Thursday, 22 November 2007

City Telecom Shares Fall by Record on Sales Decline

City Telecom (H.K.) Ltd., the second-best-performing stock of an overseas company listed in the U.S., fell by a record in Hong Kong trading after reporting a decline in full-year sales.

The fixed-line phone carrier's shares slid 29 percent to HK$1.99, the biggest drop since the stock was listed in August 1997. City Telecom, based in Hong Kong, reported earlier today that sales for the year ended Aug. 31 fell 1.7 percent to HK$1.14 billion ($147 million).

City Telecom failed to add enough users on its HK$2 billion fiber-optic network to compensate for declining sales at its international direct dial business. The company didn't bid for Hong Kong's fifth mobile-phone license in October, spurning an opportunity to grab a share of the wireless market, which is growing at 15 times the pace of fixed lines.

"The company may face a long wait to recoup the investment in the fixed-line and broadband business, which is very capital intensive," said Castor Pang, strategist at Sun Hung Kai Securities in Hong Kong. " At the moment, broadband and fixed-line sales are not making up for the shrinking IDD business."

In the six months ended in August, City Telecom added 42,000 users on its fiber-optic network that allows fixed-line phone, broadband and pay-television services, bringing its total subscribers to 683,000. Revenue on the network rose 10 percent to HK$816.8 million, failing to offset a 22 percent decline in IDD sales to HK$324.5 million.

Fiber-Optic Network
City Telecom plans to increase the coverage of the fiber-optic network to 2 million homes in Hong Kong from 1.4 million at present, the statement said.

Larger rival PCCW Ltd. had 1.18 million broadband users at the end of June. Hong Kong added 110,000 broadband connections in the first eight months of the year for a total of 1.85 million, about 75 percent of households, according to data from the Office of the Telecommunications Authority.

Hong Kong added 470,000 mobile-phone subscribers in the first eight months of the year for a total of 9.91 million, according to government data. The city gained 30,600 fixed-line customers in the period for a total of 3.87 million.

City Telecom cut network expenses 29 percent to HK$214.6 million and cut staff costs 14 percent to HK$221.1 million, allowing the carrier to post net income of HK$28.9 million, the first full-year profit in three years, the company said today.

The company's American depositary receipts, which slipped 3 percent to $6.88 in New York trading yesterday, have gained 251 percent this year, trailing only China Finance Online Co. among stocks in the Bank of New York ADR Index.