Aug. 16 (Bloomberg) — China Mobile Ltd., the world’s biggest phone company by subscribers, is on track for its slowest annual profit growth in at least 13 years after rising costs to lure users led it to post a decline in earnings.
Second-quarter net income fell to 34.40 billion yuan ($5.4 billion) from 34.42 billion yuan a year earlier, according to figures derived from first-half earnings reported to Hong Kong’s stock exchange today. That missed the projection of 35.6 billion yuan, the median of nine analysts’ estimates in a Bloomberg News survey.
The shares fell the most in more than a year in Hong Kong trading after quarterly profit dropped for the first time since 2009, according to data compiled by Bloomberg. Chief Executive Officer Li Yue is boosting capital spending to invest in a fourth-generation network and invest in 20 billion yuan in handset subsidies to maintain his lead in smartphone users over rivals China Unicom (Hong Kong) Ltd. and China Telecom Corp.
“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 fell as much as 5.3 per cent, the biggest intraday decline since Aug. 9, 2011, to HK$86.65. The stock changed at hands at HK$87.25 as of 3:28 p.m. and was the biggest drag on the MSCI Asia Pacific index.
The company is now projected to report 1 per cent growth in annual profit this year, down from 5 per cent last year, and the slowest pace since the 1999 financial year.
China Unicom and China Telecom are luring subscribers with Apple Inc.’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 per cent 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 a total of 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 and 57.5 million users of its 3G service in the same period, according to data released by Unicom last month. China Telecom was in third place with 144.2 million mobile subscribers, including 51 million 3G users.
Still, China Mobile’s share of 3G wireless users has dropped to 38 per cent at the end of June, from 44 per cent 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.
–Edmond Lococo. Editors: Anand Krishnamoorthy, Robert Fenner
To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at [email protected]
To contact the editor responsible for this story: Michael Tighe at [email protected]