Hutchison Telecommunications Int. Ltd. HTX-NYSE
OK I'm working overtime tonight but this is my emerging markets play. This is a subsidiary of Hutchison Whampoa owned by the man many people in Hong Kong call 'Superman" - Li Ka-shing whose company owns 50.1% of HTX.
HTX recently sold an Indian wireless company Essar to Vodafone for $11 billion which according to news articles worked out to about $860 per subscriber. Recent worldwide deals for cell phone companies in growing markets pegged valuations at $500-700 per subscriber. Essar had over 22 million subscribers and cellphone penetration in India is still only 13%! HTX has had a history of building up wireless businesses and then selling them.
HTX paid a special dividend in July 07, paid down some debt and still has 3.4 billion in net cash. It's entire market cap is only $7 billion.
HTX still owns major cellphone operators in Hong Kong, Macau and Israel. It also has smaller but growing operations in Thailand, Vietnam, Indonesia, Sri Lanka, and Ghana. The penetration rate in Vietnam is 21%, Indonesia 35%, Ghana 12%, Sri lanka 21%. So far HTX has 3 million subscribers in these emerging markets. At $500 per subscriber this business is worth 1.5 billion.
The Israel portion of the business is through a majority ownership of Partner communications (PNTR-nasdaq) and its market cap is around $3 billion of which HTX owns half ($1.5 billion). This portion of the business according to what I can find is growing well.
Even though the H.K. market is fully penetrated its ARPU is still growing. Its hard to put a valuation on its H.K. business but they have 2.3 million wireless subscribers as well as a growing fixed line business! H.K must be the only place in the world where they are still growing wireline business.
Its Indonesian business is just ramping up. In the first 6 months of operation in Indonesia they gained 1 million new subscribers.
So, if you do the math I haven't accounted for the H.K and Macau operations and we get a sum of the parts close to its market cap, for arguably some good growth potential. Its strong financially and it has 'Superman' backstopping it all.
posted by Des @ 11/20/2007 09:41:00 PM
2 Comments:
Hey, I must commend you for the ingenuity of this pick. It's a diversified play on several Emerging Markets, in a growth industry, backed by one of the stingiest investors out there. Unfortunately, I'm having a tough time doing any due diligence on HTX to formulate an opinion.
I would like to hear something from Peter on this as they should have some marketing presence in HK? Pete, do you have anything to add? are you out there?
In the meanwhile, please post links to other sources of info. I just read an unaudited KPI, but it's kinda hard to make sense.
This is from S&P Stock Report(its a PDF and didn't know how to post it)
We believe the sale of the Indian assets (46% of 2006 revenues) to Vodafone, completed in May 2007, will limit the emerging telecom market benefits for HTX. Our revenue estimates of $2.6 billion in 2007 and $2.8 billion in 2008 exclude the Indian operations.We forecast HTX's businesses in mature markets to remain steady, with the increasing adoption of higher value
added 3G services expected to provide a buffer against the erosion in average revenue per user
(ARPU). In the first half of 2007, revenue growth was driven by its Hong Kong operations and a gain in its majority ownership of Israeli
wireless.
We expect group EBITDA margin of 30% in 2007 and 28% in 2008, as we see high start-up costs for new market launches in Indonesia and Vietnam that occurred in early 2007.We believe the Vietnam market launches had greater success in the first nine months of 2007 as subscriber additions exceeded 1.6 million. Using an exchange rate of US$0.128 per Hong Kong dollar, our earnings per ADS estimate for 2008 is $0.48.
As of September 2007, Hutchison Telecommunications provided mobile services in Hong Kong, Israel, Indonesia, Thailand and other countries, mainly with under-penetrated mobile markets, to 9.1 million customers, following the May 2007 sale of an Indian asset that had 23.3 million subscribers. In addition, HTX
offers fixed-line voice and broadband Internet access services to customers in Hong Kong. The company was listed on the Stock Exchange of Hong Kong and the New York Stock Exchange in October 2004. HTX is a 71%-owned subsidiary of Hutchison Whampoa, a Hong Kong-based conglomerate with core businesses including ports, retail, property, infrastructure, energy and telecommunications (with mobile networks in Western Europe and Australia, in addition to those under HTX).
HTX started its telecom business as a mobile operator in Hong Kong. Apart from its second- and thirdgeneration mobile business in Hong Kong, the company operates a fixed-line business through its 52.5% ownership of Hutchison Global Communications Holdings (HGCH). This Hong Kong-listed company provides telephony and broadband Internet access using its extensive fiber optic network that connects directlyto about 1 million households in Hong Kong along with interconnections with the main local fixedline and mobile operators. The company offered mobile service in Hong Kong and Macau to 2.3 million customers at the end of September 2007, up 10% from a year earlier. More than 40% of subscribers were using third-generation (3G) services.
The Indian mobile market exceeded the 100 million customer threshold in April 2006 and reached 109 million at June 2006, representing 35% growth for the first half of 2006. In February 2007, HTX agreed to sell its 67% stake in Hutch Essar to Vodafone and in May 2007 closed on the transaction. The pretax gain of $9 billion was $195 million lower than previously announced due to the waiving of potential claims against the asset.
Through its exclusive sales and marketing arrangement with CAT Telecom, the smallest of Thailand's four mobile operators, Hutchison CAT is exposed to wireless growth in 25 provinces in central Thailand and has approximately 730,000 customers.
In 2005, HTX made a strategic investment to enter the Indonesian wireless market, which we believe is a key growth market in Asia. The company began a nationwide network rollout in 2005 and launched service in March 2007; more than 1.6 million subscribers were using HTX's service by September 2007. In addition, HTX began a similar service rollout in Vietnam, with services launched in January 2007 that in the first nine months of 2007 was less successful due to limited handset availability and high competition. Additional operations were also launched in Sri Lanka and Ghana.
Following the early 2005 buyback of Israel-based Partner Communications shares, HTX's stake in the second
largest mobile operator there increased to 52% from 43%, making Partner a subsidiary (as opposed to
an associate company) of Hutchison Telecommunications. As of September 2007, the company had 2.8 million
subscribers in Israel.
HTX has declared a dividend policy, effective in 2008, to pay out a minimum of 30% of its recurring profit to shareholders.
Hutchison Telecom is listed on the New York Stock Exchange in the form of American Depositary Shares
(ADSs). One ADS is equal to 15 shares of Hutchison Telecom stock.
HTX plans on spending the majority of its HK$7 billion capital investment budget for 2008 on developing the businesses in Indonesia, Vietnam, and Sri Lanka.
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