Necessity mainstay! CMCC is the real stock king?

China Mobile (600941.SH/00941.HK) released its Q1 2025 financial report (ending March 2025) after the Hong Kong stock market closed on April 22, 2025, Beijing time. The key points are as follows:

1. Operating data: Revenue remains flat, profit steadily increases. $CHINA MOBILE(00941.HK) Total revenue for Q1 2025 was CNY 263.8 billion, basically flat year-on-year. The growth in the company's communication business this quarter was largely offset by a decline in product sales and other businesses. China Mobile's net profit for Q1 2025 was CNY 30.6 billion, a year-on-year increase of 3.4%. The profit growth, despite flat revenue, came from an increase in gross margin and a decrease in expenses;

2. Core business performance: Personal communication business sees a slight decline. $China Mobile(600941.SH) The growth in the communication business this quarter was mainly driven by household and government-enterprise communication services. However, the company's largest personal communication business saw a slight decline this quarter. Specifically, the number of mobile users increased by 0.8% year-on-year; while the average monthly fee for mobile users was CNY 46.9, a year-on-year decline of 2.1%.

3. Capital expenditure: Although increased, the annual target is to contract. China Mobile's capital expenditure for Q1 2025 was approximately CNY 36.4 billion, a year-on-year increase of 5.5%. However, considering the company's annual target, it expects capital expenditure for 2025 to be CNY 151.2 billion, a year-on-year decline of 7.8%, and the company will continue to reduce capital expenditure in the next three quarters.

Dolphin Research overall view: In line with expectations, the financial report remains robust.

China Mobile's revenue this quarter was flat year-on-year, with growth in the communication business offset by declines in product sales. The increase in profit was mainly influenced by the company's improved gross margin and reduced expense ratio.

Specifically by business: 1) In the personal communication business, there was a year-on-year decline of 1%, mainly due to the decrease in average fees; 2) Household and government-enterprise services continued to grow this quarter, being the main increment.

Considering the company's reduction in sales expenses this quarter, it has tightened some subsidy policies (such as the discount for number portability), which has somewhat affected the performance of the personal communication business.Due to the company's total revenue remaining flat, the profit side is still steadily improving, overall it meets expectations.

While the performance remains stable, the market's focus on the company mainly revolves around capital expenditure and dividend repurchase. The company's capital expenditure for this quarter was approximately 36.4 billion yuan, a year-on-year increase of 5.5%. Considering the full-year guidance, the company expects capital expenditure of 151.2 billion yuan in 2025, a year-on-year decline of 7.8%. Although capital expenditure increased in the first quarter, the company's capital expenditure for the year is still on a contraction trend. Thus, it is expected that the company will continue to reduce capital expenditure in subsequent quarters, which will help alleviate pressure on the company's expenses and improve profit performance. As for dividends and repurchases, the company typically conducts these in the second and third quarters, and Dolphin Research believes the company will continue to maintain a high dividend payout ratio.

Although there are minor flaws in this performance report, it remains overall stable. With the contraction of capital expenditure, the company's profit side is expected to continue to be released. In the current unstable market environment, with "steady" profits and a high dividend payout ratio, China Mobile will still be a quality "cash cow" under the dividend logic.

Here is Dolphin Research's specific analysis of China Mobile's financial report:

1. Core Focus: Capital Expenditure and Dividend Situation

1.1 Capital Expenditure

Due to the company's significant heavy asset characteristics, it needs to invest 100 to 200 billion yuan each year to build or maintain equipment. Therefore, the huge capital expenditure will directly drive up the company's expenses, thus affecting its profit performance.

China Mobile's capital expenditure in the first quarter of 2025 was approximately 36.4 billion yuan, a year-on-year increase of 5.5%. According to the company's full-year guidance, the capital expenditure guidance for 2025 is 151.2 billion yuan (180 billion and 160 billion in the previous two years), and capital expenditure in the last three quarters will decrease again.

As the high investment period for 5G comes to an end, the decline in the company's capital expenditure will help release the company's profit side. Since the company's capital expenditure is gradually decreasing while amortization and depreciation remain high, the company's cash operating profit will be higher than the operating profit reported in the financial report, indicating that the company is actually more profitable.

