Search

China Mobile Stock Is Cheap and Looks Like a Winner - Barron's

China Mobile has 946 million mobile customers—10 times those of Verizon Communications or AT&T—and almost three times the U.S. population. | Illustration by Kevin Whipple

Few companies anywhere in the world come as big and as cheap as China Mobile.

The leader in the Chinese wireless market, China Mobile (ticker: CHL) has 946 million mobile customers—10 times those of Verizon Communications (VZ) or AT&T (T)—and almost three times the U.S. population. It has more than $100 billion in annual sales.

Related Data

Market Data Center: EMEA and Asia

So far, size has not translated into strong stock performance. The U.S.-listed shares of China Mobile traded on Friday at $41, about where they stood a decade ago.

Yet, with the stock now fetching just 11 times projected 2019 earnings of $3.80, China Mobile is worth a call. The company’s outlook is improving with the recent rollout of next-generation 5G services. And it has a 4% dividend yield, after a 10% withholding tax.

“China Mobile is an underappreciated global giant about to see a positive catalyst with the 5G upgrade and upside potential for earnings and dividends,” says Chris Lane, a Bernstein analyst who has an Outperform rating and a $51 price target on the stock.

Telecom Titans

How China Mobile stacks up against its Chinese rivals–and its U.S. peers.

E=Esimtate

Source: Bloomberg

Based on its price/earnings ratio, China Mobile trades at a slight discount to Verizon and AT&T. But the gap with the two U.S. giants swells when comparing enterprise value against cash flow, as measured by earnings before interest, taxes, depreciation, and amortization, or Ebitda. Enterprise value reflects equity market value plus net debt—or in the case of China Mobile, $47 billion in net cash.

“China Mobile is one of the most secure companies in the world, but investors value [it] on the dividend and ignore other factors like the balance sheet.”

—Chris Lane, of Bernstein

China Mobile is valued at less than three times projected 2019 Ebitda, one of the lowest ratios for a large company anywhere. Verizon and AT&T are valued at eight times projected 2019 Ebitda, reflecting their significant debt. Many telecom investors favor such an enterprise-value/cash-flow ratio over a traditional price/earnings ratio because the former better captures financial strength.

Over the past two years, a 4G price war with rivals China Telecom (CHA) and China Unicom (CHU) has buffeted China Mobile. Its stock has fallen 15% and earnings were down nearly 15% in the first half of 2019. Lane, however, sees a 2% gain in the second half and 11% earnings growth in 2020, driven by higher-priced 5G services.

Still, China Mobile’s depressed stock reflects investors’ worries about investing in a state-controlled company. The Chinese government owns 72% of the stock, whose main listing is in Hong Kong. Beijing seems more interested in making wireless services widely and cheaply available to the Chinese people than in generating returns for China Mobile shareholders. (Barron’s wrote favorably about the company in 2017, when the stock traded around $50.)

Bernstein’s Lane believes that the government should strike a better balance. “China Mobile can continue to build great networks and provide high-quality services at low prices, while still providing investors with good returns,” he wrote this year.

The company has spent heavily in the past few years on its wireless network and a massive buildout of fiber to provide high-speed data connections. Since 2014, China Mobile broadband customers have gone from virtually zero to 175 million—U.S. industry leader Comcast (CMCSA) has 29 million broadband subscribers.

China Mobile’s dividend outlook is critical to the stock. Unlike U.S. telecom operators, it doesn’t pay fixed quarterly dividends. Its semiannual payouts are tied to earnings. During the first half of 2019, the dividend declined 16%, to 1.53 Hong Kong dollars (20 U.S. cents), but the company stated in its first-half earnings report on Aug. 8 that it would “strive to maintain a stable dividend per share for the full year.” This implies a higher payout for the second half.

Lane argues that China Mobile can raise its payout without denting its big cash reserves. He has urged the company to lift its earnings payout ratio toward 75% in the coming years from its current 50%, which could provide a big lift to the stock.

Newsletter Sign-up

“The earnings are stabilizing, the dividend has scope to increase and the price/earnings multiple has room to expand,” says Edmund Harriss, investment director with Guinness Atkinson Asset Management in London, a China Mobile holder.

Beijing’s outsize influence may cause investors to shy away from China Mobile, but its stock still looks appealing with the company moving to a higher dividend payout ratio.

The 5G rollout, improving 2020 prospects, and the possibility of more-shareholder-friendly policies could all make China Mobile a surprise winner in the global telecom sector next year.

Write to Andrew Bary at andrew.bary@barrons.com

Let's block ads! (Why?)



"Mobile" - Google News
December 20, 2019 at 05:01PM
https://ift.tt/2PI9a5c

China Mobile Stock Is Cheap and Looks Like a Winner - Barron's
"Mobile" - Google News
https://ift.tt/2P9t7Cg
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update

Bagikan Berita Ini

Related Posts :

0 Response to "China Mobile Stock Is Cheap and Looks Like a Winner - Barron's"

Post a Comment

Powered by Blogger.