CHA China Telecom Corp Ltd

China Mobile Limited (CHL), the world’s largest mobile operator by subscriber base, announced first quarter 2014 results with adjusted net income of RMB 25.24 billion ($4.13 billion) that fell 9.4% year over year due to operational challenges and stiff competition. Net income margin for the quarter came in at 16.3% compared with 19.4% in the first quarter of last year.

Revenues & EBITDA

In the first quarter, total revenue climbed 7.8% year over year to RMB 154.83 billion ($25.31 billion). The carrier continues to build its 4G (Time Division-LTE) network and plans to build a superior 4G LTE network. Meanwhile the company also enhanced its 3G/4G marketing capabilities by increasing the sale of devices and optimizing its tariff structure.

EBITDA came in at RMB 57.59 billion ($9.42 billion), down 5.9% from the prior-year quarter. EBITDA margin was 37.2%, down 540 basis points from first quarter of 2013.

In Dec 2013, the company inked a long-term co-operation agreement with Apple Inc. (AAPL) to sell iPhone models through its TD-LTE and TD-SCDMA network.

Subscribers

China Mobile added 13.88 million new subscribers to reach 781.08 million at the end of the first quarter. Subscribers grew 1.81% from the year-ago quarter.

China Mobile’s 3G business is growing at a fast pace since its introduction and has become one of the major drivers of revenue growth. The company’s total 3G subscriber base reached 224.98 million, with 33.35 million new customers added in the reported quarter.

China Mobile received TD-LTE (Time Division Long Term Evolution) license in Dec 2013 and since then commercialized TD-LTE in different cities of China. The company desires to become the world’s largest 4G network with 500,000 base stations that will cover rural and urban China by 2014. At the end of Mar 2014, total LTE customers reached 2.79 million.

ARPU and MOU

Average Revenue per User (ARPU) per month was RMB 62 ($10.14) during the quarter. Average Minutes of Usage (MOU) per user per month during the relevant period declined 20 minutes to 456 minutes.

Peer Performance

China Unicom Hong Kong Limited (CHU), China's second largest mobile operator, reported adjusted net income of RMB 3.30 billion ($540.0 million) that surged 73.8% year over year. Total revenue (excluding deferred fixed-line upfront connection fee) for the company climbed 8.3% year over year to RMB 76.5.0 billion ($12.5 billion) in the first quarter.

Meanwhile, China Telecom Corporation Limited (CHA) reported adjusted net income of RMB 5.5 billion ($900 million), representing a 17.9% rise. Revenues increased 6.9% to RMB 83.2 billion ($13.6 billion) during the first quarter of 2014.

Our Analysis

China Mobile will continue to leverage from its leading position in the Chinese wireless market owing to strong customer adaptation of its recently launched LTE service and its expansion will be accretive to the company’s subscriber growth.

However, we remain concerned about the drop in quarterly profit and rise in competition. Further, higher costs to achieve its LTE rollout target can impact its profitability. China Mobile currently carries a Zacks Rank #4 (Sell).

 
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