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It seems highly likely that China Mobile (CHL) will announce a distribution partnership with Apple (AAPL) in the near future. The evidence for such a deal has escalated recently and is getting substantive. I just penned an article on how this deal would be a significant positive catalyst for the giant from Cupertino. Let's now look at the positive effect this partnership is likely to have on China Mobile and its ~700 million subscribers.

One of the reasons this deal has taken so long to come to fruition is that China Mobile is trying to drive a much better deal for itself than what other large telecom carriers, such as Verizon (VZ) and AT&T (T), have agreed to. Although this has kept the iPhone out of China Mobile's subscriber base until this point, it should mean much better margins and faster payback periods than other carriers have achieved, since it looks as if it will get at least some solid concessions.

China Mobile has prepared for this possible deal by allocating some $7 billion this year to build out its 4G capabilities. The company should also benefit from the larger data usage iPhone users typically demand. Analysts' estimates range from approximately 15 million to 30 million additional iPhones being sold in China during 2014 if this deal is consummated. This will be a positive catalyst for both companies' growth prospects, and it is just one of a myriad of factors that makes China Mobile attractive at its current price of ~$56 a share.

Valuation and Investment Thesis

The company has a solid balance sheet with net cash on the balance sheet, and the stock sells for less than 6x operating cash flow. The buildout of its 4G network should also benefit and drive additional data usage from the company's more than 700 million subscribers. This network will support the iPhone as well as other 4G devices.

For income investors, the stock pays a juicy 4% dividend and has more than doubled its dividend payouts over the past six years. Analysts are projecting earnings will increase better than 40% (this is before any iPhone deal) in 2014, so significant dividend increases could happen in the future.

Finally, revenues are already growing nicely, with sales tracking to a 20% gain this fiscal year. An Apple deal should accelerate that growth rate north of 30% in FY 2014. This revenue growth and dividend yield paying just under 13x next year's earnings after subtracting China Mobile's net cash balance is very reasonable. It is cheaper on a forward P/E basis than either Verizon (15.6) or AT&T (13.3), even though its earnings and sales growth is much faster. China Mobile is a buy.

Source: Buy China Mobile Before Apple Deal Is Announced