China Mobile (600941.SH/00941.HK) released its financial report for the first quarter of 2026 (ending in March 2026) after the Hong Kong market closed on the evening of April 20, 2026, Beijing time. Here are the key takeaways:

1. Operating Data: Revenue Growth Persists. China Mobile's total revenue for the first quarter of 2026 reached RMB 266.4 billion, marking a 1% year-on-year increase. While the company's communications business saw a slight decline year-on-year this quarter, product sales and other sectors experienced double-digit growth for the second consecutive quarter. China Mobile's operating profit for the first quarter of 2026 was RMB 29 billion, a decrease of 11% year-on-year, primarily due to a decline in product gross margins and increased operating costs.

2. Core Business Performance: Mobile & Broadband Users Continue to Rise.

a) Mobile Business: Starting this quarter, the company ceased disclosing per-user tariff information. In terms of user numbers, the company's mobile user base rebounded to 1.009 billion this quarter, an increase of approximately 3.76 million from the previous quarter.

Considering the 1.1% year-on-year decline in the company's communications business this quarter, the average revenue per mobile user likely continued to decrease, adhering to the strategy of 'driving traffic through price cuts.'

b) Broadband Business: Continues its upward trajectory. The company's broadband internet connections reached 333 million this quarter, an increase of 3.9 million households from the previous quarter, maintaining the sustained growth trend in the company's broadband business.

This quarter, the company revised its disclosure metrics, changing the previously reported 'wired broadband count' to 'broadband internet connections,' which now encompasses home broadband, enterprise broadband, internet dedicated lines, and data dedicated lines.

3. Capital Expenditure: Continues to Decrease, with Increased Investments in Computing Power. China Mobile's capital expenditure for the first quarter of 2026 was approximately RMB 30.4 billion, a decrease of RMB 6 billion year-on-year.

According to the company's outlook, it anticipates capital expenditures for 2026 to be RMB 136.6 billion, a year-on-year decrease of RMB 15-20 billion. The company primarily reduces capital expenditures for communications networks while continuing to boost investments in computing power networks. Capital expenditures for the last three quarters of 2026 are expected to be around RMB 106.2 billion, averaging approximately RMB 35.4 billion per quarter.

4. ROE and Dividend Situation: The company's TTM ROE for this quarter was 10.1%, up 0.3 percentage points year-on-year. The company typically distributes dividends in the second and third quarters, and the RMB 19.7 billion dividend paid this quarter essentially serves as an advance on the second-quarter dividend.

Assuming a second-quarter dividend of around RMB 28 billion, as announced by the company, the current dividend payout ratio (dividends divided by post-tax cash operating profits) would be around 73%, which is relatively moderate.

The calculations for ROE and dividend situations here are based on post-tax cash operating profits, which were approximately RMB 36.2 billion this quarter. [Post-tax cash operating profit = (company operating profit + depreciation and amortization - capital expenditures) * (1 - tax rate)]

Dolphin Research's Overall Perspective: Enduring Tax 'Growing Pains,' the 'Cash Cow' Thrives Amid Reduced Capital Expenditures

China Mobile's revenue continues to experience single-digit growth, while profit declines are primarily attributed to falling gross margins and increased costs. Due to significant cuts in capital expenditures this quarter, the company's post-tax cash operating profits still grew by 5%.

The communications business remains the company's most crucial segment (accounting for nearly 90%), with mobile user numbers increasing by 3.76 million households this quarter. As a leading domestic operator, China Mobile's growth further underscores its competitiveness in the operator market.

Behind China Mobile's 'stable' performance, the market is more focused on the following three aspects:

a) Capital Expenditure Situation: The company's capital expenditures were RMB 30.4 billion this quarter, a decrease of RMB 6 billion year-on-year. Combined with the company's full-year capital expenditures of RMB 136.6 billion, capital expenditures for the last three quarters are expected to total around RMB 106.2 billion (approximately RMB 35.2 billion per quarter). As the high-investment phase of 5G concludes, China Mobile's capital expenditures continue to shrink.

b) Dividend Situation: The company distributed RMB 19.7 billion in dividends this quarter, primarily paid in the second and third quarters previously. Assuming a second-quarter dividend of RMB 28 billion, the current dividend payout ratio remains around 73%.

c) Impact of New VAT Policy: Starting January 1, 2026, data traffic, SMS, and MMS services were reclassified from 'value-added telecommunications services' to 'basic telecommunications services,' with the corresponding VAT increasing from 6% to 9%.

Considering the proportion of data traffic, SMS, and MMS services in the company's revenue, market expectations are that the VAT increase will roughly impact the company's total revenue by 1-2%. Under the current strategy of 'driving traffic through price cuts,' it remains challenging to pass on these costs to downstream consumers, with an estimated impact on profits of around 5-7%.

Overall, China Mobile's revenue and user numbers are growing this quarter, with performance affected by VAT adjustments. Affected by rising costs for customized mobile phones and increased operating expenses, the company's operating profit declined by nearly 11% this quarter.

