Earnings Alert: 1H22 results in line; local operation registered solid growth
- 1H22 results in line; AFF increased by 2.2% y-o-y
- Local business maintained stable growth; local TSS and local mobile core revenue grew 3% and 2%, respectively
- Expect 30% 5G penetration for post-paid customer base by FY22
- Maintain BUY with a TP of HK$13.3 for its attractive dividend yield of 7%
1H22 results highlights
Total revenue grew by 3% y-o-y to HK$16.2bn, with revenue excluding mobile product sales increasing by 5% y-o-y to HK$14.9bn. Segment wise, TSS revenue increased by 5% y-o-y to HK$11.6bn, with local TSS services and international communications services revenue increasing by 3% and 9%, respectively. Mobile service revenue grew by 2% y-o-y to HK$3.6bn, supported by 2% y-o-y growth in the local core business due to rising 5G adoption and higher revenue contribution from mobile enterprise solutions. Revenue contribution from roaming and IDD remained under pressure.
The company’s mobile post-paid subs base increased 42k y-o-y to 3,305k, with the churn rate slightly expanding to 0.9%. Its 5G customer base reached 867k as of Jun 2022, representing 26% of the post-paid subs base. Mobile post-paid exit ARPU remained stable at HK$187 in 1H22, as the 5G service plan uplift was partially offset by competition in the price-conscious segment.
EBITDA increased by 2% y-o-y to HK$5.8bn, with the EBITDA margin contracting 0.4ppt y-o-y to 36.1%. Adjusted funds flow (AFF) increased by 2% y-o-y to HK$2.4bn, in line with market expectations. The company proposed an interim dividend of HK$0.3136 per share staple unit (SSU), representing a full payout of AFF.
We expect the fixed-line business to grow at a low single-digit rate, driven by continued upgrades to FTTH services, an expanding uptake of home Wi-Fi services, as well as accelerated enterprise digital transformation. The competition in the residential broadband market is still manageable for HKT, as evidenced by its stable customer base.
For the mobile business, mobile roaming revenue has been affected since the outbreak of the pandemic. However, further shrinkage is unlikely, given the gradual easing of quarantine measures in Hong Kong. Compulsory hotel quarantine has been cut to three days for overseas travellers. Local mobile service revenue will continue to benefit from rising 5G adoption and growing mobile enterprise solutions revenue. As of Jul 2022, the 5G penetration rate reached 28% for post-paid subscribers, and management expects it to reach at least 30% by FY22. We forecast that post-paid mobile ARPU would improve by 1% and 2% in FY22 and FY23, respectively.
HKT continues to enhance its operating efficiency, with 8% of opex savings in 1H22 and a lower opex-to-revenue ratio of 13.5%, compared to 15.2% in 1H21. HKT will further improve its operating efficiency by accelerating digitalisation and optimising sales channels.
We have kept our AFF forecast largely unchanged. We forecast AFF growth to increase by 2.8%, 2.6%, and 2.3% for FY22, FY23, and FY24, respectively. We maintain our BUY call with the TP unchanged at HK$13.3, for its attractive dividend yield of 7%. Our TP is based on the DDM, assuming a 7.2% cost of equity.