China Mobile- OSK target HK$157 by 2008E

Impressive 1H07 result. China Mobile earlier announced a better-than-expected 25.7% yoy
increase in 1H07 net profit to RMB37,965 million, driven by strong top-line growth and qoq
EBITDA margin improvement. Subscribers gained 21.4% yoy to 332 million, raising China
Mobile’s market share to 68%, up 1% bps yoy. China Mobile managed to broaden its revenue
source by boosting the value added service revenue by 35.5%, thereby raising the share to
total revenue from 22.6% to 25.2%. Q207 EBITDA margin recovered to 55.1%, compared
with 52.4% and 46.4% in 1Q07 and 4Q06 respectively, attributable to economies.

Strong top-line growth to accelerate. China Mobile gained 5.596 million new subscribers in
July, up slightly from June’s figures and was 7.8% above the average of 1H07. We think this
momentum can sustain. Management also guided 2Q07EBITDA margin improvement can
sustain towards 2H07.of scale.

3G restructuring still not imminent. The timing of 3G related telecom restructuring has
been a concern to investor. However, we argue a swift industry reshuffle is not likely. Firstly,
3G licenses will not be issued until the national TD-SCDMA standard has been proven viable.
China Mobile’s parent Company is expected to complete the TD-SCDMA trial in eight cities
by Oct 07. Secondly, China Mobile has been reducing tariff through mechanisms like CPP.
There is less motivation for government to foster competition through industry restructuring.

No timetable for A-share listing. Management did not provide timetable for A-share listing,
but revealed at least part of the A-share IPO will come through sales of old shares. We argue
this is a reassuring message as secondary share sales should minimize share dilution effect.

2008 target price at HK$157. China Mobile has experienced re-rating since its trough in
2003 amid improving market share and profitability. Nevertheless, on technical ground, we
believe extension of QDII, direct liquidity train and A-share listing can push its forward FY08E
PER to 30X, driving our 2008E target price to HK157.

STEEL.

Steel production continued to rise yoy in 1H07, rising23.93% to 270m tonnes.
Trade surplus widened. In 1H07, steel import dropped 7.62% while export
rocketed to 34m tonnes, up 97.7% yoy. Better net profit for whole sector yoy.
Due to firmer steel prices, sales increased 34.68% yoy and net profit
rose 108% yoy to Rmb80b in 1H07 for the whole sector. Most steel makers
posted 50%+ yoy net profit growth on their 1H07 results. .
Outlook. We see steel prices stablising for the rest of 2007 (Bao Steel cut 4Q07
steel prices by 5-8%) as capacity is curbed while export sales remain strong.
However, the slowing domestic demand, trade dispute and higher raw material
prices are risks faced by the sector.

Bernanke Dilemma /@/.,,*&%$#@????????

Although it seems likely that Bernanke is making an effort to avoid a cut in the fed funds rate at or before the September meeting, the market may force his hand. First, continuing financial turmoil may make holding the line untenable. Second, a large number of stock market economists and strategists are screaming for a rate cut and the market is long way toward pricing it in. If so, the FOMC may have to cut if only to avoid a severe market collapse following the meeting. The problem is that if a rate cut is already priced in prior to the meeting, the result may still be greeted with disappointment.



In our view, no matter what the Fed does, a major growth slowdown or recession is already baked in the cake as a result of the severe housing decline. Even with today’s 2nd quarter GDP revision, annualized GDP growth has averaged only 2.0% over the last five quarters, and this was before the credit crisis snowballed. In addition 2nd quarter consumer spending was up only 1.3% annualized while employment growth has been tepid. We are therefore faced with a softening economy that can only deteriorate further in the second half. We believe that the stock market rally since the bottom is purely technical and that much more decline is ahead!