In this briefing:
1. HKT Benefits from Price Increases and Offers Strong Dividend Support.
HKT (6823 HK) reported 2H18 EBITDA slightly below our estimates but free cash flow was in line and allowed a 5% increase in the dividend (to a 5.7% yield). We look for the dividend to grow gradually going forward as management’s focus is once again on returns. We saw that with the move by HKT to raise prices in September 2018 which is already helping mobile top-line trends.
Despite HKBN (1310 HK) and China Mobile HK not following, the pre-paid segment does not appear to be suffering. Management has not ruled out further tariff increases, and they clearly want to see more rational competition in the run up to 5G (and to allow for dividend growth).
Growing cash flow has allowed management to maintain an attractive dividend policy which we see as supportive for the group overall. The improved monetization in mobile and continued efficiencies is likely to support future cash flow growth. Given the encouraging mobile outlook we have lifted our target slightly HKD13.8 from HKD13.6), and maintain a BUY on the stock. For a discussion on parent PCCW (8 HK) and the stub trade, please see David Blennerhassett ‘s recent note: StubWorld: PCCW Is “Cheap” but Stub Ops Are Deteriorating.
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