China Mobile's first-half earnings should rise by up to 42% on strong customer demand, but future growth could be hurt by a government plan to restructure the country's telecoms market, analysts say.

Citigroup's Michael Meng and Anand Ramachandran are forecasting a 42% rise in net profit, while Jimmy Cheong of JP Morgan expects 36%.

But all the analysts said China Mobile's future prospects are clouded by uncertainty about government plans to restructure China's telecoms market and to introduce a homegrown 3G mobile phone standard.

China Mobile shares traded in in Hong Kong have tumbled 42% from their October 29 peak, largely on uncertainty about market and regulatory changes.

Regulators are merging state-owned carriers into three groups centered on China Mobile, China Telecom and China Netcom.

"We believe that the forthcoming set of results will again highlight the fundamental strength of China Mobile," Cheong said in a research report. "However, the sector faces a challenging next 12 months due to 3G licensing, higher capex, new industry landscape and potential regulatory changes."

China Mobile's customer numbers and profits have soared amid a boom that saw the Chinese economy expand by more than 10 % for five straight years. It has more than 400 million of the country's 590 million mobile accounts.

First-half results also should benefit by comparison with the same period in 2007, when earnings were hurt by 5.7 billion yuan ($832 million) in additional depreciation expenses due to accounting policy changes.

Meng and Ramachandran said they were lowering their estimates for China Mobile profits in 2008-11 due to stronger competition and possible increased regulatory intervention.

Source:AP News