Company Reports

China Mobile’s first-quarter result was broadly in line with our expectations, with services revenue up 4.5%, EBITDA down 2.3%, and net profit up 5.5% year over year. The lower net profit growth was not helped by lower contribution from the additional reduction in value-added tax, which finished at the end of 2023. China Mobile reported CNY 4.4 billion from this source in 2023 and we estimate its elimination probably affected first-quarter profit before tax by around CNY 1 billion, or 3%. The company also saw a 47% increase in other expenses, which included some write-offs of credit risk from some corporate customers. This was partially offset by an 8% decrease in depreciation and amortization, with this line item expected to decrease by CNY 18 billion for 2024. The other interesting aspect was the 24% reduction in operating cash flows, largely due to increased working capital. We believe this is mainly due to the mix shift toward business customers, who can negotiate better payment terms.

With 991 million customers, China Mobile not only dwarfs its Chinese competitors but also is the world's largest wireless telephone company. It has more mobile subscribers than its competitors despite being handicapped by the Chinese government in the past, which required it to use the homegrown TD-SCDMA technology standard for 3G mobile. However, with subsequent technology shifts to 4G and now 5G, the technology playing field is more level. Over time, competitors have taken mobile services revenue market share, with China Mobile's share reducing from 71% in 2012 to 61% in 2023. However, China Mobile has been aggressive in the fixed-line broadband and internet services market, so its overall telecom services revenue share has only fallen to 51% from 55% over the same period.

China Mobile’s fourth-quarter 2023 result was a bit underwhelming, with services revenue up 3.6%, EBITDA down 6.1%, and net profit down 2.7%. The weak fourth-quarter EBITDA looks likely to be caused by a spike in employee costs related to bonus timing, given employee expenses increased by 8.2% year on year for the first nine months of the year but rose 18.7% in the fourth quarter. We saw a similar pattern in China Unicom’s fourth quarter. On a full-year basis, the 6.3% services revenue growth, 3.7% EBITDA growth, and 5% net profit growth looks quite solid. The lower net profit growth wasn't helped by a lower contribution from China Mobile’s 18%-owned Shanghai Pudong Development Bank, which reported 2023 net profit that declined 28% year on year.

With 991 million customers, China Mobile not only dwarfs its Chinese competitors but also is the world's largest wireless telephone company. It has more mobile subscribers than its competitors despite being handicapped by the Chinese government in the past, which required it to use the homegrown TD-SCDMA technology standard for 3G mobile. However, with subsequent technology shifts to 4G and now 5G, the technology playing field is more level. Over time, competitors have taken mobile services market share, with China Mobile's share reducing from 71% in 2012 to 61% in 2022. However, China Mobile has been aggressive in the fixed-line broadband and internet services market, so its overall telecom services revenue share has only fallen to 52% from 55% over the same period.

China Mobile’s third-quarter 2023 result was strong with year-on-year services revenue and EBITDA each up 9.6%, and net profit up 3.8%. Although not specifically disclosed, the lower net profit growth was likely driven by lower contribution from China Mobile’s 18% owned Shanghai Pudong Development Bank, or SPDB, which reported first-half net profit down 28% year on year but has yet to report its third-quarter earnings. In terms of underlying growth of the core telecom business, the result was ahead of its peers. China Mobile’s DICT (data, information, and communications technology) revenue increased 30%, compared with China Unicom’s 9% and China Telecom’s 16%. We retain our fair value estimate for China Mobile at HKD 91 per share. Our narrow moat rating based on efficient scale and scale-based cost advantage—which allowed the company to earn return on invested capital, or ROIC, of 20.4% in 2022 compared with China Telecom’s 3.6% and China Unicom’s 3.3% over the same period—also remains unchanged. We continue to see China Mobile as undervalued at these levels, but we prefer China Unicom over China Mobile, and then China Telecom on valuation.

With 990 million customers, China Mobile not only dwarfs its Chinese competitors but also is the world's largest wireless telephone company. It has more mobile subscribers than its competitors despite being handicapped by the Chinese government in the past, which required it to use the homegrown TD-SCDMA technology standard for 3G mobile. However, with subsequent technology shifts to 4G and now 5G, the technology playing field is more level. Over time, competitors have taken mobile services market share, with China Mobile's share reducing from 71% in 2012 to 61% in 2022. However, China Mobile has been aggressive in the fixed-line broadband and internet services market, so its overall telecom services revenue share has only fallen to 52% from 55% over the same period.

China Mobile’s second-quarter 2023 was again solid with services revenue up 4.2% with EBITDA up 5.9% and net profit up 7.7%, all year on year. In terms of growth the result was broadly in line with its peers. China Mobile’s data, information, and communications technology, or DICT, revenue increased 24%, compared with China Unicom’s 15% and China Telecom’s 19%, but because China Mobile has a much larger core telecom business than the other two, the DICT growth has less impact on its overall growth.

