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Equity Market Summary: HKT Trust (6823 HK)

Core Content Overview

This report provides an in-depth analysis of HKT Trust (6823 HK), a leading telecommunications provider in Hong Kong. It outlines the company's market position, historical development, financial performance, strengths, opportunities, weaknesses, and threats. The report also includes valuation metrics and analyst certification details.

Key Financial Highlights

• Market Performance:

  • HSI fell by 0.11%
  • HSCEI rose by 0.26%
  • SSE Composite rose by 0.17%
  • SZSE Component fell by 0.18%
  • Total turnover was HK$85.4 billion, down 5% from the 30-day average.

• Revenue Mix (2017):

  • Total revenue: HKD 33.3 billion
  • Mobile business was the key growth driver, reaching HKD 12.0 billion with a CAGR of 32.1%
  • Fixed-line business remained the largest revenue contributor, accounting for about 60% of total revenue
  • Broadband revenue grew at a CAGR of 6.5% to reach HKD 5.2 billion in 2017

• Adjusted Fund Flows (AFF):

  • AFF rose from 2011 to 2017, reaching HKD 4.9 billion in 2017 with a CAGR of 12.8%
  • HKT distributes 100% of AFF as dividends, resulting in rising dividends per share stapled unit

Market Position

• Fixed Line:

  • HKT was the sole fixed line provider before 1995
  • Maintained a 63.6% market share in 2017
  • Stable customer base of 2.6 million users
  • Stable fixed line revenue of HKD 3.4 billion and ARPU of HKD 110

• Broadband:

  • Market share of 60.1% in 2017
  • Broadband access lines grew at a CAGR of 2.2% to 1.6 billion in 2017
  • ARPU rose to HKD 272 in 2017 due to increased adoption of higher-speed FTTH plans

• Mobile:

  • Became the number one mobile player in Hong Kong after re-acquiring CSL in 2014
  • Market share of 24.0% in 2017
  • Mobile revenue rose significantly post-acquisition
  • Implemented a multi-brand strategy: 1010 (premium), CSL (critical mass), and Sun Mobile (affordable)

Financial Summary (2015–2017)

Strengths

• Market leader in fixed line, broadband, and mobile services
• Offers quadruple-play services (fixed line, broadband, mobile, IPTV)
• Strong brand recognition and reputation for quality and reliability

Opportunities

• Increasing adoption of FTTH services
• Acquisition of CSL increased market penetration
• End of price war leading to improved profitability
• Launch of 5G in 2020
• Expansion into overseas markets

Weaknesses

• Highly leveraged with a net gearing ratio of 100.2% in 2017
• Prefers dividend payouts over debt reduction
• Other business segments are loss-making

Threats

• Increased competition due to liberalization of the telecom industry
• Rapid technological changes and implementation challenges

Valuation Metrics

• P/E Ratio: 16.0x
• P/B Ratio: 2.1x
• Dividend Yield: 6.0%
• P/E Band: 15.6x, lower than the 5-year average of 18.6x
• P/B Band: 2.12x, higher than the 5-year average of 1.82x

Relative Performance

• HKT outperformed the HSI since July 2018

Analyst Certification

• Peter Choi (SFC CE: AYP113) certifies that:
  • All views reflect his personal opinion
  • No compensation is tied to the report's recommendations
  • He is not supervised by the Investment Banking Department
  • No quiet period restrictions apply
  • No trading in the stock covered in the report within 30 days prior to the report's release
  • No financial interest in the listed company

Disclaimer

• The report is for informational purposes only and does not constitute investment advice
• Orient Securities (Hong Kong) Limited may have conflicts of interest
• Information is obtained from reliable sources, but no guarantees are made regarding accuracy or completeness
• Past performance is not indicative of future results
• The report is not directed to any jurisdiction where distribution may be unlawful
• No prior written consent is required for copying or reproducing the report

Summary

HKT Trust is a market leader in Hong Kong's telecommunications sector, with strong positions in fixed line, broadband, and mobile services. Its financial performance has shown consistent growth, supported by a robust revenue mix and strong dividend policy. The company's strategic acquisitions, particularly CSL, have significantly bolstered its market share and revenue. Despite its strengths, HKT faces challenges such as high leverage and competition from other telecom providers. With a solid brand reputation and a multi-brand strategy, HKT is well-positioned for continued growth, especially with the upcoming 5G rollout and opportunities in overseas markets.