China Mobile Posts Largest Profit Drop Since 1999 as Costs Rise

October 22, 2013 Leave a comment

China Mobile Posts Largest Profit Drop Since 1999 as Costs Rise

China Mobile Ltd. (941), the world’s largest phone company by users, posted an 8.8 percent profit decline that was the most since 1999 as costs to build its new fourth-generation network increased. Net income fell to 28.4 billion yuan ($4.7 billion) in the third quarter, from 31.1 billion yuan a year earlier, according to figures derived from nine-month results released by the Beijing-based company today. The profit missed the 31.1 billion yuan average of five analysts’ estimates compiled by Bloomberg.Chief Executive Officer Li Yue, fighting to stem a decline in China Mobile’s share of the nation’s 1.2 billion wireless users, plans to roll out commercial 4G services by year-end that will boost capital spending 49 percent this year. The company is the only one of the country’s three largest carriers to not offer Apple Inc. (AAPL)’s iPhone.

“Costs are surging,” Ricky Lai, a Hong Kong-based analyst at Guotai Junan International Holdings Ltd., said on Oct. 18. “While the company has rapidly raised its 3G subscribers, it has also invested a lot in handset subsidies to push that subscriber growth and to bear the 4G network expense.” He recommends investors accumulate the shares.

Third-quarter sales rose to 159.9 billion yuan, compared with the 152.8 billion yuan average of seven analysts’ estimates compiled by Bloomberg.

China Mobile rose 0.5 percent to close at HK$85.05 in Hong Kong trading, before the results were announced. The shares have dropped 5.8 percent this year, compared with a 3.5 percent rise in the benchmark Hang Seng Index.

4G Licenses

The company is close to a deal to sell the Apple iPhone, a person familiar with the matter said last month.

China’s government may issue licenses for commercial 4G services toward the end of this year, the company said in March. The carrier, which built a trial 4G network in 15 cities in 2012, said in February it would expand that to 100 cities this year with 200,000 base stations that can reach a population of 500 million people.

Costs of the 4G build out that were previously borne by the company’s state-owned parent are now being shouldered by the listed unit, which will boost its capital spending 49 percent to 190.2 billion yuan this year, it said in March.

The company is projected to report a 0.8 percent drop in full-year net income to 128.18 billion yuan, according to the average of 19 analysts’ estimates compiled by Bloomberg. The company last reported an annual decline in 1999.

A $993 million write-off on old equipment led the company to report a 30 percent drop in net income in 1999, its first profit decline since listing in October 1997.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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