China Mobile: World’s Largest Telecom Provider, with 1+ Billion Users

A.J. Noronha of Desai Capital presented his in-depth investment thesis on China Mobile (NYSE: CHL) at Wide-Moat Investing Summit 2018.

Thesis summary:

China Mobile provides a compelling value investment opportunity with 30+% upside and numerous moats serving as value drivers.

A major moat comes from a powerful industry leadership position, as the company is the world’s largest telecom provider with 1+ billion users, and has local market share 60+% in China. A second moat comes from the financials, a share price that is ~30% below intrinsic value, net cash comprising ~40% of the market cap, and excellent profit margins. China Mobile is a state-owned enterprise, which is important in light of the moats arising from the industry’s heavy infrastructure investment requirements, which may lower competition via a high barrier to entry, as well as the regulations involved in telecom. The company is well-positioned to benefit from China’s middle class as consumers transition from simple phones on 4G networks to smartphones on faster and higher-margin 5G networks.

Many typical risk factors are less of a concern here, specifically that competitors have smaller market share and focus on less lucrative landline businesses, as compared to CHL’s focus on the growing data segment.

CHL offers a compelling opportunity with a discount to intrinsic value and strong moats providing upside if A.J.’s thesis is correct, balanced by a margin of safety if A.J.’s thesis is incorrect or takes longer to develop. A.J. believes CHL could be worth $60 per share over the next 18-36 months.

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About the instructor:

A.J. Noronha has over eight years of investment management experience, and has worked closely with Mr. Desai since Desai Capital Management’s inception with all aspects of the fund, with his primary responsibilities being equity research, due diligence, and developing investment theses for DCM’s portfolio. He has been ranked as highly as #1 (Value) and #9 (Overall) in SumZero’s independent analyst rankings, and his independent research on Dow Chemical was selected as one of their top ideas of 2015.. He served as an instructor for MOI Global’s Best Ideas 2018, and was an invited participant (non finalist) in the 2017-2018 Sohn Conference Foundation Idea Contest and 2017 SumZero/Van Biema Value Partners Idea Challenge. Prior to DCM, Mr. Noronha gained investment experience working for a mid-market PE/VC fund, and also co-founded and served in an executive role for a biomedical engineering startup. He earned a degree in Finance, magna cum laude, from the University of Notre Dame, where he was selected to be a member of the prestigious Applied Investment Management honors finance course where students manage a portion of the University endowment under the guidance of the Chief Investment Officer, and also holds a JD with Dean’s List honors & a concentration in business enterprise (selected coursework taken through the Kellogg School of Management) from Northwestern University. He is a CFA Level III Candidate after successfully completed the CFA Level 1 & Level II exams on his first attempt, is an active Candidate Member of the CFA Society of Chicago & serves on its Professional Development Advisory Group Board, and a member of Irish Entrepreneurs & Harvard Alumni Entrepreneurs.