Whether the play is China's seemingly endless appetite for raw materials or the success of stocks such as Netease.com (Nasdaq: NTES ) and Baidu (Nasdaq: BIDU ) , it's easy to get sucked into the China story. But put aside the hype, and you may notice that the country's largest cellular operator, China Mobile (NYSE: CHL ) , looks like the real deal.
First-half results back up the impression that this is a company with some solid numbers behind it. Revenue climbed nearly 17% and EBITDA rose almost 14% for the period, while net profit came in nearly 20% higher than the year-ago level.
The existing business and new subscriber growth both fueled the performance. Subscriptions increased by almost 21% for the period to a whopping 224 million, and the company believes that it holds nearly two-thirds of China's mobile market. The company added close to 20 million new subscribers and seems to be capturing more than 70% of all new subscriber growth in China. In other words, China Unicom (NYSE: CHU ) is still getting smacked around.
Fortunately, China Mobile management is not being irresponsible or miserly with its growth. Free cash flow reportedly grew by almost 41% for the first half of the year, and the company upped its dividend payout ratio to 39%. Not only is that an increase from the 33% level for 2004, but it also represents more than a doubling of the interim dividend.
Those who forecasted the end of solid growth for China's mobile carriers were apparently premature. While it is true that the urban areas are largely penetrated and that rural areas aren't likely to contribute as much profitability, that's not the whole story. Specifically, China Mobile is working to increase usage among its existing subscribers and to roll out new products. New business was 20% of revenue in the first half of 2005, and data business constituted almost half of the company's revenue growth. So although penetrating rural China will probably mean lower revenues per user, the China cellular story is far from over.
I know that many investors are nervous about investing in overseas telcos, and that's OK. After all, an investment that makes you excessively nervous isn't a very good investment. That said, more intrepid investors have seen some solid returns from the likes of China Mobile, Philippine Long Distance (NYSE: PHI ) , PT Telekomunikasi Indonesia (NYSE: TLK ) , and America Movil (NYSE: AMX ) . China Mobile may not be the biggest bargain around anymore, but it continues to show solid and responsible growth.
For more on Asian telecom plays:
- Dividend Dandy From Down Under
- UTStarcom: Here We Go Again
- Don't Hang Up on PLDT
- No Unity for Unicom