Is China Mobile Limited (HKG:941) A Cash Cow?

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China Mobile Limited (HKG:941) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. Today we will examine China Mobile’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.

View our latest analysis for China Mobile

What is free cash flow?

China Mobile’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for China Mobile to continue to grow, or at least, maintain its current operations.

The two ways to assess whether China Mobile’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.

Free Cash Flow = Operating Cash Flows – Net Capital Expenditure

Free Cash Flow Yield = Free Cash Flow / Enterprise Value

where Enterprise Value = Market Capitalisation + Net Debt

After accounting for capital expenses required to run the business, China Mobile is not able to generate positive FCF, leading to a negative FCF yield – not very useful for interpretation!

SEHK:941 Net Worth February 16th 19
SEHK:941 Net Worth February 16th 19

Does China Mobile have a favourable cash flow trend?

Can China Mobile improve its operating cash production in the future? Let’s take a quick look at the cash flow trend China Mobile is expected to deliver over time. In the next few years, a double-digit growth in operating cash of 12% is expected. The future seems buoyant if China Mobile can maintain its levels of capital expenditure as well. Below is a table of China Mobile’s operating cash flow in the past year, as well as the anticipated level going forward.
Current +1 year +2 year +3 year
Operating Cash Flow (OCF) CN¥226b CN¥263b CN¥271b CN¥253b
OCF Growth Year-On-Year 16% 3.3% -6.8%
OCF Growth From Current Year 20% 12%

Next Steps:

Now you know to keep cash flows in mind, You should continue to research China Mobile to get a better picture of the company by looking at:

  1. Valuation: What is 941 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 941 is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on China Mobile’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.