Hedge fund investors Long-only investors Near-term catalyst will be pre-commercial launch of TD-LTE in 1Q11 and listing of A-shares in a domestic bourse In the next six to 12 months, we believe CM offers the best opportunity to accumulate for a multi-year run-up in share price driven by mobile data 1China/Telecom Services China Mobile ׀ 941 HK Company updateSee the last page of this report for important disclosuresBuy30 September 2010 Are you ready to lead? s . r ffort CM has the balance sheet strength to start building a 4G network in 2012. U r le-digit growth ed l tariff. nd fee advanages, but regulations and supply chain are the ng at a y ~30% below Bharti Airtel, India’s dominant mobile operator. With the launch of TD-LTE in 1H11, we expect China Mobile’(CM) key competitive overhang in data ARPU to be removedWe expect ARPU to start rebounding in 1H12, but EBITDAmargin should rebound in 1H11 itself. We believe the company’s voice business has entered a phase of benign tariffcompetition, and mobile payment could act as a game changein the long run. Raise TP to HK$115 and upgrade to BUY. » Chinese government could decide to fast track LTE The rationale is compelling: In continuation with China’s 12-year eon TD-SCDMA, TD-LTE can put the country on a level-playing field against US and Europe in communication standards. After heavy 3G capex by China Unicom (CU) and China Telecom (CT), only » TD-LTE could give CM the long-needed boost in ARPInitial deployment of LTE is likely to be confined to hotspots, but ouresearch indicates that LTE is well on its way to be the cornerstone technology for 4G worldwide in terms of vendor support and spectrum allocation. Thanks to LTE, we expect CM’s ARPU to start trending up in1H12, leading to the company’s revenue to return to doubin 1H12 and operating margin to start rebounding in 1H11. » Voice revenue could stabilize at 5-8% growth p.a. CM’s MOU/sub and subs will grow at natural growth rate with muttariff wars going forward, in our view. We believe the company can achieve a 5-8% growth p.a. by growing 4% YoY in MOU/sub, 10% YoY in subs, with tariff erosion of 8% YoY. We see CM’s dominance in ruramarket as the reason for its ability to grow MOU/sub and maintain » Mobile payment leverages unique competitive edgeMobile payment leverages CM’s big user base to tackle China’s low base in payment infrastucture. We believe the company has cost synergies aobstacles. » Valuation at low end of historical range for two yearsAt 11x 2011 PE and 4.1x 2011 EV/EBITDA, CM has been tradimulti-year low and is currentlFiscal year ending Dec-09ADec-10EDec-11EDec-12ERevenue (CNYm)452,103479,597515,688575,544Op EBIT (CNYm)147,008145,650156,278169,549Net income (CNYm)115,423114,624125,890136,660Norm profit (CNYm)114,093113,228124,724135,798EPS (CNY)5.695.646.216.76EPS growth2.6%-0.8%10.1%8.9%Norm P/E (x)12.0 12. 1 11. 0 10.1 EV/EBITDA (x)5.0 4. 7 4. 1 3.4 Dividend yield3.6%3.6%3.9%4.2%P/B (x)2.7 2. 4 2. 1 1.8 ROE24.4%21.2%20.5%19.4%Net debt/equity-45.5%-40.6%-41.8%-42.9%Cons EPS (CNY)5.695.916.086.26Prev EPS (adj) (CNY)5.745.956.196.45 e .0Target pricHK$115Currentprice(28 September 2010) HK$79.35 .72 us % k Upside/downside 44.9% Consensus target price Difference from consensHK$8731.1Eric Wen, Head of Telecom/Internet, 852 3653 8631 eric.wen@miraeasset.hWilson Chai, Analyst, 852 3653 8642 wilson.chai@miraeasset.hkMarket cap (HK$bn/US$mn) 1,592/205,204.7%e high/low HK$69.60 –84.30verage turnover (3M) US$322.1mn1M 3M12M8% ng Index -11.3% -7.0%-3.8%-2.5% 1.1%s China Mobile Group 74.2%0.8%Shares outstanding 20,695mnFree float 2552-week pricDaily aPerformance Absolute -2.0.8%4.7%Relative to Hang SeAbsolute (US$) 4.6%Major shareholderInstitutional investor A 68707274767880828486Sep-09Nov-09Jan-10Mar-10May-10Jul-10Sep-108588929598102105108112115Price CloseRelative to .HSI (RHS)Performance Earnings quality score Earnings Quality ScoreHistorical Earnings StabilityConsensus Forecast CertaintyConsensus Forecast Accuracy969896980 25507510Sector Average: 640Trading data Source for data: Company, Thomson Reuters, Mirae Research estimatesation 2CE9HOLDForecast earnings & valu11 May 2010 CE20 Nov REDU009U21 Oct 200RED Eric Wen, Head of Telecom/Internet, 852 3653 8631 eric.wen@miraeasset.hk China Mobile 30 September 2010 Wilson Chai, Analyst, 852 3653 8642 wilson.chai@miraeasset.hk 941 HK 2 toe 1 , ’s favor. of o TD-LTE or China’s cost of migrating to mobile broadband. Thus, the country has no in nd on par with Bharti Airtel, India’s dominant mobile operat