ValueInvst

China Mobile: Looks Like Value, Smells Like Growth

I didnt' have enough time to get into the "E" of the P/E ratio. The basic premise is that earnings might be substantially depressed as new competitors take market share through asymetric regulation and a weaker TD is CHL-funded and adoption is low. In the end, CHL will need to build on a better 3G technology. Which means that growth in earnings might fall short of exectations, which translates into a more fair value at current levels. My $70 price is only suggesting that if today's prices are fair for CHL, and growth is modest, then the stock should hit my cost in hopefully 2 yrs. So at current levels it is a better buy, but a long term hold. I have not factored in China volatility, but that's the simple math. This is a long term hold for me, so I am not too worried, but don't expect a huge surge in the stock b/c the older dynamics of a simple lower cell phone penetration is not enough. I did the same analysis you did five months ago.

China Mobile: Looks Like Value, Smells Like Growth

I don't agree with your analysis. It is too basic and doesn't go deep enough to the root of the problem. The problem lies with the Chinese central government and regulator (MIIT). Despite its depressed values, the Chinese want to have its telecom markets appear competitive both internally and in the world arena, and CHL is anything but that. As it grows so does it monopoly power in China's wireless market. As a result, the Chinese government has stepped in and placed asymmetric regulations on network sharing with rivals. This has the effect of allowing smaller competitors to "mooch" off of CHL's strategic network builds (almost for free), which will allow competitors to grow faster at CHL's expense. Furthermore, since CHL is the largest mobile operator in China, the MIIT administration is hard bent on the cultivation and success of TD-SCDMA mobile technology (China's own attempt at 3-G) and having CHL front the majority of the cost. In the meantime, CHL's smaller competitors are free to build better 3-G wireless technology that is more compatible and user-friendly for consumers. Again, competitors may be able to leap frog over CHL's hold on the the mobile market and take market share. Finally, TD technology is not only expensive to build but also requires heavy tailored subsidized mobile product offerings to even entice adaption by users. So, yes, CHL is seeing a lot of cash flow come in, but they are also putting it in the toilet through the TD initiative while competitors are getting stronger. I would suggest you do more work then simple P/E valuation, because the "E" and the implied growth in that multiple matters a lot in this new landscape. I own CHL at an average price of $70 and I hope to make back my money in two years.