China Mobile lures bulls amid profit turnaround bets

Bets that China Mobile's US$2 billion cut in handset subsidies will help the world's biggest phone company reverse a profit slump pushed bullish options on the stock to a 19-month high.

One-month calls that pay out if China Mobile shares climb 10 per cent cost 2.5 points more than puts on Monday. The difference rose to 4 points on August 15, the highest since January 2013.

The stock has jumped 9.9 per cent since August 14, compared with a 0.6 per cent decline on Hong Kong's benchmark Hang Seng Index, as the company said it would offset less of the price of customers' devices.

"The cut in handset subsidies is a major change in strategy," said Victor Yip, an analyst at UOB Kay Hian Holdings. "Revenue from the mobile data services business also looks encouraging. The take-up for its 4G mobile services also looks decent."

China Mobile would spend 21 billion yuan (HK$26.4 billion) on subsidies this year, compared with the 34 billion yuan it had planned, chief financial officer Xue Taohai said last month.

China Unicom (Hong Kong) and China Telecom Corp would also reduce subsidies after regulators told the country's biggest carriers to cut costs by 40 billion yuan in three years because of over-spending on incentives and marketing, people familiar with the matter said in July.

UOB Kay Hian is among the 53 per cent of brokerages covering China Mobile that recommended the stock as of Monday, compared with 40 per cent before the subsidy cuts and first-half results were reported on August 14. The average price target grew to HK$94.21 from HK$83.67 in the same period.