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Hutchison Telecom: Rich And Hungry (HTX)
Emerging market telecommunications is a high-octane place to be these days. A combination of factors is driving a pace of activity as fast as the packet-switched data that race around the globe's wireless airwaves, undersea fiber optic cables and aging copper wires. Hutchison Telecommunications International (NYSE: HTX) is one name that's been in the news recently and seems worth taking a look at.
Old Routes, New Trade
Hong Kong-based HTX is something of a microcosm of the increasingly overlapping worlds of Asian and Middle Eastern telecommunications. Three of its largest sources of revenue in 2006 came from India (46%), Israel (29%) and Hong Kong (20%). Other growth markets where it has a presence include Indonesia, Vietnam and Sri Lanka. Its two largest shareholders are old-line Hong Kong trading firm Hutchison Whampoa Ltd., which raised its stake to a controlling 50.0036% on June 15, and Egyptian Orascom Telecom, holding 19.3%.
Middle Eastern telecom firms such as Orascom and Saudi Telecom Co. face a tougher time of it in their home markets as competition increases from market liberalization. This means they are increasingly embarking on global M&A strategies to shore up their growth numbers.
On June 26, Saudi Telecom announced it was launching a major Southeast Asian strategy through a 25% equity investment inMalaysia' India
Value or Trouble?
Hutchison Telecommunications is at something of a crossroads. On May 8, 2007, it completed the sale of its Indian business to Vodafone (NYSE: VOD) for approximately $9 billion It then used the proceeds to declare a special dividend, pay down $1.8 billion in debt and set up a war chest of $4.6 billion for further growth and acquisitions.
This move - exiting from one of the region's fastest growing telecom markets which accounted for nearly half of the firm's 2006 turnover - hasn't played very well among investors. Hutchison is down 15.2% for the year to date (YTD) through June 28, as compared to other regional players such as Philippine Long Distance Telecommunications (NYSE: PHI), up 11.9% YTD, or China Mobile Ltd. (NYSE: CHL), up 17.8% YTD. Vodafone is also doing well, up 18.3% YTD, as investors weigh its positioning in India.
Conclusions
I think Hutchison Telecommunications makes a strong case for itself as a value play. The company enjoys solid fundamentals: operating profit margin of 15.1% as of year end 2006, 37% top line growth from 2005 to 2006, the deep pockets of Hutchison Whampoa and the cash from its Indian sale to fund an aggressive strategy.
It is the leading third-generation mobile provider in gadget-crazy Hong Kong. It also has a solid beachhead in Israel, which is generally seen as the most attractive market of the Middle Eastern countries. Now is a good time to be hungry and cash-rich in this industry and this part of the world. Hutchison could be a decent vehicle to grab a part of the action.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
Old Routes, New Trade
Hong Kong-based HTX is something of a microcosm of the increasingly overlapping worlds of Asian and Middle Eastern telecommunications. Three of its largest sources of revenue in 2006 came from India (46%), Israel (29%) and Hong Kong (20%). Other growth markets where it has a presence include Indonesia, Vietnam and Sri Lanka. Its two largest shareholders are old-line Hong Kong trading firm Hutchison Whampoa Ltd., which raised its stake to a controlling 50.0036% on June 15, and Egyptian Orascom Telecom, holding 19.3%.
Middle Eastern telecom firms such as Orascom and Saudi Telecom Co. face a tougher time of it in their home markets as competition increases from market liberalization. This means they are increasingly embarking on global M&A strategies to shore up their growth numbers.
On June 26, Saudi Telecom announced it was launching a major Southeast Asian strategy through a 25% equity investment in
Hutchison Telecommunications is at something of a crossroads. On May 8, 2007, it completed the sale of its Indian business to Vodafone (NYSE: VOD) for approximately $9 billion It then used the proceeds to declare a special dividend, pay down $1.8 billion in debt and set up a war chest of $4.6 billion for further growth and acquisitions.
This move - exiting from one of the region's fastest growing telecom markets which accounted for nearly half of the firm's 2006 turnover - hasn't played very well among investors. Hutchison is down 15.2% for the year to date (YTD) through June 28, as compared to other regional players such as Philippine Long Distance Telecommunications (NYSE: PHI), up 11.9% YTD, or China Mobile Ltd. (NYSE: CHL), up 17.8% YTD. Vodafone is also doing well, up 18.3% YTD, as investors weigh its positioning in India.
Conclusions
I think Hutchison Telecommunications makes a strong case for itself as a value play. The company enjoys solid fundamentals: operating profit margin of 15.1% as of year end 2006, 37% top line growth from 2005 to 2006, the deep pockets of Hutchison Whampoa and the cash from its Indian sale to fund an aggressive strategy.
It is the leading third-generation mobile provider in gadget-crazy Hong Kong. It also has a solid beachhead in Israel, which is generally seen as the most attractive market of the Middle Eastern countries. Now is a good time to be hungry and cash-rich in this industry and this part of the world. Hutchison could be a decent vehicle to grab a part of the action.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
by
Katrina Lamb
Katrina Lamb is an investment analyst based in Washington, DC, where she researches and advises on portfolio strategies employing a wide range of asset classes and means of investment exposure. Katrina has spent more than 15 years in the investment profession including a great deal time of living and working overseas in markets such as Japan, Southeast Asia, Central and Eastern Europe and the former Soviet Union. She is fluent in several languages including Russian and Japanese.
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