PCCW LIMITED

Income statement

Sources: FY2024–FY2025 from audited income statements in the 2025 Annual Results Announcement; FY2021–FY2023 revenue, cost of sales, pre-tax income and tax from filings as compiled by Yahoo Finance/StockAnalysis, cross-checked to headline figures in the FY2021–FY2023 announcements; attributable profit from each year's announcement. FY2021 attributable profit includes effects of PCPD deconsolidation; FY2022 includes discontinued-operation effects of the Lenovo transaction (loss from continuing operations in FY2022 was reported by aggregators at −8.75 HK cents per share).

FY2023 profit for the year derived as pre-tax profit less tax (2,499 − 409).

Per-share data

Notes: FY2021 EPS derived (HK$1,039m ÷ ≈7.73bn weighted shares). FY2022 EPS per Investing.com compilation of the filing (basic 2.05 / diluted 2.04 cents). FY2023–FY2025 per company. FY2021 DPS = interim + final 27.69 cents (company). FY2023–FY2025 DPS = interim 9.77 + final 28.48 cents (company). 1H2026 interim DPS 9.77 cents (unchanged).

Margins and growth

FY2021 EBITDA margin uses the originally reported EBITDA over restated revenue and is overstated by the basis mismatch; the comparable figure is ≈33%.

Revenue CAGR FY2021–FY2025: ≈3.2% p.a. (derived, restated basis). EBITDA CAGR FY2022–FY2025: ≈2.4% p.a. (derived, consistent basis).

Commentary. Revenue growth accelerated in FY2025 (+7.2%) but the composition matters: HKT mobile product sales (+30%) and lumpy IT-solutions milestones (Other Businesses revenue +142%) explain most of the step-up, which is why gross margin compressed 2.6 percentage points to 46.5% while EBITDA grew only 3%. Underlying service revenue grew roughly 3% (HKT ex-handsets +3%). The structural pattern since FY2021 is a slow-growing, high-margin HKT core (EBITDA margin consistently 37–40%), a media portfolio that swung from loss to meaningful EBITDA (OTT from −HK$23m in FY2021 to +HK$620m in FY2025), and a persistent "below-EBITDA" drag. The gap between EBITDA (HK$13.3bn) and attributable earnings (−HK$0.25bn) is explained by: D&A of HK$7.7bn (heavy amortisation of intangibles, content and customer acquisition costs), net finance costs of HK$2.3bn, tax of HK$0.8bn, HK$2.6bn of profit leaking to non-controlling interests (≈48% of HKT and ≈37% of Viu), and HK$0.23bn of perpetual distributions. The inflection points were FY2023 (finance-cost shock as HIBOR rose: interest expense rose sharply versus FY2022 per aggregator data) and FY2025 (finance costs fell 15% as HIBOR declined and HKT borrowings fell; average cost of debt 4.4% → 3.9%). In 1H2026 finance costs fell a further 8% (average cost of debt 4.05% → 3.75%), narrowing the attributable loss by 38% to HK$276m.

Balance sheet

Source: audited/unaudited statements of financial position (2025 Annual Results; 2026 Interim Results). Total assets derived as non-current plus current assets.

Commentary. Three features dominate. (1) Negative attributable equity: equity attributable to shareholders turned negative in FY2025 (−HK$1,966m) and deepened to −HK$4,207m at June 2026. The mechanics are straightforward: PCCW pays ≈HK$2.96bn of dividends a year while attributable comprehensive income is negative, so book equity is consumed each year. Dividends are paid from the parent's distributable reserves (HK$17,722m FY2024 → HK$17,180m FY2025 → HK$16,411m June 2026), which are declining by roughly HK$0.5–0.8bn per half. (2) Rising gross debt: from HK$52.4bn to HK$65.3bn in 18 months; part of the 1H2026 jump is timing (HKT pre-funded a US$750m July 2026 maturity with US$650m of new notes, and US$132m of 2021 perpetuals was reclassified to short-term debt before redemption), but the underlying direction is upward, with gross debt/total assets at 60% versus 53% at end-2024. (3) Negative working capital of HK$14.7bn, typical of telecom operators (trade payables HK$11.2bn, contract liabilities, current tax), which the board addresses explicitly in the going-concern note by reference to undrawn facilities of HK$29.7bn.

Cash flow

Operating cash flow and group free cash flow: n/d in the sources reviewed (the results announcements reviewed do not include the cash-flow statement; the full Annual Report 2025 does). HKT's AFF — defined as EBITDA less capex, customer acquisition costs and licence fees, tax, net interest, and working-capital changes — is the best published proxy for free cash flow at the operating core.

Capex 1H2026: HK$1,073m (5.3% of revenue) vs HK$1,106m (5.8%) in 1H2025; HKT accounts for ~97%. Mobile capex is falling post-5G rollout; TSS capex supports enterprise fixed-mobile solutions, subsea cables and AI network infrastructure.

Buybacks: neither PCCW nor subsidiaries purchased listed securities in FY2025 or 1H2026.

