Post on 09-Jan-2016
description
transcript
China Mobile Limited
Presented by:
Jonathan Rook, Christopher Philippou, Malik Vorderwuelbecke, Zeeshan Memon,
and Chetan Talwar
Agenda
• Country Profile
• Industry Status Quo
• Company Profile
• Industry Prospectus
• China Mobile Valuation
• Conclusion
China Mobile• China Mobile is the dominant provider of wireless telephony
services in China
• Revenue Growth of 70% on average over the last 5 Years
• About 120 million subscribers – largest in the world
• China Mobile is owned 76% by China Mobile Communications which is directly subordinated to the Ministry of Information Industry (MII).
• China Mobile Communications is not really interested in profits but the long-term success of the Chinese Phone market
China – The Economy
• The Chinese Communist Party (CCP), still dominates the entire political spectrum in China, and all important administrative positions in the government are held by party members.
• China is historically among the most conservative & controlled cellular markets in the world.
• Economic Reforms have taken place in China: - Privatization has grown - Introducing capitalistic mechanisms to increase market
efficiency.
China – Recent Economic Trends
• Eastern Seaboard is the engine of the Chinese Economy.
• Rapid Growth of China Mobile has reflected rapid growth of Urban China as a whole.
• Huge disparity between the rural and Urban regions.
- Income - Literacy - Infrastructure - Unemployment
China – Economics of the Future
• State policies of expanding domestic demand and market demand are major forces driving economic development.
• Infrastructure Investments – e.g. investments on roads, property, and power grids has risen 21.8%.
• China continues to be a large untapped market, that has huge potential.
China’s Telco Industry
• Over 200 million mobile phone subscribers
• Currently dominated by China Mobile with 70% of market share
• Closest competitor Unicom at 11%
• Low cost PAS (Personal Access System) initiatives by fixed line operators
Government Involvement
• 70% of China Mobile owned by the Ministry of Information
• Market subject to corrective interventions• License uncertainties
• Minister of Information and foreign competition
• MII breakup of China Telecom
Current Competition
• China Unicom intentionally created as a state-owned competition for China Mobile
• Became a major threat after introduction of multi-tiered tariff systems
• Introduction of its CDMA network services in late 2003 likely to further intensify competition
• CDMA provides navigation, M-commerce, entertainment, and enterprise
Current Competition
• Chengdu Telecom experiencing extremely high growth in its PAS networks with subscribers increasing from 0 to 700K in a little over a year
• China Unicom offers a 10%-15% discount on its GSM services compared to China Mobile
• It most now compete with PAS tariffs that are 70%-80% lower than postpaid GSM tariffs
• GSM currently accounts for 70% of world wireless market
• GSM tariffs basis of strength and stability for China Mobile
Future Market Concerns
Increasing Competition
1) Unicom: Prepaid service
2) 3G: 2 new entrants by 2005
PAS- “Little Smart”
1) Expansion to Major Cities
2) Prepaid PAS
Increasing Regulatory Costs
1) Spectrum Fee and Number Fee
2) USO Fee
Price War- DEMAND
“Irrational Operators”
Irrational Chinese Operators
• China Unicom and Mobile in Price War- Increasing supply so readily that values are falling
• Need for Increasing Marketing Costs
• Hurting China Mobile’s ability to pass Gov’t Tariffs onto subscribers
PAS Expansion- Same Front Competition
• First Entry to “mega-cities” with population > 5 million- Will double Coverage
• High concentration of China Mobile Users- Chengdu
• PAS Subscribers grew from 0 to 700,000 from March 2002 to February 2003
• Will have greater effect on pricing and market share than in past
Red- PAS Entry
Subscriber Base Changing
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2000 2001 2002 2003
Subscribers in Million
ContractPrepaid
Dwindling Value Per Customer
Average Revenue Per Unit
0
50
100
150
200
250
300
2000 2001 2002 2003
Contract
Prepaid
New Prepaid Wireless Competitor
• China Unicom: Will Add CDMA Prepaid
• Prepaid PAS
• Both in 2nd Quarter 2003 – Further Consummation of Consumer Values
Next Generation CDMA
• China Unicom- Inside Track on W-CDMA 2000 Technology
• China Mobile- Catch-up Game
• NEW 3G Competition in 2004/2005– China Telecom– China Netcom– Gov’t Regulation- will split up net additions for 1st year
amongst all competition (23% for these)
Added Regulatory Costs
• Number and Spectrum- Competitive Fees
• USO Tariff – Compensate Universal Service Provider for
constructing unprofitable lines in rural areas– 0.6%-1% of Total Revenues
Decline in the Growth Rate
• Revenue growth will slow down due to:– Drastically Increased Competition– Lower revenue per user– Consumers might strictly prefer prepaid– Factors intensified in westward drive
Suppressed Growth
0
50,000
100,000
150,000
200,000
250,000
1999 2000 2001 2002 2003 2004 2005
Sales in Million RMB
CapEx as crucial figure
• 3G Technologies assumed to reduce CapEx growth soon– GSM network needs to be completely updated– Only greenfield ventures made cheaper
• Consensus assumes western provinces to be low on agenda– PAS and Landline Operators have to be
fought for market share
Goldman Sachs Model
Sovereign Yield Spread: 0.023%
Risk Premium: 6.05%
Raw beta: 1.58
Riskfree rate: 3.93%
Cost of Equity: 13.66%
Cost of Debt
• Hong Kong Premium - Aa3 : 1.35%
• China Mobile – Govt. AAA : 0.75%
• Riskfree Rate : 3.93%
Cost of Debt : 6.03%
ADR Price Target
• Critical factors in Valuation:• Revenue Growth• CapEx
Current price: $10.03
Target price: $ 7.66
24% downside correction
Sensitivity of Key Variables
### 15% 16% 17% 18% 19%27% 6.53$ 7.90$ 9.31$ 10.75$ 12.24$ 28% 5.71$ 7.08$ 8.49$ 9.94$ 11.42$ 29% 4.88$ 6.25$ 7.66$ 9.11$ 10.59$ 30% 4.03$ 5.40$ 6.81$ 8.26$ 9.74$ 31% 3.16$ 4.53$ 5.94$ 7.39$ 8.87$
Turnover Growth
Cap
ex G
row
th
Conclusion
• Beware of preconceptions
• Don‘t follow the hype without Due Diligence
• China not only big, but complex
• Business environment changing faster than in G10