20131108-巴黎银行证券-Stable_fixed-line_giant_15页_739kb

HKT Summary

Core Content

HKT Trust is a leading diversified telecommunications provider in Hong Kong, with its fixed-line segment contributing 87% of total revenue as of 1H 2013. The fixed-line business, which includes International Telecommunication Services, Local Broadband and Data, and Local Telephony, is the primary driver of overall business performance. The mobile segment, although growing at double-digit rates, only contributes 12% to total revenue and has a minimal impact on the company's EBITDA growth.

Key Financials

Investment Thesis

• Fixed-line segment dominates HKT's revenue and is the key driver of overall business performance.
• Fixed-line growth is expected to slow in 2H 2013 due to:
  • Normalization of the one-off effect from the 3Q 2012 acquisition.
  • Declining FTTH net adds and promotional pricing introduced in late 1H 2013.
• Mobile segment's revenue growth is not expected to significantly impact EBITDA due to minimal tariff increases and limited market share.

Mobile Tariff Increase Impact

• The recent mobile tariff increase is estimated to generate incremental revenue of:
  • HKD8m in 2H 2013 (0.1% of projected revenue without the increase)
  • HKD134m in 2014 (0.5% of projected revenue)
  • HKD259m in 2015 (1% of projected revenue)
• The impact on EBITDA is also minimal, with the following contributions:
  • 0.1% in 2014
  • 1.6% in 2015
  • 3.1% in 2015 (based on EBITDA without the increase)
• The company's EBITDA is expected to grow at a low-single-digit rate of 3.0%, 4.5%, and 3.9% in FY13, FY14, and FY15 respectively.

Target Price and Rating

• Target Price: HKD7.00
• Rating: HOLD
• The DCF-based target price implies:
  • 2014E P/E of 24x
  • 2015E P/E of 23x
• The current valuation is based on a 5% dividend yield and assumes no further yield compression.

Key Assumptions and Earnings Sensitivity

• Cost of Sales/Revenue: 34.3% in 2013E and 33.1% in 2014E
• Opex/Revenue: 13.0% in 2013E and 13.1% in 2014E
• A 1ppt increase or decrease in cost of sales or opex will impact FY14/FY15 EPS by 11.1% and 13.5% respectively.

Catalysts and Risks

Upside Risks:

1. Sustained growth in FTTH driven by high volume of migrated broadband subscribers
2. Better-than-estimated impact from mobile tariff increase

Downside Risks:

1. Unfavourable decision on 3G spectrum re-assignment
2. Fixed-line growth slowing more than expected

Company Background

• HKT is a leading integrated provider of fixed-line, mobile, and broadband services in Hong Kong.
• The company is owned by PCCW (63%).
• Key Executives:
  • Mr. Li Tzar Kai, Richard – Executive Chairman (since 1999)
  • Mr. Alexander Anthony Arena – Group Managing Director (since 1998)
  • Ms. HUI Hon Hing, Susanna – Group CFO (since 1999)

Share Price Performance

• Absolute Performance:
  • 1 Month: -2.0%
  • 3 Month: -8.5%
  • 12 Month: -4.0%
• Relative to Hang Seng Index:
  • 1 Month: -1.6%
  • 3 Month: -14.5%
  • 12 Month: -7.5%

Market and Financial Metrics

• Market Cap (USD m): 5,785
• 3m Avg Daily Turnover (USD m): 3.7
• Free Float (%): 32
• 12m High/Low (HKD): 8.84 / 6.73
• 3m Historic Volatility (%): 20.4

Conclusion

HKT Trust's performance is heavily reliant on its fixed-line segment, which is expected to see a slowdown in growth due to the normalization of the acquisition effect and declining FTTH net adds. The mobile segment's growth, while positive, is not expected to significantly affect overall EBITDA. With a HOLD rating and a DCF-based target price of HKD7.00, the company is valued at a relatively high P/E ratio, and the analysis suggests that further yield compression is unlikely at the current valuation level.