China Mobile Ltd.

China Mobile Ltd. became the world's first phone company with more than half a billion subscribers as price cuts lured users, helping the carrier's profit rebound from its only profit drop in a decade. 

Third-quarter net income rose 2.6 percent to 28.6 billion yuan ($4.2 billion) from 27.9 billion yuan a year earlier, according to figures derived from nine-month earnings reported by the Beijing-based company yesterday. Sales climbed 9 percent. 

China Mobile cut call fees and raised handset subsidies to attract 15.24 million users in the quarter as Chairman Wang Jianzhou expands in lower-income rural areas to fend off mounting competition from China Telecom Corp. and China Unicom (Hong Kong) Ltd. The stock fell in Hong Kong trading as earnings missed some analysts' estimates, underscoring the slowing subscriber growth in the world’s largest phone market. 

"I don’t think 500 million subscribers represents any sort of a plateau," said Bertram Lai, who rates China Mobile shares “neutral” at CIMB-GK Securities in Hong Kong. "There is plenty of upside, although the growth in subscribers will be at a decreasing rate." 

China Mobile, the world's biggest phone company by market value, fell 1.3 percent to HK$77.70 as of the midday trading break in Hong Kong as profit was about 1 percent below the median estimate of a Bloomberg survey of seven analysts.

No Growth 
"China Mobile is delivering what its valuation reflects, virtually no earnings growth," Macquarie Group Ltd. analysts including Tim Smart wrote in a report today. The earnings report prompted the bank to cut its projection for the company’s profit this year by 1.8 percent, while the prediction for 2010 net income was reduced by 3.2 percent. Macquarie also lowered its share-price estimate for China Mobile by 4.6 percent to HK$83. 

China Mobile is the worst-performing stock among the three Chinese phone companies this year. Shares of China Telecom, the country's biggest fixed-line carrier, fell 1.8 percent to HK$3.75 in Hong Kong, trimming their advance this year to 30 percent, while Unicom, the country's second-largest mobile- phone company, has gained 18 percent. 

Profit at China Mobile declined for the first time since 1999 in the second quarter as the economic slowdown weighed on demand and the government reorganized the industry to raise competition. Fixed-line operator China Telecom acquired a network from Unicom to enter the wireless market, while China Unicom bought a landline business.

'Earnings Growth' 
In the three months ended September, the company's subscribers increased phone usage in response to price cuts, signaling a recovery in consumption, CIMB-GK's Lai said. 

China Mobile's third-quarter sales rose 9 percent to 114.1 billion yuan, according to derived figures. Earnings before interest, tax, depreciation and amortization, a measure of cash flow, increased 5 percent to 57.8 billion yuan, compared with the 58.1 billion yuan median estimate of four analysts in the Bloomberg survey. 

"It will be very tough for people to get very excited about this set of results," said Wendy Liu, who rates China Mobile shares "hold" at Royal Bank of Scotland Group Plc in Hong Kong. "Is a 2 percent increase that much different from a 2 percent decline? It will be tough for people to say they have turned around a corner."