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Regional Equity Strategy Q4 2007
Stock Profile: China Mobile
BUY HK$106.80 HSI : 24,599
Price Target: 12-month HK$ 118.00
Potential Catalyst: Further delay in 3G licensing; A-share listing;
strong subscriber growth; potential overseas acquisition
ANALYST
Steven Liu CFA, +852 2971 1780
steven_liu@hk.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (RMB m) 2005A 2006A 2007F 2008F
Turnover
243,04
1
295,358 350,563 406,671
EBITDA
134,36
3
160,388 187,401 216,154
Pre-tax Profit 78,264 96,908 118,787 146,188
Net Profit 53,549 66,026 80,399 110,256
Net Pft (Pre Ex.) 53,549 66,026 80,399 110,256
EPS (HK$) 2.81 3.44 4.16 5.67
EPS Gth (%) 28.0 22.2 21.0 36.5
Diluted EPS (HK$) 2.79 3.40 4.12 5.62
DPS (HK$) 1.10 1.62 1.99 2.72
BV Per Share (HK$) 14.24 16.54 19.32 22.94
PE (X) 38.6 31.6 26.1 19.1
P/Cash Flow (X) 18.8 16.0 13.9 11.4
EV/EBITDA (X) 14.7 12.1 10.2 8.6
Net Div Yield (%) 1.0 1.5 1.8 2.5
P/Book Value (X) 7.6 6.6 5.6 4.7
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 21.2 22.3 23.2 26.9
SHARE PRICE CHART
HK$
116.40
106.40
96.40
86.40
76.40
66.40
56.40
46.40
Sep-06 N ov-06 Feb-07 A pr-07 Jun-07 Sep-07
Ch in a M o b ile 100-D ay M A
AT A GLANCE
Issued Capital (m shrs) 20,013
Mkt. Cap (HK$m/US$m) 2,171,386 / 278,821
Major Shareholders
China Mobile (HK) Group (%) 75.0
Free Float (%) 25.0
Avg. Daily Vol.(m shrs) 39.6
Earnings Rev : FY07: - FY08: -
Consensus EPS: FY07: HK$4.16 ; FY08: HK$5.22
Variance vs Cons: FY07: 0.63% ; FY08: 9.38%
Sector : Telecom
Bloomberg/Reuters Code: 941 HK EQUITY/ 0941.HK
Principal Business: CM is the largest wireless services
provider in China, with more than 65% market share in terms
of subscribers. The company operates a nationwide
GSM/GPRS/EDGE network.
China Mobile
Cementing leadership amidst the 3G turmoil
Story: China Mobile (CM) is cementing its leading position in
China’s telecom market. The 3G turmoil in China has helped CM
boost its competitive advantages.
Point: Although we have maintained our forecast, we see
diminishing risks in policy and operation for CM, implying better
valuation and growth prospects.
Relevance: Trading at 19.1x FY08 PE, current valuation is
undemanding compared with global telcos. Looking ahead, we see
more catalysts for re-rating. Though we have maintained our target
price, we are keeping a close watch on any upgrade factors for this
counter. Maintain BUY.
Mounting competitive advantages. Strong 1H07 results
suggest that China Mobile (CM) continued to gain competitive
advantages in China’s telecom market. We believe this is mainly
attributable to the following aspects: i) higher economies of
scale; ii) dominant in the rural market, thanks to its widespread
network coverage in rural areas; iii) increasing penetration in the
high-end customer market, as it will have its GSM/GPRS
network upgraded to EDGE (2.75G) by end-2007; and iv)
improving corporate governance. Going forward, we believe CM
can sustain strong subscribers growth, stable or increasing
average revenue per user (ARPU) and rising economies of scales,
hence a decent double-digit growth for quite a few years in the
future.
Favourable position in the 3G turmoil. Although we have
seen a variety of rumours and speculations on industry
restructuring and 3G licensing, there is no timetable or guidance
available from the Chinese Government. Notwithstanding that
we believe 4Q or 1H08 is a critical time for industry
restructuring, we see diminishing possibility of restructuring and
possible further delay in the 3G licensing. These uncertainties
have created much speculation for the other three telecoms
companies in China. However, CM will be least impacted by
these uncertainties, compared with its domestic peers.
Moreover, the company is leveraging on the favourable market
environments to enhance its competitive advantages. In the
China’s 3G era, we believe CM will be the most competitive 3G
player, regardless of which 3G license is to be granted to the
company.
Ongoing revaluation. The counter is trading at 19.1x FY08 PE,
which is undemanding as compared with the average valuation
of global telcos’. Without changing our forecasts, we have
maintained our target price of HK$118, based on DCF valuation.
Over the past few weeks, CM’s share price has shot up
substantially, mainly attributed to its strong 1H07 results and
favourable industry environment. Looking ahead, we believe
CM’s share price will continue to find strong support.
Nevertheless, we believe its ‘A’-share listing in the near term will
be a major share catalyst for CM. In the long run, we believe
CM can command a valuation premium over global telcos’ norm
valuation, in view of its promising growth outlook and superior
profitability. Maintain BUY.
Refer to important disclosures at the end of this report
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