CICC: China Unicom mobile phone subsidy test has three positive revelations

Li Shucheng CICC, a journalist at the "financial network", said in a June 22 study that China Unicom (600050.SH) 's seemingly failed mobile subsidy elasticity test also had three positive revelations, one of which was a high growth in the second quarter of net profit or a sharp increase in market expectations for the company in 2012; The test will help China Unicom better understand the importance of mobile subsidy.　　Third, the test highlights the negative impact of current accounting standards on the company. CICC points out that the confirmation of mobile subsidy costs is faster than revenue recognition, which has a negative impact on SASAC's 2011-year profit assessment, thus limiting the size of Unicom's mobile subsidy.　　Considering the specific situation of Unicom and China's national conditions, China Unicom should be amortization of mobile phone subsidy, or borrow from China Telecom's method to match the cost of mobile phone subsidy by taking into account enough sales revenue. China Unicom 20th Evening released the May user development data showed that May net increase of 3G users 1.738 million households, the chain fell 4.35%, continued to lower for two consecutive months, also significantly lower than market expectations.　　The main reason is that China Unicom since April 12 to cancel IPhone4 286 package, after the cancellation of high-end contract, the main hit low-end users of the new purchase scheme has not been the first time to start, resulting in the May vacuum period, customer growth is weak. The data raised concerns about 3G demand and the execution of the company's operations, leading to a 10% per cent fall in share prices.　　Chenhao, a CICC analyst, said the two-quarter user balance was a sensitive measure of the company's intention to test phone subsidies, and China Unicom is expected to return its subsidies to normal levels in July, boosting user growth. Mobile-phone subsidies are a double-edged sword, pushing mobile subsidies to attract users and expand market share, but at the same time reduce corporate profits. China Unicom's 2010 earnings showed a net profit of 3.85 billion yuan a year, a sharp decline of 59.7%, in response, Management explained that the main reason is that 3G business is still in the investment period, the huge number of mobile phone subsidies erode the company's profits.　　But China Unicom's president, Yimin, still insists that it will continue to increase mobile-phone subsidies to win customers in order to strengthen the group's future business. (Stock market Weekly feeds)