CHINA Mobile Ltd, the world's biggest phone company by market value, yesterday fell to a one-year low in Hong Kong trading after JPMorgan Chase & Co and DBS Vickers Ltd cut their investment ratings on the stock.
China Mobile plunged 6.3 percent to close at HK$90.45 (US$11.59), the lowest since August 21 last year, extending the shares' drop this year to 34 percent. The stock was the biggest contributor to the benchmark Hang Seng Index's 2.3-percent decline yesterday.
JPMorgan reduced its rating on China Mobile to "underweight" from "overweight," while DBS Vickers lowered the shares to "hold" from "buy." The brokerages cited concern that China Mobile's profit growth will slow because of cuts in call charges and an expected increase in competition.
The company "is guiding lower average revenue per use going forward as tariffs decline and new customers join at lower price points," JPMorgan's Hong Kong-based analyst Jimmy Cheong wrote in a report yesterday. ARPU, fell to 84 yuan (US$12.30) a month in the first half, from 88 yuan a year earlier, China Mobile reported on Wednesday.
Tariff reductions contributed to lower profitability, China Mobile's Chief Financial Officer Xue Taohai said. The company cut charges for long-distance domestic calls in response to a government directive in February.
China Mobile reported yesterday that first-half profit rose 45 percent to 54.8 billion yuan, as lower prices helped the company post record user gains. Earnings before interest, taxes, depreciation and amortization, a measure of operating profitability, rose 16 percent to 104.4 billion yuan, China Mobile said. Ebitda as a percentage of sales narrowed to 53.1 percent from 53.9 percent last year.
Competition in the Chinese mainland phone market will intensify as carriers increase capital spending to expand services following a government-led revamp of the industry, JPMorgan's Cheong wrote. Investment on networks in the world's biggest telecommunications market will rise to a record 320 billion yuan in 2009, he wrote.
"Previous capex cycles have led to several years of industry grief and share-price underperformance," according to Cheong.
Under the government's reorganization plan, China Unicom Ltd, the second-biggest wireless carrier behind China Mobile, will buy China Netcom Group Corp after selling one of its two mobile-phone businesses to China Telecom Corp.
China Unicom fell 7.3 percent to close at HK$12.24, while China Netcom declined 7.7 percent to HK$18.26.