Deutsche Bank-China Mobile Alert（0941.HK）2Q14 preview

Deutsche Bank
Markets Research

Rating
Hold
Asia
China
Telecommunications
Wireless

Company
China Mobile Alert

Date
18 July 2014

Company Update

2Q14 preview

Reuters Bloomberg Exchange Ticker
0941.HK 941 HK HKG 0941
ADR Ticker ISIN
CHL US16941M1099


________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
The views expressed above accurately reflect the personal views of the authors about the subject companies and
its(their) securities. The authors have not and will not receive any compensation for providing a specific
recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research
reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their investment
decision. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT
http://wendang.chazidian.com/ger/disclosure/Disclosure.eqsr?ricCode=0941.HK MCI (P) 148/04/2014.

Price at 18 Jul 2014 (HKD) 81.60
Price target - 12mth (HKD) 70.30
52-week range (HKD) 88.30 - 64.50
HANG SENG INDEX 23,521


Alan Hellawell III
Research Analyst
(+852) 2203 6240
alan.hellawell@http://wendang.chazidian.com


Key changes
Price target 61.30 to 70.30 ↑ 14.7%
Sales (FYE) 659,534 to
659,594
↑ 0.0%
Op prof
margin (FYE)
- ↓ -0.3%
Net profit
(FYE)
103,698.1 to
104,120.6
↑ 0.4%
Source: Deutsche Bank

Stock data
Market cap (HKDm) 1,637,339
Market cap (USDm) 211,242
Shares outstanding (m) 20,100.0
Major shareholders Government
(75.7%)
Free float (%) 26
Avg daily value traded
(USDm)
164.4
Source: Deutsche Bank

Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 630,177 659,594 712,737
Net Profit
(CNYm)
121,692.0 104,120.6 103,623.2
DB EPS (CNY) 6.05 5.18 5.16
PER (x) 10.9 12.6 12.7
Yield (net) (%) 4.0 3.4 3.4
Source: Deutsche Bank


2Q preview
China Mobile is to announce its 2Q14 results in mid August. We have modeled
2Q operating revenue and net profit of RMB166b (+4% YoY) and RMB29.8b (-
15% YoY), respectively. We envision a 2Q EPS of RMB1.48. We expect the
growing availability of low-end 4G handsets in 2H14 to lead to more room for
4G user growth. We lift TP to HK$70.3. We however believe pricing and VAT
pressures remain. Maintain Hold.
Expecting low-end handset to boost 4G user #'s
CM is actively cooperating with handset manufacturers on low-end 4G smart
phones, and is itself also likely to deliver 1-2 self-branded 4G handset models
in 2H14. By sales volume, we expect CM to deliver over 100m 4G handsets
and around 200m total handsets by the end of 2014. We expect ample low-
end smart phone availability and the upcoming campus campaigns in Aug-Sep
to stimulate 4G user growth. We believe CM is aiming to add 50m 4G users by
the end of 2014.
Seeing moderate impact from peer’s 4G launch
We expect the impact from CT and CU’s recent launch of hybrid 4G network
services to be minimal since only 16 cities are permitted in the first phase. We
expect the MIIT will only allow the wider adoption of TD-LTE/FDD-LTE hybrid
services once CM’s TD-LTE is well deployed, which will likely benefit CM in the
short term.
Positive on tower sharing
We again are positive on potential tower sharing, likely a mix of capex and
maintenance costs saving, and rental fees. It is however hard to quantify the
net impact on the telcos’ earnings due to the lack of details.
Lifting TP to HK$70.3; Maintain Hold
We raise rev and net profit forecasts for 14/15/16E by 0%/2%/2% and
0%/8%/8% respectively to reflect a better 4G user growth potential. Our TP is
based on a DCF model. We utilize an updated WACC of 8.9% (rf of 3.9%, rp of
5.6%, CoD of 4.5%, D/E is 10/90) from 9.2% to reflect current market
conditions. We assume 0% terminal growth. Key risks: peer competition,
pricing pressure, capex, user growth.