China Mobile Earnings: Strong Growth Broadly In Line With Industry

China Mobile’s 00941 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.

Despite growing earnings over 2022, all three Chinese telecom operators reported declining operating cash flow in the same year. This was attributed to all three companies’ revenue mix shifting toward business-to-business from business-to-consumer, with the growth of the industrial Internet of Things, where the businesses have less favorable terms for receivables. China Mobile saw this trend continue in the first quarter of 2023, with its operating cash flow declining 3.9% year over year to CNY 82.7 billion due to an increase in working capital. However, the other two operators saw a turnaround, with China Telecom’s operating cash flow increasing 2% to CNY 28.2 billion, and China Unicom increasing its operating cash flow 22% to CNY 17.0 billion. China Unicom reported a slowing in cloud services revenue growth to 40% year on year from over 100% in 2022, but neither China Mobile nor China Telecom reported separate cloud services revenue in first-quarter results.