China Mobile (NYSE: CHL, Hong Kong stock code 0941) rose 2% to HK$76.65 (equivalent to US price $49.42) in the Hong Kong stock market on January 12, outperformed Hang Seng Index (HSI)’s 0.38% down. The volume increased to 40.84 million shares, versu the average daily volume of 23.53 million shares in the past 3 months. Its US ADR closed at US$48.64 yesterday January 11.

China Mobile has been the worst Hong Kong blue chip since 2009.  It was down 6.4% in 2009 versus HSI’s 52%  rise. However, this trend seems to have changed in January. Since the first trading day of January, its share price has risen  by 5.2% to HK$76.65, from HK$72.85 on December 31, 2009.  This has outperformed Hang Seng Index’s 2% rise during the same period.

Last year, institutional investors and fund managers evaluated China Mobile as underperform. Now, the tone has changed. There are a few pieces of good comments recently:

  • Credit Suisse evaluates China Mobile as outperform, target price at HK$105 (US  price $67.7) . The house expects 8.8% cellular revenue growth in China in 2010. This will benefit China Mobile, as it has 72% subscriber, 81.6% revenue market share, and dominance of higher-end, medium-heavy user groups.
  • China MIIT has announced a settlement fee of Rmb 0.001 per minute for fixed-line-to-mobile traffic, effective 1 June. Daiwa estimated the new rule would generate additional revenue of Rmb 189 million for China Mobile  for 2010 and Rmb 433 million for 2011.  Daiwa also said the new rule would go against the market’s belief that the government’s asymmetric regulations would favour China Mobile’s competitors China Telecom (NYSE: CHA) and China Unicom (NYSE: CHU).
  • In echo to Daiwa, Nomura also comments that TD-SCDMA (home-grown 3G standard) will remain the Chinese government’s prime focus in the telecom sector. Therefore, it believes the government will not launch asymmetrical regulations against China Mobile  in 2010, and derail TD-SCDMA developments indirectly. It sets its target price to HK$91 (US price $58.67) on undemanding-looking valuations.
  • Another institutional investor, Guoco Capital, says China Mobile is trading at attractive valuation, with 10x 2010 P/E and 4.5% yield. 

China Mobile’s underperformance has been due to worries over rising competition after a government-mandated industry restructuring. This is not a new story and has been repeated again and again since early 2009. Negative factors such as intensifying competition, loss in market share and slowing earnings growth should have already been priced. Its share price has limited downside potential.  The change of tones by influential investors is a strong signal that should not be ignored. In addition, the company’s forthcoming China mainland listing and the likelihood that China Mobile may raise its dividend payout ratio on lower capital spending will be the share price catalysts.  It’s now time to revisit China Mobile.