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Summary

  • According to PWC, GDP per capita in China is expected to increase by 5% annually through 2050.
  • Per capita GDP (USD) in China is expected to rise from $6,091 to $37,042 by 2050.
  • Population in China is expected to be approximately 1.5 billion in 2050.

Investing in international markets can be a lucrative venture for those investors willing to take on the risk. International markets present investors with opportunities to participate in the radical growth in population and standard of living that is occurring outside of the United States and Europe. I provided a broad overview of the up-and-coming international economies in 2 BRICS You Should Use To Build Your Portfolio. This article will provide a more detailed look into the three Chinese telecommunications companies I highlighted at the end of 2 BRICS You Should Use To Build Your Portfolio.

Thanks to American Depository Receipts, or ADRs for short, investors can purchase shares of international companies that are required to adhere to rules similar to those followed by U.S. companies (e.g. GAAP), which alleviates some of the risk associated with cross-border and cross-currency investments. Three such companies are:

  1. China Mobile Limited (NYSE:CHL);
  2. China Unicom Limited (NYSE:CHU); and
  3. China Telecom Corp. Ltd. (NYSE:CHA).

Combined, these three companies provide mobile telecommunications services to approximately 91% of the Chinese population, or approximately 1.2 billion people. Chart 1 and Table 1 detail the annual year-end total subscriber count for each of the companies between 2009 and 2013.

Table 1. Annual Year-End Total Subscriber Count (millions)

CHL

CHU

CHA

2013

767

281

186

2012

710

239

161

2011

650

200

126

2010

584

167

91

2009

522

148

56

I obtained the total subscriber counts from each of the companies' public websites. On a percentage basis, CHA has grown its subscriber count the most between 2009 and 2013. CHA grew 232%, CHU 90% and CHL 47%. However, as of year-end 2013, CHL's subscriber count is more than 4.1 times larger than CHA, 2.7 times larger CHU and 1.6 times larger than both CHA and CHU combined. In fact, CHL is the world's single largest carrier by subscriber count, with more than 767 million subscribers.

What is fascinating about these three companies is the percentage of subscribers who currently use 2G, yes, 2G (better known as GSM) technologies, along with the number of 3G/4G subscriber each carrier has. Table 2 and Chart 2 detail the total annual year-end 3G/4G subscribers for each of the three carriers.

Table 2. Annual Year-End 3G/4G Total Subscriber Count (millions)

CHL

CHU

CHA

2013

192

123

103

2012

88

76

69

2011

51

40

36

2010

21

14

12

2009

3

3

0

I obtained the 3G/4G subscriber count from the company's public website. As you can see in Chart 2, CHL has grown it's 3G/4G subscriber count faster and larger than CHA and CHU. Each of these Chinese carriers has grown its 3G/4G subscriber count to rival or exceed the total subscriber count of both AT&T (NYSE:T) and Verizon (NYSE:VZ), with 110 million and 103 million subscribers, respectively. In fact, not only do the three Chinese carriers have nearly twice as many 3G/4G subscriber as do their American counterparts have in total subscribers, but these Chinese carriers have approximately 5.8 subscribers for every 1 subscriber AT&T and Verizon have.

Why this 3G/4G customer count is fascinating is because it means half to one-fourth of each of these Chinese telecom's customers will need to upgrade to more expensive, better performing 3G/4G technologies, unlike American telecoms AT&T and Verizon whose customers have already upgraded to 3G/4G technologies. This means these Chinese telecoms have approximately 816 million customers which still need to upgrade to 3G/4G. 816 million!

I also like these Chinese telecom's current dividend yields, price to book ratios and current price points.

Table 3. Current Dividend Yields and Price to Book Ratio

Company

Dividend Yield

Price to Book

China Telecom Corp. Ltd.

2.20%

0.82

China Mobile Limited

4.10%

1.49

China Unicom (Hong Kong) Limited

1.70%

0.91

AT&T, Inc.

5.10%

2.07

Verizon Communications Inc.

4.50%

3.47

Source: Yahoo! Finance

As can be seen in Table 3, both CHA and CHU trade below book value, CHL trades at only 1.5 times book value and both T and VZ trade above 2 times book value. Unfortunately, the low price to book value Chinese securities also have the lowest dividend yields, which are nearly one-half to one-third of their American counterpart's dividend yields. What I like even more than the valuations and yields are the current price points of these telecoms, which are detailed below in Table 4.

Table 4. Current Price Points

Company

Price

52-Week Low/High

52-Week Midpoint

Below 52-Week Midpoint?

China Telecom Corp. Ltd.

$46.08

$40.25

$55.19

$47.72

Yes

China Mobile Limited

46.90

41.35

57.42

49.39

Yes

China Unicom (Hong Kong) Limited

13.82

11.71

17.19

14.45

Yes

AT&T, Inc.

36.04

31.74

39.00

35.37

No

Verizon Communications Inc.

47.60

45.08

54.31

49.70

Yes

Source: Yahoo! Finance

As Table 4 shows, all but AT&T trade below the midpoint of their 52-week low/high range. Each of the Chinese telecoms currently trade around 15% above their 52-week lows, while Verizon trades for less than 6% above its 52-week low. While some investors like to select securities that are currently trading near their 52-week high, I like to buy my stocks when they are nearer their 52-week low, which in my mind is akin to buying that sport coat or dress you have had your eye on when it goes on discount.

I already own AT&T, Verizon and China Mobile Limited. I have owned AT&T and Verizon for a number of years and purchased China Mobile Limited earlier this year. Only a few weeks after I purchased CHL, the stock dropped nearly 14%, and I would have purchased more if I had any extra investment capital lying around. The huge price drop has all but recovered and I'm content to hold CHL, T an VZ for the long-term.

Source: 3 Telecom ADRs To Consider Before China's Economy Rises