China Mobile Ltd. (941), the world’s biggest phone company by subscribers, fell the most in more than a year in Hong Kong trading as profit growth cooled to the slowest annual pace in at least 13 years.
Shares closed down 5 percent, the biggest decline since Aug. 9, 2011, at HK$86.65 after the company posted second- quarter profit that missed analysts’ estimates because of rising costs to lure customers. Profit in the three months ended in June fell to 34.40 billion yuan ($5.4 billion) from 34.42 billion yuan a year earlier, according to figures derived by Bloomberg News from half-year numbers reported today.
Chief Executive Officer Li Yue is boosting capital spending to invest in a fourth-generation network and planning 26 billion yuan in handset subsidies to maintain his lead in smartphone users over rivals China Unicom (Hong Kong) Ltd. (762) and China Telecom Corp. (728) Growth in net income may be 1 percent this year, down from 5 percent last year and the slowest pace since 1999.
“Pressure is still there,” Jim Tang, an analyst at Shenyin Wanguo Securities Co. in Shanghai, said of China Mobile’s results in an e-mail today. “Eyes are on 4G now. It won’t happen before 2013.”
China Mobile was the biggest drag in the MSCI Asia Pacific Index today, trimming this year’s gain to 14 percent, after quarterly profit dropped for the first time since 2009, according to data compiled by Bloomberg. The company’s second- quarter earnings missed the projection of 35.6 billion yuan, the median of nine analysts’ estimates in a Bloomberg News survey.
China Unicom and China Telecom are luring subscribers with Apple Inc. (AAPL:US)’s iPhone, which doesn’t work on China Mobile’s 3G network.
“We faced a number of severe challenges including the increase in mobile penetration, intensified competition, as well as the impact of new technologies and services,” China Mobile Chairman Xi Guohua said in today’s statement. “The competition for customer value will become more fierce.”
Sales rose 5.4 percent to 139.1 billion yuan from 131.9 billion yuan in the quarter, according to Bloomberg calculations. That compares with the 140.5 billion-yuan median of nine analyst estimates.
China Mobile had 683.1 million mobile-phone subscribers at the end of June, including 67.1 million users of the high-speed, third-generation service that smartphones use to access the Web, the company announced last month.
That compares with China Unicom’s 219.3 million total subscribers, including 57.5 million users of its 3G service in the same period, according to data released by the carrier last month. China Telecom was in third place with 144.2 million mobile subscribers, including 51 million 3G users.
China Mobile increased its estimate for handset subsidies by 6 billion yuan from the company’s previous forecast, Xi said at a press conference in Hong Kong today.
“The upward adjustment of handset subsidies will be very effective to promote the development of our 3G network,” Xi said. “Most of the subsidy will be for smartphones.”
Still, China Mobile’s share of 3G wireless users dropped to 38 percent at the end of June, from 44 percent a year earlier, and the company will continue to concede market share, Marvin Lo, a Hong Kong-based analyst at Mizuho Securities, wrote in a July 23 report.
“Definitely the pressure is building,” Alen Lin, an analyst at BNP Paribas Securities Asia in Hong Kong, said before the announcement. “Both handset subsidies and marketing expenses in general are rising to stimulate subscriber growth.”
Lin cut his rating on China Mobile’s shares to hold from buy this week, citing the impact the rising spending would have on profitability.
The company is counting on the move to a 4G network, based on technology known as TD-LTE, to stem that decline among users who watch videos and play games on their phones. Its homegrown 3G network left it unable to offer popular handsets, including the iPhone, which is now available from both China Unicom and China Telecom.
China Mobile’s state-owned parent company this year will expand its 4G trial to nine cities, from six last year, and add 20,000 base stations to the 900 it tested last year, the company said in March. The total number of 4G base stations will exceed 200,000 next year, the company said.
China Unicom and China Telecom both report earnings next week.
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