Re: Telecoms Sector
Posted: Mon Jul 27, 2009 8:14 am
BUY OR SELL-Chinese telcos-Time to take the call?
* Bulls like valuations, defensive appeal
* Bears see competition, slow demand weighing
By Parvathy Ullatil
HONG KONG, July 24 (Reuters) - Locked in what is developing into an intense battle for market share following an industry overhaul, some Chinese telecom companies have become pariahs among investors this year.
Shares in China Mobile (0941.HK) are down nearly 2 percent so far this year as monthly subscriber data reveals dents in its historically unchallenged market position, even as the broader market has rallied 38 percent. Nimbler rivals China Unicom (0762.HK) and China Telecom (0728.HK) have fared better, rising 20 percent and 42 percent, respectively.
But with market watchers forecasting a lull in the broader market in the third quarter, will Chinese telecom stocks find favour on the their appeal as defensive stocks?
VALUATIONS ATTRACTIVE
"While competitive threats for China Mobile are rising, the company will see the best earnings trend in the next 1-2 years. China Mobile also remains the most attractive on valuation," said Yvonne Chow analyst with Morgan Stanley.
Chow has an "overweight" rating on the index heavyweight with a target price of HK$90.5, compared with its current trading price of HK$77.10.
The stock leads the pack among its peers with 14 buy ratings and just one sell call from brokerages. It currently trades at less than 12 times its estimated earnings in 2009 compared with 17.6 times commanded by the Hang Seng Index .HSI constituents.
It is expected to be the top pick for investors given its significant liquidity and laggard status.
The slow adoption of 3G network services is also seen as a positive for China Mobile, whose 3G system is seen as the least popular among its peers, as its will ease some of the pressure on the company's bottom line.
( So what's gonna happen to the billions spent on 3G by China Mobile ? )
"It is still a growth sector and most of the uncertainty seems to be out of the way now. We don't really expect any surprises," said Bratin Sanyal, head of Asian equity at ING Investment Management Asia-Pacific
ABSOLUTELY NO CATALYSTS
"China Mobile is cheap but there are absolutely no catalysts for this stock, the news you are going to hear over the next 1-2 years is slowing growth, losing market share, more price competition, tariffs coming down and higher capital expenditure," said Elinor Leung, telecom analyst with CLSA.
( It's been along time that I've seen something sensible from an Analyst )
Leung has an "underperform" rating on China Mobile and Unicom while she rates China Telecom an "outperform".
China Mobile, which has been saddled with the untested, homegrown TD-SCDMA standard for its 3G network which limits its access to new handsets, reported lower subscriber growth numbers for a fourth straight month in June.
Earnings visibility at Chinese telecoms companies remains low, say analysts, as they are still in the process of fully rolling out their 3G services and acquiring handsets.
"On a global scale, there are simply better stories on offer at similar valuation multiples, such as leading telcos in Indonesia and Africa," said James Gautrey, global equity analyst, teleco sector at Schroders.
Telecom companies in Indonesia, touted as another major domestic consumption story in Asia this year, are trading at 11.8 times their estimated earnings with top firm Telekomunikasi Indonesia Tbk PT (TLKM.JK) valued at 14.3 times.
India's Reliance Communications (RLCM.BO) is trading at 11.8 times while South Africa's MTN (MTNJ.J) is value at 12.2 times.
* Bulls like valuations, defensive appeal
* Bears see competition, slow demand weighing
By Parvathy Ullatil
HONG KONG, July 24 (Reuters) - Locked in what is developing into an intense battle for market share following an industry overhaul, some Chinese telecom companies have become pariahs among investors this year.
Shares in China Mobile (0941.HK) are down nearly 2 percent so far this year as monthly subscriber data reveals dents in its historically unchallenged market position, even as the broader market has rallied 38 percent. Nimbler rivals China Unicom (0762.HK) and China Telecom (0728.HK) have fared better, rising 20 percent and 42 percent, respectively.
But with market watchers forecasting a lull in the broader market in the third quarter, will Chinese telecom stocks find favour on the their appeal as defensive stocks?
VALUATIONS ATTRACTIVE
"While competitive threats for China Mobile are rising, the company will see the best earnings trend in the next 1-2 years. China Mobile also remains the most attractive on valuation," said Yvonne Chow analyst with Morgan Stanley.
Chow has an "overweight" rating on the index heavyweight with a target price of HK$90.5, compared with its current trading price of HK$77.10.
The stock leads the pack among its peers with 14 buy ratings and just one sell call from brokerages. It currently trades at less than 12 times its estimated earnings in 2009 compared with 17.6 times commanded by the Hang Seng Index .HSI constituents.
It is expected to be the top pick for investors given its significant liquidity and laggard status.
The slow adoption of 3G network services is also seen as a positive for China Mobile, whose 3G system is seen as the least popular among its peers, as its will ease some of the pressure on the company's bottom line.
( So what's gonna happen to the billions spent on 3G by China Mobile ? )
"It is still a growth sector and most of the uncertainty seems to be out of the way now. We don't really expect any surprises," said Bratin Sanyal, head of Asian equity at ING Investment Management Asia-Pacific
ABSOLUTELY NO CATALYSTS
"China Mobile is cheap but there are absolutely no catalysts for this stock, the news you are going to hear over the next 1-2 years is slowing growth, losing market share, more price competition, tariffs coming down and higher capital expenditure," said Elinor Leung, telecom analyst with CLSA.
( It's been along time that I've seen something sensible from an Analyst )
Leung has an "underperform" rating on China Mobile and Unicom while she rates China Telecom an "outperform".
China Mobile, which has been saddled with the untested, homegrown TD-SCDMA standard for its 3G network which limits its access to new handsets, reported lower subscriber growth numbers for a fourth straight month in June.
Earnings visibility at Chinese telecoms companies remains low, say analysts, as they are still in the process of fully rolling out their 3G services and acquiring handsets.
"On a global scale, there are simply better stories on offer at similar valuation multiples, such as leading telcos in Indonesia and Africa," said James Gautrey, global equity analyst, teleco sector at Schroders.
Telecom companies in Indonesia, touted as another major domestic consumption story in Asia this year, are trading at 11.8 times their estimated earnings with top firm Telekomunikasi Indonesia Tbk PT (TLKM.JK) valued at 14.3 times.
India's Reliance Communications (RLCM.BO) is trading at 11.8 times while South Africa's MTN (MTNJ.J) is value at 12.2 times.