The J.P. Morgan Chase report added that Hong Kong Telecom (06823) tried to divest this business as early as 2020, but it temporarily came to an end due to the impact of the epidemic at the time.
The Zhitong Finance App learned that, according to reports, PCCW (00008) has entered the final stage of selling nearly 40% of its shares in the optical fiber business to China Merchants Group, involving a transaction value of 850 million to 900 million US dollars (discount of approximately HK$6.63 billion to HK$7.02 billion). According to a research report published by J.P. Morgan Chase, the report did not clearly mention the scope or definition of “optical fiber business,” but it was noted that all PCC's fiber assets are held by Hong Kong Telecom (06823). The potential transaction may actually indicate that Hong Kong Telecom sells 40% of its shares in the international submarine optical fiber business.
The J.P. Morgan Chase report added that HKT tried to divest this business as early as 2020, but it temporarily came to an end due to the impact of the epidemic at the time. The report may indicate that HKT's divestment of its international undersea fiber business and the use of cash proceeds to repay debts will help reduce the Group's net debt to less than 3 times EBITDA and increase the dividend per share by 7%. PCCW will also benefit from HKT's increased distribution.
According to the report, HKT's divestment of its international undersea fiber business was mainly due to rising geopolitical risks; the return on investment in this business is low and demand for deleveraging continues to increase due to high interest rates.
The report continues to be more optimistic about HKT over PCC, believing that the former has a high defensive, attractive 9% yield and stable financial prospects; at the same time, the bank is concerned that PCCW's distribution ratio from HKT may be further reduced. The report gave PCCW a “neutral” rating, with a target price of HK$4.