Credit Suisse said China Unicom's (00762) 9M14 service revenue was Rmb186.8 bn, up 5.3% YoY and 0.3% below its forecast of Rmb187.4 bn, 9M14 EBITDA Rmb72 bn, up 12.6% YoY and 1.7% above its forecast of Rmb70.8 bn, 9M14 net profit Rmb10.6 bn, up 26.1% YoY and 4.9% above its forecast of Rmb10.1 bn.
The house noted the company's 3Q14 cellular service declined by 7.1% QoQ and by 3.4% YoY. This was weaker than expected but directionally does not come as a major surprise to the house given the introduction of VAT. Importantly, the QoQ revenue decline was less severe than the 7.8% QoQ decline in operating revenue recorded by China Mobile. One key reason for this decline was that China Unicom executed well on shifting handset subsidy costs to airtime discounts.
Credit Suisse believes this cost control/tax-induced transition helped China Unicom achieve better-than-expected EBITDA and net profit growth.
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