HKBN stock rebounds on growth prospects

After being pummeled for the last three years, HKBN shares rebounded 18% Friday on news of a strong growth outlook in its enterprise business.

The Hong Kong telco and ICT player may have posted a full-year loss of 1.27 billion Hong Kong dollars (US$161.9 million), but the enterprise segment grew 9% and has a pipeline of HK$4 billion ($511 million) over the next six months.

The stock, which dropped further two weeks ago after the company issued a profit warning, closed at HK$3.45, still 78% below its peak in August 2020.

The headline numbers were mostly lower or showed weak growth. EBITDA fell 12%, mostly the result of higher network costs and cost of sales, while revenue was up just 1%.

Enterprise hardware sales dropped 18% as the COVID-era demand for home office kit waned, while the legacy telecom business shrank by 2%, with ARPU off 3%.

The biggest single factor in the loss, compared with a profit of HK$533.3 million ($68.1 million) last year, was a HK$1.2 billion ($153.3 billion) writedown in goodwill.

CFO Derek Yue described it as an "accounting adjustment" that would not impact EBITDA or cashflow.

He said the company had faced "a very difficult environment" in the second half of the year and had recalibrated some of its key assumptions.

Transformation story

The other weight on the result was the nearly threefold increase in borrowing costs to HK$702 million ($89.7 million), thanks to the hike in Hibor, which impacted nearly half of its debt.

But despite these it seems investors are willing to buy into HKBN's transformation story from asset-heavy telco to enterprise ICT player.

Group CEO NiQ Lai told an earnings briefing Thursday HKBN had a pipeline of more than 25 projects, each worth more than HK$20 million ($2.6 million).

But he said the COVID era had frustrated the company's attempts to integrate its acquisitions of local rivals, a key part of its strategy in expanding its ICT expertise. 

"It's very, very hard to put in a brand new management team by Teams conference call."

In the last year HKBN had further built up its enterprise services management team with new hires who were "SI-native executives," he said. 

Lai told analysts that moving from telco to system integrator meant a 10x increase in the total addressable market.

"So it doesn't matter what the market is growing or not for us anymore, because we're coming into a much bigger market that's ten times the size of our telco space. As long as we take market share."

HKBN is also promising improved returns from its consumer business as it starts to lift its prices. However, Lai cautioned it would take some time for these to work their way through the contract renewal cycle.