China Mobile may be one of the world's largest wireless companies, with more than 600 million subscribers and a market cap of US$213 billion, but it's having trouble getting its message heard. Despite its heft, stability and stellar balance sheet, the Hong Kong-based giant can't seem to persuade investors to stop fretting about its technology, or encroaching competition from smaller, faster-growing rivals. As a result, its Hong Kong-listed shares (ticker: 941.Hong Kong) trade at a vast discount to those of rivals, while its New York-listed American depositary shares (CHL) have trailed global telecom stocks over the past two years.
The knocks against China Mobile's technology aren't invalid. Its 3G network features a standard—called TD-SCDMA—used only in China. This means vendors often need to customize chips or phones for the company, and makers of the world's snazziest toys—like Apple (AAPL)—aren't exactly rushing to do that. If Chinese callers could switch providers without giving up existing phone numbers, more might have defected to rivals like China Unicom (762.Hong Kong), whose network supports, for example, the coveted iPhones. That's also increased concerns that the government might start to allow phone-number portability, which could hurt the company.
Yet China Mobile isn't sitting idle. Management has suggested it might leverage its mobile stronghold and muscle into the fixed-line business. It also plans to provide broadband services with a four-pronged network that encompasses everything from voice to mobile data.
Meanwhile, companies like Qualcomm (QCOM) are making new-generation, multi-mode chip sets that can run on a variety of phones and networks, including even TD-SCDMA and a faster 4G network China Mobile is developing called TD-LTE. Introducing these chips into new phones, including the next-generation iPhones, "will allow China Mobile to leverage its vast and under-utilized 3G network, as well as move early to 4G," notes HSBC analyst Tucker Grinnan.
The commercial launch of China Mobile's 4G network is conservatively slated for 2014, and most analysts haven't yet factored into their estimates the potential gains from the 4G offering and the exponential rise of data demand. But Grinnan thinks China Mobile might be able to commercialize its service sooner—perhaps selling the iPhone 5 by September or October 2012—and he estimates the company could have 70 million 4G customers by late 2013.
Introducing new technology can be tricky. But it helps that China Mobile shares already reflect the grim outlook and well-aired challenges. Just this month, it reported solid 2011 results, with revenue growing 8.8% year-over-year, mobile-data-access revenue jumping 43.5% and profit rising 5.2%, even if margins contracted slightly and expenses ticked up. Yet shares recently fetched just over 10 times a projected 2012 profit—merely in line with the Hang Seng Index and well below about 16 times for China Telecom (728.Hong Kong) and 32 times for China Unicom.
On top of that, China Mobile pays a 4% dividend and is expected to raise profit at an 8.6% pace over the next three years. Strip out the US$46 billion of cash it holds, not to mention noncore assets like its 20% stake in the Shanghai Pudong Development Bank, and the wireless business looks like even more of a bargain.
EMERGING MARKETS LIKE ASIA have been a big beneficiary of investors' improving mood. In the latest survey of global fund managers conducted by BofA Merrill Lynch, the cadre who expect the global economy to strengthen over the next 12 months rose to the highest level in a year. And a net 40% say they're overweight emerging markets, versus just 14% leaning on U.S. equities.
Yet emerging markets haven't done as well as you might think. The MSCI Emerging Market Index is still off 12% over the past year, versus -2% for the MSCI World Index and a 5% gain for the S&P 500. So far this month, emerging-market stocks have also started to underperform.
Might inflation have something to do with this? Oil prices have soared 40% since October. In India, consumer prices last month jumped 8.8% year over year, led by double-digit increases in the cost of housing, clothing, and fuel. Among money managers surveyed, inflation expectations have climbed to an eight-month high.
After all, central-bank largesse and looser money may not end up helping emerging economies as much as old-world behemoths. "Emerging markets are going to be hit with an inflation problem, which will put a cap on their equity markets," notes Larry Jeddeloh, chief investment officer of TIS Group. "But developed equity markets such as Europe, Japan and to a lesser extent the U.S., which have suffered from deflation, will benefit from a small whiff of inflation." Last week, the Shanghai Composite Index slipped 2.3% for its third straight weekly loss, while the Bombay Sensex closed lower for a fifth straight week.
Source:cn-c114.net