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Article / 06 March 2015 at 13:30 GMT

Earnings Watch: China Mobile's market position under pressure

Head of Equity Strategy / Saxo Bank
Denmark
  • Still a host of important earnings releases next week
  • Analysts expect China Mobile sales to rise
  • China Mobile not among our preferred stocks in Asia

By Peter Garnry 

The number of earnings releases are ebbing out, but there are still a host of important releases on the tape next week. 

Among the most watched is China Mobile reporting FY14 figures with analysts expecting sales to increase by 9.1% year-on-year (y/y) and EPS down 10.6% y/y driven by higher operating expenses and thus lower margins. 

As the Chinese mobile market has matured, sales growth has declined from 26% y/y in 2005 to expected 9% y/y in 2014. As a result, the operating margins have been under pressure. 

The valuation on China Mobile has seen trajectory downwards, but is still trading at a premium to its Chinese peers which makes sense given the market position. However, China Mobile's valuation is still trading at a 22% discount to Asian peers.

China Mobile weekly share price since Q4 2010
China Mobile share price
Source: Saxo Bank

Although China Mobile will likely not be a bad investment in the long run as a lot efficiency improvements over time can restore the profitability, it is not part of our preferred stocks in Asia due the competitive landscape and declining ROIC.

Other important earnings releases next week are...

  • Monday: WPP
  • Tuesday: RWE, Prudential
  • Wednesday: Petrobras, Adecco, Deutsche Post, E.ON
  • Thursday: China Mobile, Assicurazioni Generali, Dollar General

Read about all the earnings releases in the attached PDF.

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 Sales in the Chinese mobile phone have slowed as the market has matured. Photo: istock


– Edited by Oliver Morrison

Peter Garnry is head of equities strategy at social trading leader Saxo Bank 
Download document

Earnings Watch - Mar 9, 2015

4y
Neil_Flynn Neil_Flynn
Whilst the mobile phone contract market has developed much slower in China than in the West, network operators such as China Mobile are facing big pressure from the big tech names who are starting to introduce VoIP apps, making the phone minutes/credit business model slowly redundant. China Mobile, along with rival China Unicom, will soon be forced to change their contract model to focus on data-only packages, which will likely reduce the ARPU

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