Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

The Chinese Sector That’s a Hotbed for Growth

Tuesday, October 30th, 2012
By for Profit Confidential

Chinese Sector That’s a Hotbed for GrowthChina has been growing exponentially in many areas, but while there is some stalling, an area that continues to expand at a staggering pace is the mobile phone sector. The growth in this market sector is enormous, with the number of subscribers surpassing one billion. Let me put it another way: there are more mobile phone users in China than the populations of the United States, the European Union, Mexico, and Canada combined!

These are exciting times for the Chinese mobile market, where three major carriers dominate the market.

The adoption of 3G and 4G networks will help to drive additional growth in the country’s mobile phone market, as manufacturers need to develop new phones to be used with these networks, based on my stock analysis. At the end of September, there were 203 million mobile 3G users in China, up from 167 million users at the end of May, according to the Ministry of Industry and Information Technology in China. The growth in 3G networks will continue to provide a catalyst for more opportunities.

Apple Inc. (NASDAQ/AAPL) is a major player in greater China with sales in the country accounting for about 15% of total sales in the fiscal fourth quarter, according to the company. Tim Cook, CEO of Apple, said “iPad” and “iPhone” sales in China surged 45% and 38%, respectively, in the fiscal fourth quarter. The potential is significant for Apple in the Chinese smartphone market. (Read why I don’t like Research In Motion in “Don’t Get Fooled by Research In Motion.”)

The income demographics in the country support the spending. In a recent research finding, Credit Suisse predicted that the household wealth in China could double to $35.0 trillion by around 2015, based on achieving sustainable gross domestic product (GDP) growth at or near the current levels; albeit, the current slowing will impact wealth but will still allow consumers to spend on more non-essential goods and services, such as mobile phones.

The top mobile phone company in the country is China Mobile Limited (NYSE/CHL). With a market-cap of around $224 billion, the company is massive. By comparison, AT&T Inc. (NYSE/T) is the largest mobile provider in the U.S. with a market-cap of $197 billion and Verizon Communications Inc. (NYSE/VZ) has a market-cap of $127 billion.

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The price chart of China Mobile continues to look bullish, well above its 50- and 200-day moving averages (MAs), based on technical analysis.

China Mobile Ltd Chart

Chart courtesy of www.StockCharts.com

China Mobile is one of the largest companies in China and can be considered a “widow” stock for long-term buy-and-hold investors. The company is ranked the top brand in BusinessWeek’s “20 Best China Brands.” The stock pays an annual dividend of $1.90 for a dividend yield of 3.4%, based on the stock price of $55.67.

The company had 698 million subscribers, or over 69% of all mobile phone users in China, at the end of September. (Source: “Operation Data: Customer Numbers,” China Mobile Limited, last accessed October 29, 2012.)

China Mobile is the world’s largest provider of cellular services, based on subscribers, and has set its sights on expansion outside of the Great Wall via its ownership of Luxembourg-based Millicom International Cellular S.A. (OTCBB/MICCF), a telecom operator with mobile operations in 13 countries and a potential market of about 270 million people. (Source: “Global Operations,” Millicom International Cellular S.A., last accessed October 29, 2012.)

Going forward, my stock analysis is that China Mobile should benefit from the massive mobile market and growth in the 3G and 4G telecommunications areas in China.

The bottom line is that the Chinese mobile market is massive and worth a look.

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles