The Zhitong Finance App learned that J.P. Morgan Chase released a research report saying that China Mobile (00941)'s profit for the third quarter fell 12% year on year, 5% lower than the overall market forecast, but the profit decline was mainly due to non-operating projects. If no operating projects were excluded, net profit for the third quarter remained flat year on year; the bank reiterated that China Mobile Hong Kong stock was the first choice for Chinese telecom operators, maintaining an “increase in holdings” rating and a target price of HK$100.
The bank emphasized that China Mobile's service revenue in the third quarter fell 5% year on year to 205.1 billion yuan, similar to the 5% year-on-year drop in the second quarter; net profit fell 12.3% year on year to 27.3 billion yuan. Excluding non-current accounts (mainly fair value of financial assets and liabilities/disposal losses), recurring net profit was RMB 28.7 billion, roughly the same (down 0.2%) year on year, improving from the first quarter and the second quarter, respectively, down 4% and 15% year on year, reflecting the optimization results of operating expenses. The bank believes this is the main reason China Mobile fell by about 4% yesterday (the Hang Seng Index fell 0.9%).
The bank expects China Mobile to be the least affected by the 2026 VAT adjustment (because the profit margin is significantly higher than that of its peers). According to the bank's forecast, the dividend rate in 2026 will reach 6.9%, the highest among the three major telecom companies.
The bank predicts that China Mobile's profit in 2026 will fall 7% year on year, moderately down 14% and 13% respectively from China Telecom (00728) and China Unicom (00762). It also expects 2027 and 2028 profits to rise 3% and 4% year on year, respectively, benefiting from lower depreciation costs driven by lower capital expenditure and the contribution of artificial intelligence services to profit, which can offset the weakness of traditional telecom services.
The bank pointed out that operating cash flow increased 15.1% year on year to RMB 185.3 billion in the first nine months, which is believed to be sufficient to support the company's annual dividend payout ratio “flat to positive growth” promise; payments for property plant equipment, other intangible assets and non-current assets fell 11% year on year to 37 billion yuan in the third quarter, reflecting capital expenditure discipline.