With 985 million customers, China Mobile not only dwarfs its Chinese competitors but also is the world's largest wireless telephone company. It has more mobile subscribers than its competitors despite being handicapped by the Chinese government in the past, which required it to use the homegrown TD-SCDMA technology standard for 3G mobile. However, with subsequent technology shifts to 4G and now 5G, the technology playing field is more level. Over time, competitors have taken mobile services market share, with China Mobile's share reducing from 71% in 2012 to 61% in 2022. However, China Mobile has been aggressive in the fixed-line broadband and internet services market, so its overall telecom services revenue share has only fallen to 52% from 55% over the same period.

With 983 million customers, China Mobile not only dwarfs its Chinese competitors but also is the world's largest wireless telephone company by far. It has more mobile subscribers than its competitors despite being handicapped by the Chinese government in the past, which required it to use the homegrown TD-SCDMA technology standard for 3G mobile. However, with the industry shift to 4G and now 5G, the technology playing field is more level. Over time, competitors have taken mobile services market share, with China Mobile's share reducing from 71% in 2012 to 61% in 2022. However, China Mobile has been aggressive in the fixed-line broadband and internet services market, so its overall telecom services revenue share has only fallen to 52% from 55% over the same period.

China Mobile’s first quarter showed a continuation of the strong growth reported over the past two years, with DICT, or data, information and communications technology, driving revenue growth, but the traditional mobile revenue stream also holding up well. Services revenue grew 8.3% with EBITDA up 4.9% and net profit up 9.5%, all year over year. In terms of growth the result was broadly in line with its peers, with industry average year-on-year services revenue up 7.6%, EBITDA up 4.5% and net profit up 9.9%. China Mobile’s DICT revenue increased 24%, compared with China Unicom’s 15% and China Telecom’s 19%. We retain our fair value estimate for China Mobile at HKD 96.30 per share and reiterate our narrow moat rating based on efficient scale and scale-based cost advantage, which allowed the company to earn return on invested capital in 2022 of 20.4%, compared with China Telecom’s 3.6% and China Unicom’s 3.3% over the same period. We continue to see the company as undervalued at these levels.

China Mobile reported a strong 2022, with service revenue growth of 8.1%, EBITDA growth of 5.8% and EPS growth of 3.7%. Its services revenue growth was slightly higher than its competitors, with EBITDA growth slightly lower. China Mobile continues to generate very strong growth from digital transformation services, which grew 30% year on year to CNY 208 billion (representing 26% of China Mobile’s total services revenue). We believe the growth in lower-margin digital transformation revenue may have contributed to the lower EBITDA growth. However, we remain optimistic that margins for many of these services will likely benefit from increased scale, so we should see margin improvement from them over time. We retain our fair value estimate for China Mobile at HKD 96.30 per share and our narrow moat rating based on efficient scale and scale-based cost advantage. The latter allowed the company to earn return on invested capital, or ROIC, in 2022 of 20.4% compared with China Telecom’s 3.6% and China Unicom’s 3.3% over the same period. We continue to see the company as undervalued at these levels.

With 975 million customers, China Mobile not only dwarfs its Chinese competitors but also is the world's largest wireless telephone company by far. It has more mobile subscribers than its competitors despite being handicapped by the Chinese government in the past, which required it to use the homegrown TD-SCDMA technology standard for 3G mobile. However, with the industry shift to 4G and now 5G, the technology playing field is more level. Over time, competitors have taken mobile services market share, with China Mobile's share reducing from 71% in 2012 to 61% in 2022. However, China Mobile has been aggressive in the fixed-line broadband and internet services market, so its overall telecom services revenue share has only fallen to 52% from 55% over the same period.

We retain our no-moat ratings for both China Unicom and China Telecom, but we increase our fair value estimates for China Unicom to HKD 10.50 from HKD 9.70 per share previously and for China Telecom to HKD 5.20 from HKD 4.80 per share. This is due to a stronger Chinese yuan. We also retain our narrow moat rating for China Mobile and increase our fair value estimate to HKD 96.30 from HKD 90 per share, also due to a stronger Chinese yuan.

With 970 million customers, China Mobile not only dwarfs its Chinese competitors but also is the world's largest wireless telephone company by far. It has more mobile subscribers than its competitors despite being handicapped by the Chinese government in the past, which required it to use the homegrown TD-SCDMA technology standard for 3G mobile. However, with the industry shift to 4G and now 5G, the technology playing field is more level. Over time, competitors have taken mobile services market share, with China Mobile's share reducing from 71% in 2012 to 60% in 2021. However, China Mobile has been aggressive in the fixed-line broadband and internet services market, so its overall telecom services revenue share has only fallen to 52% from 55% over the same period.

