China Mobile (NYSE: CHL) is the largest wireless telecommunications provider in China with a roughly 70% market share. The company serves more than 440 million customers with wireless and wireless data services.

Catalyst(s): As noted earlier, China’s mobile phone penetration is only around 40%, less than half the 85% to 120% penetration rates common in the western world. And Chinese mobile phone distribution is uneven — in rural areas, less than a quarter of residents have mobile phones.

There are a few reasons to expect mobile penetration rates to grow. First, increasingly, rural consumers are moving to cities to take on higher paying manufacturing jobs; as consumers migrate to cities they’re far more likely to buy mobile phones.

Even better, a large share of the Chinese government’s economic stimulus package is directed at encouraging rural development; the government would like to bring rural incomes up to levels more in-line with what’s prevalent in urban areas. This should help encourage more Chinese consumers in small cities and rural areas to buy mobile phones.

Finally, less than one-quarter of CHL’s subscriber base is signed up for high-speed third generation (3G) mobile data services. CHL is well-placed to sell data and e-mail capability to its existing subscriber base.

Competitive Advantages: CHL’s main advantage is the size and scope of its network. The company has a 70% market share in China’s wireless industry and has a network that covers about 96% of the Chinese population. When new consumers look for a network they want the best possible coverage.

And CHL’s quality network has also given it a leg-up in terms of launching ancillary services. Total wireless revenues surged by close to +25% year-over-year in the most recent quarter led by increased utilization of text messaging and multi-media (picture) messaging services.

Another advantage for CHL is that it has a small debt burden. That means the company has plenty of scope to invest in upgrading its network to handle new services.

Valuation and Outlook: China Mobile is China’s dominant wireless carrier and the largest single wireless carrier in the world. Given its 70% market share of one of the most promising growth markets in the world one would expect CHL to trade at a premium to its growth rate.

But that’s not the case — the stock trades at less than 11 times earnings compared to an annualized growth rate of +16%.

Action to Take –> On top of all its growth opportunities, CHL also generates copious cash flows and offers a near 4% yield for investors.

Good investing!
 


Paul Tracy
Editor
StreetAuthority Market Advisor

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Disclosure: Paul Tracy does not own shares of CHL.