Morgan Stanley lowered its target price for Hutchison Telecommunications HK (HutchTel)(00215) to HK$1.7 from HK$2 and maintained its "equal-weight" rating.
Despite its compelling 1.5x 2020 EV/EBITDA, the lowest among the covered telcos in Asia, the research house highlighted that 75% of HutchTel's market cap is net cash on the balance sheet. The company's conservative approach to keep cash on hand makes strategic sense amid the weak macro environment, but its valuation warrants a bigger discount on the cash.
Also, Morgan thinks it will be challenging for HutchTel to generate earnings growth given the higher spectrum amortization cost in the next 2-3 years. It fine-tuned its 2019 EPS estimate and increased 2020 EPS forecast 5.2% on the cost-saving from its digital transformation.
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