Why Is China Mobile The Most Important Telco You Need To Know

China Mobile Ltd is a leading telecommunications services provider in China. It offers its services in all 31 provinces in Mainland China and Hong Kong and has the largest network and customer base in the world. Listed in 1997 on both the HKEX and NYSE, China Mobile Ltd’s market capitalisation now stands at HK$ 1.5 trillion as of 23 April 2019 and is a constituent of the Hang Seng Index.

In this article, I’ll be covering its latest financial results and valuation figures. As such, here are 11 things to know about China Mobile Ltd before you invest.

  • Operating Statistics:
    China Mobile Ltd has achieved a CAGR of 13.5% in total connections. It increased from 522 million in 2009 to 1,633 million in 2018. Its increase is faster in recent years. This is attributable to fast growth in the Internet of Things Smart Connections and Wireline Broadline Connections.

Source: China Mobile Ltd’s Annual Reports

From it, its breakdown of users (or connections) are as followed:

No.Type of ConnectionsNo. of Connections (Million)
1Mobile Connections925
2Wireline Broadband Connections157
3Internet of Things Smart Connections551
Total Connections1,633

Source: China Mobile Ltd’s Annual Report 2018

  • Operating Revenue
    China Mobile Ltd has achieved a CAGR of 5.6% in operating revenue, up from RMB 452.1 billion in 2009 to RMB 736.8 billion in 2018. Its growth in revenues was slower compared to the growth in total connections. It is caused by a fall in average revenue per user (ARPU), down from RMB 77 in 2009 to RMB 53 in 2018.

Source: China Mobile Ltd’s Annual Reports

  • Strategic Investment: Shanghai Pudong Development Bank Co. Ltd or SPD Bank
    China Mobile Ltd has derived more than 90% of profits from associates from its 18% interest in SPD Bank. It has achieved consistent growth in both revenue and profits, thus, contributing to stable growth in profits from associates to China Mobile Ltd as shown below.

Source: China Mobile Ltd’s Annual Reports

In addition to SPD Bank, China Mobile Ltd owns the following strategic investments:

– 28% stake in China Tower Corporation Ltd
– 13% stake in IFLYTEK Co. Ltd

– 18% stake in True Corporation Public Company Ltd

  • Shareholders’ Earnings
    Over the last 10 years, China Mobile Ltd has sustained its shareholders’ earnings at around RMB 115 billion per annum. This is despite having a consistent sales growth during the period. Earnings remained flat as its operating expenses have risen at a rate which effectively cancelled out both its sales growth and growth in profits from associates. This is due to growth in both depreciation and staff costs in that 10-year period.

Source: China Mobile Ltd’s Annual Reports

  • Cash Flow Management
    From 2009 to 2018, China Mobile Ltd had generated RMB 2.2 trillion in cash flows from operations, RMB 110.9 billion in interest received, and RMB 12.4 billion in dividends from its associate companies. From these amounts, China Mobile Ltd has spent:

    – RMB 1.5 trillion in capital expenditures (CAPEX).
    – RMB 21.6 billion in repayment of net long-term debt.
    – RMB 574.1 billion in dividends to its shareholders.

    As such, China Mobile Ltd is a cash-cow and is able to generate itself sustainable cash flows from operations year after year, fund its CAPEX, and reward its shareholders with sustainable dividend payouts.

Source: China Mobile Ltd’s Annual Reports

  • Balance Sheet Strength
    As of 31 December 2018, China Mobile Ltd has non-current liabilities of RMB 5.7 billion and shareholders’ equity of RMB 1.05 trillion. Thus, the company has a gearing ratio of 0.54%.

    In addition, China Mobile Ltd has a total of current assets of RMB 535.1 billion and current liabilities of RMB 474.4 billion. Thus, it has a current ratio of 1.13.

    Presently, China Mobile Ltd was granted a ‘A+ / Outlook Stable’ and ‘A1 / Outlook Stable’ from Standard & Poor’s and Moody’s credit agencies.

  • Growth Plan 1: CAPEX 2019
    In 2019, China Mobile Ltd has allocated CAPEX of RMB 149.9 billion for a variety of purposes. They include:

    – To support growth of 4G Data Traffic.
    – Raising broadband speed and quality.
    – Securing investments for corporate market.
    – To support network evolution and upgrades.

    These CAPEX would be funded by cash generated from its operations.

  • Growth Plan 2: 5G Development
    In 2018, China Mobile Ltd has conducted a series of scale trials for the development of 5G. By December 2018, it has obtained the permit for 5G test frequencies at 2.6 GHz and 4.9 GHz and has already initiated a handful of initiatives such as:

    – 5G Joint Innovation Centre.
    – 5G Device Forerunner Initiative.
    – 5G Joint Innovation Industry Funds.

    It is one-step forward towards pre-commercial launch in 2019 and soon after, full commercial launch in 2020.

  • P/E Ratio
    As of 23 April 2019, China Mobile Ltd is trading at HK$ 75.25 a share. In 2018, it has reported earnings per share (EPS) of RMB 5.75 or HK$ 6.63. Thus, it has a P/E Ratio of 11.35, close to its 10-Year average of 11.73.
  • P/B Ratio
    As of 31 December 2018, China Mobile Ltd has net assets of RMB 51.40 or HK$ 59.26 per share. Thus, its current P/B Ratio is 1.27, which is a lot lower than its 10-Year average of 1.78.
  • Dividend Yields
    Over the last 10 years, China Mobile Ltd paid out, on average, HK$ 3.00 in dividends per share (DPS).

Source: China Mobile Ltd’s Annual Reports

In 2018, it has paid out HK$ 3.22 in DPS. Hence, based on the current stock price of HK$ 75.25, its dividend yield is 4.28% a year, which is above its 10-year average of 3.84% per annum.

VIA’s Verdict

Overall, China Mobile Ltd’s profits had been flattish and thus, sustaining its DPS at HK$ 3.00 per annum for the last 10 years. Presently, it is cash-rich and is well funded to finance its 5G development plans in the upcoming 1 – 2 years.

In terms of valuation, China Mobile Ltd is trading at P/E and P/B Ratio below its 10-year average and dividend yields above its 10-year average. The question is: ‘Would you invest in China Mobile Ltd at HK$ 75.25 a share?’

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