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SCMP Reporter

ANALYSTS are split on whether Hongkong Telecom's bumper results for the year to March 31 will be sustainable in the future.

  The group yesterday announced a 17.5 per cent rise in net profit to $7.55 billion with earnings per share up a similar margin at 67.8 cents, placing the share on an historic price-earnings ratio of 21.9 times.

  Analysts said there were one-off factors in this year's results.

  These included low staff cost rises and a freeze in fees paid to parent Cable and Wireless.

  This means that a repeat of this year's profit growth performance in 1995 will be difficult.

   Total dividend was up 17.5 per cent at 51 cents, providing a yield of 3.4 per cent. The final dividend of 27.6 cents is payable on June 10.

    According to the Estimate Directory, analysts were expecting 14 per cent growth to $7.3 billion.

  Credit Lyonnais analyst Paul Deayton said: ''This is probably a sustainable level of profit growth in the future.

  ''The current set of results are very impressive you cannot take that away from them.''   However, another analyst said tight control over costs and consistent growth in the group's volumes of business would enable it to maintain satisfactory net profit growth year-on-year around the 17 per cent mark.

  At Salomon Brothers, telecommunications analyst Andrew Harrington said: ''The growth in the volume of business, of line access growth and the growth in added value services plus its digital services means business growth should be very strong and that is going to continue to be sustainable.''   Turnover rose 12 per cent to $24.28 billion. The eight per cent reduction in international tariff charges from August cost the group $500 million, while increased volume, after the cut, led to a $120 million clawback. A further two per cent cut is planned this year.

  Domestic tariff charges rose five per cent last year, in line with the group commitment to maintain these cost increases below domestic inflation.

  Operating costs, up nine per cent, were $15.67 billion.

  Operating profit was up 19 per cent to $8.6 billion, placing the operating profit margin at 35.45 per cent, against 33.5 per cent in 1993 and 34.5 per cent in 1992.

  The one-off gains in the 1994 results highlighted by analysts were the two per cent rise in salaries to $3.23 billion and the flat fee to Cable and Wireless at $306 million.

  Finance director John Tonroe indicated in 1993 there was a one-off payment for retirement provision under staff salaries. Stripping this out, core staff costs rose 10 per cent, although actual numbers employed remained static at just over 16,000 people.

  The implied tax bill was 13.7 per cent, against 13.6 per cent in the previous year.

  International calls, making up 63 per cent of turnover, rose 12 per cent.

  The biggest component was China-related calls, making up 47 per cent of the total, against 44 per cent in the previous year.

  Incoming calls, at 25 per cent, were still growing at a faster rate than outgoing, 21 per cent, the company said.

  Domestic call growth was up 14 per cent. The fastest area of line growth was in non-residential services, up 9.5 per cent, against four per cent residential growth.

  Total business lines amounted to 926,159, up 8.4 per cent, business fax lines were 173,919, up 13 per cent, residential lines were 1.82 million, up four per cent, while residential fax lines reached 21,282, up 16.8 per cent.

  Mr Tonroe said the group had 100,000 mobile telephone users, amounting to 31 per cent market share, up from 28 per cent last year, with 3,000 users being added a month. Revenue in this sector was up 35 per cent, but no base or end figure was given.

  He re-emphasised that although China services came under international services, the group's licence for this side of the business took no account of international business as such. Instead, it distinguished between domestic and external services.

  ''Before 1997 and after 1997 business with China will remain external,'' Mr Tonroe said.

  Fixed assets at the group rose 13 per cent to $17.65 billion, while total assets were $26.45 billion, up 14 per cent, and current liabilities were $10.1 billion, up 23.7 per cent. Net liabilities were $16.34 billion, up 12.6 per cent.

  Shareholders' funds were up 13.58 per cent to $15.63 billion.

  Overall, analysts said the market was surprised by the profit figure for the territory's monopoly telecommunications provider.

  The higher-than-expected volume growth, especially in outgoing calls and the less-than-expected growth in costs both played a part in causing a small upset in analysts' circles.

   Many analysts had been confident of their forecasts for what was regarded as one of the most predictable companies, in terms of earnings growth, in Hong Kong.



HK Telecom beats analyst forecasts with 17.5pc profit jump to $7.55b