This is part #13 of quickies on new companies taking a look at the worlds biggest mobile service provider.
Where I got the Idea
Nov 13th morning news: Trump signed an order prohibiting U.S. investments in 20 Chinese firms controlled by the country’s military, calling them a national security threat. China Mobile Ltd. (941 HK, -5.8%), China Telecom (728 HK) and China Unicom (762 HK) tumbled. Though, China Mobile hardly needs US investors’ money, I believed, due to …
Its huge cash pile of RMB 410.3 billion ($62bn), as of June 30, according to its Interim Report 2020. It further boasts a liabilities to assets ratio of 34.5%.
The stock (941 HK) currently trades at a mutli-year low with a low 7x P/E and boasts a high 7% dividend yield. Accounting for a high net cash, China Mobile trades for a very low EV based valuation metric of 1.3x EV/Ebitda (fwd). 72% of outstanding stares are held by China Mobile Communication (and indirectly by the state). The stock is down -32% during the last 12 months, slightly better than China Telecom (-34%) and China Unicom (-39%).
This is another part of my series of Quickies on new companies.
Chinese politics (currently in investors’ focus due to the Alibaba/Ma crackdown) favor high capital expenditures for a 5G mobile network. In what sense Chinese telcos can decide on their own how to allocate capital is up to anyones (best) guess.
In the first half of 2020, the Group’s capital expenditure was RMB101.0 billion, representing 28.2% of revenue from telecommunications services, of which RMB55.2 billion were capital expenditure relating to 5G, funded primarily by cash generated from operating activities. – Interim Report 2020
From my personal 2016 Hong Kong experience I can tell you, I never experienced such a top notch mobile network before (or afterwards)!
The ultimate question probably is if you trust the management/politicians to award shareholders or will they direct economic value/returns into different funnels (i.e. networks). The company’s dividend history looks rather promising and does not support a thesis of (completely) looted shareholders.
Chinese oil giants (Cnooc, PetroChina, Sinopec) could be next to lose US listings.
The overall situation might be comparable to Gazprom (which I own). The companies look cheap from a fundamental view, though some big capex cycle pressures (nearterm) cashflows. Additionally, huge (political) uncertainty is involved and might result in sustained capex spending and less-than-ideal expenses. Thus, shareholders might not benefit the most. Whereas Gazprom is impacted by longterm trends within the energy industry (politics and trends on fossil fuels) China Mobile should have a business model with less longterm-risk. Both companies share prices seem(ed) to be pressured by technicals: international or mostly US investors selling their shares.
As long as rising dividends are payed to shareholders this could be an investing opportunity offering solid returns. It is a telco and would probably not become neither a high-quality nor a high-conviction investment for me personally!
I hope you enjoyed this quicky. What’s your take on China Mobile?