HONG KONG (Reuters) - China Mobile (0941.HK) is banking on a leadership change and value-added services to reignite its growth over the long term, even as the potential sale of a $7.2 billion (4.6 billion pound) stake in the company held by Vodafone (VOD.L) becomes a new short-term overhang.
Vodafone owns about 3 percent of the world’s biggest mobile carrier, and is now free to sell its 3.3 percent stake in the company following the recent end of a lock-up period, China Mobile Chairman and CEO Wang Jianzhou said on Thursday.
“In the short term, such a move could hit its share price if investors are already worried about China Mobile’s growth,” said Vincent Deng, an analyst at Phillip Securities in Shanghai.
“If Vodafone does sell, there’s no reason for anyone to buy China Mobile’s shares in the short term.”
Despite China’s position as the world’s biggest mobile market with nearly 800 million subscribers, growth for China Mobile and its competitors has been slowing as revenue from voice calls declines amid increasing cellphone penetration rates.
Vodafone has seen the value of its stake more than double since it purchased the stake in two tranches between 2000 and 2002 for a total of $3.25 billion. Based on China Mobile’s latest share price, Vodafone could realise a $3.9 billion profit if it sold its stake.
“I only found out about Vodafone’s plans to sell its minority stakes when reading the newspapers,” Wang said. “Vodafone’s lock-in period has expired, and it is free to sell its shares if it wants to.”
Vodafone said in July it is reconsidering its strategy on holding minority stakes in companies, prompting speculation it would look to sell or spin off its stakes in operators including France, the United States, and China.
Separately, China Mobile said Wang is stepping down and will be replaced by vice-president Li Yue, in a highly anticipated move to pave the way for new, younger leadership at the company.
“Li is a veteran at the company, having worked his way up, and his appointment is probably a good move as he’s still relatively young,” said Frank Zhu, an analyst at SinoPac Securities in Shanghai.
The move strengthen Li’s ascent in the company and comes after the state-run parent of China Mobile, China Mobile Communications Corp, named him as its new president in May.
Revenue from value-added businesses such as music and book downloads rose over 13 percent and contributed almost 30 percent to China Mobile’s operating revenue in the first half of the year, helping to lift the firm’s second-quarter profit by 7 percent.
Investors seemed to be unimpressed with the leadership change and profit rise and instead focussed on erosion of basic metrics, with China Mobile shares dropping 3 percent after the results came out, underperforming a 0.2 percent rise for the broader market.
Nearly 33 million China Mobile shares were traded, up 1.8 times compared with the 30-day average.
China Mobile posted an April-June net profit of 32.12 billion yuan (3 billion pounds), up from 30.1 billion yuan, and roughly in line with the average forecast of 30.42 billion yuan from three analysts surveyed by Reuters.
Monthly average revenue per user, or ARPU, a widely watched industry indicator, fell to 72 yuan in the first six months of this year from 77 yuan for all 2009, amid intense competition.
Earnings before interest, tax, depreciation and amortisation (EBITDA) margin, a key indicator of a telecoms operator’s profitability, fell to 50.7 percent from 51.6 percent a year ago.
China Mobile’s results could set the tone for those of rivals Unicom and China Telecom, who are also expected to post declining or flat profits when they report their earnings next week.
China Mobile is the world’s largest mobile operator by market capitalisation and number of users. Its subscriber base of more than 500 million users is bigger than the population of the United States, Australia and Germany put together.
Despite worries about growth in its home market, China Mobile shares have risen about 16 percent this year compared with a 3 percent decline in the benchmark Hang Seng Index .HSI.
Before the fall on Thursday, the shares rose to their highest level in a year this week as investors flocked to a blue-chip stock seen as a safe-haven amid broader market weakness.
Editing by Jonathan Hopfner and Anshuman Daga