China Unicom beats China Mobile in 3Q earnings

CU earnings grew 27% compared to CM's measly 1% YoY.

China Unicom (CU) reported a stronger earnings growth compared to that of China Mobile (CM) in 3Q12 (CU: +27% YoY vs CM: +1% YoY).

According to MayBank KimEng, higher 3G subscriber gain (CU: 9.3m vs. CM: 8.5m), stronger revenue growth (CU: +16% YoY vs. CM: +6% YoY) and better net profit improvement (CU: from 2.9% in 3Q11 to 3.2% in 3Q12 vs. CM: from 22.9% in 3Q11 to 21.9% in 3Q12) were the causes.

But MayBank pointed a weakness on CU: 3G subscriber gain and mobile revenue growth momentums slowed.

Here's more from MayBank:

CU reported higher 3G subscriber gain and mobile revenue in 3Q12 compared to 2Q12 but the growth momentum slowed, probably due to higher gain of entry-level smartphone users, who yielded lower data revenue.

Even though we anticipate CU to regain the growth momentum in 4Q12F on the new Samsung and iPhone high-end smartphones, we still expect the growth momentum in next year to slow since the company continues the entry-level smartphone strategy to boost its 3G subscriber growth.

Lower subsidies but higher selling and marketing expenses.

CU reported a lower 3G subsidy in 3Q12 compared to 2Q12 but a higher selling and marketing expense. This is consistent to our view that the
PRC telcos are riding on discounts and promotions to lure 3G smartphone users instead of services.

Since the 3G penetration is still low, we expect the PRC telcos to continue competing on promotions and discounts in the 3G market.