By:
Anthony DiSanto, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
- China Mobile Limited
(NYSE: CHL) is as an investment holding company
and offers mobile communication services, mobile-related services, and
fixed line services through their subsidiaries.
- The
overall consumer base has continued to grow throughout 2016, with 22.32
million new mobile customers. As of September 2016, ARPU has also grown
1.7% year-on-year to RMB60.
- Since
pitched, their investment in the 4G space has paid off. Subscriptions increased from around 400 million to over
530 million, as of December 2016.
- After
the decision for the three main players in the Chinese telecommunication
industry to sell their towers to China Towers, analyst estimate the
savings for CHL come to about $350 million in operating expenses for the
first year.
- CHL
has signed a strategic agreement with Ericsson to cooperate on the
Internet of Things, utilizing the Ericsson Device Connectivity Platform.
This will lead to new business opportunities in the future, among a
multitude of other benefits.
Key
points: China Mobile Limited, the largest player in China,
continues to grow steadily. Over 2016, they have added over 20 million new
customers, as well as increased ARPU. With the focus now on the internet
industry, the stock has responded well to their movement within the space.
After witnessing a 17.74% decline, between the months of October and December
2016, it has seen a rebound of 9.77%.
Entering 2017, CHL
announced a strategic partnership with Ericsson in the Internet of Things
space. They will be using the Ericsson Device Connectivity Platform and have
already ran a test with an app in Shanghai. The mobile bike sharing app, Mobike,
uses IoT technology on their bike to more accurately track them in areas that
traditional mobile coverage cannot reach. Additionally, the new technology has
reduced the wait time to rent and unlock the bikes.
As new opportunities
arise in the industry, CHL has the benefit of being backed by the government.
This allows them to enter into collaborative agreements faster, as well as
having a “safety net” in times of struggle. For example, China Towers occurred
because of government pressure to bring the population into faster mobile
connectivity. Since moving to a cell tower rental platform, China Mobile is
able to invest more into their R&D opportunities.
Going forward, there are
still many growth opportunities. With over 844 million subscribers, only 481
million are using 4G and 119 million on 3G. Thus, there will be about 244
million on the 2G network migrating over and in turn generating substantial
revenue from data use.
What
has the stock done lately?
Since 2017 began, China
Mobile Limited has risen 8.70%. China is looking to be a major player in the
internet industry and has established a $14.6 billion dollar “internet fund.”
This will be used to support internet focused companies and has seen a lot of
support from the telecom firms. With the announcement of a partnership with
Ericsson and a successful test with the bike app, CHL has seen much share
appreciation. As they aggressively pursue big data and the Internet of Things,
China Mobile’s future appears promising.
Past
Year Performance:
CHL has had a rocky year,
hitting a peak of $63.72, on August 18th, and low of $51.92, on
December 23rd. Although in total, it has increased 7.31% since
February 8, 2016. After taking a hit because of the Brexit vote, it rose above
$60 for the first time that year. In October, as market penetration was nearing
its ceiling, data traffic growth began to subside. Investment firms began to
swap CHL with CHU causing pricing pressure in the market. Recently, as China
Mobile begins to focus on the internet the market appears to be reacting
positively and share price is starting to rise again.
Source:
FactSet
My
Takeaway
As the telecommunication
industry continues to evolve into something new, CHL is leading the way in
China. The positive test results in the IoT space are being reflected in the
stock price, I believe that within the coming months we can see the share price
climb back about the $60 mark. Furthermore, as China’s inland population
continues to gain affluence, many of the 2G subscribers will be transferring over
to 4G. This will drive data revenue substantially, given there are about 244
million still on the 2G network.
Source:
FactSet
