AAPL: Morgan Stanley Sees $10/Sh EPS Upside in China iPhone Deployment

Morgan Stanley’s Katy Huberty this morning reiterates an Overweight rating on shares of Apple (AAPL), writing that the addition of China Telecom (CHA) and China Mobile (CHL) as carriers for the iPhone, on top of existing carrier China Unicom (CHU), could add as much as $10 per share to Apple’s profit per share in calendar 2013.

By way of comparison, Huberty is currently modeling $49.50 per share in profit for Apple’s fiscal year ending September of 2013.

Adding new carriers is the biggest driver of shipments for Apple, Huberty contends, noting that the company has signed up only 30% of global phone companies versus 79% for Research in Motion.

By adding the other two carriers, Apple can reach 100% of China’s “high-end” phone subscribers, those paying 100 Chinese Renminbi per month, on average, or US$16, as opposed to just 10% currently through Unicom. She notes that while the iPhone is not compatible with China Mobile’s 3G network, the company nevertheless already has 10 million unofficial iPhone users. A new model of the iPhone, an iPhone 5, as she calls it, may offer compatibility with the “TD-LTE” flavor of 4G cellular that China Mobile has developed.

China Telecom “could start distributing the iPhone in the next few months,” according to her “checks in Asia.”

Assuming “similar penetration rates” for China Telecom and China Mobile would produce an additional 2 million to 4 million iPhone sales next year for Telecom and 24 million for China Mobile, with the potential for 40 million incremental iPhone purchases in 2013.

Huberty details her expectations:

We estimate China Unicom has 3 million iPhone users, implying a 20% penetration of its 15 million high-end subscriber base. The same penetration at China Mobile given its 120 million high-end subscribers would equate to 24 million iPhones, with 14 million switching from other feature phones or smartphones and 10 million existing iPhone users on the 2G network upgrading to the faster 4G network [...] We upside to a bull case of 36 million incremental shipments in calendar year 2013 as pent-up demand is addressed with a subsidized and TD-LTE compatible iPhone at China Mobile.

Apple shares today are up $5.05, or 1%, at $452.33.