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To: djane who wrote (7030)	8/31/1999 1:00:00 AM
From: djane	Read Replies (1) \| Respond to of 29987

China Telecom Says Earnings Above Expectations By Biddy Chan at Bloomberg News 30 August 1999 China Telecom (Hong Kong) Ltd., the only listed owner of mainland China telecommunications networks, said earnings rose by a better-than-expected 14% in the first half as it cuts costs to meet rising competition. The company, which owns mobile phone networks in three of China's wealthiest provinces, earned a net 3.95 billion yuan ($476 million) through June, or 0.34 yuan per share. Five analysts polled by Bloomberg News forecast, on average, net profit of 3.56 billion yuan. Sales rose 49% to 16.9 billion yuan from the same period last year as subscribers increased 35% to 8.81 million. The company's subscriber numbers rose to 9.1 million last month. "The results were worse than expected on the revenue side, but better than expected on the costs side," said David Gibbons, an analyst at HSBC Securities in Hong Kong. China Telecom's market share dropped to 91.4% in June from 94.5% at the end of 1998 on growing competition from China Unicom, the nation's No. 2 telecom service provider. Among concessions designed to favor its entry into the World Trade Organization, Beijing has promised to encourage more competition with former monopoly China Telecom Group, the Hong Kong company's unlisted parent. China Telecom will also change its name to reflect a change in its parent's loss of monopoly, it said, though details and timetable have yet been fixed. The company said it's not concerned by increasing competition. "Competition stimulates the overall market demand," said Chairman Wang Xiaochu, noting that only five in every 100 people in the Chinese mainland own a mobile phone, compared with 3.7 at the end of 1998. "Our competitors are starting from zero, so it's not surprising that we are losing market share in%age terms," he said. "Our growth is actually pretty good in absolute terms." Costs during the first half of 1999 were 11.5 billion yuan, including a provision of 500 million yuan for some obsolete analog equipment. That compares with 20.4 billion yuan for all of last year, when no provisions were made. Through June, interconnection fees - money that China Telecom paid to other companies to connect calls among its networks in three provinces - made up 24% of total costs, down from 25% last year. Operating profit rose 22% to 5.89 billion yuan in the six months, even though the year-earlier figure was bolstered by a one-time gain of 1.08 billion yuan from interest earned on the $4 billion it raised in its initial share sale in late 1997. China Telecom said it reclassified that gain as part of its operating profit to comply with the latest period's presentation. Interest income in the first half of this year declined after the company spent $2.9 billion to acquire a third network, in eastern China's Jiangsu province, in June 1998. Interest rates also fell during the latest half. Granted some analysts said they don't expect to upgrade their full-year forecasts even after today's earnings announcement. Before the earnings were announced, the company was expected to post 9% growth in net earnings for the full year, to 7.05 billion yuan, according to 30 analysts polled in the August edition of the Estimate Directory, which doesn't provide interim forecasts. The full-year forecasts were made on the assumption that China Telecom makes no asset purchases this year. Gibbons at HSBC said China Telecom may see increasing costs in the next few years as it accelerates its plans to buy more digital equipment, which is capable of providing high-speed data transmission services. Depreciation costs for its existing, mostly analog equipment already increased to 29% of the company's total costs in the six months through June, compared with 25% last year. Still, that possible drag on earnings may be offset by its proposed acquisition of mobile networks in three more Chinese provinces, which could potentially expand its subscriber base by more than a third. The company didn't give details on that plan today. China Telecom said it has cash of 22.8 billion yuan, and borrowings of 6.2 billion yuan. Its debt-to-equity ratio is 10 percent. The stock rose 3% to HK$23.95 today. The shares are up 134% so far this year, compared with a 93% gain in the Hang Seng Index. Copyright 1999, Bloomberg L.P. All Rights Reserved.