China Mobile provides a full range of wireless telecom and value added services in China. It has 70% market share and about 457 million subsribers, which makes it the largest wireless operator in the world.
Mega-trend
Telecom industry in China is growing, because:
- Population: 1.3B in China vs 0.3B in USA
- Forecast GDP growth in the future 20 years: 8% vs 2.5%;
- Total # of wireless subsribers over popution:50% vs 95%;
- Trend from rural (low income) to urbanization (high income);
- Increase population of middle class, which demand not just basic wireless service but value added service
Industry:
Telecom industry have the following special:
- Require huge initial capital investment;
- Require continue capital spending on technology improvement;
- After the initial set up, service delivery cost will go down over time;
- Trend of decline in ARPU (Average revenue per user) in China;
- Growth is require to have continue improve in efficiency;
- China's ARPU is among the lowest compare to developed countries;
Financial Data Actual 2008:
- Total # of subscribers up 23.8% or 457M (12/08) vs 369M (12/07)
- ARPU down 6.7% or RMB$83 (9M08) vs $89 (9M07)
- EBITDA margin down 2.0% or 52.8% vs 53.9%
- Revenue up16.6% or RMB$301.4B vs $258.4B
- EPS up 37.7% or RMB$4.13 vs $3.00
Financial Forecast 2008, 2009, 2010:
- # of new subscribers: 88M in 08 (actual), 80M in 09 and 74M in 10
- ARPU: RMB$83, $80 and $78
- EBITDA margin: 52.5% for all years
- Reveune growth: +25%, +20.7%, +15.6%
- EPS: RMB$5.89, $7.11, $8.22
Risk:
- Face increase competition in 3G;
- Unsymmetry act against CHL's molopoly position in wireless industry;
- CHL's 3G wireless standard TD-SCDMA is not as mature as China Telecom's CDMA & China Unicom's WCDMA;
- Rise on Capital expenditure on 3G;
- ARPU may further reduce since most of the new subscriber are lower income users from rural market
- Slow down in general economic growth
I've increased my discount rate from 11.5% to 12.5% to reflect the additional uncertainty about the future.
Comments:
BUY, Fair Value HK$147.48 (reduced from HK$168.48 previously @ Oct 08)
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