With 867 million wireless subscribers, China Mobile (CHL) is the top dog in China’s telecom market and boasts the Mainland’s best network, suggests Roger Conrad, editor of Conrad's Utility Investor.
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Over the past 12 months, the migration to 4G spurred a 107.5 percent increase in the company’s data traffic. China Mobile also expanded its customer base by 41.3 percent, poaching many of these new subscribers from rivals.
The company slashed its data tariff for wireless phones by 36 percent and still managed to grow its average revenue per user by a robust 4.5 percent.
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This performance in a highly competitive market is impressive enough, but prospective investors should consider the upside from the rollout of its 5G network in coming years and a potential explosion in machine-to-machine communications.
Integrating wireline broadband with the wireless network will be critical to meeting the coming surge in human and machine-based data traffic. China Mobile controls about one-third of China’s wireline broadband network, with a customer base of almost 100 million.
During China Mobile’s second-quarter earnings call, management highlighted the telecom company’s ambitious plans for the internet of things (IoT).
This strategy includes application development with more than 70 different industries and plans to start commercial use of these products in “certain key cities” by the end of 2017.
As in the US, the market tends to obsess over trends in customer additions instead of which telecom companies have the best opportunity to profit from the IoT boom. Intensifying price competition from China Unicom (CHU) and other rivals, for example, has weighed on the performance of China Mobile’s stock. The rollout of rival 4G networks has also worried investors.
Although China Mobile’s impressive second-quarter results testify to the company’s dominance of the wireless market, the stock remains 25 percent below its April 2015 high and trades at a discounted valuation of 13 times earnings.
The company announced a 9 percent increase to its semi-annual dividend, which investors of record before Aug. 31 will receive. Meanwhile, the Hong Kong dollar’s loose peg to the greenback means that fluctuations in exchange rates are less of a concern for US investors.
China Mobile’s New York-listed American depositary receipt (ADR) represents five ordinary shares on the Hong Kong Stock Exchange. Prospective investors should note that there’s no dividend withholding. China Mobile’s ADR joins the Aggressive Income Portfolio as a buy up to US$60.
