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Mobile Gambling Growth Prompts Acquisition Move by Hong Kong Telecom Company

Jan 14, 2013

CTM acquired by Citic
Citic acquisition

Seeing ample opportunity for growth and profits Hong Kong’s Citic buys Macau phone operator.

Citic Telecom International Holdings Ltd. has decided to buy 79% of Macau phone operator CTM for the noteworthy amount of USD 1.16 bln. In fact, the deal is so large for Macau that it is only surpassed by acquisitions in the local gambling industry.

The amount may seem especially large at first sight when compared to CTM’s unaudited net asset value of approximately USD 213 mln and its H1 2012 a profit of USD 58 mln. Refining the picture is the fact that CTM is Macau’s monopoly landline operator, with the license for local and international switched fixed voice and data services until the end of 2016, with an option of near-automatic renewal for another 5 years. CTM is also present on the market as one of several mobile operators.

While Citic certainly sees the landline phone monopoly as a relatively stable revenue source, the real profits to be had are expected from Internet and wireless services, as Macau residents and visitors are pushing the demand for quick mobile gambling access. Mobile phone ownership is already three times higher than the area’s population of 568,000 inhabitants, so the demand is clearly very intense.

The special-status region, a former Portuguese colony, is the only place in China where the casino business is legal, with operators like mostly due to large operators like Sands China, Galaxy Entertainment Group and Melco Crown Entertainment finding a lucrative market there.

In order to put the figures into perspective it is useful to note that the Macau gambling industry made it to the headlines of casino and gambling news outlets across the world, after the industry revenue jumped 14% in 2012 to a record high of USD 38 bln. This outperforms Las Vegas five-fold.

Of course there is a big difference between playing in a casino and online, and that is bandwidth, of which there just isn’t enough in Macau. So, being a regional gambling hub with a tech savvy and online-gaming-hungry population creates excellent growth opportunities for Citic.

The Hong Kong stock market rewarded Citic’s smart strategy with a price jump of up to 22% at one point today, eventually closing at a 13% gain. Citic CFO David Chan expressed his belief in “good, enjoyable growth” in the years ahead.

Market experts tend to agree. Guosen Securities’ analyst Bill Fan thinks that “as long as the gambling business continues to grow, the telecommunication business will also prosper. The deal will enhance the profitability of Citic Telecom.”

According to company plans, Citic will eventually increase its share in CTM to 99 percent as the development of the local gambling industry drives further profits.

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