Investors are likely to find a mixed bag of full-year earnings announcements from China’s telecommunications industry as the three major network operators kick off their latest reporting season this week.
To further complicate matters, China Mobile, China Unicom and China Telecom will face questions from the market about the impact of further tariff reductions announced a week ago by Premier Li Keqiang at the National People’s Congress.
“While we forecast strong year-on-year recovery in revenue and Ebitda (earnings before interest, tax, depreciation and amortisation) across the sector, we feel risks are skewed to the downside,” Daiwa Capital Markets analyst Ramakrishna Maruvada said last week.
The difficult operating environment was underscored by Unicom’s profit warning in January and the weak third-quarter earnings posted in October by China Mobile, the world’s largest wireless network operator.
Unicom will report on Wednesday its financial results for last year. In 2016, the company added 11.5 million new mobile subscribers, bringing its total subscriber base to 263.8 million as of December 31.
The operator has announced that its net profit last year will be down by about 94 per cent from 2015, attributing that decrease to rising network and marketing costs.
“Rising marketing expenses is another indication that competition remained intense [on the mainland] and the rapid growth in its 4G subscriber base came at a high cost,” Jefferies equity analyst Edison Lee said in a recent report.
Unicom is projected to report a net profit of 896.8 million yuan (US$129.8 million) compared to 10.6 billion yuan in 2015, according to the consensus market estimate from a Bloomberg survey of analysts.
Revenue was estimated to be flat at 277.1 billion yuan.
China Mobile added 22.6 million new subscribers last year, which swelled its total user base to 848.9 million as of December 31.
It is forecast to report next week a slight dip in net profit last year to 108.3 billion yuan from 108.5 billion yuan in 2015, according to analysts’ consensus estimates. Its revenue is forecast to increase to 714.6 billion yuan, up from 668.3 billion yuan a year earlier.
“The most anticipated guidance for the reporting season will be China Mobile’s [dividend] payout ratio,” Bernstein senior analyst Chris Lane said. “The company’s payout has been stuck at 43 per cent for the last 10 years, although the period before that had seen average increases of 6 per cent per year.”
China Telecom, meanwhile, is widely expected to announce a rise in its dividend payout ratio when it reports next week its earnings from last year.
The operator, which added 17.1 million new users last year to record 215 million mobile users at the end of December, is projected to report 2016 net profit of 18.5 billion yuan, down from nearly 20 billion yuan in 2015, according to consensus market estimates. Its revenue, however, is forecast to hit 352.2 billion yuan, up from 331.2 billion yuan a year earlier.
“As the company has been underperforming China Mobile and China Unicom since December last year, we believe it provides a good entry point for long-term investors,” Nomura research analyst Joel Ying said in a recent report.