Earnings Alert: FY21 results in line; local business remained resilient
- FY21 results in line; AFF increased by 2.4% y-o-y
- Resilient local TSS and mobile businesses with 1% and 2% growth, respectively
- Mobile roaming shrinkage unlikely; 5G penetration to drive mobile ARPU recovery
- Maintain BUY for its attractive dividend yield of c.7%, with TP unchanged at HK$13.3
FY21 results highlights
Total revenue grew by 5% y-o-y to HK$33,961m in FY21, mainly driven by strong demand for fixed broadband services, increasing 5G adoption, and a 51% growth in mobile product sales. Total revenue excluding mobile sales increased by 1% y-o-y, to HK$30,031m.
TSS revenue decreased by 2% y-o-y to HK$21,812m, with a 1% y-o-y growth in local TSS services and 8% y-o-y decline in international telecommunications services. TSS EBITDA margin expanded 1ppt to 39%.
Mobile service revenue increased by 1% y-o-y to HK$7,818m, as a 2% increase in the local core business offset the decline of the roaming business. Mobile service EBITDA margin decreased by 1ppt to 60%. Mobile post-paid subs base increased 45k y-o-y, to 3,297k, with the churn rate reaching an all-time low of 0.7%. 5G customer base reached 680k as of Dec 2021, representing 21% of the post-paid subs base. Mobile post-paid exit ARPU increased by 2% y-o-y, to HK$187 in 1H21 from HK$184 in FY21, driven by 5G service plan uplift. Mobile product sales increased by 51% y-o-y, to HK$3,930m in FY21.
Total EBITDA increased by 2% y-o-y, to HK$12,733m, with EBITDA margin contracting 2ppts to 47%.
AFF increased by 2.4% y-o-y to HK$5,513m, attributable to a 2% increase in EBITDA, reduction in net finance costs, and tax payment.
The company proposed a final dividend of HK$0.3070 per share staple unit (SSU), adding to a full-year dividend of HK$0.7277 per SSU, representing a full payout of AFF and translating to a c.7% yield.
Outlook
For the fixed-line business, we expect growth to remain steady at a low single-digit rate, driven by continued upgrades to FTTH services, expanding uptake of home Wi-Fi services, as well as accelerated enterprise digital transformation.
For the mobile business, the impact of COVID-19 has been longer than expected due to the outbreak of the COVID various variants and the fifth wave of COVID-19 in Hong Kong. We expect the mobile roaming business to remain sluggish, at least in 1H22, while further shrinkage is unlikely. Therefore, mobile ARPU will continue to recover, driven by higher 5G adoption. On average, upgrading to 5G services plans brings a HK$70 ARPU uplift per subscriber. As of Jan 2022, the 5G penetration rate reached 23% for post-paid subscribers. Management expects the 5G penetration to reach at least 30% by FY22. We forecast mobile ARPU to improve by 3% each in FY22 and FY23.
We have kept our AFF forecast largely unchanged. We forecast AFF growth to increase by 3% each for FY22 and FY23. The company offers an attractive dividend yield of c.7% with a c.3% dividend CAGR over FY21-FY23. We maintain our BUY call with the TP unchanged at HK$13.30, for its attractive dividend yield. Our TP is based on the DDM, assuming a 7.2% cost of equity.