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Investment Overview for China Mobile (NYSE:CHL)
Mobile Voice Service and Mobile Phones
- China Mobile's Share of mobile market in China : China Mobile's market share stood at 63% in 2015. We expect the number to remain relatively flat through our forecast period, due to limited spectrum availability and increasing competition, particularly from China Telecom. However, if the company is able to raise market share to about 67% by the end of our review period, there could be an upside of about 5% to our current price estimate. There could be a downside of 5% if the company's market share declines to about 60%.
- Mobile Voice Service & Mobile Phones EBITDA Margin: We estimate that this figure will decrease from 49% in 2015 to ~43% by the end of our forecast period in 2022 due to the increasing competition from other service providers and shrinking voice revenues. However, there could be an upside of more than 5% to our price estimate if EBITDA margins remain at current levels. There could also be a downside of more than 10% to our price estimate if EBITDA margins fall lower to 25%. 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.
Mobile Internet Service
- China Mobile's Wireless Data Service Revenue Per Internet User Per Month: We estimate that this figure will increase from $4.8 in 2015 to about $7 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 10% to our price estimate if the figure only increases to $6. There could be an upside of 15% if the number rises to about $8.50.
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 and mobile data services. The company also provides value added services such as caller ID, voice mail to its users. The wireless Internet business and wireline broadband are the high growth areas for the company.
The Mobile Internet Service division constitutes majority of China Mobile’s value mainly because of the following reasons:
High Revenue Per User
The Average data revenue per wireless internet user per stood at close to $5 in 2015, marking an increase from about $4 in 2012. The average ARPU per 4G user is also about 30% higher compared to the carrier's overall mobile ARPU. This 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 close to 840 million users as of July 2016, with over 570 million high speed users, who avail its 3G and 4G services. The proportion of high speed users (also called 3G/4G mix) is increasing fast as the carrier aggressively expands its 4G network.
Increasing smartphone usage
China is now the largest smartphone market in the world by volume. According to Strategy Analytics, about 438 million smartphones were sold in China in 2015. Increasing smartphone adoption will help drive data revenues up since the average revenue per user generated from someone using a smartphone is meaningfully higher than customers on feature phones, who only use text and voice services.
China Mobile's rivals could become stronger
The Chinese government has been focusing on improving the competitiveness of China Mobile's smaller two peers China Unicom and China Telecom. For instance, in late 2013, the government revised interconnection fees making China Mobile pay comparatively higher charges for connecting to rivals networks. In 2015, the government required the three carriers to form a tower sharing JV, pooling together their tower assets, in a move that could allow the smaller carriers to enhance their coverage. The two smaller carriers will also team up to build out their rural 4G network, allowing them to save on network equipment and operation costs. This could result in an increase in customer base, revenues and profitability for the competitors of China Mobile.
Wireless subscriber growth is slowing
While there remains some potential for new subscriber growth in rural markets, the broader Chinese wireless market is slowing down. Wireless subscriber growth in China has slowed from the 15%+ levels seen in 2008 and 2009 to levels of under 2% in 2015. China had a total of about 1.3 billion wireless customers as of December 2015, just slightly below its population of roughly 1.4 billion. This is likely to increase competition among carriers for adding new customers.
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 400 million+ 4G users over the first two and a half years of its campaign. The number should rise further, given that the carrier's 4G penetration stood at under 50% as of May 2016. 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.
Broadband internet services have become a major focus area for Chinese telecom companies as they look to offset declines in their landline phone businesses, while taking advantage of China’s Internet Plus policy, which aims to drive the economy via an all-digital strategy. China Mobile only received its broadband wireline licences in early 2014, and has since expanded its user base to capture over 26% of the market, via a mix acquisitions and competitive pricing.
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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.
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- 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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