China Mobile: Profitability remains strong, the 'cash cow' status unchanged

China Mobile (600941.SH/00941.HK) released its Q2 2025 financial report (ending June 2025) after the Hong Kong stock market closed on the evening of August 7, 2025, Beijing time. Key points are as follows:

1. Operating Data: Revenue Stable, Profit Steady Growth. $CHINA MOBILE(00941.HK) Total revenue for Q2 2025 was RMB 280 billion, a year-on-year decrease of 1.1%. The company's communication business remained flat year-on-year this quarter, with the decline in revenue mainly due to a decrease in product sales and other businesses. China Mobile's net profit for Q2 2025 was RMB 53.6 billion, a year-on-year increase of 6%. Despite the decline in revenue, profit growth was driven by an improvement in gross margin;

2. Core Business Performance: Continued Growth in Broadband, Decline in Data Traffic Business.

a) Data Traffic Business: Still the largest component of the company's revenue, accounting for 36% of total revenue. The company's data traffic business revenue for the first half of the year was RMB 195.5 billion, a year-on-year decrease of 4.7%. Data usage still saw a year-on-year increase of 7.3%, while the average data tariff decreased by 11.2%, as the company continues to attract more users by lowering tariffs;

b) Broadband Business: Maintained steady growth. The company's broadband business revenue for the first half of the year was RMB 68.6 billion, a year-on-year increase of 8.9%, driven by growth in broadband user numbers and average monthly fees per customer.

c) Other Businesses: Voice and SMS services continue to decline, while information services and related businesses maintain growth.

3. Capital Expenditure: Stable, with Annual Target Still Contracting. China Mobile's capital expenditure for Q2 2025 was approximately RMB 39.2 billion, roughly flat year-on-year. According to the company's annual target, capital expenditure for 2025 is expected to be RMB 151.2 billion, a year-on-year decrease of 7.8%, with a year-on-year decline expected in the second half of the year.

4. ROE and Dividend Situation: $China Mobile(600941.SH) The TTM ROE for this quarter was 9.8%, flat quarter-on-quarter. The ROE for the first half of the year shows a significant improvement compared to last year. The company's dividend repurchase for the second quarter amounted to RMB 49.4 billion, estimating the current dividend payout ratio remains above 70%.

Dolphin Research's Overall View: The Company Remains a Quality "Cash Cow"

China Mobile's revenue slightly declined this quarter, but this does not affect the steady growth of the company's profit margin.

Looking at specific businesses: ① The data traffic business continues to implement the "lower tariffs to attract traffic" strategy, with the number of mobile users continuing to increase; ② The broadband business maintains growth, with both user numbers and tariffs increasing; ③ Product sales and other businesses were affected by terminal demand, showing a decline in the first half of the year;

Compared to stable business data, the market is more concerned with the following aspects:

a) Capital Expenditure Situation: The company's capital expenditure for this quarter was RMB 39.2 billion, roughly flat year-on-year. According to the company's annual capital expenditure of RMB 151.2 billion, capital expenditure in the second half of the year will decrease year-on-year.

With the end of the high investment period in 5G, China Mobile's capital expenditure has significantly declined. As the company's capital expenditure gradually decreases while depreciation and amortization remain high, the company's cash operating profit will be higher than the operating profit in the financial report, indicating that the company is actually more profitable. Dolphin Research estimates the company's after-tax cash operating profit for this quarter to be RMB 52.3 billion, a year-on-year increase of 3%.

b) Dividend Situation: The company's dividend repurchase for this quarter was RMB 49.4 billion, in line with Dolphin Research's previous expectation of RMB 50 billion. As the company usually distributes dividends in the second/third quarter, it is estimated that the dividend for the next quarter will be around RMB 53 billion, with the current dividend payout ratio estimated at 73%, still above 70%.

Overall, China Mobile's operations remain stable, with profit margins continuing to show steady single-digit growth. Regarding the market's focus on capital expenditure and dividend repurchase, the company's annual capital expenditure remains on a contractionary path, maintaining a high dividend state.

With the gradual reduction in capital expenditure, it is expected to alleviate the company's cost pressure, further enhancing profit margins.

Considering the company's current market value (RMB 1.7 trillion), the expected net profit for 2025 corresponds to a PE of about 12 times (assuming a 2% revenue growth, 60% gross margin, and 21.8% tax rate). Referring to the company's historical valuation range, which mostly falls between 7-13 times PE, the current valuation is relatively close to the upper limit of the valuation range.

Even with only single-digit growth in performance, the company can enjoy a valuation multiple of over 10 times PE, indicating the market's favor towards China Mobile. This financial report once again confirms the company's attributes of "stable performance" and "high dividends" are still present.

As an operator, this is inherently a very stable business. In the current unstable market environment, with steadily growing billion-dollar profits and a high dividend payout ratio, China Mobile remains a quality "cash cow" under the dividend logic. For the company, investors are not concerned with growth but rather value stable returns. As long as the company retains these characteristics, China Mobile's investment logic remains unbroken.

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

I. Operating Data: Revenue Basically Stable, Profit Steadily Increasing

1.1 Revenue Side

China Mobile's total revenue for Q2 2025 was RMB 280 billion, slightly declining year-on-year. Breaking it down, the company's revenue from communication services this quarter was RMB 244.6 billion, flat year-on-year; revenue from product sales and others was RMB 35.4 billion, a year-on-year decrease of 8.6%.

