China Mobile 3Q results

Kevin Yim –kevin.yim@guoco.com (852) 2218 2861
Event: China Mobile and China Telecom reported 3Q09 results.
  China Mobile (941)’s 3Q09 earnings up 2.6% yoy to RMB 28.6bn, in-line with market consensus. 1H09 net
profit increased 1.4% yoy. Revenue grew 9.0% yoy in 3Q09 despite a 3.9% yoy decline in ARPU to RMB74.6.
MOU up 0.8% yoy to 490 as a result of higher portion of low usage customers. Blended revenue per minute
decreased 8.6% yoy due to intensified competition. EBITDA margin was the same as 2Q09 ’s 50.7%.
  While 3Q09 results were broadly in-line, September net adds improved to 5.43mn (Aug 09: 5.26mn) thanks to
continuous economic recovery. 3G net adds were still very weak at 328k, however.
  We believe CM will be lack of growth prospect from now on amid increasing competition and saturating highend
market. Nevertheless, CM is defensive for its strong net cash ($12.5 per share as at end-Jun) and stable
business. At 12.0x 2010 PER, valuation has fully reflected company’s fundamentals, in our view. We maintain
HOLD on CM with target price slightly revised down to $80.0, representing 12.0x 2010 PER. We recommend
investors to accumulate the stock when forward dividend yield reaches 4.0%, suggesting an entry point of
$75.0.
  China Telecom (728)’s 3Q09 earnings declined 47% yoy to RMB 2.98bn that were worse than market
consensus. Revenue increased 16.1% thanks to the CDMA business incorporated in 2009. It however rose only
1% qoq that was mainly due to poor fixed line operation. CDMA MOU and ARPU up 37% and 31% to 329 and
RMB 64 respectively, reflecting the increasing popularity of its CDMA2000 services.

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CORRECTED-BUY OR SELL-Chinese telcos-Time to take the call? 24 Jul 2009 19:06

(Corrects to change analyst's name in paragraph 11 to Leung not Cheung)

* Bulls like valuations, defensive appeal

* Bears see competition, slow demand weighing

(For other Reuters BUY OR SELL items, click [BUYSELL/]

By Parvathy Ullatil HONG KONG, July 24 (Reuters) - Locked in what is developing into an intense battle for market share following an industry overhaul, some Chinese telecom companies have become pariahs among investors this year.

Shares in China Mobile <0941.HK> are down nearly 2 percent so far this year as monthly subscriber data reveals dents in its historically unchallenged market position, even as the broader market has rallied 38 percent. Nimbler rivals China Unicom <0762.HK> and China Telecom <0728.HK> have fared better, rising 20 percent and 42 percent, respectively.

But with market watchers forecasting a lull in the broader market in the third quarter, will Chinese telecom stocks find favour on the their appeal as defensive stocks?

VALUATIONS ATTRACTIVE

"While competitive threats for China Mobile are rising, the company will see the best earnings trend in the next 1-2 years. China Mobile also remains the most attractive on valuation," said Yvonne Chow analyst with Morgan Stanley.

Chow has an "overweight" rating on the index heavyweight with a target price of HK$90.5, compared with its current trading price of HK$77.10.

The stock leads the pack among its peers with 14 buy ratings and just one sell call from brokerages. It currently trades at less than 12 times its estimated earnings in 2009 compared with 17.6 times commanded by the Hang Seng Index <.HSI> constituents.

It is expected to be the top pick for investors given its significant liquidity and laggard status.

The slow adoption of 3G network services is also seen as a positive for China Mobile, whose 3G system is seen as the least popular among its peers, as its will ease some of the pressure on the company's bottom line.

"It is still a growth sector and most of the uncertainty seems to be out of the way now. We don't really expect any surprises," said Bratin Sanyal, head of Asian equity at ING Investment Management Asia-Pacific

ABSOLUTELY NO CATALYSTS

"China Mobile is cheap but there are absolutely no catalysts for this stock, the news you are going to hear over the next 1-2 years is slowing growth, losing market share, more price competition, tariffs coming down and higher capital expenditure," said Elinor Leung, telecom analyst with CLSA.

Leung has an "underperform" rating on China Mobile and Unicom while she rates China Telecom an "outperform".

China Mobile, which has been saddled with the untested, homegrown TD-SCDMA standard for its 3G network which limits its access to new handsets, reported lower subscriber growth numbers for a fourth straight month in June.

Earnings visibility at Chinese telecoms companies remains low, say analysts, as they are still in the process of fully rolling out their 3G services and acquiring handsets.

