China Mobile Reports Another Strong Result, With Cloud Services Providing Plenty of Upside

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.