1H22 revenue in line, attributable net profit beats
China Mobile (CM) announced its 1H22 results: Revenue grew 12.0% YoY to Rmb496.93bn and net profit attributable to shareholders increased 18.9% YoY to Rmb70.28bn. The revenue is in line with market expectations thanks to accelerated provisioning for depreciation in 1H21. CM’s attributable net profit beat market expectations on the solid growth of earnings from government and corporate clients. In 2Q22, revenue grew 9.9% YoY to Rmb269.61bn and attributable net profit increased 27.3% YoY to Rmb44.65bn.
Trends to watch
ARPU growth slowed due to COVID-19; diversified applications fueled fast growth of revenue from the home market. In 1H22, CM’s revenue from the “customer market” edged up 0.2% YoY to Rmb256.1bn. Customers of mobile services declined in 1H22 as COVID-19 restricted travel and thus drove up the number of household broadband users. Consequently, average revenue per user (ARPU) of mobile services registered slower YoY growth of 0.2% to Rmb52.3. We believe that the growing popularity of MIGU Video and other new apps will fuel growth in mobile data traffic, boosting growth in revenue of the customer market over the long term. In 1H22, revenue from the home market grew 18.7% YoY to Rmb59.4bn. The overall ARPU of household broadband services increased 4.6% YoY to Rmb43.0 thanks to new businesses such as Mobaihe set-top boxes. We expect CM to continue to explore new household applications, giving a further boost to the booming home market.
Revenue doubled for the cloud business and maintained robust growth from government and corporate clients. In 1H22, revenue from the business market increased 24.6% YoY to Rmb91.1bn. Specifically, revenue from the cloud business jumped 103.6% YoY to Rmb23.4bn. We believe the firm will continue to expand the scale of the client base of its cloud business in various segments, leveraging advantages in user base and cloud-based network resources.
EBITDA steadily growing; increased shareholder returns in 1H22. CM’s EBITDA gained 7.4% YoY to Rmb173.91bn in 1H22, and the EBITDA ratio (the ratio of EBITDA to revenue) reached 35%. We expect CM’s EBITDA to maintain steady growth as the firm continues to improve its sales channels. In 1H22, the firm distributed a dividend of HK$2.20/sh, implying a dividend payout ratio of 57%, up 10ppt vs. 1H21. The firm promised to increase its dividend payout ratio to 70% by 2023.
Financials and valuation
We maintain our 2022 and 2023 earnings forecasts. H-share is trading at 7.6x 2022 and 6.9x 2023 P/E. A-share is trading at 10.7x 2022 and 9.7x 2023 P/E. For H-share, we maintain OUTPERFORM and our TP of HK$75.00 (10.9x 2022 P/E and 9.9x 2023 P/E), offering 42.9% upside from the current price. For A-share, we maintain OUTPERFORM and our TP of Rmb81.00 (13.7x 2022 P/E and 12.4x 2023 P/E), offering 28.2% upside from the current price. A-share implies a dividend yield of 5.9% for 2022e and H-share implies 8.3%.
Risks
Disappointing business transformation and expansion; slower-than-expected 5G development.