicom said in the statement.

After subtracting previously announced first-quarter results, the latest data show that Unicom’s second-quarter profit more than doubled, said Jefferies analyst Edison Lee, adding the figure beat his forecasts. But he added the company’s service revenue was slightly below his forecast.

“Our view remains that the second quarter would be the best quarter in 2017 for Chinese telcos … even though we believe Unicom will continue to deliver year-on-year profit improvement in the second half of 2017,” he wrote.

He added that a bigger near-term catalyst for Unicom’s stock could be its announcement of one or more private sector partners to invest in the company’s Shanghai-listed unit under a pilot government program being rolled out by Beijing. That program is aimed at making big state-owned enterprises more competitive, and is often referred to as the mixed-ownership reform.

Contact reporter Yang Ge (geyang@caixin.com)