Investors betting on the restructuring of the country's telecommunications industry beware: The timing will make a difference on the performance of the four industry players. As serious speculation has it, the reforms will change the industry landscape as follows: China Mobile, the nation's largest mobile operator, would tap into the fixed-line segment, while China Unicom, the No2 in the mobile field, would see its smaller Code Division Multiple Access mobile network transferred to fixed-line giant China Telecom and its GSM mobile business merged with smaller fixed-line player China Netcom Group Corp. Barring further news on the restructuring, market watchers say the prices of mainland telecommunications stocks simply will track the companies' operation performance. But any such news is likely to boost the share price of the smaller players, which stand to benefit the most from the restructuring. Speaking purely on the basis of operating performance, Marvin Lo of Daiwa Institute of Research said: 'China Mobile is no doubt the out-performer in the near term,' as its share price performance is 'backed up by strong growth in its net profit and its expanding subscriber base'. On the other hand, the three other telecommunications operators all face the problem of a lack of growth engine. 'Even though fixed-line operators have achieved strong double-digit growth in broadband business, the base is too small compared with traditional voice business,' Mr Lo said. China Unicom, which operates on two networks at the same time, faces 'an extra strong China Mobile as a competitor', he said. Similarly, Lehman Brothers recently expressed the opinion that China Mobile's share price would remain strong in the mid- to long-term because of solid fundamentals and high year-on-year earnings growth. However, when they take into account restructuring, they have a different view. On the kickoff of reforms, China Unicom will be a strong candidate as the top pick. 'China Unicom probably would outperform other operators involved in the restructuring as it would enjoy the advantages of both receiving and selling assets,' Mr Lo said. 'As a seller of CDMA assets, China Unicom is in the best position to bargain for the highest price, which could benefit shareholders.' Indeed, noting that China Unicom has the most bargaining power, Credit Suisse named it the top pick of the sector. 'China Unicom seems to have the upper hand in the restructuring scenario as it is likely to obtain a premium for the sale of its CDMA business, and it should be able to argue for a higher merger ratio than Netcom as it doesn't need a fixed-line business,' Credit Suisse analysts Jeffery Tan and Terry Chan wrote in a recent research note. STOCK SELECTION So far this year, except for China Telecom, shares in the mainland telecoms stocks have outperformed the benchmark Hang Seng Index. During the period, the HSI has fallen 9.55 per cent. By comparison, China Mobile dipped just 2.18 per cent, above the HK$130 level, after testing a low of HK$100 in March. China Unicom dropped 8.38 per cent this year. China Netcom fell 1.49 per cent. But the fixed-line giant China Telecom lost 15.32 per cent. Credit Suisse recommended that investors 'sell into strength' with fixed-line operators China Telecom and China Netcom, and switch to China Mobile. However, China Unicom is the investment bank's top pick with a target price at HK$24. Going by the post-merger valuation of China Netcom and China Unicom by Credit Suisse, the resultant entity could be worth 388 billion yuan, after including China Netcom's fixed-line discounted cash flow valuation of 125 billion yuan and Unicom's assessed 262 billion yuan. Under the merger ratio of 65 per cent for China Unicom and 35 per cent for China Netcom, Credit Suisse set the price target for China Unicom at HK$24 per share and for China Netcom at HK$26 per share, representing respective premiums of 46 per cent and 12 per cent to the stocks' close on Friday. For the first quarter, China Telecom logged only a 1.6 per cent rise in revenue and 0.5 per cent increase in net profit. Goldman Sachs said such growth was below their full-year projection, but it was still hopeful that the fixed-line giant's recent acquisition of Beijing Telecom would 'bring in slightly stronger financial results in the second half'. Disregarding the restructuring impact, China Mobile beats other major telecommunications operators to top analysts' 'stock-pick' list. With a market share of more than 70 per cent in the mobile segment, its strong brand name is an automatic draw to new customers in both rural and urban areas. This was proven in the first quarter, when the company added 22.8 million subscribers whereas China Unicom added only 4.5 million. 'We reiterate our long-term core holding view on China Mobile, as its increasing scalability could deliver high quality and sustainable growth in our view. Our price target of HK$178 for China Mobile is based on a discount cash flow analysis,' said UBS analyst Wang Jinjin. Meanwhile, once the government confirms the reforms, China Unicom will be in the best position to be play catch-up. UBS rated Unicom a 'buy' with a price target of HK$20 because of its short-term upside from the restructuring outlook.