Hong Kong, August 07, 2014 -- Moody's Investors Service says that Hong Kong Telecommunications (HKT)
Limited's Baa2 stable rating is supported by the 1H2014 results of its
indirect parent, HKT Limited (unrated).
Hong Kong Telecommunications is HKT Limited's principal operating entity,
and a 100% owned subsidiary. Moody's therefore assesses
HKT Limited's financial performance when considering Hong Kong Telecommunications'
financial profile.
"HKT Limited's 1H2014 results were in line with our expectations,
with revenue growth of 13% and EBITDA growth of 15% year-on-year,
reflecting stable performances from its telecommunications services segment,
as well as the consolidation of CSL New World Mobility Limited with its
mobile business in May 2014," says Yoshio Takahashi, a Moody's
Assistant Vice President and Analyst.
Revenue from its telecommunications segment grew 4% year-on-year,
supported by an 8% rise in international telecommunications services
and a 5% increase in broadband network services. The segment's
EBITDA also improved by 2% year-on-year.
HKT Limited's mobile revenue and EBITDA also improved, growing
by 63% and 113% year-on-year, respectively,
largely because of the completion of its CSL New World Mobility Limited
(CSL, unrated) acquisition during 2Q2014.
As a result of the acquisition, HKT Limited has become the leading
mobile operator in Hong Kong, as well as the largest holder of spectrum
allocation among Hong Kong's mobile operators, especially for long-term
evolution. Moody's expects the consolidation of Hong Kong's
mobile market to four companies to help reduce competitive pressure.
Moody's estimates that HKT Limited's reported EBITDA will
improve to approximately USD1.3 billion in 2014 and USD1.4-USD1.5
billion in 2015 from USD1.0 billion in 2013, mainly because
of the contributions from CSL.
At the same time, HKT Limited's gross debt rose to USD5.7
billion as of June 2014 from USD3.2 billion as of December 2013
to finance the acquisition cost of CSL of about USD2.425 billion.
However, HKT Limited subsequently reduced its gross debt to USD4.7
billion in July 2014 by using the cash proceeds from its rights issue
of approximately USD1 billion.
Moody's expects its gross debt in 2014 and 2015 to stay at a similar
level, as the company is likely to use its operating cash flows
to fund capex and distributions to shareholders rather than repay debt.
Moody's therefore expects HKT Limited's adjusted debt/EBITDA
to remain in the 3.0x-3.5x range in 2014 (pro-forma)
and 2015, versus 3.3x in 2013.
HKT Limited's leverage remains relatively high for a Baa2 rating level.
Nevertheless, this is mitigated by the company's strong operating
profile as the only quad-play operator (fixed-line,
broadband, mobile, and TV) in Hong Kong, along with
the internet protocol TV (IPTV) business of its parent, PCCW Limited
(unrated), and leading market positions in all major services.
At PCCW -- which owns a 63.07% stake in HKT
Limited -- revenue from its media business (mainly IPTV)
grew 14% year-on-year in 1H2014, due to an
increase of 5% in the subscriber base and a 10% rise in
average revenue per user, based on a strong market response to its
Super Sports Pack.
The continued revenue growth in PCCW's media business is positive
for HKT Limited, given the high degree of operational interdependency
between these companies, under the quadruple-play strategy.
However, PCCW's EBITDA margin in the media business declined
to 12% in 1H2014 from 17% in 1H2013 due to increased content
costs related to the Barclays Premier League deal in the Super Sports
Pack and investments made for the preparation for the free TV business.
Moody's expects that while PCCW's media business will maintain solid
growth of over 10% in 2014 and 2015, by cross selling its
IPTV services to HKT Limited's increased mobile customer base after
the acquisition of CSL, PCCW's EBITDA margin in the media
business is likely to stay in the 10%-15% range,
given the increased content costs.
Revenue from PCCW's solutions business rose 5% year-on-year
in 1H2014, supported by the growth in its China business and growing
demand for data center capacity; EBITDA margins held steady at approximately
16%. Moody's expects stable growth from the solutions businesses
to continue over the next two years.
The principal methodology used in this rating was Global Telecommunications
Industry published in December 2010. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
Hong Kong Telecommunications (HKT) Limited, the ex-incumbent
integrated telecommunications provider in Hong Kong, is wholly owned
by HKT Group Holdings Limited (unrated). HKT Group is in turn wholly
owned by HKT Limited, which is 63.07%-owned
by PCCW Limited.
HKT Group consolidates all of PCCW Limited's telecommunications-related
assets, including fixed-line voice, broadband and mobile
services. These three businesses, along with PCCW 's IPTV
business, form the quadruple-play service.
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Yoshio Takahashi
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
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Laura Acres
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's: Hong Kong Telecommunications' Baa2 rating supported by 1H2014 results