CITIC Telecom confident on 3-year rack expansion prospects

Its current Hong Kong racks are occupied.

The management of CITIC Telecom is optimistic about its target of expanding the number of racks in operation to 9,000 in the next 3 years, which will be covering Hong Kong, China and Macau.

According to a research note from DBS Vickers Securities, its current 1,700 racks in Hong Kong are fully occupied.

That partially explains the slower-than-expected growth in 1H14. However, the new capacity of 700 racks from Ap Lei Chau data centre will start contribution in 2H14.

The company may also negotiate for more floor space at CTT (expecting additional 2,000-3,000 racks), and has also committed 800 racks capacity in China.

Here's more from DBS Vickers Securities:

Management did not comment on the news in relation to investments in undersea cables. But it has, from time to time, been looking for assets which could bring in synergies with its existing data business.

We expect more updates after the completion of Citic Group’s restructuring soon. Note that the company has a net debt of c.HK$7bn or gearing ratio of 118%.

Further equity fund raising may be needed for a large scale acquisition. We expect mid single-digit earnings growth p.a. in the medium term.

Potential acquisitions of undersea cable assets (from Reliance Communications) and China Express Network (from Citic Group) will be the catalysts.

Management is maintaining its payout ratio at 50%+. At its current valuation, the stock offers a 3.8% yield.