Carrier reports financial recovery, but analysts say it's still less competitive
China Unicom, the country's second-largest telecom carrier by number of subscribers, saw shares of its Shanghai-listed arm end higher on Wednesday amid rumors that major Internet companies will become investors under the parent company's mixed-ownership reform plan.
Shares in China United Network Communications Ltd were up 3.72 percent to 5.30 yuan ($0.79) on Wednesday.
On October 10, China United said its parent company was included in the first batch of a trial of mixed-ownership reforms for State-owned enterprises (SOEs), which was proposed by the National Development and Reform Commission on September 28.
The comment was in a filing the company sent to the Shanghai Stock Exchange on October 10.
China Unicom is studying and discussing the mixed-ownership reform plan, but its decision will remain uncertain while a concrete implementation plan is still under discussion, the listed unit said in the filing.
Investors have positive views of the potential reform. Shares in China United climbed by the 10 percent daily limit to 4.8 yuan on October 11.
"Investors see hope in the potential reform plan, which led to the good performance of the stock," Xiang Ligang, CEO of telecommunication industry portal cctime.com, told the Global Times on Wednesday.
"But if the plan doesn't meet investors' expectations, the price might go down," Fu Liang, a Beijing-based independent telecom expert, told the Global Times on Wednesday.
"The mixed-ownership reform plan may include asset sales to investors, employee stock options, the public listing of its core assets or the introduction of strategic investors," Xiang noted.
The market is quite curious about the details of the plan, and there are also rumors saying major Internet companies including Alibaba Group Holding, Baidu Inc and Tencent Holdings could become investors.
China Unicom and Tencent couldn't be reached by the Global Times as of press time. Alibaba declined to comment, as did Baidu.
"It's possible that those Internet companies would enter into the telecom sector to gain market share, but their investment will be limited," said Xiang, noting that the State's ownership won't be changed.
China Unicom might learn from Internet companies to be more market-oriented, according to a report by thepaper.cn on Wednesday, citing an anonymous source close to the matter.
The private investors won't have a controlling stake in the company, and its key data will still be controlled by the State, according to the report, citing the source.
Alibaba is quite likely to be an investor as its own major shareholders, including SoftBank Group Corp, are close to the telecom business, said Fu. SoftBank is a Japanese telecom giant.
China United forecast its net profit for the first three quarters of this year at about 490 million yuan, down 81.8 percent year-on-year, according to a filing the company sent to the Shanghai Stock Exchange on Tuesday.
The decline took place mainly because sales and marketing expenses increased substantially year-on-year, as did networking, operation and support costs, the company said in the filing.
On the same day, China Unicom's Hong Kong-listed unit also forecast its nine-month profit at 1.6 billion yuan, down 80.6 percent year-on-year.
Still, it was an improvement from the net loss of 1.14 billion yuan in the second half in 2015, China United said in the filing.
"China Unicom indeed has made a slight improvement in the third quarter, but it is still less competitive compared with the other two major carriers in China," noted Fu.
China Unicom's value-added business, cloud computing and big data analysis sectors all could be attractions for other investors, said Fu.
With more funds, the company could focus on launching competitive products to reduce the gap it has with the other two carriers, Fu noted.
It's still too early to judge whether the other two carriers (China Mobile and China Telecom) will follow China Unicom in mixed-ownership reform later, noted Xiang.
