What’s Driving Our $56 Price Estimate For China Mobile?

China Mobile (NYSE:CHL), the world’s largest mobile phone operator, fared relatively well over the last year, recording revenue and EPS growth, driven by soaring wireless data traffic. For the full year 2017, the company’s total revenues in RMB terms grew by 4.5%, while service revenues expanded by 7.2%. However, the performance of the stock has been slightly more mixed due to regulatory uncertainties and a reasonably strong customer growth at smaller rivals China Unicom and China Telecom. In this note, we take a look at some of the factors driving our $56 price estimate for the company and its expected performance over 2018. We have also created an interactive dashboard analysis, which allows users to modify key drivers and arrive at their own estimate for China Mobile’s stock.

Wireless voice business will continue to see declines, on government tariff regulations and substitution by over-the-top services. We expect overall mobile user base will continue to expand, rising to about 900 million in 2018, with margins continuing to trend lower, as revenues shrink faster than costs.

Expansion of the 4G base will drive the number of wireless Internet users, although growth could slow amid collaboration by the smaller two rivals on high-speed services. Data ARPU could also trend higher as data usage increases, although this could be partially government’s mode to control data tariffs. Over 2017, handset data traffic (4G and 3G) grew by close to 100% year-over-year to 1.4 GB.

We are valuing China Mobile at about $56 per share, which translates to 13x its projected 2018 earnings. Our price estimate is about 15% ahead of the current market price.

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