OUTLOOK: China Mobile 2000 net profit 18.56-19.50 bln yuan
HONG KONG (AFX-ASIA) - China Mobile (Hong Kong) Ltd is expected to report Monday a net profit of 18.56-19.50 bln yuan for 2000, up from 4.79 bln yuan a year earlier, analysts said. While the net profit increase will be partly achieved through subscriber growth, the extent of the rise will also be due to the fact that the 1999 net profit included an 8.20 bln yuan exceptional write-off relating to the company's analog mobile phone network, they said. George Chan, an analyst at ICEA Securities, said he expects China Mobile to report a 2000 net profit of 19.35 bln yuan. China Mobile's subscriber numbers totalled 42.80 mln at end-Nov 2000, up from 18.0 mln at end-1999, and Chan said he anticipates this will rise to 60.0 mln by end-2001. The company said it had some 50 mln subscribers at end-February. "The significant growth in subscribers was due to a low penetration rate of 6-8 pct in China ... the fixed telephone network on the mainland is not well established and this should promote the use of mobile phones," the analyst said. In terms of business prospects, China Mobile has a comparative advantage over foreign cellular service providers because it does not need to invest in upgrading its network to cope with 3G anytime soon, Chan said. "Mobile phone services are still at an early stage of development in China ... The country will still be using 2G (the existing type of mobile network) in the medium term," he said. "The 3G mobile phone network development will not take place on the mainland in the near future and this will help reduce the capital expenditure of China Mobile," he said. Chan said he rates China Mobile shares a "buy", adding that he has a price target for the stock of 52.0 hkd. Wallace Cheung, an analyst with DBS Securities, he expects China Mobile to report a net profit of 18.56 bln yuan for 2000. He said the strong growth in earnings in part reflects the company's write-off of the value of its analog network the previous year. More modest write-offs are likely for 2000 through to 2002, he added. "China Mobile has still got 2.20 mln subscribers for its analog network." Assuming that all these subscribers will have churned by 2002, China Mobile is expected to make a provision of 786 mln yuan for each of the three years between 2000 and 2002, he said. China Mobile is likely to report a net gearing of 22.70 pct at end-2000, after raising 12.50 bln yuan from a syndicated loan and 600 mln usd from a convertible bond issue to fund the acquisition of seven mobile phone networks from its parent company China Mobile Hong Kong (BVI) Ltd, he said. "However, due to strong cashflow from its operations, we expect China Mobile to return to net cash at the end of 2002," he said. Cheung said he has an "outperform" rating for China Mobile. An analyst with a Taiwanese brokerage said he expects China Mobile to report a 2000 net profit of 19.50 bln yuan. The results will have been helped by the addition of the seven mobile phone networks it bought from its parent for 32.84 bln usd in Oct 2000. "The networks in seven provinces should help boost its 2000 earnings and it will have a significant income contribution in the future," he said. Following the acquisition, China Mobile provides cellular phone services in 13 provinces in mainland China. The company is reportedly interested in buying another 18 mobile networks from its parent company. The analyst said China Mobile should have experienced a fall in average revenue per user (ARPU) in 2000, because of the rising portion of pre-paid customers in its subscriber base. "The ARPU should drop to 229.0 yuan per month for 2000, from 315.0 yuan a year earlier ... it is likely to drop below 200.0 yuan in the longer term," he said. Although ARPU is set to decline further, China Mobile's total revenues should continue to rise as mobile phone usage continues to grow on the mainland. In March, China Mobile introduced six new different tariff packages, a move which some perceived as the opening move in a likely price war with China Unicom. "It may not necessarily turn into a price war, but competition will always mean a lower price," the analyst said.
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