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China Telecom Second-Quarter Profit Gains 22 percent, Beating Analyst Estimates
China Telecom Corp., the country’s biggest fixed-line carrier, posted second-quarter profit that beat analyst estimates after the company almost doubled the number of users at its mobile-phone unit.
Profit excluding gains from connection fees rose 22 percent to 4.54 billion yuan ($668 million) from 3.71 billion yuan a year earlier, the Beijing-based company said in a statement on its website today. Income was projected to be 4.24 billion yuan, according to the average estimate of six analysts surveyed by Bloomberg News.
The company joins China Telecom Second-Quarter Profit Gains 22%, Beating Analyst Estimates in reporting earnings that beat estimates after Chairman Wang Xiaochu expanded mobile subscribers by 90 percent in the past year, helped by handset subsidies, promotional calling rates and packaged services. He’s seeking to sustain profit growth with new services such as Internet television and by introducing smartphones including Research In Motion Ltd.’s BlackBerry Storm.
“They had better-than-expected revenue in both the fixed- line and mobile units,” said Victor Yip, an analyst at UOB-Kay Hian Ltd. in Hong Kong. “They also delivered better-than- expected margin. I expected a decline, and they delivered year- on-year growth because they had better cost control on handset subsidies and marketing expenses.”
Second-Quarter Sales
Second-quarter sales rose 6.1 percent to 54.8 billion yuan. That exceeded the analysts’ 54.5 billion-yuan average estimate in the Bloomberg survey.
China Telecom fell 1.1 percent to close at HK$3.73 in Hong Kong trading. The stock has gained 15 percent this year compared with a 5.7 percent decline in the benchmark Hang Seng Index.
The company plans to raise capital spending this year to 44 billion yuan from its previous guidance of 39 billion yuan as it boosts investment in its broadband network, according to a presentation on its website. Expenditure may increase to 50 billion yuan in 2011, the carrier said.
The increased spending will be more than offset by the broadband customer additions, Wang told reporters at a briefing in Hong Kong. The company projects it will add more than 10 million broadband Internet users this year, after adding 4.87 million in the first half, President Shang Bing said.
‘Only Get Better’
“The worst time is now behind us,” Wang said. “The trend of improvement in our operations will only get better.”
During the quarter, China Telecom’s broadband Internet users increased 19 percent from a year earlier to 58.3 million, the company said. The mobile and broadband subscriber gains helped make up for a 9.2 percent drop in fixed-line phone subscribers, which fell to 181.07 million.
“They bundled customers into one fixed line, mobile and broadband package, and that’s been very successful for them,” Paul Wuh, an analyst at Samsung Securities Co. in Hong Kong, said before the results. “The company is on a pretty good path.”
The number of mobile subscribers increased to 74.5 million at the end of June, from 39.3 million a year earlier, China Telecom said last month. The company still ranks third in wireless users in China, behind China Mobile and China Unicom (Hong Kong) Ltd.
China Telecom entered the wireless market in 2008 by acquiring the smaller of China Unicom’s two mobile divisions in a government-led revamp of the Chinese mobile-phone industry.
The company spent 6.1 billion yuan on handset subsidies in the first half, or about 27 percent of the mobile-phone division’s revenue, Wang said. The proportion will be lower than 30 percent for the full year, in line with the company’s earlier guidance, he said.
Marketing costs in the mobile-phone business, comprising handset subsidies and other promotional spending, are expected to decline to 30 percent of the division’s revenue in 2011, from a projected 40 percent this year, Wang said.
China Mobile, the world’s biggest phone carrier by market value, on Aug. 19 posted second-quarter net income that rose 6.8 percent to 32.2 billion yuan.
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