Company Analysis
China Mobile (941HK/Buy) 5G driving ARPU turnaround
> 5G driving ARPU turnaround

Recommendation

Maintain Buy and TP of HK$63

• China Mobile’s earnings have turned around, driven by ARPU gains and the strong performance of new businesses.

• We expect earnings growth to continue through 2023, supporting a valuation recovery.


Investments points

ARPU beginning to turn around on 5G subscriber growth

• As of end-September, China Mobile had 330mn 5G subscribers, representing 34.6% of its mobile subscribers (vs. 17.5% at end-2020).

• As more 5G-enabled smartphones become available, the share of pure 5G plans is also increasing.

• The average ARPU from a 5G subscriber is CNY88.9―70% higher than the overall average.

• In 1H21, mobile ARPU rose 3.8% YoY, signaling the start of the company’s first ARPU up-cycle in five years.

New businesses such as cloud, mobile edge computing (MEC), and smart home seeing full-fledged growth

• In 1H21, revenue from the data, information, and communications technology (DICT; cloud, MEC, etc.) and smart home businesses expanded 59.8% and 35.6% YoY, respectively.

• As a result, the revenue mix of new businesses has risen to 35% (vs. 27% in 2019).

• We look for new business growth to accelerate as 5G subscribers and related content increase.

Dividend hike confirms strong financial position, despite capex burden

• The company paid an interim dividend of HK$1.63 (+6.5% YoY) for 2021.

• We forecast overall capex to grow 7% in 2021 and 5% in 2022 due to increased 5G spending.

• We see dividend hikes continuing on the back of strong operating cash flow and abundant cash reserves (2021F dividend yield of 6.8%).


Risks

• 1) Sharp increase in 5G capex and operating/marketing costs; 2) government regulations on mobile plans



 
FY ( Dec.) 2018 2019 2020 2021F 2022F 2023F
Revenue (CNYmn) 736,819 745,917 768,070 798,557 825,513 843,067
OP (CNYmn) 122,645 116,060 112,734 127,459 142,015 154,839
OP margin (%) 16.6 15.6 14.7 16.0 17.2 18.4
NP (CNYmn) 117,781 106,641 107,843 121,039 132,102 141,848
EPS (CNY) 5.75 5.21 5.27 5.91 6.45 6.93
ROE (%) 11.6 9.9 9.6 10.3 10.6 10.8
P/E (x) 11.5 11.0 8.2 7.4 6.8 6.3
P/B (x) 1.3 1.1 0.8 0.7 0.7 0.7
Note: Under GAAP Source: Company data, Mirae Asset Securities Research estimates



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Author
One Asia Research Team
Date
2021-11-01
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