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Dhinesh Ganapathiappan , Fund Manager Gary Chan , Senior Analyst Connie Poon , Analyst

RESEARCH. Company : China Mobile Limited Industry : Wireless Communications Recommendation : Moderate Buy One Year Target Price : $56 (+17%) Date Prepared : Nov 12, 2009. Dhinesh Ganapathiappan , Fund Manager Gary Chan , Senior Analyst Connie Poon , Analyst Ken Bruns , Analyst. China.

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Dhinesh Ganapathiappan , Fund Manager Gary Chan , Senior Analyst Connie Poon , Analyst

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  1. RESEARCH Company: China Mobile Limited Industry: Wireless Communications Recommendation: Moderate Buy One Year Target Price: $56 (+17%) Date Prepared: Nov 12, 2009 Dhinesh Ganapathiappan, Fund Manager Gary Chan, Senior Analyst Connie Poon, Analyst Ken Bruns, Analyst

  2. China • World’s most populous country in the world with 1.3 billion people in 2008, expected to reach 1.4 billion by late 2010’s • Fastest growing economy in the world with an average GDP growth of 10% a year the last 30 years • Expected to overtake the United States with the world’s largest GDP by 2020 • Attracted $117 billion foreign direct investment in 2008 • Government liberalizing and becoming more free-market • Gained global exposure with the 2008 Beijing Olympics • Launched $586 billion stimulus in response to the global slowdown of 2008/09 • Every month there are 5 million more mobile phone users and a current mobile phone penetration of 52.5% • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation

  3. Company Profile • Formed in 2000 when China Mobile split off from then-monopoly China Telecom • China’s dominant mobile service provider and the world’s largest mobile network operator • Listed on the NYSE and Hong Kong Stock Exchange • 60% market share in China, serving more than 508 million people, up from 384 million in 2008 • Provide 3 main services: Standard voice, value-added, and data • Average monthly revenue per user is 75 yuan ($11 USD) • #1 most valuable brand in China according to CLSA • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation

  4. Recent Developments • Focusing on capturing lucrative rural population • Added 5.68 million new subscribers on average each month over the last nine months • China awarded 3G operating licenses to China Mobile, China Unicom, and China Telecom in January 2009 • Spending heavily on a new 3G network, with the 3G subscriber base expected to pass 100 million in 2011 • Reported its first quarterly year-over-year profit decline in years during the second quarter • Will carry the new Dell Smartphone by month-end • Lost iPhone exclusivity to competitor China Unicom • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation

  5. Industry Analysis • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation Wireless Communications, China

  6. Key Statistics • Price: $48.00 • P/E Ratio: 11.8 • Market Cap: $192.5 billion • Beta: 0.82 • % Held by Institutions: 1.7% • Profit Margin: 26.4% • Return on Equity: 25.9% • Dividend yield: 3.5% • 1 year average analyst estimate: $57 • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation

  7. Financials • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation

  8. Technical Analysis • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation 1 year view

  9. Technical Analysis • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation 3 month view

  10. Technical Analysis • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation 1 month view

  11. SWOT Analysis • Strengths • #1 in Chinese market (60% market share, world’s largest mobile network and subscriber base) • Many previous acquisitions helped fuel growth (Beijing Mobile, Shanghai Mobile, Paktel) • Strong and stable financial position and brand value • Weaknesses • Lag behind in technology relative to Western service providers in terms of slow 3G growth • Lack of international diversification • Profit growth has fallen to a stand-still • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation

  12. SWOT Analysis • Opportunities • Growth in Chinese population and mobile penetration • Budget sector growth in rural areas • New frontiers • 3G rollout • Threats • Chinese government policies (ex: obligation to run business even if unprofitable) • Low subscription growth in major cities • Competition among local firms and lower-cost plans • Loss of exclusivity contracts for major phones (iPhone) • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation

  13. Recommendation • China Mobile is a mature cash-cow company that will dominate the growing Chinese wireless telecom industry • Conservative way to play China, downstream companies that provide technology to CHL will produce better returns • We expect China Mobile to report $4.50 a share in earnings for FY 2010, higher than the $4.19 analyst consensus • In the US, AT&T and Verizon trade at 12x forward earnings • 11 x $4.50 = $49.50 (Bear case: Loss of market share) • 12.5 x $4.50 = $56.25 (Base: Continued dominance) • 14 x $4.50 = $63 (Bull case: Extraordinary execution) • Company Profile • Industry Analysis • Key Statistics • Technical Analysis • SWOT Analysis • Recommendation

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