The company's communication service revenue was flat year-on-year this quarter, with personal communication business declining by 3% this quarter; while household and government enterprise businesses continued to maintain a growth of about 6%.

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

1) Mobile Business Customers: The company's total user number remains above 1 billion, with a quarter-on-quarter increase of about 1.5 million, mainly driven by the company's "lower tariffs to attract traffic" strategy;

2) Mobile ARPU: The company's average monthly fee per user this quarter was RMB 49.5, a year-on-year decrease of 2.9%. Over the past year, the company's average monthly fee for personal mobile services has shown a downward trend.

2.2 Gross Margin

China Mobile's gross margin for Q2 2025 was 64.9%, a year-on-year increase of 2.3 percentage points. Dolphin Research categorizes "network operation and support costs" and "product sales costs" as operating costs to calculate the company's gross profit and gross margin.

Compared to the product sales segment, the company's communication business has a relatively high gross margin. Due to the year-on-year decline in product sales-related business this quarter, the proportion of the company's communication business increased, which had a positive impact on the overall gross margin.

2.3 Operating Expenses

China Mobile's operating expenses for Q2 2025 were RMB 124 billion, a year-on-year increase of 2.3%, relatively stable. Dolphin Research includes "selling expenses," "employee compensation expenses," "depreciation and amortization," and "other operating expenses" in operating expenses;

1) Selling Expenses: RMB 14.4 billion this quarter, a year-on-year increase of 0.7%. The company previously reduced sales and related subsidies (such as reduced discounts for number portability), which led to a decline in the company's mobile user numbers last quarter;

2) Employee Compensation Expenses: RMB 40.2 billion this quarter, a year-on-year increase of 3.3%, continuing to maintain low single-digit stable growth;

3) Depreciation and Amortization: RMB 47.4 billion this quarter, a year-on-year decrease of 1.9%. In the company's operating expenses, sales and employee compensation expenses are relatively rigid. With the end of the 5G investment peak, the company's capital expenditure is gradually decreasing, which is the main reason for the continuous decline in depreciation and amortization since last year.

2.4 Net Profit

China Mobile's net profit for Q2 2025 was RMB 53.6 billion, a year-on-year increase of 6%. Despite the decline in revenue, profit growth was mainly driven by an improvement in gross margin and a reduction in operating expenses.

Since the company's depreciation and amortization exceed capital expenditure, from a cash flow perspective, the company's after-tax cash operating profit for this quarter was RMB 52.3 billion (excluding non-operating factors), also showing steady growth.

II. Business Segments: Data Traffic Business Share Drops to Around 40%

China Mobile's revenue mainly comes from communication services and product sales. Since communication services have long accounted for over 80%, the focus on changes in the company's revenue and business is mainly on the operation of communication services.

In communication services, the current largest source of business revenue is wireless data traffic services, with a current share of 42%. Under the "lower tariffs to attract traffic" strategy, the revenue share of the data traffic business is showing a downward trend. Other sources include broadband business, voice call business, SMS business, and application and information service business.

2.1 Wireless Data Traffic Business

China Mobile's data traffic business revenue for the first half of 2025 was RMB 195.5 billion, a year-on-year decrease of 4.7%. Benefiting from increased data usage demand such as short videos, but with unit tariffs still declining, ultimately leading to a continued decline in the data traffic business.

Breaking it down, in the first half of the year, China Mobile users used a total of 871 billion GB of wireless data, a year-on-year increase of 7.3%; while the average data tariff was RMB 2.2/GB, a year-on-year decrease of 11%. Although data demand continues to increase, the company still implements measures to reduce user data tariffs.

2.2 Broadband Business

China Mobile's broadband business revenue for the first half of 2025 was RMB 68.6 billion, a year-on-year increase of 8.9%. The company's broadband business continues to maintain a growth trend, mainly benefiting from an increase in the company's broadband market share.

As of the end of June 2025, the company's broadband user number increased to 323 million, a year-on-year increase of 4.5%. It can be inferred that the current average monthly fee for the company's broadband users is RMB 35.8, a year-on-year increase of 3.7%.

The largest source of customers for the company's broadband business is household users, with approximately 284 million households. The rest come from government and enterprise customers, with both types of customers increasing in the first half of the year.

2.3 Other Businesses

1) Voice Call Business: The company's revenue for the first half of 2025 was RMB 34.3 billion, a year-on-year decrease of 5.7%. The company's voice call business is in a stable decline, mainly as video/voice methods gradually replace traditional calls.

2) SMS Business: The company's revenue for the first half of 2025 was RMB 16.1 billion, a year-on-year decrease of 0.7%. China Mobile's SMS business has stabilized after the impact of instant messaging software. The current customers of the company's SMS business are mainly B-end customers such as banks. Dolphin Research believes that the current to B demand for SMS business will still exist and will remain relatively stable.

3) Application and Information Service Business: The company's revenue for the first half of 2025 was RMB 136.7 billion, a year-on-year increase of 5.9%. This business segment mainly includes personal digital content and applications (entertainment and life), smart home business (digital home center), and enterprise digital services (government and enterprise information services).

As a traditional operator, the company also aims to achieve business upgrades through the implementation of application and information services, and expects to transition from connection services to value services. The current biggest change is the strategic pivot towards cloud, 5G, and AI, driving the business structure to leap towards high-tech services.

From the growth rate of application and information services, the company's business growth rate has shown a significant slowdown, with no signs of acceleration. The company's basic business is still the traditional operator business, which has already established a stable performance foundation for the company.