The world’s largest telecommunications operator in the world by subscribers, China Mobile, has raised Rmb48.7 billion ($ 7.6 billion) on the Shanghai Stock Exchange in China’s largest public offering in a decade. A low-growth investment case has been offset by the regulatory clouds hanging over other blue-chip technology companies on the continent.
Its share price rose on its first day against a falling market. The offer price of Rmb57.58 places a 40 percent premium on the closing price of its Hong Kong listed shares. This gap is not uncommon for secondary listings on the mainland, given the more closed nature of the market.
But compared to local counterparts, it is not expensive. Shares of China Mobile are trading more than 12 times the estimated 2021 earnings, in line with telecommunications such as Japan’s KDDI and among others Hong Kong-listed mobile operators such as SmartTone.
As Beijing continues its suppression of a wide range of industries, all investors will wonder which sectors are safe. While the large local technology groups remained risky, new listings were scarce. The beginners doing IPO were rarely profitable.
China Mobile seems to be a defensive choice. It controls 70 percent of the local market. With Rmb344 billion in cash and equivalents from September and estimated annual free cash flow of more than Rmb130 billion, it barely needs the funds. Operating margins of 16 percent are double those of local counterpart China Telecom.
Another positive for investors is the fat dividend yield of 7 percent. It should rise further. Local telecommunications companies had to keep their investments in check last year, as chip shortages meant that orders for network equipment were not met.
After observing a 30 percent decline in the past year for former high-flyers such as e-commerce group Alibaba and gambling group Tencent, investors can continue to buy. State-owned China Mobile is benefiting from growing local demand for 5G, backed by Beijing’s encouragement to spread the technology. This should mean clearer air for China Mobile given rising regulatory risks.
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