20180919-中国银河国际证券-HK_Telecommunications_Services_–_Never_too_late_5页_665kb

HK Telecommunications Services Sector Summary

Core Content

The Hong Kong telecommunications services sector has shown strong performance since the analyst's conviction call on 6 September 2018, outperforming the broader market and key indices such as the HSI, HSCEI, MSCI, and Shanghai Composite. The average share price of the sector has increased by 6.6% since 6 September 2019, with Smartone [0315.HK] leading the way with a 19.4% rise, attributed to a tariff hike in the mobile segment and positive market sentiment.

Key Players and Performance

HKT Trust [6823.HK]

• 1H 2018 Net Profit: Down 12.7% YoY to US$239m, primarily due to a deferred tax credit in the previous year.
• Total Revenue: Increased 12% YoY to HK$17,022m, driven by mobile handset sales.
• Underlying Revenue: Rose 1% YoY to HK$13,648m, supported by growth in Telecommunications Services (TSS) and Mobile Services.
• TSS Revenue: Increased 1% YoY to HK$10,155m.
• EBITDA: Increased 2% YoY to HK$3,762m.
• ARPU: Declined slightly to HK$195 at the end of June 2018.
• Post-paid Customers: Reached 3.242m, up 2% YoY.
• Churn Rate: Expected to drop below 1% by the end of 2018.
• Dividend Yield: 6.2%, higher than the industry average.
• Future Growth Drivers: Cloud, Tap & GO, and network upgrades.
• Market Position: Seen as a leader in the mobile market, with diversified operations across wired and wireless, toC and toB, and low-end to high-end services.

Smartone [0315.HK]

• FY18 Service Revenue: Stabilized with a 2% YoY increase in 2H FY18, the first increase since 2016.
• Mobile Revenue Growth: Driven by roaming revenue, HKBN's MVNO, and the Birdie service.
• Subscriber Base: Increased 16% YoY to 2.4m as of June 2018.
• ARPU: Declined 10% YoY, affected by higher SIM-only plans and HKBN's MVNO.
• Enterprise Revenue: A key growth driver, serving industries like construction, healthcare, and logistics.
• Dividend Yield: 4.5%, lower than HKT Trust.
• Share Price Performance: Outperformed the sector, with a 16.5% increase in 2018.

Hutchison Telecom [0215.HK]

• Total Revenue: Rose 29% YoY to HK$4,021m, driven by hardware revenue.
• EBITDA: Decreased 7% YoY to HK$601m, due to lower local service margins.
• Hardware Revenue: Surged 86% YoY to HK$2,178m.
• Service Revenue: Declined 5% YoY to HK$1,843m, with reductions in local and Macau roaming services.
• ARPU: Dropped 5% YoY to HK$188.
• Subscriber Base: Increased 4% YoY to 3.4m.
• Dividend Yield: 7.7%, higher than the sector average.
• Net Cash Flow: HK$9.5bn as of June 2018.
• Potential Moves: Evaluation of international acquisitions or a special dividend.

PCCW [0008.HK]

• Core Revenue: Increased 10% YoY to HK$18.8bn in 1H 2018.
• Media Revenue: Rose 7% YoY to HK$1.9bn, with NOW TV up 4% YoY due to the World Cup.
• OTT Business: Grew 17% YoY, driven by 47% YoY increase in advertising revenue and strong Viu services.
• Solutions Business: Only a 1% YoY increase in revenue.
• Recurring Revenue: Strong growth offset by a 20% YoY decline in project-based revenue.
• EBITDA Loss: HK$77m in the Media business, due to investment phase.
• Dividend Yield: 6.9%, higher than the industry average.
• Market Cap: HK$4,340m, lower than HKT Trust.
• Stakeholder Influence: China Unicom-A [600050.CH] holds 18.49% stake.

iCable [1097.HK]

• 1H 2018 Turnover: HK$587m, with a net loss of HK$254m.
• Strategic Partnership: Announced an MOU with China Mobile HK, including network usage, advice, and TV content sharing.
• Potential Catalyst: Network upgrade if a partner is secured.
• Market Cap: HK$159m, relatively small compared to peers.
• Major Shareholder: Forever Top holds 43.22% stake.

APT Satellite [1045.HK]

• 1H 2018 Turnover: HK$623.3m, up 4.1% YoY.
• Net Profit: Increased 15.5% YoY to HK$279.6m.
• Transponder Utilization: 73.1% as of June 2018, down slightly from 75.9% in 2017.
• Satellite Coverage: Provides super wide and strong satellite service capability across Asia, Australia, the Middle East, Africa, Europe, and the Asia Pacific.
• New Satellites: Launching APSTAR-5C in Q3 2018 and APSTAR-6D in Q2 2019.
• Market Attention: Expected to gain interest due to China SatCom's IPO.
• Dividend Yield: Not specified in the data.
• Market Cap: HK$347.7m, smaller than HKT Trust.

Key Factors Driving the Sector

• Tariff Hikes: The first in the mobile segment since the price war, which has positively impacted market sentiment.
• M&A Potential: Companies with strong financial positions and well-established business models are likely to be targets for acquisition.
• Dividend Yields: High yields support share prices, especially in a volatile market environment.
• Stable Business Models: Low exposure to emerging market currencies and minimal FX risk.
• Technological Advancements: Adoption of cloud computing, edge computing, 5G, and IoT, which require both wired and wireless infrastructure.
• Network Expansion: Potential for growth through strategic partnerships and network upgrades.
• Investor Sentiment: The sector is viewed as a safe harbor in the current market environment, with a re-rating cycle expected.

Investment Recommendations

• Event-Driven Theme: Smartone and Hutchison Telecom are highlighted for their recent performance and potential.
• Medium- to Long-Term Growth: HKT Trust is preferred due to its integrated business model and highest yield among the sector.
• Upside Potential: Based on a 5% yield, HKT Trust may offer 20% upside.
• Dark Horse: iCable could be a surprise performer if it secures a partner for network upgrades.
• Strategic Attention: APT Satellite may gain market interest due to China SatCom's IPO.

Summary Table

Conclusion

The Hong Kong telecommunications services sector is in a re-rating cycle, with HKT Trust and Smartone leading in performance and Hutchison Telecom showing strong fundamentals. iCable and APT Satellite present potential for growth if strategic partnerships and network upgrades are secured. The sector is viewed as a safe harbor, with dividend yields and stable operations making it attractive for investors.