China Mobile Ltd. (941), the world’s biggest phone company by subscribers, increased third-quarter profit as handset subsidies helped attract data users to its high-speed network.
Net income climbed 1.3 percent to 31.1 billion yuan ($5 billion), from 30.7 billion yuan a year earlier, according to figures derived from nine-month data the Beijing-based carrier released to the Hong Kong Stock Exchange yesterday. Profit was projected at 30.8 billion yuan, according to the median of seven analysts’ estimates in a Bloomberg News survey.
Chief Executive Officer Li Yue in August said he’d boost handset subsidies by 30 percent to 26 billion yuan this year as he fights to maintain the lead in smartphone users over China Unicom (Hong Kong) Ltd. (762) and China Telecom Corp. Smartphone users attracted by the subsidies are boosting China Mobile’s sales from downloading videos, games and music.
“The net profit was slightly ahead of our forecast,” said Lisa Soh, a Hong Kong-based analyst with Macquarie Group Ltd. who had projected net income of 30.1 billion yuan. “Overall growth was still only 1.3 percent year-on-year, so growth is still a problem for China Mobile,” said Soh, who rates the stock neutral due to the weak profit outlook.
Sales in the quarter rose 6.2 percent to 142.1 billion yuan, from 133.8 billion yuan, compared with an estimate for 141.7 billion yuan.
China Mobile rose 1.1 percent to HK$85.45 at the close in Hong Kong trading, before the earnings were announced. The stock has gained 13 percent this year, against an 18 percent gain in the benchmark Hang Seng Index.
China Mobile had 698.5 million subscribers at the end of September, including 75.6 million users of the high-speed, third-generation service that allows smartphones faster Internet access.
During the first nine months, data traffic over the carrier’s wireless networks surged 61 percent to 626 billion megabytes, from 389.2 billion in the year-earlier period, China Mobile said. Data traffic was driven by users downloading videos and e-books, and accessing e-mail, the company said.
“The favorable development of the data business and in particular the wireless data traffic was effective in stabilizing the” average revenue per user, Chairman Xi Guohua said in the statement. Average revenue per user for the nine months was 67 yuan, unchanged from a year earlier, it said.
While China Mobile’s total wireless subscribers in August represented 65 percent of the market, it held just 38 percent of the 3G segment that month as China Unicom and China Telecom gained share, according to the user data for all three carriers.
“We expect China Mobile’s increased focus on 3G network quality and smartphone promotion will gradually boost data revenue growth and will likely start to drive overall revenue growth” from the second half of next year, Bin Liu, a Hong Kong-based analyst with Citigroup Global Markets Inc., wrote in an Oct. 15 report. China Mobile “may see some challenges in revenue growth and margins in the next half year.”
The company is counting on the move to a 4G network, based on technology known as TD-LTE, to stem the decline in market share among users who watch videos and play games on phones.
China Mobile in August said its state-owned parent company will expand a 4G trial to 20,000 base stations in 13 cities in the second half, from seven cities in the first six months. That expansion will provide 90 percent coverage in key areas of Hangzhou, Shenzhen and Guangzhou, the company said then. By next year, the carrier plans to expand the trial to 200,000 4G base stations.
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