Emerging market telecom companies are garnering increasingly more revenue from mobile internet services, according to a report from ABI Research.
This is a particularly bullish trend for Chinese telecom firms. Internet service revenue accounts for more than 40% of revenue in the more developed Japanese and Hong Kong markets. As smartphone penetration deepens in the Mainland Chinese market, Chinese telecom firms can expect to see similar revenue percentages generated from lucrative internet services.
Playing Chinese telecom firms like China Mobile (CHL, quote), China Unicom (CHU, quote), and China Telecom (CHA, quote) not only gives investors exposure to China’s fast-growing middle class, but also provides a good defensive play in the event of a hard-landing.
Smartphone penetration is unlikely to wane in the event of an economic slowdown because models are becoming perpetually less expensive. As more and more of the Chinese middle-class start to use these devices, Chinese telecoms will profit substantially. Increased profits from internet services could allow these companies to increase their already sizable dividends.
Investors looking to play the Chinese telecom space should pay particular attention to China Mobile. China Mobile offers a 3.78% dividend, has a trailing P/E of 10.98, and is trading above its 50, 100, and 200-day moving averages.
Also, the company is currently unable to officially offer the Apple (AAPL, quote) iPhone on its network. If the rumors that CHL may soon offer this smartphone juggernaut are true, the stock could surge higher.
Disclosure: Author and immediate family are net long AAPL.