Far EasTone Telecommunications Co (FET, 遠傳電信) on Tuesday forecast its earnings for this year would decline more than 7 percent from last year, dragged down by the firm’s massive capital expenditure for the 4G telecom infrastructure deployment.
While the nation’s third-largest telecom operator hopes the planned tiered-pricing for upcoming 4G services will create a higher average revenue per usage (ARPU), which is an industry profitability measure, analyst said slower revenue growth remains a potential concern throughout this year.
“The key challenge for FET [and the sector] is how to monetize the data usage to offset a decline in traditional [voice] revenue and generate further growth,” Credit Suisse Securities analysts Chate Benchavitvila and Emerson Chan said in a client note yesterday.
The two analysts agreed that an introduction of tiered-pricing could be positive to Far EasTone’s outlook, but said that the real impact depends largely on details, such as user’s data allowance and excess usage charges.
On Tuesday, Far EasTone said in a statement released after a conference call with investors that it plans to allocate NT$13 billion (US$428.6 million) on capital expenditure this year for its 4G network rollout and 3G service enhancement.
In October last year, the company won A2, C2 and C4 frequency blocks in the 4G spectrum for NT$31.32 billion through a government auction.
The planned capital spending for this year is 23.8 percent higher than last year’s expenditure of NT$10.5 billion, as the Taipei-based carrier plans to launch its 4G network service on 700 megahertz spectrum as early as in the third quarter this year.
The company’s proposed capital spending is lower than Chunghwa Telecom Co’s (中華電信) NT$40.13 billion for this year, but higher than Taiwan Mobile Co’s (台灣大哥大) NT$12.8 billion.
Higher costs related to 4G rollout are forecast to affect Far EasTone’s consolidated earnings before income tax, depreciation and amortization (EBITDA), which grew by just 1.5 percent year-on-year to NT$25.983 billion this year from NT$25.599 billion last year, slower than the increase of 5.1 percent recorded last year, according to the statement.
With higher capital spending and 4G spectrum amortization costs, net profit is forecast to contract by 7.2 percent this year to NT$10.92 billion from last year’s NT$11.77 billion, with earnings per share falling to NT$3.35 from NT$3.61, the company said.
While Far EasTone expects revenue for this year to hit a record level of NT$92.22 billion on growth in mobile value-added services, its guided increase of 2.8 percent in sales this year from last year’s NT$89.67 billion is weaker than the 3.4 percent increase it saw last year from 2012, when it reported sales of NT$86.75 billion, according to the statement.
“FET’s 2014 guidance is weaker than expected,” Credit Suisse analysts said in the note, while slashing their target share price on Far EasTone to NT$64.50 from NT$69 to reflect their lower forecasts for the company’s EBITDA and earnings per share.
Meanwhile, Far EasTone’s board on Tuesday approved a proposal to distribute a record cash dividend of NT$3.75 per share, which represents a payout ratio of 103.88 percent. With the company’s shares closing at NT$61 yesterday, the proposed dividend represents a yield of 6.15 percent.
Shares in Far EasTone closed 1.84 percent higher yesterday, but they have declined by 4.39 percent over the past three months due to 4G uncertainty, compared with the increase of 3.84 percent on the TAIEX over the same period, according to Taiwan Stock Exchange data.