China Mobile rides cash wave

PUBLISHED : Thursday, 11 August, 2005, 12:00am
UPDATED : Thursday, 11 August, 2005, 12:00am

Boost in dividends after 27pc surge in first-half earnings triggers share rally, but analysts remain cautious

China Mobile (Hong Kong) charmed the stock market yesterday with forecast-beating interim results and a promise to pay out 39 per cent of full-year earnings to shareholders.

Investors pumped China Mobile shares up 7.32 per cent to $34.45 - a three-year high - accounting for almost 50 per cent of the Hang Seng Index's 298.57-point increase.

However, analysts cautioned that although its corporate performance was solid and the dividend generous, those factors could not justify the surge in its share price.

'As China Mobile's net profit was only 3 per cent to 4 per cent above [consensus estimates], the stock's surge yesterday was unwarranted,' an analyst said.

'There is a huge amount of liquidity coming into Asia right now. Any companies that do not show disappointing results can get a substantial boost,' she said, noting that she rated China Mobile shares a 'sell' at current prices.

Higher data and voice use by China Mobile's 223.78 million customers fuelled profit growth of 27.7 per cent to 24.04 billion yuan for the first half to June. Revenues leaped 32.5 per cent to 114.54 billion yuan.

Analysts had projected net profit of 23.03 billion yuan, from 18.83 billion yuan a year ago.

The company, the world's largest mobile services provider, more than doubled its interim dividend to 45 cents, from 20 cents a year ago, while promising a minimum full-year payout of 39 per cent of net earnings - a dividend yield of 3 per cent, according to an estimate by CLSA.

China Mobile acquired 10 provincial networks from its unlisted parent firm in July last year, extending its coverage to all 31 provinces and autonomous regions. Had contributions from the 10 networks been included in last year's interim results, first-half profit this year would have risen just 19.8 per cent.

Voice-call revenues at the company rose 7.4 per cent to 92 billion yuan, as its customers chatted for 38 per cent longer.

As more users paid for premium services such as ring tones and multimedia content, average revenue per user (arpu) rose to 90 yuan from 89 yuan in the first quarter.

Mobile data services revenue jumped 82.2 per cent to 22.56 billion yuan, constituting 19.7 per cent of total revenue, up from 12.6 per cent a year ago.

However, chairman and chief executive Wang Jianzhou warned that arpu could fall in future. 'Mobile penetration in China stands at 27 per cent, so any new customers we add going forward would likely be those using fewer voice minutes - a factor that could mean arpu may drop further.'

The company's earnings before interest, taxes, depreciation and amortisation (ebitda) margin was 54.7 per cent, down from 57 per cent a year ago.

'As we are not using price cuts to lure new subscribers, we believe ebitda margins can be sustained [into the second half],' chief financial officer Xue Taohai said.

Analysts cautioned that the mobile operator had raised its budgeted US$7.8 billion capital expenditure by up to 15 per cent, or US$1.17 billion, to US$8.97 billion. Higher capital expenditure results in higher depreciation charges for mobile operators. Mr Wang said the rise was necessary due to heavier demands on the firm's network.

China Mobile's budgeted capital expenditure still does not take into account a move to 3G. Mr Wang said the government had given no indication of when 3G licences would be awarded.

The firm said more rational competition in the first half would persist until the end of the year.