JP Morgan recommends investors to increase their shareholding in Hong Kong Telecommunications - SS (06823).
According to the Zhixun News app, JPMorgan released a research report stating that due to the high defensive nature of Hong Kong Telecommunications - SS (06823) and its dividend yield reaching 9% under stable economic prospects, and a continued preference for Hong Kong Telecommunications over PCCW, the former was given an 'overweight' rating and a target price of HKD 11, while the latter was given a 'neutral' rating. The bank recommends that investors increase their shareholding in Hong Kong Telecommunications, as the yield spread between its dividend yield and the yield on 10-year US Treasury bonds has widened to 490 basis points, which is 0.7 standard deviations higher than the historical average level.
The report stated that Hong Kong Telecommunications announced the sale of 40% of its passive network business for USD 870 million in cash to China Merchants Group. The bank believes that the transaction can bring added value, and that the company is facing a debt peak from 2025 to 2027, which can reduce the net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio to less than three times, and increase the dividend per share by 6%. PCCW (00008) will continue to distribute more interest from Hong Kong Telecommunications, but if it does not sell assets, the dividend payouts it receives are expected to continue to be reduced.