Upstream cash from HKT (derived): HKT's FY2025 distribution of 81.77 HK cents × ~7.58bn units × 52.22% ≈ HK$3.24bn attributable to PCCW, against PCCW dividends of ≈HK$2.96bn — consistent with management's statement (FY2025 earnings call, per transcript summary) that the dividend represents ~91.5% of HKT upstream distributions.

Ratios

All ratios derived from company figures. 1H2026 LTM EBITDA = 13,290 − 6,010 + 6,182 = HK$13,462m. ROE is not meaningful because attributable equity is negative. ROIC requires invested-capital definitions not disclosed by the company.

Commentary. Leverage is the critical financial variable. Net debt/EBITDA has drifted from ~3.9x to ~4.5x even as EBITDA has grown, because debt is being used to fund the gap between upstream cash and group outflows (dividends, perpetual distributions, media investment, corporate costs). Interest cover improved in FY2025 purely on rates; the rating agencies still assign investment-grade but bottom-rung ratings to the PCCW holding entity (Baa3/BBB-), one notch below HKT.

Management guidance (qualitative, 2026 Interim)

• OTT: renewed top-line growth and further margin improvement in 2H2026 from a sharpened content strategy, Viu Shorts scaling, iQIYI bundles and AI integration.

• Free TV & Related: improved profitability in 2H2026 from flagship content (local adaptation of "Long Vacation"), events and major group concerts in late 2026.

• HKT: AI benefits to materialise progressively once dual-running ends; continued enterprise and roaming growth.

• Dividend: disciplined policy maintained; interim held at 9.77 cents.

Consensus expectations

Consensus sees revenue growth of ~2–3% p.a. in FY2026–FY2028 and EBITDA growth of ~4–7% p.a., implying margin expansion from 33% towards ~36%. Given 1H2026 EBITDA growth of only 3%, the FY2026 EBITDA estimate of HK$14.2bn (+6.8%) requires a strong second half.

Bull case

1. Rates and refinancing drive earnings recovery: finance costs fell 15% in FY2025 and 8% in 1H2026; continued HIBOR normalisation could push attributable profit positive, given the loss is only HK$253m on HK$13.3bn EBITDA.

2. Viu re-acceleration and optionality: OTT EBITDA margin is already 24–29%; micro-dramas, bundles and AI cost savings could restore growth, while the Canal+ 51% option offers a value-crystallising exit.

3. Discount to look-through value with a 7%+ yield: PCCW trades below the market value of its HKT stake alone (≈HK$47bn vs ≈HK$40bn market cap) and pays a 7.3% yield backed by HKT's full-AFF distributions; further netco or asset monetisations (US$1.08bn realised since 2024) can de-lever.

Bear case

1. Balance-sheet erosion: attributable equity is −HK$4.2bn and falling ~HK$2.2bn per half; distributable reserves have declined ~HK$1.3bn in 18 months; net debt/EBITDA has risen to ~4.5x — the dividend is effectively part-financed by leverage.

2. Viu inflection risk: paid subscribers fell from 16.8m to 15.3m between December 2025 and June 2026, OTT revenue fell 7% in 1H2026, and global platforms dominate; Free TV EBITDA fell 53%.

3. Geopolitical overhang: the FCC action targeting PCCW Global (tied to China Unicom's 18.4% shareholding) could impair international revenue (HK$7.3bn) and complicate any sale of PCCW Global; holding-company discounts tend to widen under such uncertainty.

Catalysts and monitorables (next 12 months)

Concluding analyst verdict

PCCW in late 2026 is a well-run operating portfolio wrapped in a structurally stretched holding company. The operating story is respectable: HKT continues to grind out 3–5% revenue growth and 3–4% EBITDA growth at near-40% margins, underpinned by fibre, 5G, roaming and an enterprise solutions engine that won more than HK$5bn of contracts in FY2025. The media businesses have moved from cash drains to EBITDA contributors, with Viu earning a 24% margin in FY2025, and management is executing sensibly on AI-led cost reduction and capital-light content formats.

The equity story is weaker. Every dollar of HKT value that reaches PCCW shareholders passes through ~48% minority leakage, HK$2.3bn of net finance costs and perpetual coupons, and a dividend that consumes roughly 90% of HKT upstream cash. As a result PCCW reports small but persistent attributable losses, its book equity has turned negative and is deteriorating each half, and consolidated net debt has risen to roughly 4.5x EBITDA. The 2026 refinancings were well executed, but the replacement of 4% perpetuals with 6.25% paper shows the price of that structure is rising. Overlaying this is a new geopolitical risk — the FCC action against PCCW Global — and an early wobble at Viu, where paid subscribers fell sequentially in 1H2026.

At ≈HK$5.2 the shares discount the look-through value of the HKT stake and offer a ~7.3% yield, which is the core of the investment case. That discount is justified by leverage, governance concentration and media uncertainty, and is likely to narrow only through tangible catalysts: continued asset monetisation, a clear de-leveraging path, value crystallisation at Viu, or a positive regulatory resolution in the US. Absent these, PCCW is best viewed as a high-yield, rate-sensitive proxy on HKT with embedded media optionality.