The decline in operating performance will, to some extent, affect shareholder returns. While cutting capital expenditures, the company also aims to meet shareholders' expectations for dividend returns by increasing dividends and the payout ratio.

According to the company's announced 2025 annual dividend plan, the expected dividend is RMB 48.2 billion, RMB 1 billion less than the same period last year. Although the company mentioned increasing the dividend payout ratio to compensate shareholders, the total dividend amount still declined in this plan. Therefore, it remains uncertain whether the company's 2026 dividends (affected by VAT and lower profits) will increase.

Based on the company's last two dividend payments, total dividends will reach around RMB 104 billion, corresponding to a dividend yield of approximately 6.7% based on the current Hong Kong stock market value (RMB 155 million). Given the current VAT pressure and potential decline in dividend returns, a dividend yield of around 6% is unlikely to attract new investors.

Below is a detailed analysis

I. Core Data: Significant Investment Cuts, Dividend Payout Ratio Rises

a) Capital Expenditure Situation: The company's capital expenditures were RMB 30.4 billion this quarter, a decrease of RMB 6 billion year-on-year. Combined with the company's full-year capital expenditures of RMB 136.6 billion, capital expenditures for the last three quarters are expected to total around RMB 106.2 billion (approximately RMB 35.2 billion per quarter), with relatively higher investments in the second half of the year.

As the high-investment phase of 5G concludes, China Mobile's capital expenditures have significantly decreased. With capital expenditures gradually declining and depreciation and amortization still high, the company's cash operating profits will surpass the reported operating profits (approximately RMB 20.7 billion post-tax), indicating higher actual profitability. Dolphin Research estimates the company's post-tax cash operating profits were RMB 36.2 billion this quarter, up 5% year-on-year.

Based on this, the company's TTM ROE for this quarter is estimated at 10.1%, continuing to steadily increase.

b) Dividend Situation: The company paid RMB 19.7 billion in dividends this quarter, primarily paid in the second and third quarters previously. Assuming a second-quarter dividend of RMB 28 billion, the current dividend payout ratio will remain around 73%.

II. Quarterly Performance: Mainly Affected by VAT Adjustments

2.1 Revenue

China Mobile's total revenue for the first quarter of 2026 was RMB 266.48 billion, up 1% year-on-year. By segment, revenue from communications services was RMB 219.8 billion, down 1.1% year-on-year, while revenue from product sales and others was RMB 46.6 billion, up 12% year-on-year, serving as the main driver of growth this quarter.

Notably, starting this quarter, the company is affected by VAT adjustments, roughly impacting total revenue by 1-2%. Excluding this impact, revenue growth for the quarter should be around 2-3%.

The 1.1% year-on-year decline in communications service revenue this quarter is mainly due to VAT adjustments. The company also revised its disclosure metrics this quarter, no longer disclosing per-user tariffs while also 'modifying' the broadband household count metrics.

The company's total mobile users reached 1.009 billion this quarter, an increase of 3.76 million households from the previous quarter. In a relatively saturated market, continued user growth demonstrates the company's market competitiveness.

2.2 Gross Margin

China Mobile's gross margin for the first quarter of 2026 was 54.5%, down 1.3 percentage points year-on-year. Dolphin Research classifies 'network operation and support costs' and 'product sales costs' as operating costs to calculate gross profit and gross margin.

Compared to product sales, the company's communications business has a relatively higher gross margin. The decline in gross margin this quarter is mainly due to increased costs for storage and other expenses for customized mobile phones and other products sold.

2.3 Operating Expenses

China Mobile's operating expenses for the first quarter of 2026 were RMB 116.2 billion, up 1.5% year-on-year. Dolphin Research includes 'sales expenses,' 'employee compensation expenses,' 'depreciation and amortization,' and 'other operating expenses' in operating expenses.

1) Sales Expenses: RMB 14.6 billion this quarter, up 1.3% year-on-year, remaining relatively stable.

2) Employee Compensation Expenses: RMB 37.6 billion this quarter, up 1.1% year-on-year, with growth similar to revenue growth.

3) Depreciation and Amortization: RMB 47.7 billion this quarter, down 0.5% year-on-year. In China Mobile's operating expenses, employee compensation is relatively rigid. With the end of the 5G investment peak, the company's capital expenditures gradually decline, the main reason for the sustained decrease in depreciation and amortization.

4) Other Operating Expenses: RMB 16.4 billion this quarter, up 8.8% year-on-year, the main driver of expense growth this quarter.

2.4 Net Profit

China Mobile's net profit for the first quarter of 2026 was RMB 29.4 billion, down 4% year-on-year. Since the company's depreciation and amortization exceed capital expenditures, from a cash flow perspective, post-tax cash operating profits were RMB 36.2 billion this quarter (excluding non-operating factors), an increase of RMB 1.7 billion year-on-year.

In 2026, the company's profits will be eroded by VAT adjustments. However, post-tax cash operating profits will still benefit from enhanced performance due to reduced capital expenditures, as the high-investment phase has passed.

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