Earnings First Take: 1HFY6/24 earnings dropped 4%, below market expectations
- Net profit decreased by 4% y-o-y in 1HFY6/24, below market expectations, mainly due to lower-than-expected handset revenue
- Service revenue decreased by 1% y-o-y, while roaming revenue grew 64% y-o-y, reaching 83% of pre-COVID level
- Maintain HOLD on the counter given an intensified competitive environment in the mobile market
1HFY6/24 earnings declined by 4%, below market expectations. SmarTone (315 HK) announced its 1HFY6/24 results on 22 Feb 2024 after market close. Total revenue decreased by 11% y-o-y to HK$3,390m in 1HFY6/24, below market expectations, mainly due to lower-than-expected handset sales. Service revenue decreased by 1% y-o-y to HK$2,303m, while roaming revenue grew by 64% y-o-y to HK$300m and reaching 83% of pre-COVID level. Handset and accessory sales decreased by 26% to HK$1,087m. Mobile postpaid ARPU increased by 1% y-o-y to HK$224, with 5G penetration increasing 5ppts y-o-y to 38%. Total customer base increased by 1% y-o-y to 2.65m. Total operating costs remained steady. EBITDA decreased by 3% y-o-y to HK$1,241m, with EBITDA margin improving by 3ppts to 37%, due to lower revenue contribution from the low margin handset business. Net profit decreased by 4% y-o-y to HK$246m, below market expectations of a low-single digit percentage increase, due to lower-than-expected revenue. The company has proposed an interim dividend per share (DPS) of HK$0.145, same as last year.
Expect negative share price reaction. This set of results reinforces our cautious view on the mobile market. Local service revenue (excluding roaming) declined by 7% due to the intensified competitive environment, especially in the MVNO and prepaid market. However, mobile roaming revenue continued to ramp up, and we anticipate it will recover to c. 90% of the pre-COVID level in FY6/24, partly offsetting the decline in local service revenue. We currently rate a HOLD on the counter given an intensified competitive environment in the mobile market, with mobile roaming recovery already priced in.