China Mobile

China Mobile Limited
(0941.HK / 941 HK)
Strong faces higher risks from M&A and
technology
■ With over 316 mn subscribers at the end of March 2007, China Mobile is a
super heavyweight in the Asian mobile market. From a .market opportunity.
perspective, we score China Mobile 4 out of a possible 5, given its relatively
low penetration rate (33% as at December 2006), the opportunity for
continued double-digit revenue growth, stable margins and higher scale.
■ Despite its size, we only score China Mobile 4 out of 5 for competitive
landscape. This is due mainly to our expectation that competition will grow
from the potential industry restructuring, which should see new entrants into
the market as well as 3G licensing. Further risk may arise from the need to
adopt the home-grown TD-SCDMA technology.
■ With competition relatively stable in the past two years, China Mobile has
enjoyed a revenue market share of 74%, an EBITDA margin of 54% and
ROIC advantages at 25%. Therefore, we give China Mobile a score of 5.
■ We expect China Mobile to still dominate in terms of subscriber and expect
its revenue market share to remain at a high 70% level. However, there is
risk of rising competition from 3G and potential M&A. Moreover, its mobile
tariff has also been declining as China Mobile has become more aggressive
in expanding into the rural market and via the introduction of calling party
pays and lower roaming fees. Therefore, we give China Mobile a score of 3
on this measure.
■ We expect China Mobile.s ROIC to decline gradually over time from a high
base. Therefore, we rate it 4 out of 5 on this measure.
■ China Mobile.s valuation is no longer attractive compared to its peers, in our
view. With the next leg of performance likely to be more macro driven, we
score it 2 out of 5 on this measure.