An update has just come out today on China Unicom Limited (CHU), in which senior telecom analyst Paul Cheung, CFA is restating his Hold rating on the company. We excerpted the following details:
'China Unicom's net income for the third quarter of 2007 more than doubled, but still didn't meet the market consensus. Its earnings growth was solid during the past quarters because of value-added services and cost controls. That being said, China Unicom will face stiff competition in the future as it operates two networks at the same time, diluting its focus.
'Currently, China Unicom is trading at a forward multiple of 29.3x our 2007 EPS estimate, which is slightly higher than the industry mean and the industry median. China Unicom is trading at a forward multiple of 24.7x our 2008 EPS estimate, which is slightly below industry mean and higher than the industry median.
'Increasing competition, the dilemma the company faces regarding the cost of CDMA growth versus near-term profitability of its GSM service, and regulatory risks are expected to limit valuation expansion unless there is more news on the break-up of the company. All told, the stock appears fairly valued at current levels, considering the possible restructuring in the telecom industry in China and its 3G opportunities in China.
'Thus, we maintain our Hold recommendation with a target price of $23.50 per ADS. This is based on a modest increase in the company's price/earnings ratio, which we believe is a more appropriate valuation measure given the possible break-up of the company.'
Read the full analyst report on CHU.
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