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Hong Kong Telecoms:Reduced Fixed-Line Competition;Top Pick Is HKT;Upgrade PCCW to Buy

类型:行业研究  机构:花旗环球金融有限公司   研究员:花旗环球金融研究所  日期:2016-12-05
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HKT is top sector pick on reduced fixed-line competition and stable mobilegrowth; upgrade PCCW to Buy — Among the HK telcos, we prefer the leadingintegrated operator HKT, as we expect improved fixed-line growth and margins. TheHKBN/Smartone partnership could be positive for Smartone, while addingcompetitive pressure on HTHKH in our view. Hence, we maintain our Buy rating onSmartone and Neutral on HTHKH. We see upside optionality for PCCW in non-telcobusinesses, and upgrade to Buy from Neutral after its recent underperformance.

    Stable growth, low FX risks, improved financials and room for payout ratio increasescould buffer the impact from US rate increases on HK telcos.

    HKT/PCCW: stable telco operations and decent c.6% dividend yield — Withleading market positions in both mobile and fixed-line markets, HKT has pricingpower and cost synergies after the CSL acquisition, and hence lower operation risksthan rivals. We expect HKT EBITDA margin to improve and capex/sales ratio totrend down, with less fixed broadband competition after 2H16. Maintain Buy withrevised TP of HK$12 (was HK$13.2). We expect steady growth of adjusted fundsflow and dividend, and an earnings beat from better fixed-line growth and marginexpansion will be positive catalysts. We upgrade PCCW to Buy (from Neutral) withTP of HK$5.3 (was HK$5.8), after its major underperformance followingdisappointing 1H16 results. PCCW has a track record of driving solid non-telcobusiness growth and could leverage on group resources to improve profitability.

    Smartone to benefit from HKBN partnership; HTHKH more exposed tocompetition — Smartone guided flat DPS for FY17 which, together with 6%dividend yield, should offer share-price downside support. HKBN MVNO andbundling the service partnership could help improve Smartone’s mobile marketshare. Maintain Buy with TP of HK$12.5 (was HK$15.2). Improved financials couldlead to a payout ratio increase which, together with future price hikes with popularsmartphones, could be major positive catalysts. We maintain Neutral on HTHKHwith a TP of HK$2.6 (was HK$2.8), as we believe it faces more competitivepressures in mobile and fixed line than peers, and valuations are unattractive.

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