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The world’s largest wireless carrier by users, China Mobile (NYSE:CHL), announced full-year 2009 results with earnings per ADS of US$4.16 beating the Zacks Consensus Estimate of US$3.98. Net income increased 2.3% year-over-year to RMB115.2 billion (US$17 billion).

The Chinese wireless behemoth reported revenues of RMB452 billion (US$66 billion), up 9.8% year-over-year, partly driven by increased contribution from value-added services (29% of total sales). EBITDA increased 5.9% to RMB229 billion (US$34 billion) with the EBITDA margin equating to 50.7%.

China Mobile’s value-added business that includes SMS, Color Ring, MMS and Mobile Music continues to grow rapidly with revenues increasing 16% to RMB131 billion (US$19 billion). The carrier’s on-line mobile application store “Mobile Market” has been a key contributor to this growth. Usage fee revenues grew 9.8% to RMB286 billion (US$42 billion) accounting for approximately 63% of total revenues.

The company added 65 million subscribers during 2009 and exited the year with 522 million customers (nearly 8% of the global population!), up 14% year-over-year. ARPU (average revenue per user) was RMB77 (US$11) compared to RMB83 (US$12) a year ago with the decrease resulting from the company’s strategy to attract more rural subscribers to expand coverage regions.

China Mobile achieved its 43% dividend payout goal in 2009 as the Board of Directors has proposed a final dividend of HK$1.458 (RMB1.284). This, coupled with the interim dividend of HK$1.346 (RMB1.187), brings the total dividend for 2009 to HK$2.804 (RMB2.471) a share.

3G Buildout

During 2009, the company made significant progress in expanding its 3G network (based on the home-grown TD-SCDMA standard) covering roughly 238 Chinese cities, representing 70% penetration. At the end of the year, China Mobile had 3.4 million 3G subscribers and 87,000 3G base stations. So far, the operator has invested roughly RMB80 billion (US$12 billion) for its 3G network construction.

The company recently revealed its plans to build more than 80,000 3G base stations in 2010 to cover all Chinese regions with its 3G TD-SCDMA network. The carrier plans to complete the nationwide deployment of its 3G network in 2010 instead of 2011.

Heavy Competition

However, despite its strong market position (70% market share), China Mobile faces the threat of market share erosion due to stiff competition from its peers China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) as they both operate internationally acclaimed technology-based 3G networks.

China Mobile plans to launch up to 30 new TD-SCDMA smartphones in 2010. The devices (called Ophones) are being developed using the company’s proprietary “Open Mobile System (OMS)” smartphone operating system based on Google’s (NASDAQ:GOOG) Android platform. The company has partnered with leading handset vendors such as Motorola (MOT), LG, Samsung, HTC and Dell (NASDAQ:DELL) for its Ophone project.

China Mobile is banking heavily on its information based services (including M2M and mobile e-commerce) offered to the corporate segment. In addition, the booming market for mobile Internet and the emerging business opportunity from mobile payments are expected to drive future growth.

The company is reportedly investing $5.8 billion to acquire a 20% stake in Shanghai Pudong Development Bank to jointly develop mobile finance and e-commerce services.

However, the lucrative but mature urban markets in China have prompted China Mobile to expand its business in the rural areas, considered a less affluent market base and with wireless penetration below 20%. As a result, ARPU is expected to remain under pressure moving forward.

We assess that a leading wireless portfolio, broad network coverage, 3G service deployments and first-to-market advantage in value-added services will continue to bolster China Mobile as the dominant wireless provider, far ahead of its nearest competitors. However, the impact of the global economic downturn on China, an intense competitive landscape and emergence of converged services represent key challenges for the carrier.

Source: China Mobile Beats Earnings Forecast