Looking for growth? Don't miss PCCW Ltd with its track record of fast growth
18/02/2015 • About PCCW Ltd (
$8) • By InTwits
PCCW Ltd is an attractive growth stock in Telecommunications industry. Its revenue performance, profitability and healthy financial model stands it out vs. other public companies on the market.
Growth story
PCCW Ltd showed fast growth in the last financial year. The company's revenue surged on 21.8% in FY2014. Together with revenue growth PCCW Ltd also managed to keep EBITDA growth. EBITDA grew 49.7% for the same period.
If we look for the longer period PCCW Ltd showed fast revenue growth of 10.5% from 2011 to 2014 annualy. EBITDA surged on 19.0% from 2011 to 2014 annualy.
PCCW Ltd ($8) financials for the last 5 years
| mln. HKD | 2010 | 2011 | 2012 | 2013 | 2014 |
|---|
| Revenue | 22,962 | 24,638 | 25,318 | 27,317 | 33,277 |
|---|
| Revenue growth, % | | 7.3% | 2.8% | 7.9% | 21.8% |
|---|
| Gross margin, % | 54.1% | 53.7% | 53.3% | 52.0% | 54.5% |
|---|
| SG&A, % | 22.3% | 23.0% | 22.6% | 22.6% | 23.4% |
|---|
| EBITDA | 8,570 | 7,742 | 8,112 | 8,715 | 13,048 |
|---|
| EBITDA growth, % | | -9.7% | 4.8% | 7.4% | 49.7% |
|---|
| EBITDA margin, % | 37.3% | 31.4% | 32.0% | 31.9% | 39.2% |
|---|
| Net Income | 1,926 | 1,607 | 1,661 | 1,885 | 3,310 |
|---|
| Net Income margin, % | 8.39% | 6.52% | 6.56% | 6.90% | 9.95% |
|---|
| |
| CAPEX | 1,798 | 1,987 | 2,255 | 3,996 | 3,776 |
|---|
| CAPEX/Revenue, % | 7.83% | 8.06% | 8.91% | 14.6% | 11.3% |
|---|
| Debt | 34,841 | 23,510 | 26,466 | 29,075 | 41,317 |
|---|
| Cash | 8,101 | 5,365 | 4,553 | 5,519 | 7,943 |
|---|
| Net Debt/EBITDA | 3.1x | 2.3x | 2.7x | 2.7x | 2.6x |
|---|
| |
| ROIC, % | 13.2% | 10.7% | 10.3% | 10.6% | 13.8% |
|---|
| ROE, % | | | 22.3% | 21.0% | 34.2% |
|---|
Profitability and return on investment
EBITDA growth was supported by margin expansion. PCCW Ltd showed fast EBITDA margin growth of 7.30 pp from 31.9% to 39.2% in 2014. In the last 3 years EBITDA margin surged on 7.80 pp from 31.4% in 2011 to 39.2% in 2014.
We call PCCW Ltd an attractive growth stock as together with the growth it delivers high ROIC at 13.8%. During the last three years it surged - it was 10.7% in FY2011. It's average ROIC for the last three years was 11.5%.
The company showed fast Net Income margin growth of 3 pp from 6.90% to 9.90% in 2014. In the last 3 years PCCW Ltd's Net Income margin surged on 3.40 pp from 6.50% in 2011 to 9.90% in 2014.
PCCW Ltd operates at ROE of 34.2%. Average ROE for the last three years was 25.8%.
Capital expenditures (CAPEX)
To this fast growth PCCW Ltd had to invest in CAPEX.The company's CAPEX/Revenue was 11.3% in FY2014. PCCW Ltd's CAPEX/Revenue surged on 3.28 pp from 8.06% in 2011 to 11.3% in 2014. For the last three years the average CAPEX/Revenue was 11.6%.
Leverage (Debt)
PCCW Ltd has medium debt level at 2.6x Net Debt/EBITDA to maintain high growth. In the longer period leverage increased on 0.21x from 2.34x in 2011 to 2.56x in 2014.
Valuation vs. comparable companies
The company trades at 5.4x EV/EBITDA which is 75.5% lower than 22.1x Telecommunications industry avearge calculated based on 59 companies. At the end of trading day today PCCW Ltd traded at 11.3x P/E which is 49.1% lower than 22.2x Telecommunications peer group avearge calculated on the basis of 15 companies.
For capital intensive compnanies it's worth taking a look at EV/(EBITDA-CAPEX) multiple. The company trades at 7.6x EV/(EBITDA-CAPEX) which is not surprisingly 190% higher than 2.6x Telecommunications industry avearge calculated based on 16 companies.
