Buy Market Leader China Mobile

We maintain our Buy recommendation with a higher valuation target for China Mobile Limited (CHL - Snapshot Report), the largest mobile service provider of the world according to subscriber count, following its first quarter 2008 financial results, in line with our expectations. Successful expansion initiatives in rural regions of China, along with effective network optimization strategies and the introduction of customized mobile value-added services for different market segments, were enabling factors during the reporting period.

China Mobile currently commands 69% share of the total Chinese wireless market. Given the low level of mobile penetration in this region, significant opportunities remain for the company. However, the proposed restructuring of the Chinese wireless market by regulatory authorities, lingering delays of commercial TD-SCDMA (3G) networks, and recent recessionary expectations throughout the world may inject transient business fluctuations for carriers in this part of the world.

At 28.7x our estimated 2008 EPADS, China Mobile is trading at a significant premium to both its peer group (other Asian carriers) and S&P 500 averages. With respect to other selected valuation metrics, the stock is also trading at a significant premium to its peer group average.

According to our view, this valuation premium is justified given the company's solid growth prospects. Once 3G licenses, and any industry restructuring initiatives, have been announced in China, the competitive environment is expected to intensify as one or more new entrants are likely to gain access to the massive wireless market in this region.

However, we believe China Mobile is best positioned to capture the lion's share of this market. We, therefore, maintain our Buy rating and raise our six-month target price to $95 based on a 31.9x P/E multiple to our fiscal 2008 earnings estimates as growth rates in China continue to remain well above the worldwide averages.

Nalak Das contributed to this report.

Read the full analyst report on CHL.

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