OK, I'm always the first to admit it. When it comes toinvesting
in Chinesestocks , I'm a bit of a skeptic.
That's why I've opted to getinvestment exposure to China only
through mega-multinational companies such as
McDonald's Corp. (
General Electric (
I've always sided with the bears, who contend China's economic
numbers can't be trusted because the command-and-control nature
that the government has over theeconomy . However, I'm also a big
fan ofemerging markets and telecom stocks. That's why I just can't
deny the relevance of state-owned
China Mobile Ltd
role in this investment theme.
With nearly 600 million subscribers, China Mobile holds the
position as the world's largest wireless provider bymarket
capitalization , with a whopping $227 billion. China's economic
growth has resulted in a rising middle class and telecom providers
are usually one of the first sectors to benefits from this
Big and getting bigger
With nearly six times the subscriber base of
, China Mobile is themarket leader in wireless telecom services in
China, with a subscriber base representing 43% of the country's
nearly 1.35 billion population. And with this number of clients, it
doesn't take much for this company to move the needle.
The company hasn't reported 2012revenue numbers yet, but the
forecast is for a 2.9% increase in revenue to more than $84 billion
from 2011. That's about a $3-billion difference.Earnings per share
) are expected to come in at $5.21 in 2012 compared with $4.80 in
2011. This means that a mere 2.9% increase in sales would growEPS
The outlook for 2013 is equally encouraging, with the company
expecting to grow revenue by 5.4% to $88.5 billion and EPS by 7.6%
3G, 4G and the iPhone
The backbone of China Mobile's network relies on third-generation
(3G) technology, but it continues to upgrade to the far-superior 4G
network. This is a key component to the company's growth strategy.
And although the 2012 results haven't been released as I've
mentioned before, the company expects to have added 30 million 3G
subscribers last year. That's 5% customer growth -- a phenomenal
number for the wireless telecom business. The fast-rising 4G
network demandwill also be crucial to the company's growth in
Another key to China Mobile's growth this year is a pending deal
Apple's (Nasdaq: AAPL)
blockbuster iPhone. The company doesn't currently sell the iPhone
to its customers, so this deal would be an enormous coup for Apple
and China Mobile.
The technical and fundamental aspects of thestock look
attractive.Shares are down nearly 45% from 2007 market peak of
nearly $103. In addition, itsbalance sheet is steady. Its 10-year
averagereturn on equity (ROE) of 21.84%, extremely low 4.2%
debt-to-capital-ratio, its enormous $52.8 billion pile ofcash and
adividend payout ratio of 36% (extremely low for a telecom)put
China Mobile at the top of my list.
Risks to Consider:
As I've stated earlier, I'm skeptic on China's economic future.
But China Mobile is one of the biggest companies in the country. So
although a swiftly-growing economy may develop in fits and starts,
as it grows, so does the need for communication. Another inherent
risk is the difference in reporting periods. U.S. companies
reportearnings and financial information on a quarterlybasis , but
China Mobile reports its numbers biannually. This makes
information-gathering challenging. As Ronald Reagan used to say:
"Trust, but verify."
Action to Take -- >
China Mobile currently trades for about 11 times earnings with a
forward price-to-earnings (P/E ) ratio of 10.6 and an attractive
3.5%dividend yield .
Investors who want to gain exposure to China's growth while
collecting a respectable income stream should definitely consider
China Mobile. A 12-monthprice target of $72 makes sense based on
the company's strong cash position, consistent earnings growth and
proven long-term fundamentals. Factoring individend income, total
return could be more than 32%.
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