Increasing subscriptions to mobile phone services in China offers superb growth prospects for the major companies in this sector. The 5G technology will be a strong catalyst as it will allow higher connection speeds and a greater volume of data and information than its predecessors.
I believe that among the 5G markets, China provides the best growth opportunity because Chinese telecom operators have access to the world's largest addressable population of consumers. According to the international association of mobile operators, GSMA, in less than three years more than half of the 1.5 billion people in China will have a 5G mobile subscription. That would mean that no less than two-thirds of total 5G mobile subscriptions on a global scale would be made in the Chinese market.
With such growth prospects, investors simply cannot ignore the major publicly traded Chinese telecommunication services operators. Thus, China Unicom (Hong Kong) Ltd (HKSE: 00762) represents an interesting investment opportunity as the Hong Kong-based company is one of the three largest mobile phone services operators in mainland China.
China Unicom is an industry leader in terms of 5G package subscribers with 113 million users and a 5G penetration rate which reached 36.5% as of June 30, 2021. China Unicom said that it ranks number one in the industry regarding the customer experience about the quality of its 5G services.
In fact, as the adoption of 5G technology accelerated in mainland China, the number of mobile subscribers bounced back unbelievably from the 2020 decline, driving the company’s revenue and profit growth up very fast in the first six months of 2021.
In the first half of 2021, the company’s operating revenue increased more than 9% year over year to 164.2 billion Chinese yuan ($25.4 billion), while the subsegment of service revenue increased 7.5% year over year to ¥148.7 billion. The profit attributable to the stockholders of the company increased 21.1% year over year to ¥9.17 billion.
Plus, the generation of robust free cash flow helped to strengthen the company's financial condition further. As a result, the liabilities-to-assets ratio was 41.9% as of June 30, improving from 43.6% as of Dec. 31, 2020. The debt-to-capitalization of 9.4% also improved from 12.2%.
The company is currently distributing dividends to shareholders, generating a forward dividend yield of 8.63% as of Sept. 30, 2021, and plans to lift the dividend payout ratio. The forward dividend yield was 8.63% as of Sept. 30, 2021.
Looking forward to the second half of the year, China Unicom is set to continue to benefit from the development of the mobile business driven by the expected increase in the adoption of the 5G technology by Chinese society.
The stock was trading at 3.95 Hong Kong dollars ($0.61) at close on Thursday. The share price doesn’t seem expensive when compared to the 50-Day Moving Average or the 200-Day Moving Average.
The stock has a market cap of HK$121.17 billion, a price-tangible book ratio of 0.31 and a price-earnings ratio of 8.04.
The stock price has fallen 11.63% so far this year. The 14-day relative strength index of 32 indicates that the stock is not oversold yet.
Wall Street recommends a median rating of buy.
Disclosure: I have no position in any securities mentioned.
