Auriga Maintains Hold Rating On CHL

Auriga is maintaining is Hold rating on China Mobile CHL after the company reported its 2010 revenue and EPS slightly below consensus expectations.

“We continue to view CHL's stock as lacking near-term catalysts but being supported by the company's strong FCF and high dividend yield (4.1%),” Auriga writes.

“Our analysis indicates that investors had been willing to pay for the acceleration of CHL's net sub add, but a reacceleration of CHL's net sub add is unlikely in the foreseeable future due to current market conditions in China. Given the company's capex needs, CHL is unlikely to increase its dividend payout ratio significantly beyond the 43% level in the next several years, thus dwindling the hope that the CHL stock can be a dividend expansion story.

“For investors looking for exposure to China's telecom carrier space, we recommend CHL's competitor, China Telecom (CHA, Buy), which we expect to generate attractive EBITDA expansion and healthy FCF in the coming years.”

China Mobile closed Wednesday at $44.98.