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

HKT Trust Summary

Core Content

HKT Trust is a diversified telecommunications company in Hong Kong, with a strong focus on fixed-line services. Fixed-line services contribute 87% of the company's revenue as of 1H 2013 and are the primary driver of its overall business performance. Despite mobile services showing double-digit growth, the EBITDA growth remains in muted low single digits, similar to the fixed-line business.

Key Financials

Main Viewpoints

• Fixed-line dominates revenue: Fixed-line services, including International Telecommunication Services, Local Broadband and Data, and Local Telephony, make up the majority of HKT Trust's revenue and drive overall performance.
• Fixed-line growth to slow: The one-off growth from the 2012 acquisition in the international fixed-line segment is expected to normalize in 2H 2013. Additionally, FTTH migration has likely passed its peak, and the recent promotions are expected to slow revenue growth.
• Mobile growth and EBITDA impact: Mobile services are growing in double digits, but the recent tariff increase only adds 0.1%, 0.5%, and 1% to projected revenue in FY13, FY14, and FY15, respectively. The impact on EBITDA is also minimal, at 0.1%, 1.6%, and 3.1%.
• EBITDA growth: EBITDA is expected to grow in low single digits, at 3.0%, 4.5%, and 3.9% in FY13, FY14, and FY15, respectively.
• Dividend policy: The trust structure allows HKT to pay out 100% of its Adjusted Fund Flow (AFF) as dividends, which has contributed to its higher valuation compared to peers.

Key Information

• Target Price: HKD7.00
• Rating: HOLD
• Valuation Assumptions:
  • 12M rolling P/E of 24x
  • Dividend yield of 5%
  • DCF-based assumptions: 6% revenue growth, 12.4% operating margin, 11.2% WACC, and 2% terminal growth
• Market Sentiment:
  • Positive recommendations: 8
  • Neutral recommendations: 9
  • Negative recommendations: 1

Investment Thesis

• Fixed-line services remain the core of HKT Trust's business and are expected to drive top-line growth.
• The growth in fixed-line is anticipated to slow due to normalization of the acquisition effect and the saturation of the broadband market.
• Mobile services, while growing, are not a major contributor to overall performance.
• The mobile tariff increase has a minimal impact on revenue and EBITDA.
• We initiate coverage with a HOLD rating, based on stable EBITDA growth and no further yield compression.

Catalysts and Risks

Catalysts:

1. Stable growth outlook
2. No further multiple expansion

Risks:

• Upside: Sustained growth in FTTH due to high migration of broadband subscribers
• Downside: Unfavorable decision on 3G spectrum re-assignment, fixed-line growth slowing more than expected

Company Background

• HK Telecom Limited is a leading integrated provider of fixed-line, mobile, and broadband services in Hong Kong.
• Major Shareholder: PCCW (63%)
• 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

Key Assumptions

• Cost of Sales/Revenue (%): 34.3% (2013E), 33.1% (2014E)
• Opex/Revenue (%): 13.0% (2013E), 13.1% (2014E)
• EBITDA Margin: Trending down due to shift in revenue mix
• EBITDA Growth: Low single digits
• Dividend Yield: 5% (current), expected to remain stable

Earnings Sensitivity

• A 1ppt increase in cost of sales or opex as % of revenue would result in a 11.1% or 13.5% decrease in FY14/FY15 EPS, respectively.
• A 1ppt decrease would lead to an 11.1% or 13.5% increase in EPS.

Mobile Tariff Increase Analysis

• The mobile tariff increase in October 2013 adds minimal revenue to HKT Trust:
  • 2H 2013: HKD8m
  • 2014: HKD134m
  • 2015: HKD259m
• These represent 0%, 0.5%, and 1% of projected revenue without the tariff increase, respectively.
• The impact on EBITDA is also small: 0.1%, 1.6%, and 3.1%.

Summary of Impact

• Revenue Impact:
  • 2H 2013: HKD8m
  • 2014: HKD134m
  • 2015: HKD259m
• EBITDA Impact:
  • 2H 2013: 0.1%
  • 2014: 1.6%
  • 2015: 3.1%

Conclusion

HKT Trust is a stable fixed-line provider with a strong dividend policy and a diversified business model. However, growth in fixed-line is expected to slow in 2H 2013, and the impact of the mobile tariff increase is minimal. We maintain a HOLD rating with a DCF-based target price of HKD7.00, reflecting a 24x and 23x P/E for 2014 and 2015, respectively.