Lower mobile revenue cuts Hutchison Telecom’s interim profit

Hutchison Telecommunications Hong Kong, operator of the city’s second-largest mobile network, has warned of some arduous times ahead in the second half of this year after reporting a 10 per cent year-on-year drop in interim net profit.

The operator, a subsidiary of tycoon Li Ka-shing’s CK Hutchison Holdings, did not address market speculation over the bidding for its fixed-line network business, which recorded a three per cent year-on-year increase in revenue in the six months ended June 30.

“Market conditions and competition look set to remain challenging in the second half of 2017,” Hutchison Telecom chief executive Cliff Woo Chiu-man said in a statement on Tuesday.

“However, carriers, corporations and consumers alike appreciate the benefits of connectivity, which will drive continued growth in data consumption.”

The company’s interim net profit reached HK$324 million (US$41.5 million), down from HK$362 million in the same period last year, due mainly to a 10 per cent year-on-year decline in sales at its mobile business.

Consolidated revenue, comprising service and hardware turnover from its mobile and fixed-line businesses, dropped 6 per cent to HK$5.1 billion from HK$5.4 billion a year ago.

Hutchison Telecom’s consolidated earnings before interest, taxes, depreciation and amortisation – a measure of a company’s operating profitability – was about HK$1.3 billion, comparable to the figure in the same period last year.

The soft first-half financial results does not augur well for the company’s prospects to make up ground and meet market analysts’ consensus estimates for this year.

Shares in the company fell 1.97 per cent to close at HK$2.98 on Tuesday.

First-half revenue at the operator’s mobile business, which operates under the “Three” brand in Hong Kong and Macau, totaled HK$3.1 billion, down from HK3.5 billion in the same period last year.

More than 90 per cent of the decline in mobile revenue was the result of lower hardware sales, following weaker demand for new smartphones, the company said.

The mobile business, however, saw an increase in total subscribers to 3.3 million at the end of June, up from 3.2 million at the end of December.

That reflected greater user satisfaction over 4G network quality and enhanced customer service, according to Hutchison Telecom.

Its fixed-line business, under the Hutchison Global Communications (HGC) brand, posted a 3 per cent rise in interim revenue to HK$2.2 billion, from HK$2.1 billion a year earlier, due to higher revenue from corporate and business market segments driven by growing data and information technology services requirements.

“The group is, therefore, committed to introducing innovative products designed to meet or exceed customer expectations,” Woo said. “Fresh opportunities are emerging in areas such as the internet of things, big data and cloud computing.”

Private equity companies TPG Capital and MBK Partners, as well as independent global infrastructure investment manager I Squared Capital have reportedly submitted bids to acquire HGC.

HGC is likely to be valued from US$1.2 billion to US$1.5 billion, according to a recent Reuters report, which cited sources.

San Francisco-based TPG, one of the world’s largest private equity firms, and Seoul-based MBK look to be the front-runners in the HGC bidding, following their HK$9.5 billion (US$1.2 billion) purchase last year of fixed-line network provider Wharf T&T from property giant The Wharf (Holdings).

But a source pointed out that the non-binding nature of the bids submitted for HGC gave Li and Hutchison Telecom flexibility to walk away after gauging the market’s level of interest.