Date
17 January 2017
SmarTone is building up its 4G network in the run-up to the launch of 4G LTE network services this year.Photo: Bloomberg
SmarTone is building up its 4G network in the run-up to the launch of 4G LTE network services this year.Photo: Bloomberg

Why SmarTone is in a sweet spot

SmarTone Telecommunications Holdings (00315) ramped up its service charges last month by HK$10 (US$1.29) to HK$106.

That’s on top of a 14.7 percent increase in October and a 50 percent bump in administration fees in December.

The adjustments followed the integration of rivals CSL and HKT Trust & HKT Ltd. (06823.HK).   

In March, SmarTone won a 4G license in Macau, along with Hutchison Telecom Macau and two other domestic operators.

SmarTone is building up its 4G network in the run-up to the launch of 4G LTE (long-term evolution) network services this year.

The company returned to profit this year with a HK$4 million interim gain compared with losses of HK$7 million and HK$9 million in previous half-year results.

Macau’s population is only one-tenth that of Hong Kong but it has a robust tourism market.

Inbound traffic was up 7.5 percent to 31.5 million last year from the year before.

The trend supports demand for telecom services, although it has yet to be reflected in the company’s bottom line.

Earnings per share (EPS) are expected to grow 49.9 percent and 6.64 percent in fiscal 2015 and 2016, with the price/earnings ratio at 18 times and 16.9 times, respectively, according to a Bloomberg survey.

By contrast, Hutchison Telecommunications Hong Kong Holdings (00215.HK) saw its share price tumble in recent days.

EPS is expected to grow 14 percent and 11.8 percent in 2015 and 2016, with a P/E ratio of 15 times and 13.4 times, respectively.

Some analysts are not optimistic about Hutchison due to intensifying competition in the fixed-line business.

By contrast, SmarTone’s net cash from operating activities rose 27 percent to HK$1.44 billion in the six months to December.

Revenue climbed 32 percent to HK$8.67 billion, largely due to a 58 percent surge in mobile sales to HK$5.93 billion, driven by the launch of iPhone 6 in September.

Profit attributable to shareholders soared 50 percent to HK$466 million from a year earlier.

However, SmarTone might find it tough to maintain growth in mobile and parts sales.

And a switch to a new frequency could drive up operating costs by HK$50 million.

As a result, second-half EPS is estimated to slip to 32.9 HK cents from 44.6 in the first half.

SmarTone also faces uncertainty stemming from a management shake-off.

Chief executive Douglas Li will step down in August.

In the meantime, executive director and chief technology officer Chau Kam-kun will serve as Li’s replacement for a year.

This article appeared in the Hong Kong Economic Journal on July 8.

Translation by Julie Zhu

[Chinese version中文版]

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JZ/JP/RA

Department of Investment Analysis at HKEJ

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