Daiwa Research said China Unicom's (00762) 3Q14 net profit (up 26.7% YoY) beats its forecast by 40% on a higher-than-expected EBITDA margin, which rose by 5.4pp YoY as the company has scaled back its subsidy and marketing expenditures significantly (down 7pp YoY relative to service revenue).
The house believes the positive effect of the transition to a tariff discount business model on short-term profits has become clearer from China Unicom's 3Q14 results.
Daiwa sees China Unicom is trying to drive its near-term profits by focusing on cost control. What remains unclear for now is whether the company can afford to rely on this strategy, which implies a slowdown in revenue and subscriber growth momentum, over the long-term.
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