Large-cap foreign telecom firm China Mobile (CHL) reported solid financial results for the first three quarters of 2007, which is one of the factors for Zacks senior telecommunications sector analyst David Weissman, CFA to reiterate his Buy rating on the shares. The following excerpts explain his position:
'Expansion initiatives by China Mobile into untapped rural regions, effective network optimization strategies, and the introduction of customized mobile value-added services to suit the needs of different market segments enabled the company to deliver encouraging third quarter 2007 financial results. China Mobile currently services over 66% of total wireless subscribers in China, far ahead of its closet rival China Unicom (CHU).
'Given the low level of mobile penetration in this market, there still remains significant growth potential for the company. Furthermore, the Chinese market is expected to see the launch of 3G mobile services (TD-SCDMA) before the 2008 Olympics in Beijing. This may open up new sources of revenue to the Chinese telecom service providers.
'We, therefore, reiterate our Buy rating along with a higher valuation target for China Mobile in line with expectations of continued subscriber retention and launches of new revenue generating services. At 34.9x our estimated 2007 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 all other selected valuation metrics, the stock is also trading at a significant premium to its peer group average.
'However, we believe China Mobile is best positioned to capture the lion's share of this market. We, therefore, maintain our Buy rating and hike our six-month target price to $110 which is based on a reasonable 42.6x P/E multiple to our fiscal 2007 earnings estimates as growth rates in China continue to remain well above the worldwide averages.'
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