SmarTone net profit expected to dip, revenue to rise

Stiff competition, handset subsidies and weak roaming traffic expected to weigh on telecoms firm's profits despite a gain in user numbers

PUBLISHED : Monday, 09 September, 2013, 12:00am
UPDATED : Monday, 09 September, 2013, 5:38am

With the launch of its 4G network in August last year, SmarTone Telecommunications predicted a big shift in subscriber traffic to its new high-speed mobile service.

Apple's announcement in September last year that SmarTone would be its first 4G network partner in Hong Kong for the technology giant's then newly launched iPhone 5 certainly helped the operator's cause.

SmarTone saw its customer base swell 7 per cent year on year to 1.74 million in the six months to December, with new customers representing about 60 per cent of the subscriptions it signed during that period. Investors, however, are not expected to hear SmarTone report a substantial net profit gain on Wednesday, when it announces earnings for its financial year to June.

In a research note, Barclays said SmarTone would post an annual net profit of HK$889 million, down from HK$1 billion a year earlier. That forecast is 5.7 per cent below a HK$943 million consensus estimate from a Bloomberg poll of analysts.

Stiff local competition, higher handset subsidies and weaker international mobile roaming traffic caused by sluggish global economic activity are expected to have put pressure on SmarTone's profits.

Revenue was projected to reach HK$10.69 billion from HK$9.95 billion a year ago, according to Barclays, with equipment sales contributing HK$4.73 billion and mobile services generating HK$5.96 billion.

Earnings before interest, tax, depreciation and amortisation - a measure of a company's operating profitability - are forecast to stay flat at HK$3 billion from HK$2.99 billion previously.

"We will watch roaming revenue trends, which were materially weaker than we expected in the first half of [SmarTone's] past fiscal year," Barclays said. "We expect subscriber acquisition costs to be lower in the second half, but expect the amortisation of higher [capitalised] handset subsidies in the first half to continue to weigh on reported numbers."

SmarTone, a subsidiary of Sun Hung Kai Properties, said in February that the international roaming business would remain "challenging" because of global economic uncertainty.

Douglas Li, the chief executive at SmarTone, said at the time that the operator managed to boost its market share on healthy demand for its lower-priced, speed-capped, integrated 3G voice and data plan. "We're targeting customer segments previously underserved by SmarTone," he said.

Advanced 4G networks provide theoretical internet download speeds of up to 100 megabits per second, while the fastest 3G networks run at 42Mbps.

In March, SmarTone completed a US$200 million bond offering to help fund its 3G spectrum licence renewal.

SmarTone, CSL, Hutchison Telecommunications Hong Kong and PCCW's HKT have called on the government to follow international practice and automatically renew their 3G spectrum licences in the 2.1-gigahertz band. These licences are due to expire in October 2016.

Shares of SmarTone fell 1.38 per cent to finish at HK$11.46 on Friday, compared with a nearly 13-month high of HK$16.18 reached on August 17 last year.