China Unicom, China's number-two mobile phone carrier, said yesterday its net profit rose 12 per cent in the first half of 2003, falling short of analysts' expectations on higher-than-expected costs.

Beijing-controlled Unicom said its first-half profit rose to 2.39 billion yuan (US$289 million) from a restated 2.14 billion yuan (US$258 million) a year earlier. Seven analysts polled by Reuters had forecast an average profit of 2.63 billion yuan (US$318 million).

Turnover rose 78 per cent to 32 billion yuan (US$3.86 billion).

The company said it would pay no interim dividend, in contrast to chief rival China Mobile (Hong Kong), the world's biggest carrier by subscribers, which earlier this month declared an interim dividend of HK$0.16 per share.

Merrill Lynch analyst Agnes Ho said the results lagged her forecast, with revenue below target and finance costs on the high side. Ho has "neutral" ratings on both Unicom and China Mobile.

The company, which did not immediately provide operational details or commentary, said its finance cost had risen 34 per cent to about 1 billion yuan (US$121 million).

Unicom's shares were up 4.7 per cent in the year through Wednesday, trailing a 15 per cent gain for the broader Hang Seng Index and an even bigger surge by many China stocks listed in Hong Kong as investors worry that Unicom is promoting its newer CDMA wireless system at the expense of profits.

Unicom shares closed up 0.9 per cent at HK$5.60 yesterday.

BNP Paribas Peregrine analyst Marvin Lo said the results may reflect that Unicom's loss-making CDMA system is dragging down earnings at a greater than expected rate.

"From the surface of it, it's negative," he said. "They paid no dividend relative to China Mobile, so that's a turn-off."

Some watchers had hoped Unicom would pay an interim dividend.

In anther development, Unicom said its President Wang Jianzhou would replace Chairman Yang Xianzu, who has resigned after reaching retirement age.

Yang, who is also chief executive officer and an executive director of the company, earlier resigned as Chairman of China Unicom's parent, China United Telecommunications Corp. Those positions were also taken up by Wang.

Yang will head a newly established consulative committee responsible for the strategic development of the parent company, China Unicom said in a statement.

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