A persistent fall in earnings over the last few quarters has
China Mobile Limited
) to plan big ticket acquisitions to revive its financial distress.
Reportedly, the world's largest carrier in terms of subscriber base
is considering multiple options cushioned by a large cash base.
Despite its leading position, China Mobile has never quite made
it big on the acquisition front - either internationally or in its
home turf. Nevertheless, the carrier is now looking for
opportunities that would strengthen its core business as its
current market share has declined to 62.4% from 62.8% as on Jun 30,
China Mobile records few failed acquisition attempts in the
past. In 2006, the carrier had abandoned its acquisition talks with
Millicom International Cellular. Years later, a deal to buy a 12%
stake in Taiwan's Far EasTone Telecommunications fell apart in 2013
due to ownership-related regulatory hurdles.
However, the company did make some successful buying attempts
although none of them were big enough to boost its financials
manifold. The Honk-Kong based company is now eyeing a 20% stake in
Malaysian carrier Axiata after having bought an 18% stake in
Thailand's True Corp.
China Mobile has been facing stiff competition in the Chinese
wireless market as it offers mobile services based on Time
Division-Synchronous Code Division Multiple Access (TD-SCDMA)
technology, which is not adequately supported by popular handset
makers including Apple Inc. (
). The company has naturally lagged behind rivals like China Unicom
(Hong Kong) Limited (
) and China Telecom Corp. Ltd. (
) in terms of iPhone sales.
This has been one of the main factors responsible for China
Mobile's dipping performance. However, the rollout of 4G is
bringing some respite to the company as it has boosted its
Recently, China Mobile announced results for the first six
months of 2014 with adjusted net income of RMB57.7 billion ($9.4
billion). Net income dropped 8.5% year over year owing to higher
infrastructure cost and stiff competition. Total revenue climbed
7.1% year over year to RMB324.7 billion ($52.9 billion) mainly
attributable to rapid growth of wireless data revenue, which was up
by a massive 51.8%.
China Mobile has ample liquidity in its balance sheet as the
company exited first-half 2014 with cash and cash equivalents of
RMB73.9 billion ($12 billion). We believe acquisition of a core
business, particularly in another country, makes a lot of sense as
it will help widen its geographical presence along with hedging
some of its domestic weakness. Alternatively, the carrier can
invest in new growth opportunities in the telecom space like M2M
(machine2machine), digital media or cloud.
China Mobile currently carries a Zacks Rank 3 (Hold).
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