China Mobile replaces CEO, shares dip on weaker metrics

China Mobile is banking on a leadership change and value-added services like music downloads to reignite growth, after reporting quarterly earnings that beat expectations but were still sluggish.

The world's biggest mobile carrier said its longtime chief executive Wang Jianzhou is stepping down and will be replaced by vice-president Li Yue, in a highly anticipated move to pave the way for new, younger leadership at the company.

China Mobile has been moving into what it considers higher value complementary areas with bigger growth potential than traditional voice services. Such initiatives include developing a mobile search technology with state-run Xinhua news agency and buying Shanghai Pudong Development Bank to boost its electronic payment business.

"China Mobile is probably the best bet for investors right now because it doesn't have any of the baggage that its competitors have," said Frank Zhu, an analyst at SinoPac Securities in Shanghai.

"Li is also a veteran at the company, having worked his way up, and his appointment is probably a good move as he's still relatively young."

The move solidifies Li's ascent in the company and comes after the state-run parent of China Mobile, China Mobile Communications Corp, named him as its new president in May.

Revenue from value-added businesses such as music and book downloads rose over 13 per cent and contributed almost 30 per cent to China Mobile's operating revenue in the first half of the year, helping to lift the company's second-quarter profit by 7 per cent.

The market was unimpressed with the leadership change and profit and instead focused on erosion of basic metrics, with China Mobile shares dropping 3 per cent in afternoon trade after the results came out, underperforming a 0.2 per cent rise for the broader market.

More than 30 million China Mobile shares changed hands, up 50 per cent compared with the 90-day average.

Despite China's position as the world's biggest mobile market with nearly 800 million subscribers, growth for China Mobile and its competitors has been slowing as revenue from voice calls declines amid increasing cellphone penetration rates.

To maintain their growth, China Mobile and smaller rivals, China Unicom and China Telecom, have been trying to attract users to their 3G services to grow revenue and recoup a combined $21 billion spent building networks last year.

China Mobile's 3G network is based on a homegrown mobile standard called TD-SCDMA, and had 10.5 million users at the end of June, up from 3.4 million last year.

China Mobile posted an April-June net profit of 32.12 billion yuan ($4.7 billion), up from 30.1bn yuan a year ago, and roughly in line with the average forecast of 30.42 billion yuan from three analysts surveyed by Reuters.

But China Mobile Chairman Wang Jianzhou warned in a statement that the group faced "new challenges amid the already high mobile penetration rate and the intensifying competition in China's telecommunications market."

Monthly average revenue per user, or ARPU, a widely watched industry indicator, fell to 72 yuan in the first six months of this year from 77 yuan for all 2009, amid intense competition.

Earnings before interest, tax, depreciation and amortisation (EBITDA) margin, a key indicator of a telecoms operator's profitability, fell to 50.7 per cent from 51.6 per cent a year ago.

China Mobile's results could set the tone for those of rivals Unicom and China Telecom, who are also expected to post declining or flat profits when they report their earnings next week.

China Mobile is the world's largest mobile operator by market capitalisation and number of users. Its subscriber base of over 500 million users is bigger than the population of the United States, Australia and Germany put together.

Despite worries about growth in its home market, China Mobile shares have risen about 16 per cent this year compared with a 3 per cent decline in the benchmark Hang Seng Index.

Before the Thursday drop, shares rose this week to their highest level in a year as investors flocked to a blue-chip stock seen as a safe-haven amid broader market weakness.