FBN reiterate Outperform/$650 on (important) China Mobile deal.

Apple Inc. AAPL

 

Apple (AAPL) PT Raised

Analysts at FBN retain their Outperform rating and raise their PT from $625 to $650. Yesterday, Apple Inc. (NASDAQ:AAPL) and China Mobile finally announced an agreement in which China Mobile (with 181M 3G subs as of Nov 30, 2013) will begin selling Apple Inc. (NASDAQ:AAPL)’s iPhone in mainland China on Jan. 17, 2014 (with pre-registration available on Dec. 25, 2013). This announcement comes after the WSJ previously reported that such a deal would be announced on Dec. 18, 2013.

FBN analysts are raising their C2014 NG EPS estimate by 5% as they assume that Apple Inc. (NASDAQ:AAPL) will sell an incremental 17M units to China Mobile (on top of the roughly 42M China Mobile subscribers that already use the iPhone). Analysts arrive at their estimate by assuming that Apple Inc. (NASDAQ:AAPL) can incrementally penetrate 7.5% of their estimate of 224M average 3G/4G China Mobile subscribers in C2014 (see Figure 1 below for a detailed China Mobile model).

Analysts at the firm reporedly lower their ASP assumption a bit as they think that China Mobile subscriber base will be more skewed toward lower-priced models and they believe that China Mobile may have extracted better subsidization terms from Apple Inc. (NASDAQ:AAPL) due to its large size (the long delay also supports this). China Mobile currently has 1.2M 2G/3G/4G base stations and intends to add 500K 4G base stations by the end of C2014. This suggests that its 3G/4G % of total subscribers, which in CQ3 2013 was 22% (170M 3G/4G subs out of a total of 755M subscribers) will grow materially by the end of C2014 (analysts model 35%, representing 249M 3G/4G subscribers out of 832M total subscribers, and see upside to this estimate).

Apple China Mobile

Apple (AAPL)’s large screen iPhones

There are also reports that Apple Inc. (NASDAQ:AAPL) will launch two larger-screened iPhones in 2HCY14, which could really help its demand in Asia with China Mobile and other carriers.