Mainland's telecom giant on track for its slowest profit rise in 13 years

China Mobile Ltd, the world's biggest phone company by subscribers and the mainland's telecom giant, said that it will endeavor to develop high-valued information and communication services, as Bloomberg reported that it is on track for its slowest annual profit growth in at least 13 years due to the profit contribution shrinkage from traditional mobile services.

Pedestrians walk past a China Mobile store at Wan Chai. The telecom giant said on Thursday that it is committed to developing high-valued services, as it is reported to be heading for its slowest annual profit growth in 13 years. [Photo/Agencies]

The telecom company posted a flat net profit increase of 1.5 percent to 62.2 billion yuan ($9.77 billion) in the first half of 2012, just modestly up from the 61.28 billion yuan over the same period. Net profit margin in the same period declined 1.2 percentage points to 23.3 percent. The company's operating revenue up 6.6 percent to 266.53 billion yuan from the 250.08 billion a year ago. EBITDA slightly decreased 0.9 percent over the same period last year to 123.05 billion, with EBITDA margin reaching 46.2 percent, down 3.4 percentage points from a year ago.

The telecom company declared an interim dividend of HK$1.633 per share, up 3.35 percent from a year earlier.

The telecom company share price tumbled 5 percent to HK$86.85 per share in Thursday's trading due to its worse-than-expected annual results.

"Information and communication technologies will veer towards broadband, mobility and integration. The sustained growth in demand for information and communications services will bring huge market potential, presenting the group with a new value source," China Mobile Chairman Xi Guohua said in the Thursday company announcement.

The telecom giant said that it will continue to strengthen and develop its Four-Network Coordination, namely 2G, 3G(TD-SCDMA), WLAN and TD-LTE , to achieve overall network efficiency so that it can generate more revenues.

"Particularly for the TD-LTE network, it is fully supported by the central government which is actively encouraging home-grown innovation. With the development of the TD-LTE industry chain and its commercialization on an international scale, the group will continue to gain momentum," Xi added.

China Mobile had a total of 683 million mobile phone subscribers at the end of June, including 67 million 3G customers.

"The company is boosting capital expenditure to invest in a fourth-generation network and (will) invest 26 billion in the second half of this year in handset subsidies to maintain its lead in smartphone user subscriptions over other rivals," China Mobile Chief Executive Officer Li Yue said at the Thursday press conference. Li maintained that the company's capital expenditure in 2012 would still be around 130 billion yuan.

However, the road to expand into high-valued services business is bumpy for China Mobile. Unlike rivals China Unicom and China Telecom, the company is still unable to reach an agreement with Apple Inc to allow iPhone's platform to be connected with China Mobile's network.

Alen Lin, an analyst at BNP Paribas Securities Asia in Hong Kong, cut the rating on China Mobile to "hold" from "buy" this week, citing the impact that the increased spending would have on profitability.

"Pressure is still there," said Jim Tang, an analyst at Shenyin Wanguo Securities Co in Shanghai. "Eyes are on 4G now but it would not happen before 2013."

Morgan Stanley maintained a "neutral "rating on the stock as the worse-than-expected revenue and profit performance have already been "priced-in" in the recent share prices.

Bloomberg contributed to this story

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