5G And Cloud Trends Will Fuel Sustainable Digital Expansion

Key Takeaways

• Accelerated 5G and AI-driven service expansion, along with aggressive international growth, position China Unicom for stronger revenue and profit gains than competitors.
  
• Structural cost reductions and rising digital revenue streams enable sustainable margin improvement, with enhanced earnings visibility and potential for higher shareholder returns.
  
• Persistent high investment needs, rising competition, and regulatory pressures may threaten profitability and growth, especially without gains in new digital and high-value service segments.

Catalysts

An investment holding company, provides telecommunications and related value-added services in the People’s Republic of China.

• Analyst consensus sees robust growth from surging 5G adoption, but China Unicom's accelerated rollout of 5G-A, RedCap, and deep penetration initiatives in over 300 cities point to even faster ARPU and subscriber growth, likely driving revenue outperformance above industry peers.
  
• While most expect margin improvements from expanding cloud and ICT services, China Unicom's rapid scaling of Unicom Cloud, its pivot to AI-driven services, and industry-leading IDC growth signal that EBITDA margins and net profit could expand beyond consensus targets as high-value digital revenues further outpace legacy segments.
  
• The company's first-mover advantage in AI, with major investments in intelligent computing infrastructure, proprietary AI models, and a dedicated Data Intelligence subsidiary, puts it at the forefront of China's enterprise digital transformation, likely unlocking new, recurring high-margin revenue streams and boosting earnings visibility.
  
• Unicom's aggressive international expansion-now present in over 40 countries and growing international revenues by more than 15 percent annually-uniquely positions it to capture cross-border enterprise and IoT contracts, providing a diversified growth engine well beyond the domestic market that can drive outsized top-line expansion.
  
• Substantial, ongoing reductions in CapEx combined with internally developed digital and AI-powered operational efficiencies are set to deliver structurally lower operating expenses, supporting sustainable net margin growth and potentially supporting further shareholder returns via increased dividends.

China Unicom (Hong Kong) Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on China Unicom (Hong Kong) compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming China Unicom (Hong Kong)'s revenue will grow by 4.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.3% today to 6.3% in 3 years time.
• The bullish analysts expect earnings to reach CN¥28.6 billion (and earnings per share of CN¥nan) by about July 2028, up from CN¥20.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.3x on those 2028 earnings, up from 12.6x today. This future PE is greater than the current PE for the US Telecom industry at 14.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.69%, as per the Simply Wall St company report.

China Unicom (Hong Kong) Future Earnings Per Share Growth

Risks

• Persistently high capital expenditure requirements, particularly with ongoing investments in 5G, AI, digital infrastructure, and computing power, could continue to pressure China Unicom's free cash flow and constrain net profit margins in the long term if revenue and efficiency gains do not offset these costs.
  
• The company's efforts to drive growth through innovation, digital services, and international expansion are occurring in the context of rising geopolitical tensions and Western technology restrictions, which may limit access to advanced network equipment and impede operational efficiency, thereby weakening competitive positioning and threatening future earnings.
  
• Despite steady revenue growth, China Unicom's underperformance relative to major domestic peers in high-value segments such as 5G monetization and cloud services may result in stagnant or declining average revenue per user and overall top-line revenues if differentiation and market share gains are not realized.
  
• Intensifying competition and ongoing price wars in the Chinese telecom market, combined with regulatory intervention such as forced tariff reductions or structural reforms, are likely to compress average revenue per user and operating margins, putting long-term pressure on both revenue growth and profitability for China Unicom.
  
• A heavy reliance on low-margin enterprise, government, and integrated service contracts introduces revenue concentration risk and heightens vulnerability to policy-driven pricing changes, which could negatively impact both revenue growth and overall profitability if procurement priorities shift or pricing is constrained.

Valuation

• The assumed bullish price target for China Unicom (Hong Kong) is HK$13.74, which represents two standard deviations above the consensus price target of HK$10.95. This valuation is based on what can be assumed as the expectations of China Unicom (Hong Kong)'s future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$13.84, and the most bearish reporting a price target of just HK$9.21.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CN¥451.8 billion, earnings will come to CN¥28.6 billion, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 6.7%.
• Given the current share price of HK$9.44, the bullish analyst price target of HK$13.74 is 31.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.