By Perry Wu
Call it the Toltsoy effect. Leo Toltsoy's famous line that "all happy families are alike, but all unhappy families are unhappy in their own way" explains something about Chinese technology companies. After months of analyzing the online listed Chinese companies, it is clear that there is much amiss with such companies as Shanda and Sohu. From unfocused management, to mismanagement of cash, to poor relationships with the government, the list of problems will continue to grow as those listed companies learn to be more transparent. Each of these companies is unhappy in its own way.
But compared to these companies, China Mobile is actually a decent investment. And the reason is no different from why other companies, the world over, may be decent investments. China Mobile has much in common with other happy companies.
A couple of weeks ago, China Mobile released its second quarter earning results and there we can find the reasons why the company is currently so hot. Let's go through three reasons.
Clear About Shareholders' Interests
At several points in the English-language version of its results announcement, China Mobile used the term "rational". So far, the company can honestly claim this word. Since its IPO, it has concentrated on becoming a larger presence in the mobile phone market. It hasn't ventured into unrelated businesses; it hasn't focused its resources on unrelated businesses, and it has stuck to the program. Investors have been rewarded for what they have paid for.
Best of all, the company explicitly states shareholder value as a key goal, saying "The Company holds in highest regard the interests of shareholders and the returns achieved for them, especially the minority shareholders." As I mentioned in past columns, companies like Shanda seem nowhere near this dictum.
Now, you might think: any company can say this about shareholders, and talk is cheap. But it may surprise you how few are the companies that are so explicit about shareholders' rights. Interestingly, other listed Chinese tech companies, such as Linktone, Sina, and Sohu have never so boldly stated that they hold in "highest regard the shareholders–especially the minority shareholders." It's almost like saying "please" and "thank you": those who say it may not be noticed, but those who never say these words are surely noticed.
Strong Cash Flow and Discipline
Even with its various acquisitions completed in the first six months of 2004, the company's cash balance actually increased, from US$4.7 billion at the end of 2003 to US$5.67 billion on June 30, 2004. How rare this is. A Chinese tech company has actually increased its cash position in a given time period.
Some may argue that this is an excessive cash position and the company should be putting its cash to work, rather than keeping its money in the bank. I don't think so. This is a mark of a company with some discipline and integrity. I salute them.
Strong and Growing Market Position (actually a near-monopoly)
China Mobile can now truly call itself a national provider. With acquisitions complete in ten different provinces, it now has a presence in all thirty-one mainland regional entities (includes provinces, autonomous regions, and municipalities).
And although it now seems that every Chinese has a mobile phone, there is still apparently room for growth. China Mobile counted an additional 17 million subscribers in the first six months of 2004 alone.
The company's chairman, Mr. Wang Xiaouchou, said in the announcement that the company "will continue to adhere to the principle of 'win-win' competition". The wireless service providers, like Chinadotcom, Sina, and others, that China Mobile has been harassing recently for various reasons, probably would disagree with Mr. Wang's description that it is a win-win situation.
So China Mobile has been throwing its weight around, and making clear to its service providers that they are dispensable. But this is only a good thing for China Mobile's shareholders.
For an investor dead-set on buying into an indigenous Chinese tech company, you could hardly do worse. Not bad at all.
About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.