For the calculation of cash profits, Dolphin Research's method in the quarter is to restore its operating profit: a) add back amortization and depreciation expenses; b) deduct the cash outflow for purchasing fixed assets (roughly treating this item as capital expenditure). After deriving the cash operating profit, the company's after-tax cash operating profit is calculated based on the reported income tax rate (note that interest income's impact on profit is not considered here, as the company has a lot of cash and high interest income, but we only look at the cash cow capability of the main business).

China Mobile's after-tax cash operating profit for this quarter was 31.7 billion yuan, a year-on-year increase of 3%, which will be significantly higher than the after-tax operating profit reported in the financial report (around 24 billion yuan). Consequently, it is estimated that the company's TTM ROE continues to maintain at 9.1%

1.2 Dividend Situation

China Mobile typically distributes dividends in the second or third quarter, and there has been no change in this regard in the current quarterly report. Based on the company's historical dividends and performance growth, Dolphin Research expects the company to achieve a dividend repurchase of around 50 billion in the subsequent second quarter, estimating that the company's current dividend payout ratio will remain around 79%.

China Mobile's business is concentrated domestically and is less affected by tariffs and other policies. In addition, the company's dividend payout ratio can be maintained at a high level over the long term, providing relatively stable returns. In the current unstable macro environment, China Mobile remains a robust target for relatively certain returns.

II. Operating Data: Revenue Basically Flat, Profits Steadily Increasing

2.1 Revenue Side

China Mobile's total revenue in the first quarter of 2025 was 263.8 billion yuan, basically flat year-on-year. Breaking it down, the company's revenue from communication services this quarter was 222.4 billion yuan, a year-on-year increase of 1.4%; revenue from product sales and others was 41.4 billion yuan, a year-on-year decline of 6.8%.

Although the company's communication service revenue saw slight growth this quarter, the personal communication business experienced a slight decline of 1%. The family communication business and enterprise business contributed the main incremental growth this quarter.

For the personal communication business, which accounts for more than half of total revenue, specifically:

1) Mobile Business Customer Count: The company's total user count has exceeded 1 billion, making high growth difficult. This quarter saw a year-on-year growth of 0.8%, while there was a slight decline compared to the previous quarter;

2) Mobile ARPU: The company's average monthly fee per user this quarter was 46.9 yuan, a year-on-year decrease of 2.1%. Over the past year, there has been a trend of declining fees in the mobile sector.

2.2 Gross Margin

China Mobile's gross margin in Q1 2025 is 55.8%, an increase of 0.7 percentage points year-on-year. Dolphin Research lists "network operation and support costs" and "cost of sales" as operating costs, thereby calculating the company's gross profit and gross margin situation. The increase in the company's gross margin this quarter is mainly due to the year-on-year increase in the proportion of communication services, which structurally drives the improvement in gross margin.

2.3 Operating Expenses

China Mobile's operating expenses in Q1 2025 are 114.5 billion yuan, a year-on-year decline of 0.9%, with little change. Dolphin Research includes "selling expenses," "employee compensation expenses," "depreciation and amortization," and "other operating expenses" in operating expenses;

1) Selling Expenses: This quarter is 14.4 billion yuan, a year-on-year decline of 3.6%, accounting for 5.5% of revenue. The company reduced sales and related subsidies (such as reduced transfer discounts), which is one factor leading to a quarter-on-quarter decline in user numbers;

2) Employee Compensation Expenses: This quarter is 37.2 billion yuan, a year-on-year increase of 3%, accounting for 14.1% of revenue. Employee-related expenses have increased year-on-year this quarter, and this part of the expense shows a certain rigidity;

3) Depreciation and Amortization: This quarter is 47.9 billion yuan, a year-on-year decrease of 0.5%, accounting for 18.2% of revenue. With the peak investment period for 5G and other projects passing, the decline in capital expenditures will also reduce related depreciation and amortization expenses.

2.4 Net Profit

China Mobile's net profit in Q1 2025 is 30.6 billion yuan, a year-on-year increase of 3.4%. In the absence of revenue growth, the increase in profit mainly comes from the improvement in gross margin and the reduction in operating expenses.

As mentioned earlier, the net profit in the financial report does not reflect the company's true earning capacity. Since the company's depreciation and amortization exceed capital expenditures, from the perspective of after-tax cash operating profit, the company achieved 31.7 billion yuan this quarter, higher than the profit performance shown in the financial report. Therefore, the company is actually earning more than what is seen in the financial report.