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China Mobile spends $13.2 billion on buyback


Now also listed in Shanghai

There are many ways to respond to a mid-life crisis. Some people overhaul their lifestyles and adopt healthier habits. Some find new interests. Others splash the cash to cheer themselves up or hook up with someone new.

China Mobile has just tried a mixture of all four, although as domestic website Telecom Insights argues, the company is a little early for ‘mid-life’ angst (it was founded in 1997 following the break up of China Telecommunications.).

Once a darling of the New York and Hong Kong bourses, China Mobile was eclipsed in investors’ eyes by a younger generation of Chinese stars like the BAT troika and Bytedance. As a slower moving telco, it seemed to have lost the dynamism and growth of its youth.

Its stock price has been on a consistently downward trajectory too, since hitting a high of HK$154.2 in October 2007 in Hong Kong. By the beginning of January last year it had fallen to a low of HK$45.5. The financial burden of installing 5G networks was crushing and geopolitical pressures meant that it was heading for a delisting from the NYSE as well (a move executed early last summer).

But China Mobile is in the process of reinventing itself. New York is out, but a new partner is most definitely in – in early January there was a new listing on the Shanghai Stock Exchange.

And although China Mobile may no longer have quite the same cachet it once enjoyed, it’s still a big hitter in the domestic share market, or a “Big Mac” as the local press have dubbed it. Its recent Shanghai share sale raised the most capital since Agricultural Bank of China’s IPO just over a decade ago: Rmb56 billion ($8.79 billion), post-greenshoe. The stock has held its value in early trading as well, opening at Rmb57.71 before WiC went to press today (the IPO price was Rmb57.58).

The telco buttressed its debut in Shanghai with another deal: management announced plans to buy back up to 2.05 billion Hong Kong shares. Analysts described the move as an early gift for Chinese New Year – based on current trading (at around the HK$50 level), the transaction will cost China Mobile about HK$103 billion ($13.21 billion). The huge buyback represents just over 10% of China Mobile’s issued share capital in Hong Kong.

To tempt growth-hungry investors back onto its register, it will need to offer something more. There are plenty of ideas for diversification, like those of telco analyst Fu Liang, who told the Economic Observer that the company must look beyond “ordinary [phone] users”. “Smart factories and Smart Hospitals: that’s where future profits should be,” he reckoned.

China Mobile has spent more than Rmb100 billion in each of the last two years on its 5G infrastructure rollout. But 2022 should represent the peak for expenditures and analysts believe that it will then have a chance to cash in on all the investment.

Achieving that would represent a break with previous practice, when the government has often stepped in to spread the windfall profits of technology upgrades beyond China Mobile’s coffers and its shareholders.

The company currently boasts 956 million individual customers, more than China Unicom and China Telecom combined. Of these 251 million are 5G subscribers and the telco hopes to monetise them through a series of private 5G networks which combine the strengths of fixed line (reliability and stability) and mobile networks (flexibility) for the first time. Then there are the various subsidiaries under its Migu sub-brand in areas like video, music and gaming. Telecom Insights notes that Migu Music not only ranked third among online music apps in December but also holds the entire catalogue of Mandopop legend Jay Chou, for instance. “Unlike other apps, they don’t just have all his songs but they’re free to listen to as well,” the author enthused.

There are already indications that China Mobile bosses will pursue a separate listing for Migu Video. In 2018 it purchased the rights to the World Cup and broadcast the Tokyo Olympics last year.

Realising more value from initiatives like these could persuade investors that the company deserves a higher valuation. According to S&P Global Market Intelligence data, China Mobile stock is trading at just 6.82 times 2021 estimated earnings, well below Vodafone’s 12 times or T-Mobile’s 43.

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