With 584 million customers in 2010 and net additions of 43.6 million more by August 2011, we feel comfortable with our $58 price estimate for China Mobile (NYSE:CHL), the largest telecom service provider in the world. Though the company is declining from its current level of 69% market share given the pace of growth in the Chinese market, it still has many advantages over its peers mainly in the form of brand name and large number of subscribers. An increase in the popularity of smartphones and higher usage of mobile value added services by customers are further fueling growth for the company.
See our complete analysis of China Mobile
The company has a large cash balance of around $50 billion, which is a nice cushion for all possible future capex needs and potential opportunities. In our previous note titled China Mobile Heads to $58 Delivering Mobile Phones to Rural China, we discussed some of the factors that could support the company’s growth. The subscriber base has been steadily increasing because of greater rural market penetration and increased development of number of applications by the company.
Higher margins than the competition
The company faces stiff competition from China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) in the highly regulated Chinese telecom industry. Unlike its competitors, the company neither provides landline services nor does it sell handsets at subsidized prices. EBITDA margins for the company therefore were much higher at 50.7% in 2010 while it was only 34.7% and 34.3% for China Unicom and China Telecom respectively.
Our price estimate for China Mobile stays at $58.50, implying significant upside to the current market price.
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