China Mobile: Tax Reform Skimming? Payouts Need to Be More Generous

China Mobile (600941.SH/00941.HK) released its Q1 2026 results (to Mar 2026) after Hong Kong market close on Apr 20 Beijing time. Key takeaways:

1) Ops: revenue held up. Total revenue was RMB 266.4bn in Q1 2026, up 1% YoY. Telecom services edged down YoY, while product sales and other lines posted a second straight quarter of double-digit growth. Operating profit (OP) was RMB 29.0bn, down 11% YoY, mainly on lower product GPM and higher opex.

2) Core businesses: mobile and broadband subs kept growing.

a) Mobile: $CHINA MOBILE(00941.HK) stopped disclosing per-user tariff metrics this quarter. Total mobile subs rebounded to 1.009bn, up ~3.76mn QoQ.

Given telecom services fell 1.1% YoY, per-user spending likely still declined this quarter, implying ongoing price cuts to drive traffic.

b) Broadband: continued growth. Broadband connections reached 333mn, up 3.9mn QoQ, extending the steady growth trend.

The company adjusted disclosure definitions this quarter, replacing ‘fixed-line broadband subs’ with ‘broadband connections’, now covering home broadband, enterprise broadband, internet leased lines, and data leased lines.

3) Capex: continued pullback, more into compute power. Q1 2026 capex was ~RMB 30.4bn, down RMB 6.0bn YoY.

On guidance, 2026 capex is expected at RMB 136.6bn, down RMB 15–20bn YoY. Cuts focus on telecom network capex, with increased spend on the computing power network. Implied capex for the next three quarters is ~RMB 106.2bn, or ~RMB 35.4bn per quarter on Avg.

4) ROE and dividends: $China Mobile(600941.SH) TTM ROE was 10.1%, +0.3pct YoY. Historically dividends are paid in Q2–Q3, and the RMB 19.7bn paid this quarter essentially front-loads the Q2 distribution.

Given disclosed payout expectations, if Q2 dividends are ~RMB 28.0bn, the current payout ratio (dividends/post-tax cash OP) is ~73%, which is fairly ordinary.

All ROE and dividend estimates are based on post-tax cash operating profit, which was ~RMB 36.2bn this quarter. [Post-tax cash OP = (OP + D&A − capex) × (1 − tax rate)]

Dolphin view: absorb tax pain; with lower capex, the cash cow is purer.

Revenue growth stayed low single-digit, while profit declined on weaker GPM and higher costs. With capex sharply lower, post-tax cash OP still grew 5% YoY this quarter. Telecom services remain the core (nearly 90% of revenue), and mobile subs rose by ~3.76mn QoQ.

As a leading domestic operator, China Mobile’s QoQ sub growth underscores its competitive strength. Beyond the steady print, the market focuses on three areas:

a) Capex: Q1 capex was RMB 30.4bn, down RMB 6.0bn YoY. Against full-year capex of RMB 136.6bn, capex for the remaining three quarters totals ~RMB 106.2bn (~RMB 35.2bn per quarter). With the 5G heavy investment cycle ending, capex keeps normalizing.

b) Dividends: Q1 dividends were RMB 19.7bn, whereas distributions historically concentrate in Q2–Q3. Assuming RMB 28.0bn in Q2, the payout ratio would stay around 73%.

c) VAT policy change: From Jan 1, 2026, data, SMS and MMS moved from ‘value-added telecom services’ to ‘basic telecom services’, lifting VAT from 6% to 9%. Given their revenue mix, the VAT hike likely trims total revenue by ~1–2%. Under the ongoing ‘price cuts for traffic’ strategy, pass-through to end users is tough, so profit impact is ~5–7%.

At a current mkt cap of ~RMB 1.6tn, implied 2026 P/E is ~10x (assuming 1% revenue growth, 58.6% GPM, 22.3% tax rate). Versus its historical 7–13x P/E range, valuation sits near the midpoint.

Overall, revenue and subs grew this quarter, but earnings were hit by the VAT change. OP fell nearly 11% on higher materials costs for customized handsets and higher operating expenses. Weaker operating results could weigh on shareholder returns. As capex is cut, management aims to offset via higher dividends and payout.

