China Mobile’s net profit remains stable, slightly up 2 percent in 2016

China Mobile Limited, the largest telecommunications services provider in Mainland China, announced on March 23 a 0.2 percent increase in its 2016 net profit compared to a year earlier, despite a one-off gain boosting the net profit of previous year.

Mainly driven by the revenue from telecommunications services, the company’s net profit slightly rose 0.2 percent to 108.7 billion yuan ($15.8 billion) in 2016 from 108.5 billion yuan a year earlier, according its 2016 annual results statement. The net profit increased 10.5 percent by deducting the one-off gain on the transfer of tower assets in 2015.

China Mobile’s revenue rose 6 percent to 708.4 billion yuan in 2016, compared to 668.3 billion yuan of the previous year. Revenue from telecommunications services grew 6.7 percent to 623.4 billion yuan from a year earlier, recording a five-year-high and ranking the first in the industry. Wireless data traffic revenue, accounting for 46.2 percent of telecommunications services revenue, was the biggest contribution, which increased 43.5 percent from the previous year. It surpassed the combined revenue of voice, Short Message Service and Multimedia Messaging Service, for the first time in the company’s history.

China Mobile’s 2016 net profit met the 108-billion-yuan expectation made by 23 analysts from Thomson Reuters, while the revenue was less than the estimation of 714.6 billion yuan.

Becoming a unicorn in Mainland China, China Mobile runs far ahead of the other two state-owned telecom carriers—China Unicom and China Telecom—with both net profit and revenue in 2016 exceeding the combination of the two competitors. Net profit of China Unicom and China Telecom shrank to 625 million yuan and 18 billion yuan, falling 94.1 percent and 10.2 percent respectively from a year earlier.

China Mobile reported a net addition of 223 million 4G mobile telecom customers in 2016, bringing the total 4G customer number to 535 million, in the statement. The company now has the largest 4G network in the world with 63 percent 4G penetration rate of its mobile customers.

Shang Bing, Chairman of China Mobile, said in the announcement that the company’s profit had risen by 24 times, revenue increased by 68 times and market capitalization expanded by 13.5 times in the past two decades after its public listing at Hong Kong Stock Exchange.

However, a new round of “speed upgrade and tariff reduction” government policies in 2017 will impact China Mobile’s revenue and net profit with a decrease of around 15 billion yuan, according to the company’s calculation. The company didn’t disclose the detailed expectations of next year’s net profit.

Mitchell Kim, an analyst on Internet and Telco’s at Kim Eng Securities (HK) Ltd, estimated China Mobile’s net profit would reach 116.4 billion yuan in 2017 and 129.8 billion in 2018. “We continue to believe in the long-term 4G data upside based on China’s current low data usage per subscriber,” he mentioned in a report. “But we incorporated a softer revenue growth scenario for China Mobile to reflect the impact from the accelerated cuts in domestic long distance and roaming charge.”

Timothy Chau, a research associate at Jefferies Hong Kong Ltd, however, expected a relatively lower net profit of China Mobile of 112 billion yuan in 2017. “We are the only ones on the street who have a negative view towards China Mobile, due to a forecasted high capex outlook in preparation of 5G, continuing intense price competition within the industry and pressure from government policies,” he said.

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