FREE

CSCI-Telecommunications-China Mobile (941 HK)：Good value, with steady growth - 20180323

Good value, with steady growth

• China Mobile (CM)’s FY17 headlines came in ahead of both our and market expectations, on strong 4G-driven data and wireline broadband growth.
• CM announced a final DPS of HKD1.582, with full-year ordinary dividend payout rising to 48% in FY17 and guided a stable-to-rising payout ratio going forward.
• We have trimmed our FY18/19E service revenue and earnings estimates by 0.3%/0.7% and 1.8%/4.2%, respectively, and lowered our DCF-based price target to HKD95.0 (from HKD1100). Maintain Buy.

A solid set of FY17 results. CM reported a solid set of FY17 headlines, posting an industry-leading service revenue growth of 7.2% YoY and underlying net profit growth of 14.9% YoY (excluding RMB10,458mn loss on disposal of 2G assets). Non-voice revenue accounted for 76.5% of total service revenue (66.3% in FY16), driven by a 26.6% YoY growth in handset data revenue and 53.9% YoY growth in wireline broadband that more than offset a 25.3% YoY drop in voice revenue. By customers, CM made successful inroads into the household and corporate markets, seeing 56.6% and 32.1% YoY revenue growth, respectively.

2018 could prove to be a tough year. While management remains upbeat in maintaining an industry-leading revenue growth, 2018 could prove to be a tough year. On one hand, the scrapping of domestic data roaming fees may have a bigger impact on CM (than peers), and on the other hand, CM could face much intense competition in 4G from smaller peers given diminishing differentiation in mobile network coverage, in our view.

5G seems still far away. Management expects the 5G ecosystem to become mature by end-2019 at the earliest, but the company will start small-scale 5G trials in 2019. Also, management guided a capex of RMB166.1bn for FY18E, the fourth consecutive year of decline, and see further capex reduction before commercial deployment of the 5G network, in 2020 at the earliest in our estimates.

Good value, with stable growth. We have trimmed our FY18/19E service revenue and earnings estimates by 0.3%/0.7% and 1.8%/4.2%, respectively, and lowered our DCF-based price target to HKD95.0 (from HKD110.0), partly to reflect our less positive view on the competitive landscape for CM. Trading at FY18E 10.1x PER, 2.9x EV/EBITDA and 4.6% yield, we see good value with good earnings visibility. Maintain Buy.