Should you be worried about China Mobile?

After last week’s poor macroeconomic data from China and China Mobile’s (CHLquote) stymied attempts to enter the U.S. market, investors in the company could be forgiven for reconsidering their options. 

Image courtesy Colegota:

China mobile store in Tai Sheng Nan Lu street, Chengdu, China

However, upon further inspection, it becomes apparent that the fundamental story driving CHL remains intact.

Last week, disappointing retail, trade, and investment data pressured Chinese markets and raised concerns that China’s economy would not grow as fast as had been previously predicted. Banks like UBS lowered their growth forecasts accordingly.

While China almost certainly will not expand as quickly as previously thought, the economy will still grow at a 7-8% clip. At this rate, millions of people will still enter China’s middle class annually, and the incomes of those already in the middle class will continue to appreciate.

In China’s 1 billion-strong, mobile phone-obsessed society, plenty of this newly created wealth will go to the purchase of mobile services provided by companies like CHL, China Telecom (CHA, quote), and China Unicom (CHU, quote).

U.S. officials have indicated that they will block CHL’s plans to offer international service to American customers due to concerns over intellectual property rights and espionage. Regardless, it changes very little about the potential for the stock’s appreciation over the medium-term. As more and more Chinese middle class citizens switch to lucrative 3G services, CHL’s price will continue to rise. International ventures are not necessary at this point to ensure continued CHL profits.

In fact, the two abovementioned hiccups are far less important to CHL’s fundamental story than a possible deal between CHL and Apple (AAPL, quote) to sell the iPhone.

In spite of Chinese growth and international expansion concerns, CHL, with its low trailing P/E of  11.38 and its 3.82% dividend, remains attractive at these levels.


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