Overview:
China Mobile (CHL) is the largest wirless service provider in China. In April 2006, "China Mobile" ranked number 4 in the "BRANDZTM Top 100 Most Powerful Brands" announced in The Financial Times by Millward Brown, a global market research firm and, in August 2006, it ranked number 1 in the "20 Best Chinese Brands" jointly announced by Interbrand and BusinessWeek.China Mobile have 60% market share in their business in China and they are growing at a rapid pace.
CHL is a large cap company trading in Hong Kong and New York. The market cap of China Mobile is 271 billion US dollar as of Mar 2008. (This size of Miscrosoft is about 271 billion US)
In 2007 China Mobile (CHL) bring in 68 million customers (that's almost twice the size of the population in Canada).
At the end of 2007 China Mobile has 384 million subscribers.
Profitability:
While China Mobile is doing a great job bring in customers to their business, it's not a good business if they can't make a profit with them. And here is the profits they make in the last 7 years:
2000 EPS 1.25 RMB
2001 EPS 1.51 RMB (21% growth)
2002 EPS 1.71 RMB (17% growth)
2003 EPS 1.81 RMB (6.5% growth)
2004 EPS 2.14 RMB (18.2% growth)
2005 EPS 2.71 RMB (27.8% growth)
2006 EPS 3.32 RMB (22.5% growth)
2007 EPS 4.35 RMB (31% growth)
It is reasonable to expect China mobile to grow its earnings at 15% to 20% pace in the next 3-5 years. The population of China is 1300 million right now and if every one of those people owns a mobile phone in 3 to 5 years atime and China mobile have a 50% share of the markets, China mobile will have 650 million subscribers in 3-5 years. China mobile can easily achieved this goal by growing their subscriber at 20% pace in the next 3-5 years.
Management:
The management of China Mobile have a commitment to the interest of shareholders and they are doing sensible things with their fortunes. Apart from the necessary investments in growing their business in China, they are committed to use their cash to pay off debts and return excess cash to shareholders as dividends.
2007 2006 2005 2004 2003
EPS 4.35 3.32 2.71 2.14 1.81
Dividend 1.95 1.55 1.02 0.66 0.36
Payout ratio 45% 46.69% 37.64% 30.84%19.89%
Credit Rating of China Mobile By S&P
2002 BBB
2003 BBB
2004 BBB
2005 BBB+
2006 A-
2007 A (10% long term debt to equity ratio)
Investment thesis:
1. Strong brand & market share in China:
Mobile services business in China is a oilygopoly and any foreign firms are shut out of that market. China mobile has 60% market share right now. If China Mobile decides to expand globally one day, they will be a tough competitor as they will likely be one of the most valuable companies in the world.
2. Strong management teams:
Their management is good at their own business and managing shareholder's value.
3. Strong balance sheet:
China Mobile has a strong balance sheet and is ready to make an investment in the up and coming 3G mobile network in China.
4. Macro economic trends:
The economy in China is like to grow at 8%-10% range in the next decade, with a growing middle class that is willing to spend money on luxury items such as cars & mobile phones. Investing in China Mobile is a good way to benefits from this macro-economic trend.
5. Valuation of China Mobile Stock:
Stock of China Mobile trade in a 52 week range of $42 USD to $102 USD. The stock closed in NYSE @$70 on Mar20, 2008. Assuming a growth of 20% next year the valuation will be as follows:
Stock Price (USD) P/E PEG Ratio
$43.00 14.78 0.75
$70.00 24.00 1.20
$102.00 35.05 1.75
PEG ratio is a good measuring stick for growth stocks. Any growth stock with a PEG ratio below 1 is a good buy according to investment Guru Peter Lynch. At its current price at $70 the PEG ration of China Mobile is 1.20. Any price below $60 will be a good entry point for China Mobile.
$74.13 (03/27/08)
Agree
Disagree