Per the announced FY2025 dividend plan, total dividends are guided at RMB 48.2bn, ~RMB 1.0bn below last year. While management highlighted intentions to lift payout to compensate shareholders, the absolute amount still declines, leaving uncertainty over 2026 dividends given VAT-driven earnings pressure.

Based on the last two distributions, cumulative dividends would be ~RMB 104.0bn, implying a ~6.7% yield on the current HK mkt cap (~RMB 1.55tn). Under VAT pressure and potential dividend headwinds, a ~6% yield may struggle to attract new buyers.

Below is Dolphin Research’s detailed read of China Mobile’s results:

I. Core metrics: capex cuts, higher payout ratio

a) Capex: Q1 capex was RMB 30.4bn, down RMB 6.0bn YoY. With full-year capex at RMB 136.6bn, the remaining three quarters imply ~RMB 106.2bn (~RMB 35.2bn per quarter), with 2H being seasonally higher.

As the 5G spend peak fades, capex has clearly rolled over. With capex trending down while D&A remains high, cash operating profit exceeds reported OP (post-tax ~RMB 20.7bn), indicating stronger cash generation. Dolphin estimates post-tax cash OP at RMB 36.2bn in Q1, +5% YoY.

On this basis, TTM ROE is estimated at 10.1%, continuing to trend up.

b) Dividends: Q1 dividends were RMB 19.7bn, while payouts are typically in Q2–Q3. Assuming RMB 28.0bn in Q2, the payout ratio would remain ~73%.

II. Quarterly performance: mainly impacted by VAT change

2.1 Revenue

Total revenue was RMB 266.48bn in Q1 2026, +1% YoY. By segment, telecom services revenue was RMB 219.8bn, -1.1% YoY, while product sales and others were RMB 46.6bn, +12% YoY, the main growth driver. VAT changes this quarter reduced reported revenue by ~1–2%. Ex-VAT effect, underlying growth would be ~2–3%.

The 1.1% YoY decline in telecom services reflects VAT changes. Disclosure also changed: per-user spending is no longer provided, and the broadband sub metric was redefined.

Total mobile subs reached 1.009bn, up 3.76mn QoQ. In a saturated market, continued sub gains highlight competitive strength.

2.2 Gross margin

GPM was 54.5% in Q1 2026, down 1.3pct YoY. Dolphin classifies ‘network operation and support costs’ and ‘cost of products sold’ as COGS to derive GP and GPM. Compared with product sales, telecom services carry higher GPM. The GPM decline mainly reflects higher component costs for customized devices, including memory.

2.3 Operating expenses

Opex was RMB 116.2bn in Q1 2026, +1.5% YoY. Dolphin groups ‘selling expenses’, ‘employee benefits’, ‘D&A’, and ‘other operating expenses’ under opex.

1) Selling expenses: RMB 14.6bn, +1.3% YoY, broadly stable. 2) Employee benefits: RMB 37.6bn, +1.1% YoY, in line with revenue growth.

3) D&A: RMB 47.7bn, -0.5% YoY. Employee costs are relatively rigid within opex. With the 5G capex peak past, capex is trending down, driving a continued decline in D&A.

4) Other operating expenses: RMB 16.4bn, +8.8% YoY, the main driver of opex growth this quarter.

2.4 Net profit

Net profit was RMB 29.4bn in Q1 2026, -4% YoY. With D&A exceeding capex, post-tax cash OP was ~RMB 36.2bn (ex non-op items), up ~RMB 1.7bn YoY on a cash basis. For 2026, GAAP earnings will be eroded by the VAT change, while post-tax cash OP should still benefit from lower capex after the high-investment phase.

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China Mobile archive by Dolphin Research:

Mar 26, 2026 earnings flash: 中国移动：直面税改冲击，分红底色依然不变？

Oct 20, 2025 earnings flash: 中国移动：稳如 ‘压舱石’，现金奶牛不 ‘掉链’！

Aug 7, 2025 call Trans: 中国移动（纪要）：维持 ‘收入稳健增长，利润良好增长’ 指引不变

Aug 7, 2025 earnings flash: 中国移动：赚钱能力在线，‘现金奶牛’ 底色不变

Apr 22, 2025 earnings flash: 刚需扛把子！中移动才是真股王？

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