HONG KONG -- China's three main wireless telecommunications companies are on track for profit growth during the next two years, as the operators trim back capital spending and ratchet down the intense competition that has eroded margins, according to brokers.
Wireless operators China Mobile, China Unicom and China Telecom, are on track to cut capital expenditure by 22% in 2010 from a year earlier, according to estimates by Royal Bank of Scotland.
That should translate into a 64% rise in free cash flow this year, and a further 43% the following year, the brokerage said in a recent research note, which recommended investors overweight the sector.
"Net profit in the sector likely bottomed in 2009," wrote Wendy Liu, an RBS's analyst and co-author of the research note.
Also adding to the improving outlook, China Mobile and China Telecom are likely to compete less aggressively in terms of pricing on their monthly service plans.
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"After competing with each other for about a year, they have found where the boundaries lie and are able to co-exist," Liu said.
China Unicom, she added, also indicated at an analyst briefing that it would take a less aggressive tact in pricing, shifting its strategic focus on attracting upper-bracket 3G users, or those customers who don't mind paying more than 100 yuan ($14.65) a month for basic plans.
"China Unicom won't be overly aggressive in terms of pricing in 2010," Liu said.
Macquarie Securities also recently reiterated its "overweight" rating on China Telecom, saying performance during its recent 2009 earning announcement showed its was making gains in its 3G market share. Glitches in ensuring sufficient smart phone handset supplies appear set to be ironed out by mid year, the broker said.
In Tuesday's Hong Kong trading, shares of China Telecom /quotes/comstock/22h!e:728 (HK:728 3.88, -0.01, -0.26%) /quotes/comstock/13*!cha/quotes/nls/cha (CHA 50.09, +1.15, +2.35%) were up 1.3%, while China Mobile /quotes/comstock/22h!e:941 (HK:941 75.65, +0.35, +0.46%) /quotes/comstock/13*!chl/quotes/nls/chl (CHL 48.77, +0.21, +0.43%) added 0.3%. Shares of China Unicom /quotes/comstock/13*!chu/quotes/nls/chu (CHU 11.20, -0.32, -2.78%) /quotes/comstock/22h!e:762 (HK:762 8.69, -0.15, -1.70%) eased 0.5%.
Around the region stocks were mostly higher Tuesday, with the Hang Seng China Enterprises Index gaining 1.3%, while Hong Kong's main share index, the Hang Seng, was up 0.6%.
Tokyo's Nikkei 225 was up 0.8%, Taiwan's Taiex added 0.2% and South Korea's Kospi was up 0.3%.
But Shanghai's Composite Index edged 0.2% into the red, while Singapore's Straits Times Index slipped 0.1% lower.
