China Mobile Earnings: Solid, but Cash Flow Affected by Mix Shift to Business Customers

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.