China Mobile Jumps to 2009 High on Goldman Buy: Overnight
China Mobile Ltd. (941), the world’s biggest phone carrier by users, surged to the highest level since 2009 and led gains in U.S.-traded Chinese stocks after Goldman Sachs Group Inc. and Credit Suisse AG recommended buying the shares.
The Hong Kong-based phone operator added 5.3 percent to $55.35, boosting the premium over Hong Kong shares to 2 percent, the most since November. The Bloomberg China-US 55 index of the most-traded Chinese companies in the U.S. rose 0.8 percent to 104.22, paring its loss in the week to 1.3 percent. Renren Inc. (RENN) climbed to a one-week high after the social networking website reported better-than-estimated earnings.
An improving smartphone business, high dividends and the development of its fourth-generation network spurred Goldman Sachs to boost their price target for China Mobile. The company pays a dividend yield of 3.7 percent and trades at 11 times estimated 12-month earnings, according to data compiled by Bloomberg. Verizon Communications Inc. (VZ), the largest U.S. mobile- phone carrier, has a yield of 5.1 percent and a valuation of 16 times earnings, the data show.
“We have a positive view on the Chinese wireless space in general, and there’s revenue opportunities for all the wireless carriers,” said Steve Clement, an analyst at Pacific Crest Securities Inc. in Portland, Oregon who rates China Mobile outperform, meaning he expects it to do slightly better than the market return. “There’s room for China Mobile to pay out a lot more cash. The earnings multiples are attractive.”
China ETF Pares Decline
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 0.6 percent to $39.03 on March 9, trimming its decline last week to 3.1 percent, after a U.S. Labor Department report showed the world’s largest economy added more jobs in February than economists forecast and debt-stricken Greece succeeded in getting more aid.
The ETF has gained 65 percent since March 9, 2009, when a bull market for U.S. stocks started after the global financial crisis. The Shanghai Composite Index (SHCOMP) of China’s domestic shares has gained 15 percent over the past three years, compared with a 103 percent advance in the Standard & Poor’s 500 Index.
Beijing-based Renren (RENN) rose 0.9 percent to $5.40, reducing its decline last week to 4.9 percent. The social networking site operator said it made money for the first time since its initial public offering in May, with adjusted fourth-quarter earnings at 11 cents per American depositary receipt, as adverting revenue increased. The median forecast of 14 analysts was for a loss of 1 cent.
Tudou Holdings Ltd. (TUDO), China’s second-largest video website operator, rose 12.5 percent to be the biggest gainer on the Bloomberg China-US 55, following an 11 percent gain on March 8. Tudou is narrowing the gap with leader Youku Inc. after adding content and expanding ties with microblogs, Chief Executive Officer Gary Wang said in an interview last week.
Home Inns & Hotels Management Inc. (HMIN), which runs budget hotels in China, was the biggest loser on the index on March 9, falling 6.4 percent to $27.80 after the company reported earnings that trailed analysts’ estimates. The Shanghai-based company reported fourth-quarter adjusted earnings of 12 cents a share, compared with a prediction of 27 cents by one analyst who submitted an estimate to Bloomberg.
The acquisition of Motel 168, a hotel chain operator, last year increased Home Inns’ operating costs and will lower its “operational performance” over the next two years, analysts led by Chenyi Lu at Cowen & Co Llc wrote in a note to clients e- mailed on March 9. Home Inns agreed to buy Motel 168 in May for $470 million in cash, debt and shares.
7 Days Group Holdings Ltd. (SVN), a hotel chain, dropped 4.9 percent to $14.27. The company reported adjusted earnings 14 cents in the fourth quarter after the market closed on March 8, compared with 10 cents a year earlier and 18 cents the previous quarter. The shares are “fair valued,” Cowen’s Lu wrote in a separate report.
The Bloomberg China-U.S. 55 index declined last week by the most in a month after Premier Wen Jiabao reduced the nation’s economic growth goal to 7.5 percent for 2012, from 8 percent over the past seven years.
Chinese inflation eased to the slowest pace in 20 months while new loans, industrial output and retail sales were all below analysts’ median estimates, boosting the case for a loosening of monetary policy as exports slow and the housing market cools.
The government lowered banks’ reserve requirements in February for the second time in three months to boost lending and sustain growth. Citigroup Inc. says the central bank will cut the reserve ratio once more as soon as this month. People’s Bank of China Governor Zhou Xiaochuan will hold a press conference during the National People’s Congress on March 12.
China Mobile gained 5.1 percent in the U.S. last week, extending its gain this year to 14 percent. The company’s Hong Kong shares gained 3.1 percent in the week to HK$84.20, or the equivalent of $11.07. Goldman Sachs technology analyst Donald Lu raised his 12-month target to HK$95 from HK$84. Credit Suisse’s Colin McCallum lifted his rating to outperform, setting a price target of HK$101.
China Mobile, which is sitting on $51 billion in cash and equivalent assets, will increase its payout to investors at least 10 percent every year and dividend growth may climb at a faster pace than earnings, according to Jason Pidcock, who manages a 1.4 billion-pound ($2.2 billion) Asian equities fund at Newton Investment Management Ltd. in London.
Pidcock, whose fund has beaten 98 percent of its peers in the past five years, said he bought China Mobile shares last month. The company had 655 million subscribers as of January, twice the population of the U.S.
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