Although its revenue only increased 4.4% year-over-year, China Unicom's (CHU) net income for 2007 increased 14.4% over 2006 due to 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.
All told, the stock appears fairly valued at current levels, considering the possible restructuring in telecom industry in China and its 3G opportunities in China. Thus, we maintain our Hold recommendation.
Currently, China Unicom is trading at a forward multiple of 23.9x our 2008 EPS estimate, which is higher than industry mean and the industry median. China Unicom is trading at a forward multiple of 22.0x our 2009 EPS estimate, which is still higher than the industry mean and the industry median. We reiterate our Hold recommendation with a target price of $22.50 per ADS based on a modest increase in the company's price/earnings ratio, which we believe is a more appropriate valuation measure given the possible breakup of the company.
Read the full analyst report on CHU.
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