"On a global scale, there are simply better stories on offer at similar valuation multiples, such as leading telcos in Indonesia and Africa," said James Gautrey, global equity analyst, teleco sector at Schroders.

Telecom companies in Indonesia, touted as another major domestic consumption story in Asia this year, are trading at 11.8 times their estimated earnings with top firm Telekomunikasi Indonesia Tbk PT <TLKM.JK> valued at 14.3 times.

India's Reliance Communications <RLCM.BO> is trading at 11.8 times while South Africa's MTN <MTNJ.J> is value at 12.2 times.

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China Mobile aims for home listing in near term 19 May 2009 13:10

By Joanne Chiu and Nerilyn Tenorio

HONG KONG, May 19 (Reuters) - Hong Kong-listed China Mobile <0941.HK> on Tuesday said it would like to make a second listing in its home market as early as possible, as Beijing tries to make more top Chinese companies available to domestic investors.

The company, China's top mobile carrier by subscribers, would prefer to make the listing using China Depositary Receipts (CDRs), Chairman Wang Jianzhou said.

"We intend to issue CDRs and this is the right time," Wang told reporters on the sidelines of the company's annual general meeting in Hong Kong.

"China Mobile has been listed in Hong Kong and New York for nearly 12 years and the management is eager to seek a listing on the mainland as soon as applicable so that domestic investors will have a chance to invest in the company," he added.

Shares of China Mobile jumped more than 4 percent at midday to HK$75.50, beating a 3 percent rise in the blue chip Hang Seng Index <.HSI>.

But the stock has eased about 2 percent this year on concerns about slowing demand and growing competition from rivals China Unicom <0762.HK> and China Telecom <0728.HK>.

Earlier this month, China agreed to allow qualified foreign companies to list on its stock exchange through issuing shares or depository receipts.

The agreement, signed last week during Chinese Vice-Premier Wang Qishan's meeting with British Finance Minister Alistair Darling in London, will pave the way for large British companies like HSBC <0005.HK> to be listed in Shanghai.

Wang said this would cover all overseas companies, including so-called red-chip companies, such as China Mobile, which are controlled by Chinese owners but incorporated outside China.

China Mobile hopes to become one of the first batch of overseas-listed China companies to issue CDRs and would apply as soon as the government provided a framework for such listings, he said.

M&A

Separately, China Mobile said it was open to acquisitions that could provide synergy and value for shareholders, weeks after announcing plans to buy 12 percent of No.3 Taiwan mobile carrier Far EasTone <4904.TW> for $529 million. [ID:nLT876587]

"We are still focused on the domestic market," Wang said. "At the same time, we are looking out for possible acquisitions. Assets were very expensive two years ago, but now they're not as expensive," he said.

China Mobile and Far EasTone both operate second-generation (2G) mobile networks based on the GSM standard popularised in Europe. But for more advanced third-generation (3G) services, China Mobile is using a homegrown technology known as TD-SCDMA.

Wang said China Mobile would soon announce winners for the third tender of TD-SCDMA bidding as it extends its network to an additional 200 cities.

The company recently awarded tenders for high-end TD-SCDMA handset to six producers including LG Electronics <066570.KS>, Motorola <MOT.N>, and Taiwan's HTC <2498.TW>, and to five suppliers including ZTE <0763.HK>, Huawei [HWT.UL] and LG to produce low-end handsets.

The company was still in talks with Apple <AAPL.O> about selling the U.S. company's popular iPhone in China, Wang said. The on-again-off-again talks have dragged on for more than a year without any results. [ID:nBKK173772]

More recently, Chinese media have reported that Apple was also in talks to offer the iPhone in China through China Unicom <0762.HK>, China's No.2 wireless carrier, which operates a GSM network and is building a 3G network based on WCDMA, the globally accepted successor to GSM.

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China Mobile buying 12 pct stake in Taiwan's Far Eastone

 China Mobile <0941.HK> will be in focus after it said it was 
buying 12 percent of Taiwan's Far EasTone <4904.TW> for $529 
million, in one of the biggest investments by a Chinese company 
in Taiwan as ties warm between the former rivals. 
    China Mobile, the world's largest mobile carrier by users, 
will pay about T$17.8 billion or T$40.00 per share for the stake 
in one of Taiwan's top three telecoms carriers, it said in a 
statement on Wednesday. The price would mark a 14 percent premium 
to Far EasTone's closing price of T$35.20. 
    The benchmark Hang Seng Index <.HSI> finished 2.8 percent 
firmer at 14,956.95  on Wednesday, clawing back some some lost 
ground after a two-day slump. 

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