EUR 850.00 For Business Accounts Only

Morningstar | China Mobile Reports In-Line 1Q Result With Some Recovery in Market Share

China Mobile’s first-quarter summary result was in line with our expectations, with service revenue down 0.5%, earnings before interest, tax, depreciation, and amortization up 4.3%, and net profit down 8.1%. China Mobile implemented a new accounting standard relating to leases, which decreases operating expenses and increases depreciation and amortization, so the EBITDA increase was partly driven by this accounting change. We therefore see the net profit decline as more indicative of the underlying earnings trend in the result. We forecast broadly flat earnings for 2019 as we expect a recovery in the second half of the year as the impact on growth of the removal of mobile data roaming charges in July 2018 washes through and earnings growth resumes. We retain our narrow moat rating on the stock and our fair value estimate of HKD 97 (USD 61). This implies a forward price/earnings of 14.6 times and a dividend yield of 3.3%, making China Mobile shares mildly attractive at current levels, in our view. We expect the company to maintain its earnings growth at low- to mid-single-digit rates per annum in the medium term. We also retain our Poor stewardship rating based primarily on China Mobile's poor capital management record.

Relative to China Unicom, which also reported first-quarter numbers, China Mobile’s services revenue performance is an improvement on what we saw in 2018. China Unicom reported first-quarter services revenue growth of 0.3%, so China Mobile lagged by only 80 basis points. For the full year of 2018, China Unicom reported services revenue growth of 5.9% while China Mobile reported service revenue growth of only 0.4%.

While the company gives little commentary with its first-quarter results, it did say that "amid the highly competitive mobile market in the first quarter of 2019, the group has made concerted efforts to stabilize its market-leading position by proactively implementing reforms in data traffic operations, promoting large data products, and boosting overall customer perception." These efforts appear to have been successful relative to 2018.