Earnings slowdown hits China Mobile
Telecoms giant's profit may fall as it splashes out on 4G network to drive long-term growth
China Mobile, the world's largest phone company by subscribers, saw its net profit edge up just 0.3 per cent to 27.88 billion yuan (HK$34.65 billion) in the first quarter, much slower than its 2.7 per cent net profit growth last year. The Hong Kong-listed firm's revenue grew 5.7 per cent to 134.7 billion yuan in the first quarter.
JP Morgan predicts that the state-owned telecommunications giant's net profit will fall 3.5 per cent for the whole of this year.
"With a much bigger capital expenditure rise in 2013, China Mobile will have to experience a few years of earnings dips," said a JP Morgan report. "The question is whether the company's aggressive 4G investment can translate into … better long-term growth. In this regard, we are more cautious than the market."
China Mobile will boost its capital expenditure by 49 per cent to 190.2 billion yuan this year, spending mainly on building its fourth-generation (4G) TD-LTE network.
In the first quarter, China Mobile faced difficulties from "unprecedentedly intense competition" and more substitution of traditional communication businesses by new technologies and businesses, said its chairman, Xi Guohua. The firm's net profit margin "was maintained at a relatively high level of 20.7 per cent" in the first quarter, said Xi.
However, JP Morgan, quoting China Mobile's management, said margins would be on a declining trend, and net profit margin will have to converge to 10 to 15 per cent at global operators in the long run. "We expect earnings to dip due to margin pressure, high capital expenditure and a dilutive 4G profit."
China Mobile's total customer base grew by 16.01 million to 726.31 million in the first quarter from the fourth quarter last year, and its 3G customer base rose by 26.44 million to 114.37 million.
But its average revenue per user per month fell to 63 yuan in the first quarter from 71 yuan in the fourth quarter last year.
