Unicom Gets on the Horn China Mobile, including the listed portion and unlisted networks it serves, still holds a dominant 82% of China's mobile market, compared with 18% held by China Unicom, its only real competitor.
Monday September 4, 8:32 am Eastern Time
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China Mobile Ready to Roll
By Alysha Webb, Correspondent
China's largest mobile-phone operator could surge on network purchase news and good interim results.
China Mobile (Hong Kong) (NYSE:CHL - news) has always been an analysts' darling because of its dominant position in the fast-growing China mobile market.
But the recent announcement that China Mobile's mainland-based parent China Mobile Communication will sell seven more mobile networks to the Hong Kong- and New York-listed company makes the stock look even more tempting, analysts say.
The caveat is that the company has provided no information on the revenue, or the cost, of those networks, analysts say.
``If you believe that [China Mobile] is going to get [the networks] at a good price, now is a good time to buy. The problem has been [that] people are in the dark about the value of these new assets,'' says Hong Kong-based Charles Peza, head of Asian telecommunications research at Lehman Bros. Peza sees China Mobile stock hitting HK$80 in 12 months. China Mobile closed at HK$60 on Friday.
Billions and Billions Served
Analysts may not know the value of the assets, but they do know that the seven license areas had a subscriber base of 10.4 million people at the end of 1999. That base has likely grown to 17 million by now, given that China is the world's fastest-growing mobile market, analysts say. The areas include Shanghai, with more than 13 million residents, as well the thriving coastal city of Tianjin and the capital Beijing.
Security industry estimates put the purchase price of the seven networks at a minimum of US$25 billion, since each of the customers is valued between US$2,500 and US$3,500, reported China's Securities Times.
To help finance the purchase, China Mobile is expected to raise between US$7.5 billion and US$8.5 billion through new stock issuance, the newspaper said. The additional stock will equal 6.7% of current capital. Another US$800 million to US$1 billion will be raised through convertible bonds, and the company will take out yuan loans equal to US$1.5 billion, the daily reported. Guesses on when the networks will be acquired range from within three months to early next year.
China Mobile currently encompasses mobile-phone operations in six mainland provinces -- Guangdong, Fujian, Hainan, Henan, Zhejiang and Jiangsu. It covers around 1700 cities in China. The listed portion of China Mobile had 21.63 million subscribers at the end of June, up 76.9% compared to the end of 1999, the company's management said at a recent press conference.
Unicom Gets on the Horn
China Mobile, including the listed portion and unlisted networks it serves, still holds a dominant 82% of China's mobile market, compared with 18% held by China Unicom, its only real competitor.
Unicom is chipping away at the giant, however. At the end of 1999, China Mobile held 90% of the mainland market, while Unicom held 9.84%, according to BDA China Ltd, a Beijing-based telecommunications consulting company.
China Mobile CEO Wang Xiaochu brushed off that loss of market share at a recent press conference in Hong Kong, saying China is big enough to accommodate more than one telecom. The numbers bear that up. China Mobile's interim net profit was 8.72 billion yuan (US $1.05 billion), more than double the same time in 1999.
More competition will likely be good for China Mobile's business because it will grow the market, say analysts.
``In every market, competition stimulates growth and demand,'' says Hani Abuali, the Hong Kong-based head of telecom and Internet research at Donaldson, Lufkin & Jenrette. DLJ has a target price of HK$90 for China Mobile. ``We've always been very aggressive on the stock -- we think it's a great company,'' he adds.
Bells Are Ringing
China's mobile market hardly needs to have its growth stimulated. The number of mobile phone users in China surged 81% to 51.7 million in the first quarter of this year from a year ago, according to a Gartner Group study. It recently surpassed Japan as the country with the world's largest subscriber base. China's subscribers should hit 63 million by the end of 2000, according International Data Corp. By 2004, China could have 150 million mobile subscribers, by some estimates.
China Mobile isn't sitting on its hands and waiting for that growth. CEO Wang announced that the company has budgeted US$10.4 billion in capital expenditure through the year 2002, half that to upgrade networks and capacity, The South China Morning Post reported.
The telecom sector in general has suffered from months of volatility, mostly due to downgrades of some European telecom companies like Deutsche Telecom (NYSE:DT - news) and Vodafone (NYSE:VOD - news) after they spent billions to acquire third-generation (3G) mobile licenses in European countries.
``There's a general paranoia in cellular land because of what's going on in Europe,'' says an analyst at a US investment bank in Hong Kong who asked not to be named.
Though China Mobile has also seen fairly wide fluctuations in its stock price -- for example, the stock fell to HK$48.80 on May 22 from HK $62.00 on May 2 -- telecom licenses are awarded on a beauty-contest basis rather than through bidding, analysts point out. That means the government simply hands out the licenses based on its own criteria.
Analysts don't expect the price for the new networks to be punitive. Neither do investors -- the current share price ``has certain people's expectations (of further network purchases) built into it,'' says the analyst at the US investment bank.
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