Sponsored By

SmarTone Profits Soar on Smartphone SalesSmarTone Profits Soar on Smartphone Sales

Hong Kong's smallest mobile network operator expects service revenues to continue improving, but is less optimistic about device sales.

Iain Morris

September 2, 2015

3 Min Read
SmarTone Profits Soar on Smartphone Sales

Hong Kong mobile operator SmarTone has benefited from a huge increase in net profit in its recent financial year thanks largely to booming sales of smartphones and device accessories.

The smallest of the country's four mobile network operators, SmarTone Telecommunications Holdings Ltd. (Hong Kong: 0315) saw net profit rise by 74% in the year ending June 30, to 935 million Hong Kong dollars (US$121 million), compared with the preceding 12-month period.

Revenues were up 41%, to HK$18.6 billion ($2.4 billion), over the same timeframe: Although service revenues edged up just 3%, to HK$5.6 billion ($720 million), equipment sales grew by as much as 67%, to HK$13.1 billion ($1.7 billion).

SmartTone witnessed a 47% increase in the sum total of cost of inventories sold, staff costs and other operating expenses, but its bottom line was helped by a fall in depreciation and amortization expenses.

The operator also reported a 4% increase in its customer base, claiming to serve 1.96 million subscribers in June.

During an earnings presentation, executives said that customers were increasingly migrating from plans that bundle device costs with service charges to so-called SIM-only deals, putting average revenue per user (ARPU) under some pressure.

The migration to SIM-only plans also explained the fall in overall depreciation and amortization expenses compared with the earlier financial year.

"When customers move, it affects the nominal reported ARPU figure, but has little impact on margin and profitability," said Patrick Chan, SmarTone's executive director. "The nominal figure may be steady but net ARPU has been increasing in the past 12 months."

Chan said that service revenue net of handset subsidy amortization was a better measure of the operator's recent underlying performance than headline ARPU.

While service revenues rose by just 3% in the recent financial year, they were up by 7% net of handset subsidy amortization, according to SmarTone's calculations.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading. Responding to questions about the imminence of price increases in what remains a fiercely competitive market, Stephen Chau, SmarTone's chief technology officer and interim CEO, said there was "still a need for further tariff adjustment" and that "cost pressure" would remain very high in the immediate future. SmarTone does not provide specific guidance for sales and profitability, but Chau expects service revenues to continue growing steadily in 2016. But he is less optimistic about the outlook for handset sales. "Last year was a windfall … a bonus year," he told analysts. "In 2016 there will still be handsets that are popular but it's unlikely they will be as popular as in 2015 and so management is not expecting as strong a handset business in 2016." SmarTone issued much firmer guidance on capital expenditure, indicating it expects to invest between HK$650 million ($84 million) and HK$700 million ($90 million) in this area in the 2016 financial year. The operator spent HK$680 million ($88 million) on capex in the 12 months to June 30, down from HK$935 million ($121 million) in the preceding 12-month period, when it was investing heavily in the rollout of its 4G network. A fall in prices charged by equipment vendors also helped SmarTone to reduce capex in the recent financial year. SmarTone competes against HKT Ltd. , China Mobile Hong Kong and Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY)-owned 3 Hong Kong in the country's mobile market. Following its takeover of rival CSL in May 2014, HKT now claims to serve about 4.65 million subscribers, while CMHK and 3 have around 4.3 million and 3.8 million respectively. — Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

Read more about:


About the Author(s)

Iain Morris

International Editor

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like