China Mobile Earnings: Solid Growth Broadly in Line With Industry; Valuation Down Mainly on Currency

China Mobile’s 00941 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.

We reduce our fair value estimate for China Mobile to HKD 91 per share from HKD 96.30 due to a weakened Chinese yuan since our last update and a small downgrade to our forecasts. 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, 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.

For the second quarter, Chinese telecom industry total services revenue across China Telecom, China Unicom, and China Mobile was up 5.0%, EBITDA up 5.7%, and profit up 8.8%, all year on year. Industry services revenue growth was the slowest since 2020. We suspect this might be affected by the economy with recent macroeconomic data indicating year-on-year deflation and imports declining in July. Industry internet revenue growth remained strong at 19.2% year on year with service revenue growth from the traditional telecom services slowing to 2.1% from between 4% and 5% over the previous four quarters.