In view of the expansion activities in the rural areas by telecom major China Mobile (CHL) Zacks senior telecom sector analyst David Weissman, CFA has maintained his Buy rating on the shares. The following excerpts explain his position:
'Expansion initiatives by China Mobile into rural regions of China, 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 financial results. China Mobile currently services over 66% of total wireless subscribers in China, far ahead of its closet rival China Unicom (CHU).
'At 23.8x 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 with strong ARPU.
'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 (TDSCDMA) before the 2008 Olympics in Beijing. This may open up new sources of revenue. We, therefore, reiterate our Buy rating and the same valuation target for China Mobile in-line with expectations of continued subscriber retention and launches of new revenue generating services.
'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 $110 which is based on a reasonable 35x P/E multiple to our fiscal 2008 earnings estimates as growth rates in China continue to remain well above the worldwide averages.'
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