Peers in Telecommunications
Below we provide PCCW Ltd benchmarking against other companies in Telecommunications industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| FY2010 | FY2011 | FY2012 | FY2013 | FY2014 |
|---|
| Top 5 |
|---|
| Gold Tat Group International Ltd ($8266) | | 34.7% | 29.4% | 1,582.2% | 77.0% |
| Great World Co Holdings Ltd ($8003) | | -99.1% | 1,651.8% | -81.7% | 61.9% |
| Synertone Communication Corp ($1613) | | 2.0% | -0.3% | -47.0% | 50.8% |
| Champion Technology Holdings Ltd ($92) | | 3.8% | 9.1% | 30.5% | 38.3% |
| HKT Trust & HKT Ltd ($6823) | | 7.0% | 6.3% | 8.3% | 26.2% |
| |
|---|
| Median (13 companies) | | 4.5% | 8.3% | 8.3% | 9.8% |
|---|
| PCCW Ltd ($8) | | 7.3% | 2.8% | 7.9% | 21.8% |
Top companies by Gross margin, %
| FY2010 | FY2011 | FY2012 | FY2013 | FY2014 |
|---|
| Top 5 |
|---|
| Synertone Communication Corp ($1613) | 59.2% | 65.4% | 68.1% | 64.1% | 70.5% |
| Zhi Cheng Holdings Ltd ($8130) | 29.1% | 61.6% | 45.9% | 41.0% | 64.0% |
| Hong Kong Television Network Ltd ($1137) | 87.6% | | -59.6% | -101.3% | 59.7% |
| Cisco Systems Inc ($4333) | 64.0% | 61.4% | 61.2% | 60.6% | 58.9% |
| HKT Trust & HKT Ltd ($6823) | 59.8% | 58.9% | 57.2% | 55.7% | 58.2% |
| |
|---|
| Median (11 companies) | 43.4% | 44.2% | 30.0% | 41.6% | 54.9% |
|---|
| PCCW Ltd ($8) | 54.1% | 53.7% | 53.3% | 52.0% | 54.5% |
Top companies by EBITDA margin, %
| FY2010 | FY2011 | FY2012 | FY2013 | FY2014 |
|---|
| Top 5 |
|---|
| Synertone Communication Corp ($1613) | 44.9% | 49.5% | 44.9% | 48.5% | 49.4% |
| HKT Trust & HKT Ltd ($6823) | 39.7% | 37.3% | 36.3% | 35.0% | 35.9% |
| Champion Technology Holdings Ltd ($92) | 42.8% | 46.0% | 42.9% | 41.1% | 33.1% |
| Cisco Systems Inc ($4333) | 28.0% | 23.5% | 27.5% | 27.9% | 25.0% |
| SmarTone Telecommunications Holdings Ltd ($315) | 29.2% | 32.2% | 30.0% | 24.8% | 19.5% |
| |
|---|
| Median (13 companies) | 28.0% | 21.4% | 13.2% | 13.6% | -1.4% |
|---|
| PCCW Ltd ($8) | 37.3% | 31.4% | 32.0% | 31.9% | 39.2% |
Top companies by CAPEX/Revenue, %
| FY2010 | FY2011 | FY2012 | FY2013 | FY2014 |
|---|
| Top 5 |
|---|
| Hong Kong Television Network Ltd ($1137) | 22.2% | | 12,435.9% | 504.9% | 1,283.5% |
| Hanny Holdings Ltd ($275) | 2.8% | 80.8% | 19.8% | 11.6% | 28.3% |
| Netel Technology Holdings Ltd ($8256) | 15.3% | 7.1% | 0.1% | 15.4% | 16.6% |
| Synertone Communication Corp ($1613) | 0.5% | 1.3% | 0.9% | 38.4% | 15.8% |
| HKT Trust & HKT Ltd ($6823) | 8.4% | 7.9% | 9.0% | 8.7% | 8.7% |
| |
|---|
| Median (13 companies) | 2.8% | 4.8% | 8.1% | 8.7% | 7.8% |
|---|
| PCCW Ltd ($8) | 7.8% | 8.1% | 8.9% | 14.6% | 11.3% |
Top companies by ROIC, %
| FY2010 | FY2011 | FY2012 | FY2013 | FY2014 |
|---|
| Top 5 |
|---|
| VTech Holdings Ltd ($303) | 46.3% | 40.5% | 37.6% | 39.5% | 40.0% |
| SmarTone Telecommunications Holdings Ltd ($315) | 11.3% | 30.2% | 37.2% | 23.1% | 12.8% |
| Cisco Systems Inc ($4333) | 17.1% | 12.7% | 15.6% | 15.8% | 12.1% |
| Synertone Communication Corp ($1613) | 83.7% | 56.9% | 38.8% | 17.6% | 7.4% |
| HKT Trust & HKT Ltd ($6823) | 5.5% | 5.6% | 5.2% | 5.8% | 6.6% |
| |
|---|
| Median (13 companies) | 3.9% | 1.7% | -0.9% | 3.0% | -1.7% |
|---|
| PCCW Ltd ($8) | 13.2% | 10.7% | 10.3% | 10.6% | 13.8% |
Top companies by Net Debt / EBITDA
| FY2010 | FY2011 | FY2012 | FY2013 | FY2014 |
|---|
| Top 5 |
|---|
| Synertone Communication Corp ($1613) | 0.2x | -0.3x | -0.4x | -2.2x | 4.8x |
| HKT Trust & HKT Ltd ($6823) | 4.0x | 2.9x | 2.8x | 2.7x | 3.2x |
| Cisco Systems Inc ($4333) | 1.0x | 0.9x | 0.5x | 0.6x | 1.2x |
| SmarTone Telecommunications Holdings Ltd ($315) | -0.3x | -0.1x | -0.4x | 0.7x | 0.4x |
| Champion Technology Holdings Ltd ($92) | 0.1x | -0.1x | -0.0x | -0.0x | 0.1x |
| |
|---|
| Median (6 companies) | 0.1x | -0.1x | -0.4x | -0.0x | 0.8x |
|---|
| PCCW Ltd ($8) | 3.1x | 2.3x | 2.7x | 2.7x | 2.6x |
