HKBN warns of profit dive as it struggles for growth footing

Once one of the world's hottest telcos, Hong Kong's HKBN is now battling multiple headwinds of low growth, tighter margins and higher finance costs.

In a profit warning last week the broadband and enterprise player said it would likely post a full-year loss of 1.3 billion Hong Kong dollars (US$166.3 million), down from net earnings last year of HK$553 million ($45.2 million).

It said one reason was a HK$500 million ($64 million) hike in borrowing costs as a result of the rise in Hibor, which impacted around half of its total loans.

The other factor was a HK$1.2 billion ($153.5 million) goodwill impairment charge.

The company stressed that this paper loss did not affect cash flow. But it does say something about its growth strategy, which is focused heavily on building out an enterprise solutions business.

HKBN did not elaborate on which asset was being written down. 

Its most recent acquisition was local IT services company JOS OneSolution Holdings, which it bought in 2019 for HK$392 million ($50.1 million). It later sold off 60% of JOS's Singapore and Malaysian business to Singapore telco StarHub for HK$87 million ($11.1 million).

Losing favor with investors

But beyond these immediate issues HKBN has been losing favor with investors for the past three years. Its stock closed at HK$2.86 Monday ($0.37), down 44% for the year and 81% below its peak of HK$14.74 ($1.89) in September 2020.

The plummeting stock has twice made the company a takeover target by PE firms in the past 18 months.

Most recently, it held three months of talks with I Squared Capital, the owner of local rival HGC, before discussions were terminated in June - reportedly due to differences over valuation. Early last year KKR, Stonepeak and regional PE firm PAG all conducted due diligence.

Even China Mobile, which owns one of Hong Kong's four mobile operators, was said to have been interested in the asset.

HKBN's latest financial results, including its enterprise ICT numbers, have been underwhelming. 

In the first half of this year it reported a 1% decline in total revenue, a 3% improvement in enterprise sales and a 6% drop in adjusted EBITDA. Finance costs increased more than threefold to HK$324 million ($41.5).

In the full-year 2021-22 revenue rose 1%, the enterprise business contracted by 11% and EBITDA gained by just 2%.