China Mobile reported strong third-quarter revenue growth but slowing EBITDA growth. Services revenue grew 7.8% year on year, with EBITDA growing 2.7%. China Mobile continues to generate very strong growth from DICT, or data, information and communications technology, which grew 31% year on year to CNY 20.3 billion (representing 10.5% of China Mobile’s total services revenue). We note this growth rate has progressively slowed from 50.7% in the first quarter and 38.4% in the second quarter. China Mobile grew services revenue faster than China Telecom for the first time since the first quarter of 2020. The growth in lower-margin DICT revenue may have contributed to the lower EBITDA growth. We reduce our fair value estimate for China Mobile to HKD 90 per share from HKD 91 per share mainly on currency movements and retain our narrow moat rating. We continue to see the company as undervalued at these levels.

With 970 million customers, China Mobile not only dwarfs its Chinese competitors but also is the world's largest wireless telephone company by far. It has more mobile subscribers than its competitors despite being handicapped by the Chinese government in the past, which required it to use the homegrown TD-SCDMA technology standard for 3G mobile. However, with the industry shift to 4G and now 5G, the technology playing field is more level. Over time, competitors have taken mobile services market share, with China Mobile's share reducing from 71% in 2012 to 60% in 2021. However, China Mobile has been aggressive in the fixed-line broadband and internet services market, so its overall telecom services revenue share has only fallen to 52% from 55% over the same period.

China Mobile reported a strong first-half 2022 result with services revenue up 8.4%, EBITDA up 7.4%, and net profit up 18.9% on a reported basis and up 7.3% on an underlying basis. Second-quarter services revenue slowed slightly to 7.9%, but EBITDA growth accelerated to 8.8%. Like the other telcos, China Mobile is experiencing very strong growth from data, information, and communications technology, or DICT, which grew 44.2% year on year to CNY 48.2 billion (now representing 11.3% of China Mobile’s total services revenue). While cash flow remained strong, it did decline in the first half with operating cash flow down 9% to CNY 147 billion and free cash flow down 25% to CNY 73 billion. A HKD 2.20 interim dividend was declared, up 41% on last year, driven by the strong earnings growth on a reported basis and the dividend payout ratio increasing to 63% from 51% in the same period last year. Management also clarified that it was planning to increase its dividend payout ratio to 70% by 2023, not 2024 as was widely believed in the market.

With 970 million customers, China Mobile not only dwarfs its Chinese competitors but also is the world's largest wireless telephone company by far. It has more mobile subscribers than its competitors despite being handicapped by the Chinese government in the past, which required it to use the homegrown TD-SCDMA technology standard for 3G mobile. However, with the industry shift to 4G and now 5G, the technology playing field is more level. Over time, competitors have taken mobile services market share, with China Mobile's share reducing from 71% in 2012 to 60% in 2021. However, China Mobile has been aggressive in the fixed-line broadband and internet services market, so its overall telecom services revenue share has only fallen to 52% from 55% over the same period.

We increase our fair value estimate for China Mobile to HKD 91 per share from HKD 89 per share previously, following a strong 2021 result that was broadly in line with our expectations and the results reported by its two domestic competitors, China Unicom and China Telecom. 2021 services revenue grew 8%, EBITDA grew 9.1% and net profit grew 7.7%. Fourth-quarter services revenue grew 5%, EBITDA grew 7.8% and net profit grew 8.9% from the previous year. Like the other telcos, China Mobile is seeing very strong growth from cloud revenue (110% year on year) and data center revenue (33%), but has also seen a return to growth from its core mobile services revenue of 1.3%,which contributes 59% of its total service revenue. Industry mobile revenues have benefited from mobile data price declines that have moderated from 50%-60% declines in 2017 and 2018 to 20%-25% declines over the past two years, as the government has removed its previous network speed upgrade and tariff reduction requirements.

With 957 million customers, China Mobile not only dwarfs its Chinese competitors but also is the world's largest wireless telephone company by far. It has more mobile subscribers than its competitors despite being handicapped by the Chinese government in the past, which required it to use the homegrown TD-SCDMA technology standard for 3G mobile. However, with the industry shift to 4G and now 5G, the technology playing field is more level. Over time, competitors have taken mobile services market share, with China Mobile's share reducing from 71% in 2012 to 60% in 2021. However, China Mobile has been aggressive in the fixed-line broadband and internet services market, so its overall telecom services revenue share has only fallen to 52% from 55% over the same period.