In the telecom sector, state-owned China Mobile Ltd. (ADR) (NYSE:CHL) is the world’s largest mobile phone operator by subscribers, with about 700 million customers. It’s not just the large client base that is impressive, but also the way it is run, assuring share holders that their investment is in good hands.
Proof of this is the New York Stock Exchange said that China Mobile Ltd. (ADR) (NYSE:CHL) is the 7th best managed company among publicly listed Asian companies, 2nd best in corporate governance, and also 2nd best in commitment to strong dividend payment.
The company also has global industry recognition, such as its 8th place ranking in 2012 in the Financial Times’ Global 500, the 31st spot in Forbes Magazine’s Global 2000, and corporate credit ratings of Aa3/Outlook Positive and AA-/Outlook Stable, from Moody’s and Standard & Poor’s, respectively, the equivalent to China’s sovereign credit rating.
With its offer of fixed line and mobile services, Internet services, and digital television covering mainland China, Hong Kong, and Pakistan, a lot of Western mobile phone manufacturers seek a deal with China Mobile since the sales of their smart phones would benefit drastically from being sold to China Mobile’s user base.
Tie-up with manufacturers that sell affordable units
The Chinese market became a stronghold for Finnish phone manufacturer Nokia Corporation (ADR) (NYSE:NOK) after China Mobile Ltd. (ADR) (NYSE:CHL) activated 2 million units of the Nokia Lumia phone. Nokia is also releasing the Lumia 520 and 720 models in China sometime in Q2. Both models run on the Microsoft Windows 8 platform.
Nokia Corporation (ADR) (NYSE:NOK) used to be the #1 mobile phone maker until Apple Inc. (NASDAQ:AAPL) and Samsung relegated Nokia to third place. However, Nokia is far from a losing business, ending 2012 with a strong balance sheet and solid gross cash position of €9.9 billion
Nokia Corporation (ADR) (NYSE:NOK) is also scheduled to roll out more lower-end smartphones, which will definitely sell in the Chinese market where few consumers can afford the $500 Apple iPhones. The Lumia 720 and 520 would be sold for €249 and €139, respectively, and two more affordable units, the Asha 105 and 301, are slated to have Chinese launches priced at €65 and €15, respectively.
Although Apple Inc. (NASDAQ:AAPL) produces high-end units, reports said that Apple CEO Tim Cook had discussions with China Mobile, apparently to secure a deal similar to Nokia’s, a deal which offered customers of China Mobile the Lumia 920T free in exchange for a long-term contract with the telecom provider.
In mid-2012 China Mobile opened discussions with Apple to allow newer iPhone models, beginning with iPhone 5, to use the company’s network, which previously relied solely on China-only 3G standards. Cook is hoping the strategy would help reverse the 20% decline in Apple’s share prices for the past 12 months due to concerns over the slow growth of Apple shipments to overseas markets. Despite the fall in share prices, Apple Inc. (NASDAQ:AAPL) is very much a stable company and reported Q1 2013 net profit of $13.1 billion, or $13.81 earnings per diluted share.
Benefitting from the government’s protectionist policy
It works to China Mobile Ltd. (ADR) (NYSE:CHL)’s benefit that the state-owned company is directly controlled by the People’s Republic of China. The company has controlled 70% of the domestic market since its inception in 1997, leaving the remaining 20% to China Unicom and 10% to China Telecom.
China Mobile Ltd. (ADR) (NYSE:CHL) grew to that size partly because of a substantial protectionist policy by the national government and frequent government intervention in its business affairs. Its niche is the rural market as Chinese farmers use their mobile phones and the internet to sell agricultural products, gain access to market prices for their produce, and facilitate wire transfers for payments and bank withdrawals.
As a result of government protection and a deep market, China Mobile reported a 6.6% operating revenue growth in the first half of 2012 compared to the same period in 2011, reaching RMB266.5 billion. Thus, diluted earnings per share rose to RMB3.06 from RMB3.02 the previous year. Over the past 12 months, China Mobile’s share price had been steady, averaging in the mid-$50s.
No way but forward
If 2012 was a good year for China Mobile, 2013 promises to be even better as smart phones are expected to make up the majority of the global phone market at 50.1%, according to IDC.
With Western and even Asian phone manufacturing firms gearing for a release of their units in the Chinese market, shareholders will benefit from the exponential growth of the Chinese mobile phone and internet market.
If only to indicate how far China Mobile has gone, in 2003 and 2007, the telecom service provider made available mobile services on Mount Everest, the world’s tallest peak. In May 2011, it extended its network reach to the disputed Spratly Islands in the Philippines.
Reverse flow
While Chinese balance of trade with Western nations has been mainly in favor of China due to the large volume of cheap goods produced at lower labor cost, Western investors could profit from the world’s largest consumer market–not by exports, but through investing their dollars on China Mobile Ltd. (ADR) (NYSE:CHL) stocks.
A company that keeps on growing its market, aided by protectionist policies from the national government and good governance, will continue to generate profits for shareholders, whether in China or the West, hopefully as fast as China’s population keeps growing.
The article China Mobile’s True Global Value originally appeared on Fool.com and is written by Jeremiah Feliciano.
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