China Mobile New Coverage: $58 Trefis Price Estimate
China Mobile (NYSE:CHL) is the leading mobile telecom service provider in mainland China and the largest mobile service provider in the world. It has a customer base greater than the population of many countries. The company provides both mobile voice services and value added services such as music, voice mail, SMS text messages and mobile Internet as well as applications for music, gaming and TV. It seeks to increase its penetration in the individual customer market by enhancing its mobile Internet services and by promoting the mobile handset as a multi-functional device given the low penetration of smartphones in China. In contrast to major U.S. telecom operators like AT&T (NYSE:T) or Verizon (NYSE:VZ), China Mobile does not offer landline phone service.
As part of our expanding international coverage, we launch coverage of China Mobile with a $58 Trefis price estimate. This implies around 20% upside from the current market price.
- Is The Market Undervaluing Chinese Telcos: A Comparison With Verizon & AT&T?
- What Is Driving Our $49 Price Estimate For China Mobile?
- How Are Regulatory Changes Likely To Affect China Mobile’s Revenues In 2020?
- How Does China Mobile’s Wireless Business Compare With Its Peers?
- How Does China Mobile’s Wireline Broadband Business Compare With Its Peers?
- Key Trends To Watch As China Mobile Reports Its Q4 And FY’18 Results
China Mobile at a Glance
The telecom industry in China is largely regulated by the central government, and the company is facing increasing competition from the next two largest companies China Unicom and China Telecom.
In 2008, the industry saw a massive restructuring – not only did the government combine landline and mobile service provider companies but it also extended favorable policies to the competitors with the view to make them more viable. Moreover, tariffs were regulated and mobile number portability was also allowed.
The three main sources of value for China Mobile are:
1. Mobile Voice Service and Mobile Phones (39% of value)
2. Mobile Internet Service (19% of value)
3. Mobile Music and MMS (10% of value)
Mobile voice service and mobile phones account for the bulk of the value given the company’s enormous customer base and the pace of growth in the Chinese mobile market in the last several years.
China Mobile reports that it has almost 70% market share of 843 million users in the China market in 2010. We estimate that the average revenue per voice user will be around $6.60 per month for 2011, implying $53 billion revenue from mobile voice services under the assumption that the number of mobile subscribers in China will increase to 978 million.
Key Growth Drivers
Mobile Internet services are expected to be the highest growth division for the company. Continuous development of new applications and an increasing number of mobile Internet users are driving the growth in this business.
In spite of the fact that China Mobile is the largest telecom service provider in the world, it still has high growth potential owing to the increasing number of people using mobile phones. The number of mobile phone users in China is expected to cross the 1 billion mark by early 2012. This is primarily because the rural market still remains largely untapped and has been recognized by the company as a big potential for expanding customer base and increasing revenues.
Moreover, smartphone penetration in China stands at only 15%. The increasing popularity of smartphones due to ease of use and convenience makes better growth prospects for the industry as a whole. Recognizing this, the company is in talks with smartphone companies like Apple to launch the iPhone on its mobile service.