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China Mobile Ltd. (ADR) (CHL): A Smart Choice for Investors

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7 Reasons Why Investors Should be Afraid of ChinaIn the world, some leaders are unbeatable and China Mobile Ltd. (ADR) (NYSE:CHL) is among one of them. The company is facing stiff competition from its competitors especially in 3G market where it has lost a significant market share. It is investing in 4G technology which will surely strengthen it. Let’s take a look at other catalysts that will benefit the company in the future.

China Mobile Ltd. (ADR) (NYSE:CHL) is the leading telecom operator in China. It provides wireless and related services in Mainland China and Hong Kong. It is the largest telecom operator in terms of market capitalization. The Chinese government holds a 71% stake in the China Mobile.

Market share

The market share of the China Mobile Ltd. (ADR) (NYSE:CHL) is greater than the market share of its competitors. In February 2013, it held a 64% market share, down from 66% a year earlier. Its competitors China Telecom Corporation Limited (ADR) (NYSE:CHA). and China Unicom (Hong Kong) Limited (NYSE:CHU) hold a market share of 14% and 20%, respectively. The Chinese market has more than 1 billion subscribers and a penetration rate of 75%, lower than the emerging economies like Mexico and Brazil where the penetration rate is more than 80%. China Mobile is working on its high-speed fourth-generation service to recover the market share. China is capturing opportunities by expanding its network around the globe.

Fundamentals

In the first quarter of 2013, China Mobile Ltd. (ADR) (NYSE:CHL) has reported a net income of 27.9 billion yuan ($35.8 billion), up from 27.8 billion yuan ($35.7 billion) year over year. Revenue rose 5.7% to 134.7 billion yuan ($173 billion) in the first quarter. EDITDA Margin (Earnings before interest tax dividend and amortization) decreased to 45.4% from 47.6% a year earlier while net profit margin slipped to 20.7% from 21.8%. The company might see a decrease in the profit this year because it is incurring cost for the 4G network. According to Bloomberg, the company’s full year profit is expected to fall 1.8% this year, but next year will be fruitful for the company.

Slipped in 3G Market

China Mobile has launched its 3G service in 2009. In the 3G Market, China Mobile Ltd. (ADR) (NYSE:CHL) has slipped in a race because of slow internet downloading speed. The company’s 3G market share was 63% in March 2013, down from 72% in 2009. Over the same period China Unicom (Hong Kong) Limited (NYSE:CHU)’s 3G share gained to 21% from 20% and the China Telecom Corporation Limited (ADR) (NYSE:CHA) expanded to 15% from 8% in the 3G market. The Reason behind China Mobile’s slow downloading speed is the use of TD-SCDMA technology which limits the speed to 2.8 Mbps.

China Unicom uses a WCDMA technology that provides a download speed of 21 Mbps while China Telecom offers a 3.1 Mbps speed nationwide and 9.3 Mbps in some parts of the country through its CDMA technology. By the start of 2014, it is expected that China Unicom (Hong Kong) Limited (NYSE:CHU) will provide an internet speed of 84 Mbps while China Mobile customers will benefit from 4G network. The decline in China Mobile Ltd. (ADR) (NYSE:CHL)’s 3G market share will be recovered by its 4G Technology in the future.

4G Technology

Ministry of Industry and Information Technology (MIIT) might issue 4G license by the end of this year. The MIIT has been planning to issue the license on priority basis to telecom operators possessing the TD – LTE technology and then to telecom operators with FDD LTE technology. The aim is to encourage telecom operators to adopt the TD-LTE technology.

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