China Unicom earnings fall short of estimates as new VAT kicks in

China Unicom, the country's second-biggest carrier by subscribers, fell short of analyst expectations when it reported its first-half net income as China's new value-added tax (VAT) scheme began to cut into earnings.

Net income for the six months ended June 30 rose 26 percent to 6.7 billion yuan ($1.09 billion), the company said on Thursday after the Hong Kong market close. The amount missed projections of 7.35 billion yuan, estimates compiled and calculated by Thomson Reuters show.

The new VAT, which replaced a flat business tax of roughly 3 percent, came into effect June 1. China Unicom did not disclose its current effective tax rate - calculated by some analysts to be as high as double-digits - saying only that "there will be pressure on the company's revenue growth and profitability growth."

First-half revenues gained 3.6 percent to 149.6 billion yuan, China Unicom said. But average revenue per user for 3G and 4G subscribers, a key industry metric, fell to 68.7 yuan during the period, down 11.5 percent from a year earlier.

"The VAT had a lot to do with the revenue side, which missed both our estimates and consensus," said Jefferies analyst Cynthia Meng, who also attributed the carrier's disappointing earnings to interest payments on its recent debt obligations.

Still, the carrier has continued to ride a wave of subscriber growth as more and more people in the world's most populous country use mobile Internet.

Mobile broadband revenue rose by one-third, China Unicom said, while the total number of subscribers increased to 295 million. China Mobile and China Telecom recently reported 791 million and 180.24 million subscribers, respectively.

China Unicom shares ended down 1.6 percent versus a 0.8 percent drop in the Hang Seng Index.