SmarTone bearish on growth prospects after profit falls 32pc

Mobile operator is pursuing initiatives to prepare for the 3G spectrum auction and growing competition after profit falls 32pc

PUBLISHED : Friday, 14 February, 2014, 12:57am
UPDATED : Friday, 14 February, 2014, 1:09am

SmarTone Telecommunications, which saw its net profit fall in the six months to December, expects growth prospects to remain tough as the Hong Kong market awaits the 3G spectrum auction later this year and the release of a new smartphone that could boost consumer spending.

Chief executive Douglas Li said yesterday that the company had adopted a conservative approach of "saving money for a rainy day" to prepare for that auction and the arrival of a new "hero" smartphone that could excite the local market.

He pointed out that competition was poised to become more intense as a new industry leader emerged this year, following HKT's US$2.42 billion acquisition of CSL New World Mobility.

"We are working on things to meet the challenges posed by that," Li (pictured) told the South China Morning Post without elaborating on these initiatives. He said "it could help if Apple released a smartphone with a bigger screen" as a way to spur more spending on "handset-bundled" plans in the local market.

Analysts at Barclays said in a report that SmarTone's earnings for the first half of this year would not look any better than its poor results in the six months to December.

The interim net profit at SmarTone, a subsidiary of Sun Hung Kai Properties, dropped 32 per cent to HK$311 million from a year earlier as its service revenue declined.

That was driven by lower revenue from local mobile service, a fall in roaming revenue and the continuing scale-down of the company's wireless fixed broadband business. Its service revenue for the period decreased 3 per cent to HK$2.79 billion.

Earnings before interest, tax, depreciation and amortisation, a measure of a company's operating profitability, slipped 12 per cent to HK$1.35 billion.

Total revenue, however, grew 11 per cent to HK$6.53 billion, helped by a 24 per cent rise in handset and accessory sales.

SmarTone saw its customer base swell 8 per cent year on year to 1.87 million during the period.

The average monthly revenue per user shrank 11 per cent to HK$243 amid a shift by customers "from handset-bundled plans to SIM-only price plans, dilution from the lower-priced 3G-speed-capped plans and decrease in roaming revenue", the firm said.

Barclays said intense local competition resulted in a "lackadaisical earnings momentum" because of lower tariffs and higher marketing and acquisition costs. It expected the HKT-CSL merger to be "a positive catalyst" for earnings in the industry.

Patrick Chan Kai-lung, executive director at SmarTone, said the US$200 million bond offering the company completed in March last year was in preparation for the renewal of its 3G mobile spectrum. The government has planned a public auction at the end of this year.

SmarTone's shares advanced 0.96 per cent to close at HK$8.38 yesterday.