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News Alert: Profit warning – Expect 9M21 earnings decline of 79%

What’s New

– HKTV (1137 HK) issued profit warning today after market close.

– The company expects 9M21 earnings and EBITDA to decrease by 79% y-o-y and 57% y-o-y respectively, vs. 3% y-o-y core net profit increase in 1H21. Management thus expects full year profit to drop significantly, compared with market expectation of stable earnings y-o-y.

– The decline was due to the launch of “$350 for $500 eGift voucher program” amid increased competition in the Hong Kong retail landscape caused by Government’s consumption voucher scheme in Aug and Oct. The program resulted in net expenses of HK$84m in 3Q21. The second reason is the absence of government subsidies of HK$49m which was received in 2020.

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Our View:

– We expect share price to react negatively to the profit warning in the near term.

– We believe that the promotional program is non-recurring. Government’s consumption voucher scheme directed the consumption demand away to offline retailers as some of them offers promotional discount. It is justifiable for HKTV to react aggressively by offering promotional programme to maintain GMV growth and retain customers.

– Note that GMV in 9M21 grew by 9% y-o-y to HK$4.78bn, or 72% of the low end of its full year target of HK$6.6bn. Unique customers increased by 17% to 1.1m. 

– We believe that the overall profitability should return to normal level next year, on the back of continuous GMV and user growth.

– We currently rate BUY on the counter.