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Hong Kong company reporting season

SmarTone steps up new business initiatives as annual revenue drops 53 per cent

Hong Kong’s No 3 mobile network operator is looking to establish information communications technology services, as well as pursue initiatives related to the so-called internet of things and artificial intelligence

PUBLISHED : Tuesday, 29 August, 2017, 8:44pm
UPDATED : Wednesday, 30 August, 2017, 4:53pm

SmarTone Telecommunications, the No 3 mobile network operator in Hong Kong, is increasing its focus on establishing advanced new businesses after its total revenue fell 53 per cent year on year in the 12 months ended June 30.

“While it is clear that the environment has been challenging and our profitability has been impacted, we have taken proactive measures to reposition our business for future growth,” said SmarTone chief executive Anna Yip in a conference call on Tuesday.

“Active measures are in place to drive productivity improvements and we are taking a long-term view to investing in our business.”

SmarTone, a subsidiary of Sun Hung Kai Properties, runs mobile network services in Hong Kong and Macau.

The operator reported a 16 per cent decrease in net profit to HK$672.1 million in the year to June 30, down from HK$797.1 million in the same period a year earlier, due to higher mobile spectrum costs, declining voice roaming revenue, lower handset profits and severe competitive pressure in the city.

That marked its second consecutive year of decline in net profit.

Earnings before interest, tax, depreciation and amortisation – representing net cash flow from the company’s operations – fell 14 per cent to HK$2.3 billion from HK$2.7 billion a year ago.

Total revenue dropped to HK$8.7 billion, down from HK$18.3 billion the previous year, mainly due to the decline in smartphone and accessory sales revenue “in the absence of hero handsets during the year”, according to SmarTone chief financial officer Patrick Chan Kai-lung.

The operator’s handset and accessory sales plunged about 73 per cent to HK$3.5 billion in the year to June from HK$12.9 billion in the same period last year.

Service revenue was down 6 per cent to HK$5.2 billion from HK$5.5 billion a year ago.

Nomura analysts recently said the decline in service revenue was driven by continued adoption of subscriber identity module-only plan, weakness in the prepaid segment and increased use of over-the-top services that has affected voice roaming sales.

"Handset sales dropped a lot because of pent-up demand for the next iPhone version," Nomura research analyst Gopa Kumar said in a report on Tuesday.

A bright spot for SmarTone was that its total customer base grew 4 per cent year on year to 2.1 million on the back of various initiatives, including a focus on so-called segmented service offerings, such as an industry-first smartphone trial plan, and loyalty programmes.

Yip said the challenging market conditions are expected to continue in its current fiscal year, so the company is “accelerating development of new revenue streams”.

Those initiatives include the areas of enterprise information communications technology services, artificial intelligence and the so-called internet of things. SmarTone management did not elaborate on how these efforts will be pursued.

Chan forecast capital expenditure for SmarTone’s current fiscal year will increase to about HK$550 million, up from HK$514 million in the past year.