JPMorgan's research report stated that PCCW (06823.HK) announced the sale of 40% equity in its passive network business to China Merchants Group for USD 870 million in cash. The bank believes the transaction can add value, as the company faces a high debt repayment peak from 2025 to 2027, reducing the proportion of net debt-to-EBITDA to less than 3x and increasing dividend per share by 6%. HKT (00008.HK) will continue to distribute more interest from PCCW, but if the latter does not sell assets, the dividend payment received is expected to continue to be reduced.

Based on the high defensiveness of HKT and its dividend yield of 9% in a stable economic outlook, the bank continues to prefer HKT over PCCW, with a 'shareholding' rating and a target price of HKD 11, and a 'neutral' rating for PCCW.

The bank recommends investors to increase their shareholding in HKT, as the yield spread between the dividend yield and the 10-year US Treasury yield has widened to 490 basis points, which is 0.7 standard deviations higher than the historical average level.