Hong Kong company reporting season

Citic Telecom first half profit rises 10.9pc on solutions business growth

Offshoot of mainland’s largest conglomerate, the Citic Group, saw 6.1pc fall, however in overall revenue, fuelled by a decline in sales of equipment and mobile handsets

PUBLISHED : Friday, 11 August, 2017, 4:06pm
UPDATED : Friday, 11 August, 2017, 9:20pm

Citic Telecom International Holdings, a unit of the mainland’s largest conglomerate the Citic Group, has posted a strong set of interims, showing growth particularly in its enterprise and mobile services businesses.

Half-time profit, or what it calls ‘profit attributable to equity shareholders’, came in at HK$454.6 million (US$58.16 million), or 12.9 HK cents per share – a 10.9 per cent per cent rise on last year at this time and around 32 per cent of the HK$1.43 billion full-year profit consensus estimate from analysts, polled by Bloomberg.

The company announced an interim dividend of 3 HK cents per share, up 5.3 per cent compared to last year.

Excluding valuation gains on investment property for the period of HK$19.6 million, the result represented a 6.1 per cent profit increase.

Revenue, however, was down 6.05 per cent to HK$3.59 billion, on weak mobile phone sales. Overall revenue, excluding the sale of equipment and handsets, increased 7.5 per cent, but the company added that mobile sales and services in the first half were still strong, claiming now to have more than half of in Macau’s 4G market.

The group also reported substantial growth in the operating results of its international mobile operations, and its in new ‘DataMall’ business, which provides mobile data services, with the offshoot achieving good progress in coverage and growth, as it expanded into Singapore, Thailand and Korea during the half.

During the period, the takeover of Amsterdam-based Linx Telecommunications in February, for HK$181.3 million, was completed.

That deal will add a number of European countries, including Poland and several Russian-speaking markets in Central Asia to its international network services, and is being viewed as its attempt to grow into countries likely to be involved in the Chinese-led “Belt and Road Initiative”. Linx is now called CPC Europe.

Stephen Ho, chief executive of Citic Telecom CPC, said CPC Europe was profit-making when it was bought.

“We are now in asset consolidation stage. Companies that want to expand to these countries because of the ‘Belt and Road Initiative’ would look for VPN service from us.

“These deals take three to six months. So the benefit of the acquisition cannot be seen so soon,” Ho said. “We expanded to 14 countries with just about HK$200 million. This would otherwise be difficult without the acquisition, particularly in Central Asian countries.”

Citic Telecom’s net debt increased to HK$6.49 billion, partly due to new loans borrowed for acquiring Linx

“Our net gearing ratio has been relatively high ever since the acquisition of the Macau telecom business. Normally the ratio declines gradually over the years as we repay debts. Our net debts to EBITDA ratio is about 3.1 now, which is still healthy,” said David Chan, Citic Telecom’s chief financial officer.

“Our debts are mostly low-interest and from Singaporean and Japanese banks. Forty per cent of our debts are fixed-interest bonds, while the rest is denominated in Hong Kong’s currency so interest hikes at American Federal Reserve do not affect us too much.”

Citic Telecom’s shares have dipped 7.5 per cent in value over the past six months, which Chan blamed mainly on the company’s failure in the proposed acquisition of up to 39 per cent of equity interest in Citic Networks and the proposed issue of new shares by Citic Telecom to Citic Group, which made investors edgy about the company’s future growth. But Chan reiterated the company’s core business has promising potential.

The company’s share price ended the day down 0.8 per cent on Friday at HK$2.35.