5G, IoT And Broadband Upgrades Will Unlock Future Potential

Key Takeaways

• Strong growth in digital services, IoT, and cloud offerings is driving revenue diversification and supporting higher profitability.
  
• Ongoing investment in advanced networks, AI, and sustainable infrastructure enhances competitiveness and underpins long-term earnings and margin expansion.
  
• Persistent underinvestment and heavy government influence could hamper China Unicom's innovation, limit profitability, and expose it to heightened risks from domestic market stagnation and restricted international growth.

Catalysts

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

• Growth in mobile, broadband, and IoT connections-now exceeding 620 million IoT connections and continued subscriber gains-indicates persistent demand from rapid digitalization and the proliferation of connected devices, supporting future service revenue growth.
  
• Successful expansion into high-growth digital services, with Unicom Cloud revenue up 17.1% and data center revenue up 7.4%, leverages increasing digitalization and industrial IoT adoption, which is likely to drive higher-margin revenue diversification and improve net profit margins.
  
• Continued investment in network modernization and intelligent computing infrastructure-including 5G-A, 10G broadband, and early-stage 6G development-positions the company to capture future demand while simultaneously reducing unit energy costs, supporting long-term earnings growth and margin expansion.
  
• Domestic and international infrastructure upgrades, enhanced by partnerships and green energy integration, allow for scaling of intelligent and sustainable digital services, resulting in both cost management benefits and additional market access, likely supporting EBITDA growth and more resilient capital returns.
  
• Substantial R&D investment (up 9.1%) and emphasis on AI, data intelligence, and platform-based industrial solutions position China Unicom to capture new revenue streams and strengthen competitive positioning, likely having a positive impact on future earnings and operating margins.

China Unicom (Hong Kong) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming China Unicom (Hong Kong)'s revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.3% today to 5.8% in 3 years time.
• Analysts expect earnings to reach CN¥25.2 billion (and earnings per share of CN¥0.83) by about August 2028, up from CN¥20.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥27.9 billion in earnings, and the most bearish expecting CN¥22.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.8x on those 2028 earnings, up from 13.0x today. This future PE is lower than the current PE for the US Telecom industry at 15.1x.
• 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 6.77%, as per the Simply Wall St company report.

China Unicom (Hong Kong) Future Earnings Per Share Growth

Risks

• China Unicom's persistent lag behind peers in capex and innovation is evident from its 17% year-on-year capex reduction despite ongoing industry-wide 5G/6G and AI-driven network upgrades, which could risk further market share erosion, lower ARPU, and compressed net margins if technological leadership is not maintained.
  
• Heavy government influence exposes the company to policy-driven mandates (such as extensive rural network coverage and social responsibility projects), which may divert investment from higher-return, profit-driven initiatives, potentially lowering overall return on capital and net earnings.
  
• Slower economic growth and demographic headwinds in China-mentioned through heavy focus on rural/village digital services and elderly care-underscore the company's reliance on a domestic market that is facing stagnating or shrinking telecom subscriber bases, which could limit revenue growth.
  
• Ongoing capex pressure is likely to persist, as China Unicom anticipates increased investment in AI and computing power, creating sustained strain on free cash flow and potentially depressing ROIC and future profitability.
  
• Limited overseas expansion remains a risk, as the company's international revenue, although growing, is dwarfed by domestic operations; geopolitical tensions and regulatory barriers could further restrict its ability to diversify and grow revenues internationally, leaving it vulnerable to domestic market slowdowns.

Valuation

• The analysts have a consensus price target of HK$10.966 for China Unicom (Hong Kong) based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$13.83, and the most bearish reporting a price target of just HK$9.2.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥432.4 billion, earnings will come to CN¥25.2 billion, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 6.8%.
• Given the current share price of HK$9.69, the analyst price target of HK$10.97 is 11.6% 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.