CSCI-Telecommunications-CITIC Telecom (1883 HK)：Regional expansion pays off - 20180817
Regional expansion pays off
- CITIC Telecom reported a solid set of 1H18 results, with a surprise 11.5% YoY growth in service revenue and 7.5% YoY net profit growth. The surprise 39.6% YoY surge in hubbing revenue and 10.1% YoY growth in enterprise solution suggest that the company’s regional expansion strategy has started to pay off.
- Net gearing fell to 62.6% in 1H18 from 73.4% as of end-2018. The company announced an interim DPS of HK0.04, up 33.3% YoY.
- We raised our FY18E/19E service revenue estimates by 11.0%/11.3% and FY18E/19E earnings forecasts by 4.8%/6.1% respectively and raised our DCF-based price target to HKD3.10. Maintain Buy.
Strong top-line on expanding regional presence. CITIC reported a strong 11.5% YoY growth in service revenue, driven by a surprise 39.6% YoY surge in hubbing service and 10.1% YoY growth in enterprise solutions, both stemming from its expanding regional presence. While a flat service revenue at its Macau business, revenue from handset sales has more than tripled. After four consecutive years of sharp decline in hubbing revenue, 1H18 saw surprisingly strong growth in both voice hubbing (+41.3% YoY) and SMS hubbing (+20.6% YoY), on a significant uptick in voice traffics to high-tariffs regions and robust growth of SMS used by corporations for authentication and transaction confirmation. As an innovative Apps, the company’s DataMall generated revenue of HKD54.6mn in 1H18, more than doubled on a yearly basis.
Falling gearing secures sustainable dividend payment and continued regional expansion. As of Jun-2018, the company’s net gearing fell to 62.6% from 73.4% as of end-2017, which will not only secure steady growth in dividend payment (50% payout ratio or DPS, whichever the higher) but also provide financial leeway for continued regional expansion, organically and through M&As, in our view.
Compelling value with steady growth. On the back of the surprise surge in hubbing revenue, we nudged up our FY18E/19E service revenue estimates by 11.0%/11.3% and earnings forecasts by 4.8%/6.1% respectively and raised our DCF-based price target to HKD3.10 (from HKD3.00). Trading at FY19E 7.8x PER, 5.9x EV/EBITDA (to fall sharply along with declining gearing), 0.9x PBR and 8.2% yield, the company’s current valuation looks compelling given its steady long-term growth outlook, in our view.
CITIC Telecom International Holdings is an investment holding company. Through its subsidiaries, Co. is primarily engaged in the provision of financial and operational support; the provision of telecommunications leasing and technology services; the provision of telecommunications consultancy services; the provision of content services to licensed telecoms operators; the provision of systems integration services; the provision of systems integration and maintenance services; property investment and equipment holding. As of Dec 31 2011, Co. conducted its operations through the following segments: voice services, short message services and other telecommunications services.
中信建投国际研究部是中信建投证券香港子公司中信建投国际下属研究部门，负责香港上市公司、行业和宏观研究。我们的研究产品和服务包括行业报告、公司、宏观、常规日报、新闻摘要、分析员路演、上市公司非交易路演和反向路演 以及策略会。
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