Retain preference for wireline plays (HKT/PCCW) to
wireless (SMT/HTHKH) ahead of 2H12 results. We
believe slowing mobile revenue growth could lead
to earnings disappointments for SMT and HTHKH.
We recommend adding positions to HKT as concern
on broadband competition is overdone, in our view.
Areas of Focus in 2H12 Results:
1) We estimate that mobile service revenue growth
decelerated from 15% in 1H12 to 8% in 2H12,
which could lead to earnings disappointments
for both SMT and HTHKH in F1H13/2H12 results.
With smartphone penetration already at 55-60%
(>80% for SMT) by the end of 2012 and unlimited
data plans unlikely to drive ARPU uplift in the next
1-2 years, we expect the growth rate to further slow
down to 5-6% in 2013. We see downside risk to
consensus F13/2013 earnings estimates for both
SMT and HTHKH.
2) We do not expect tiered pricing to drive any
meaningful ARPU uplift in the next 1-2 years.
Despite the introduction of volume based data plans
(while keeping unlimited data plans) from CSL in
January, we believe the 5-6GB data allowance
offered by operators is sufficient for most customers
even assuming a significant increase in usage given
current average monthly data usage of 2-3GB.
3) Contrary to market concern of intensifying
broadband competition, our pricing analysis
indicated that broadband prices have remained
stable in the past 3-6 months despite some
targeted marketing campaigns from both HKT
(public housing) and HKBN (bundling and
corporate). We believe gradual broadband speed
upgrades with stable prices and increasing mobile
scale should drive 6-7% AFF/DPS CAGR for HKT
over 2013-16e.