China Mobile falls out of favour The former market darling is struggling to convince investors it is still worth a punt
hoovnews.hoovers.com
March 6, 2003 9:37pm
There is little doubt that the market's love affair with China Mobile is well and truly over. The once beloved stock has fallen so far that it seems investors no longer need any reason to sell it.
The mainland's dominant mobile carrier has been the main contributor to this week's 1.75 per cent slide in the Hang Seng Index to its lowest point since October last year. In three days of selling, China Mobile shares lost 8.5 per cent in value, shaving HK$28.5 billion off the company's market capitalisation.
As the second largest stock by market capitalisation in the index, each two-cent drop in China Mobile shares would drive the Hang Seng down 1.37 points.
China Mobile yesterday closed 3.4 per cent lower at $15.60.
Now that HSBC Holdings, the index's largest stock, has managed to halt or at least limit its downward spiral, it seems that China Mobile has become the market's favourite whipping horse.
Listing in October 1997 with an initial public offer price of $11.68, China Mobile quickly became one of Hong Kong's favourite growth stocks, enjoying 60 to 70 per cent annual growth rates as millions of mainlanders signed up for its services.
With the technology bubble in full swing in the late 1990s, Mobile's share price soon reflected the hype, and the stock peaked at $79 three years ago this week.
But the high-growth story really began to unravel in June 2000, when rival China Unicom came to market, and competition reared its head.
Since then, China Mobile has been assailed by a litany of competitive and regulatory threats, and so while the company has maintained stable subscriber growth, its average revenue per user (arpu) has been moving steadily in the opposite direction.
But the competition has not only been coming from smaller rival Unicom. The company is also feeling the heat from fixed-line carriers China Telecommunications Corp and China Netcom Corp with their aggressively rolled-out xiaolingtong semi-mobile service.
The market has long expected both fixed-line carriers to eventually be awarded full wireless licences.
Even before these licences have been granted, it appears that both carriers have been given a free hand in building a citywide wireless service - the xiaolingtong or "Little Smart" - in major cities nationwide to poach low-end users from the cellular carriers.
Despite repeatedly emphasising that xiaolingtong has had only a limited impact on the firm because of its lower-end user strategy, the continuing decline of China Mobile's arpu seems to confirm the market's fears. While the Ministry of Information Industry - the regulatory body governing the telecommunications sector - has remained mute on the issue, market watchers with an eye on the stock have not.
"China Mobile is no longer the ``must have' China stock it used to be," Deutsche Bank analysts Fung Ee Lim and Tucker Grinnan said in a report released yesterday.
Deutsche Bank said the stock had "never been more attractively valued", having fallen 13 per cent since the beginning of this year, but pointed out that investors were still concerned about the same issues that had been plaguing the company for the past 2.5 years.
According to UOB Kay Hian Hong Kong director Steven Leung Wai-yuen, fund managers were now maintaining the minimum required holding in China Mobile or even underweighting it.
"Fund managers are no longer interested in the China telecoms sector. Even if you update them with the subscriber growth numbers, they are not interested. The strong growth story is no longer convincing," Mr Leung said.
DBS Vickers analyst Wallace Cheung said China Mobile could fall as far as $15 a share.
He saw the carrier as a utility stock that yielded single-digit revenue growth.
Publication: South China Morning Post
Distributed by Financial Times Information Limited - Asia Africa Intelligence Wire
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