China mobile (SEHK:941)’s first-quarter data contracted compared with data from the fourth quarter of 2019. The company saw total mobile customers drop by 3.98 million. 4G customers fell by 6.06 million. Operating revenue was $181.3 billion, which was a contraction compared to the first quarter of 2019.
Yet, the contraction came as no surprise to analysts. During the first two months of the year, Chinese consumers canceled their mobile data because of nationwide lockdowns.
Today, we are going to look at the market’s response to China Mobile’s earning. We will also look at whether investors should be concerned.
Market response
Since April, China Mobile’s share price has experienced some volatility.
First, shares slumped by 2.1% on Tuesday. Then shares rebounded on the next day by another 2.6%. Year-to-date, the stock has lost 6% in value. That’s not so bad when you compare it to the Hang Seng index, which has experienced a 15.2% loss year-to-date.
The stock’s average yield sits on the lower end of the industry average. This has been compensated through dividend payments from the company. It’s dividend payout ratio ranges average around 50%.
Last March, the company announced a dividend for 2019 of HKD 1.72 per share.
No need to panic
While China Mobile did lose millions of customers in the first quarter, there is no reason for investors to panic. Put into perspective, 3.98 million users only amount to a mere 0.4% of China Mobile’s massive 1 billion user base.
Although the company has lost a handful of 4G customers in the first quarter, its newly launched 5G service is highly likely to drive a new round of user acquisition and subscription.
It’s already off to a head start with more than 30 million users in the first quarter since inception. This sets China mobile up for growth in the future as the COVID-19 epidemic is contained.
Long-term investment outlook
China Mobile’s business performance has been lukewarm over the past years, if not disappointing.
Its net profit growth has been shrinking every year (in exception in 2017). That said, there is potential for a turnaround because of China Mobile’s new 5G service, which charges a higher subscription fee per user.
This price increase was reflected in the first-quarter earnings, where the mobile average revenue per user saw a slight uptick from 46 RMB to 46.9 RMB per user.
Foolish conclusion
Regarding China Mobile, investors shouldn’t buy into the hype and should purely look at the data.
That said, China Mobile still seems to be a relatively stable investment. The company has a good dividend payout history. It could also provide some much-needed balance for investors in a time of volatility.