Sustainable DPS growth telecom play
? CITICTel’s FY21 net profit grew 2% yoy to HK$1.05bn, and formed 94% of
our forecast due to lower-than-expected enterprise solution revenue.
? FY22F business outlook remains resilient, driven by strong SMS services,
launch of 5G services in Macau and recovery of enterprise solutions.
? Maintain Add due to its solid EPS growth (5%/7% in FY22F/23F) and
attractive dividend yield (8.6% in FY22F).
FY21 net profit grew 2%, led by Internet services and SMS
CITIC Telecom’s (CITICTel) FY21 core net profit, which excludes the revaluation gain/loss
in investment property, grew by 2% yoy to HK$1.05bn, mainly driven by strong
performance in Internet services (+10.7% yoy) and SMS services (+33% yoy). Meanwhile,
other business segments: enterprise solutions (-1.9% yoy), voice services (-36.4% yoy)
and mobile services (-10.3% yoy) recorded negative growth due to Covid-19 impact.
CITICTel declared a final dividend of HK$0.17 per share; together with interim dividend of
HK$0.055, FY21 DPS increased by 7% yoy to HK$0.225 (payout ratio at 79%).
Generous dividend policy likely and lower bank borrowing
Supported by strong operating cashflow of HK$2.4bn, net debt decreased by HK$696m to
HK$3.65bn (HK$1.79bn cash and HK$5.45bn bank borrowings), with a net gearing ratio of
36% in FY21 (45% in FY20). Capex significantly decreased to HK$532m in FY21F
(HK$787m in FY20F) as 5G-related capex was only HK$81m. We believe the company
will continue to pay down bank borrowings in FY22F to reduce interest burden on the back
of a rising interest rate environment. Nevertheless, we expect CITICTel to maintain a
generous dividend policy (Figure 3) given that there is no major outstanding capex.
FY22F outlook remains solid on strong SMS/5G/enterprise solution
We believe CITICTel’s overall business remains resilient in FY22F despite prolonged
Covid-19 disruptions due to strong demand for SMS services in HK, launch of 5G services
in Macau and recovery in enterprise solutions. We believe corporates’ demand for identity
authentication will remain robust, aided by fast-growing e-commerce, mobile payment and
online banking activities. We expect government projects and resort/casino constructions
to accelerate in FY22F on the back of easing social-distancing measures in Macau and
Southeast Asia and strong demand growth in China. We believe Macau’s government will
grant a 5G licence to CTM as the latter is the only operator that has completed its 5G
network.
Maintain Add with a lower TP of HK$3.79
We maintain Add on CITICTel due to its solid earnings growth prospects (5%/7% EPS
growth in FY22F/23F) and attractive yield of 8.6% in FY22F at 79% payout ratio. We cut
our FY22F/23F EPS by c.6%/8% on lower enterprise solutions and voice services revenue.
Our TP is slightly lower at HK$3.79 as we roll over to FY23F EV/EBITDA (still based on
7.5x, a 20% discount to HK telcos) and cut EPS estimates. Potential share price catalysts
are recovery of Macau’s gaming and tourism industry and accelerating enterprise solutions
and mobile services. Downside risks: further Covid-19 variants.