• Stable residential sub growth from supply of new housing, HKBN to gain market share
  • Robust enterprise business; limited impact of COVID-19 on SME exposure
  • Further roaming revenue shrinkage unlikely, while 5G upgrade leads to a higher local ARPU
  • HKBN (1310 HK) remains our top pick with a TP of HK$13.6, given attractive yield of c.8%

Stable growth in residential broadband market. We expect total residential broadband subscribers to grow 2% and 1.5% in 2022 and 2023, respectively, with the supply of new housing. HKBN could gain market share with the launch of Disney+, with a target of 1m total subscribers by FY8/22, representing 13% y-o-y growth. HKT could also maintain subscriber because of new housing supply. 

Robust enterprise business. We expect c.3% growth in enterprise market in FY22. Despite market concern on the impact of COVID-19 on fixed-line operators due to SME exposures, we estimate the impact is only 1-2% revenue of enterprise market, if 10% of SMEs close down.

Further roaming revenue shrinkage unlikely. Roaming business suffered from city lockdowns and represent 5-8% of mobile revenue in FY21, vs. 13-20% pre-COVID-19. Further shrinkage is unlikely, and any roaming revenue recovery would be positive to mobile ARPU, along with 5G upgrades.

HKBN remains the top pick. We prefer fixed-line operators to mobile operators, as the former is less impacted by COVID-19 and could benefit from the long-term digitalisation trend. For mobile operators, we expect roaming revenue to continue to be affected by COVID-19, at least in 1H22, while the local operation is resilient with mobile ARPU recovery supported by 5G upgrades.HKBN remains our top pick in the sector for its attractive dividend yield of 8% with a 7% AFF CAGR for FY8/21-FY8/23.