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Investment Overview for China Mobile (NYSE:CHL)
Mobile Voice Service and Mobile Phones
- Mobile Voice Service & Mobile Phones EBITDA Margin: We estimate that this figure will decrease from 37.3% in 2014 to ~28% by the end of our forecast period in 2021 due to the increasing competition from other service providers. However, there could be an upside of more than 40% to our price estimate if EBITDA margins remain at current levels. There could also be a downside of more than 30% to our price estimate if EBITDA margins fall lower to 20%. This depends largely on the company's ability to retain existing customers and also to increase its customer base in the fiercely competitive Chinese wireless market.
- China Mobile's Share of mobile market in China : China Mobile's market share stood at 62.5% in 2014. We expect the number to remain relatively flat through our forecast period, due to limited spectrum availability and increasing competition. However, if the company is able to raise market share to about 65% by the end of our review period, there could be an upside of about 5% to our current market price. There could be a downside of 10% if the company's market share declines to about 60%.
Mobile Internet Service
- China Mobile's Internet Service Revenue Per Value Added User Per Month: We estimate that this figure will increase from $3 in 2014 to $6 by the end of our forecast period, due to increasing popularity of smartphones and greater number of mobile data applications being developed. However, there could be a downside of 15% to our price estimate if the figure increases only to $5. An upside of similar nature will be seen if the metric increases to $8. This depends on the company's ability to outstrip competition from other mobile service providers, technologies, and also other similar service offering industries.
China Mobile is the largest mobile telecommunications service provider in the world.
China Mobile makes money primarily through its mobile voice facilities provided to both consumers and corporations. The company also provides value added services like caller ID, voice mail and data services to its users. The wireless Internet business and other data business are the high growth areas for the company.
The company does not currently offer landline phone services, which makes it different from not only its Chinese counterparts like China Unicom and China Telecom, but also from U.S. telecommunication companies like AT&T and Verizon. However, it was recently granted a license to offer fixed-line broadband services to users in China, which could add to the company's growth in the long term.
The Mobile Internet Service division constitutes majority of China Mobile’s value mainly because of the following reasons:
High Revenue Per User
The Average Revenue Per Value Added User Per Month increased from $0.5 in 2009 to $2.06 in 2013. This increase is reflective of the growing importance of data/Internet in mobile phone usage in China, and the value it holds for future revenue growth.
Large Customer Base
China Mobile had a customer base of 780 million users by the end of 2013 with about 228 million high speed users (3G and 4G. The proportion of high speed users (also called 3G/4G mix) is increasing fast as the carrier aggressively expands its 4G network.
Increasing smartphone sales
China is the largest smartphone market in the world by volume, having crossed U.S. in the third quarter of 2011. Increasing smartphone adoption will help drive data revenues up since the average revenue per user generated from someone using a smartphone is far higher than any other phone. A huge subscribe base of more than 780 million puts China Mobile in a better position to tap the growing smartphone demand than its rivals in the wireless market. iPhone's arrival on China Mobile's network has given the carrier some much needed boost for expansion in the 3G and 4G market.
Increasing Competition in Telecommunications Industry in China
Since the PRC Government encourages orderly and fair competition in the telecommunications industry in Mainland China, they have extended certain favorable policies to the company’s competitors in order to make competition more viable. In line with this, the Government has taken restructuring initiatives to optimize the allocation of telecommunications in China and further asymmetrical measures might be seen. This has resulted in an increase in customer base, revenues and profitability for the competitors of China Mobile, marginally taking down the market share of the company with it. Some of these initiatives are- revision of interconnection fees and replacement of Business Tax for VAT in telecom services.
High Customer Growth Potential
There is high customer growth potential in the Chinese telecommunications industry in all regions. Rural market largely remains untapped and has been recognized as a big potential for expanding customer base and increasing revenues. The Government’s initiatives for reform and development in rural areas further enhance company prospects.
Increasing Value Added Business
Value Added Business Revenues as a proportion of revenues has been steadily increasing and is expected to continue growing. This is because of increasing popularity of smartphones and greater usage of wireless Internet on mobile phones by users. The company has also taken promotion initiatives in line with these measures. Mobile Internet business is expected to show highest growth patterns.
Increasing 4G adoption
China Mobile launched its 4G services in January 2014, over a year ahead its smaller rivals China Unicom and China Telecom. The early-mover advantage allowed the carrier to add an unprecedented 230 million 4G users over the first 20 months of its campaign. The number should rise further, given that the carrier's 4G penetration still stood at under 28% as of Q2 2015. A higher 4G user mix will allow the carrier to improve its ARPUs, while also helping margins, since 4G-LTE is more efficient at carrying data compared to 3G.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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