UBS: Lowering China Mobile's (00941) Target Price to HK$93 to Maintain “Buy” Rating

The Zhitong Finance App learned that UBS released a research report saying that China Mobile (00941)'s third-quarter results showed that operating pressure exceeded the impact of VAT. The bank lowered its net profit forecast by 2% to 5% from 2026 to 2028, assuming a slowdown in revenue growth from traditional telecommunications services and moving the DCF valuation forward by three months, thus lowering the target price by 2% to HK$93. It is expected that dividends will remain stable and maintain a “buy” rating.

China Mobile announced its results for the third quarter of this year. Service revenue was 205 billion yuan, down 5.1% year on year; EBITDA fell 7% year on year to 73.9 billion yuan; net profit was 27.3 billion yuan, increasing the year-on-year decline to 12.4%. Service revenue, EBITDA and net profit were 1% to 5% lower than market expectations, respectively.

The bank pointed out that service revenue fell 4.8% and 5.1% year-on-year in the second quarter and the third quarter, respectively. The decline was greater than the bank's estimated VAT impact of 1.5% to 2%, indicating that operating pressure exceeded the impact of VAT. As the traditional telecom market is difficult to grow, it will still take time for the new AI-driven business to expand in scale. Operating cash flow for the third quarter was RMB 70.4 billion, down 8.8% year on year, roughly in line with EBITDA.

Operating expenses excluding depreciation and amortization fell 1.8% year on year, driven by a 7.7% drop in network operation and support expenses, as the company continued to optimize telecommunications networks, which also dragged down China Tower's revenue growth. Depreciation and amortization remained roughly the same year over year.

The company's outlook remains unchanged. Management guided stable and healthy revenue growth (excluding VAT effects) during the interim results, and coordinated profit growth.