Strong in many areas
The good: 1H17 net profit rose 11% to HK$454m. While $20m was propertygains, the improvement came despite Macau enterprise business falling 30%due to a gap in projects, and Macau broadband ARPU dropping 12%, to resetprices to a more competitive level. Surprising strength occurred elsewhere,with-Macau enterprise delivering stunning growth of 47%, SMS revenues up27% and international revenue per minute up 19%. The company appears to besucceeding in being more than a Macau play. On <9x estimated P/E and 5.9%DY, plus with corporate action potential it appears to us one of the betterregional telco stocks currently. BUY.
Strong growth in both Internet services and enterprise solutions
Enterprise revenue ex Macau, rose from HK$664m to HK$973m. HK$169m ofthe gain came from inorganic growth, but underlying revenue gains 21%. Thisreflects network effects benefitting CPC, with the addition of European pointsof presence attracting customers to the group’s entire network. Further growthlooks likely as China’s crackdown on illegal VPNs should reduce competitionfor licensed providers like CPC. We were also positively surprised by SMSgrowth, which was led by SMS application to person. Generally the companyappears busy in rolling out new services to take advantage of its 130 points ofpresence and communications platform as a service to roll out new calling andmanaged services globally.
M&A on the agenda
The company seems keen to keep expanding, which adds some risk, but it alsoappears a possible target of China Unicom’s mixed ownership. Our DCF-basedTP is set using a WACC of 6.8% （risk-free rate 2.4%, beta 1.0x, risk premium5%） and terminal growth of 1%. Key downside risks: 1） Rising interest rates, 2）increased competition in Macau, 3） Low ROI M&A.
Strong in many areas
The good: 1H17 net profit rose 11% to HK$454m. While $20m was propertygains, the improvement came despite Macau enterprise business falling 30%due to a gap in projects, and Macau broadband ARPU dropping 12%, to resetprices to a more competitive level. Surprising strength occurred elsewhere,with-Macau enterprise delivering stunning growth of 47%, SMS revenues up27% and international revenue per minute up 19%. The company appears to besucceeding in being more than a Macau play. On <9x estimated P/E and 5.9%DY, plus with corporate action potential it appears to us one of the betterregional telco stocks currently. BUY.
Strong growth in both Internet services and enterprise solutions
Enterprise revenue ex Macau, rose from HK$664m to HK$973m. HK$169m ofthe gain came from inorganic growth, but underlying revenue gains 21%. Thisreflects network effects benefitting CPC, with the addition of European pointsof presence attracting customers to the group’s entire network. Further growthlooks likely as China’s crackdown on illegal VPNs should reduce competitionfor licensed providers like CPC. We were also positively surprised by SMSgrowth, which was led by SMS application to person. Generally the companyappears busy in rolling out new services to take advantage of its 130 points ofpresence and communications platform as a service to roll out new calling andmanaged services globally.
M&A on the agenda
The company seems keen to keep expanding, which adds some risk, but it alsoappears a possible target of China Unicom’s mixed ownership. Our DCF-basedTP is set using a WACC of 6.8% （risk-free rate 2.4%, beta 1.0x, risk premium5%） and terminal growth of 1%. Key downside risks: 1） Rising interest rates, 2）increased competition in Macau, 3） Low ROI M&A.
