China Unicom (762) H1 2021 earnings summary

Executive summary

• H1 service revenue reached CNY 148.7 billion, up 7.5% YoY; net profit was CNY 9.2 billion, up 21% YoY. Growth was supported by 5G, fixed-line services and innovative businesses.

• Strategic priorities included digital transformation, value-focused 5G growth, network sharing, mixed-ownership reform and stronger shareholder returns.

Financial highlights

• Operating revenue increased 9.2% YoY and net profit increased 21% YoY; operating expenses rose 9.7%, slightly faster than revenue, reflecting investment in 5G, talent and innovative businesses.

• Depreciation was broadly flat; employee benefits rose 13% YoY and G&A and other operating expenses increased 17%, including CNY 2.7 billion higher technical-support and IT-services costs.

• Service revenue mix continued to shift toward industry internet, which contributed 19% of service revenue; free cash flow exceeded CNY 170 billion cumulatively over the prior four and a half years.

• Profit growth also benefited from lower financial expenses and higher contributions from associates; Merchants Union profit contribution rose 176% YoY in H1.

Outlook and guidance

• Management expected H2 profit growth to remain broadly at the H1 level; sustaining double-digit revenue growth for several years was described as challenging amid saturated core telecom markets.

• Industry internet growth was expected to accelerate in H2 after internal capability-building, while its percentage growth may moderate over time as the business scales.

• Full-year CapEx budget was CNY 70 billion, including CNY 35 billion for 5G; 5G base stations in use were targeted to reach 700,000 by year-end.

• H2 IDC revenue growth was expected to exceed H1 and reach double digits; available cabinets were forecast at 310,000 for the year.

• Management expected overall 5G ARPU to remain steady or decline slightly, while mobile ARPU or subscriber levels were expected to increase for the year.