1、Asia Pan-Asia Telecommunications 26 May 2010 Asian Telecoms Sector Six telcos with potential to accelerate capital returnsWilliam Bratton Research Analyst (+852) 2203 6186 Crystal Ye Research Associate (+852) 2203 8267 Focus on accelerated return potential for increased defensiveness The underlyin
2、g defensiveness of telcos is back in focus. Fundamentally we remain cautious on the sector but still expect lower beta / higher yield telcos to relatively out-perform if markets remain under pressure, especially those telcos with the potential to offer accelerated returns in addition to forecasted o
3、rdinary yields over the near-term. Based on current balance sheets and company policies, therefore, we have identified six telcos which we believe likely may offer shareholders accelerated returns over the next 12M: AIS, CHT, DiGi, FET, Maxis and M1. Deutsche Bank AG/Hong Kong All prices are those c
4、urrent at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research
5、 reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX
6、1. MICA(P) 007/05/2010 Industry Update Top picks AIS (ADVA.BK),THB73.25 BuyChina Unicom (0762.HK),HKD9.35 BuyCHT (2412.TW),TWD62.10 BuyLG Telecom (032640.KS),KRW7,340.00 BuyStarhub (STAR.SI),SGD2.13 BuyCompanies featured AIS (ADVA.BK),THB73.25 Buy2009A 2010E 2011EP/E (x) 14.6 11.9 11.5EV/EBITDA (x)
7、5.6 5.1 5.2Price/book (x) 3.6 3.0 3.0CHT (2412.TW),TWD62.10 Buy2009A 2010E 2011EP/E (x) 14.0 13.9 13.9EV/EBITDA (x) 5.8 5.6 5.5Price/book (x) 1.7 1.6 1.6DiGi.Com (DSOM.KL),MYR22.58 Hold2009A 2010E 2011EP/E (x) 16.9 17.2 16.3EV/EBITDA (x) 8.2 8.2 7.8Price/book (x) 11.2 10.5 9.8Far EasTone Telecom (49
8、04.TW),TWD37.90 Buy2009A 2010E 2011EP/E (x) 13.0 13.4 13.5EV/EBITDA (x) 4.6 4.6 4.4Price/book (x) 1.7 1.7 1.7Maxis (MXSC.KL),MYR5.12 Hold2009A 2010E 2011EP/E (x) 19.7 16.1 15.1EV/EBITDA (x) 13.3 9.4 8.9Price/book (x) 4.5 4.4 4.3M1 (MONE.SI),SGD2.03 Hold2009A 2010E 2011EP/E (x) 9.8 12.2 12.7EV/EBITDA
9、 (x) 5.6 6.5 6.6Price/book (x) 6.6 6.5 6.1Related recent research DateAsian Telecoms: Key take-aways from our DB Access Asia expert speakers William Bratton 18 May 2010Asian Telecoms: Where we are different from Consensus, and why William Bratton 27 Apr 2010Asian Telecoms: Competition trends: u/w In
10、dia, neutral on Indo and o/w China William Bratton 14 Apr 2010Asian Telecoms: Yield telcos back in focus William Bratton 25 Jan 2010Company Global Markets Research Accelerated return potential could be a near-term positive We remain fundamentally cautious on the Asian telecom sector but one topic wh
11、ich has recently gained greater client interest (especially in the current market conditions) is the potential for telcos to offer accelerated shareholder returns (either through special divs, capital returns or share buy-backs). Given the relatively high gross cash balance of DBs Asian telco univer
12、se (aggregate US$64bn gross cash although China Mobile accounts for more than half of this cash balance) and relatively low leverage (16 telcos having a net debt/EBITDA ratio of less than 1x at their last results), there appears to be some scope for more active capital management and accelerated ret
13、urns to shareholders. Although M Chunghwa has an ongoing policy to return capital with a further NT$2/share return already announced; similarly, FET may announce small capital returns once the China Mobile situation is finalized to take total annual payout up to NT$3.50/share; in addition, DiGi, Max
14、is and M1 have all indicated a willingness to increase balance sheet leverage and we believe all three may start to do so during 2010e. Elsewhere, we believe the potential for accelerated shareholder returns over the next 12M is either low or non-existent. All these telcos should be defensive but CH
15、T generally preferred For investors currently seeking defensiveness, the above six telcos are clearly interesting. We also note that two of them (AIS and Chunghwa) are already currently in our five regionally preferred telcos list and we note that Chunghwas trading liquidity is significantly higher
16、than for the other five telcos cited above. For this reason, Chunghwa remains our preferred defensive high yield telco (it has been unsurprisingly one of the best performing Asian telcos in absolute price terms over the last three months). Our standard valuation methodology is DCF analysis and key r
17、isks include competition, regulation and technology (see p5). 26 May 2010 Telecommunications Asian Telecoms Sector Page 2 Deutsche Bank AG/Hong Kong Six telcos with near-term accelerated return potential As investors consider the relative defensiveness of Asian telcos in the current market environme
18、nt, a topic which appears to be increasingly discussed is the extent to which telcos could offer accelerated shareholder returns above expected ordinary dividend payouts over the next 12 months the underlying principle being that telcos which could accelerate shareholder returns through more active
19、capital structure management (e.g. through special dividends, capital returns or share buy-backs) may receive greater investor support through any sustained down-turn and therefore out-perform. As detailed below, there are a relatively large number of telcos which appear to have the potential to acc
20、elerate returns based on an initial assessment of balance sheets. But simply because a balance sheet may look relatively inefficient is, in itself, often not sufficient to be confident in potential accelerated returns especially as we believe many management teams often prefer to retain balance shee
21、t flexibility than limit future growth options. After all, to return excess capital to shareholders can be seen as an indication that the company has no more growth opportunities and that shareholders can utilize the capital better in alternative investments. In our view, therefore, a telco is more
22、likely to offer accelerated returns if it has a strategic or substantial shareholder which is either highly supportive of or is actively encouraging a telco to adopt such a policy (for example, a shareholder which needs the capital for alternative investment reasons). For this reason, for example, w
23、e do not expect China Mobile to return a significant portion of its substantial cash balance to shareholders over the next 12 months (given the companys potential interest in M Chunghwa (2412 TT, Buy, NT$61.2); DiGi.Com (DIGI MK, Hold, RM22.58); Far Eastone (4904 TT, Buy, NT$37.75); Maxis (MAXIS MK,
24、 Hold, RM5.12); and M1 (M1 SP, Hold, S$2.03). More discussion and details are provided subsequently (including comps), but in summary, we would not be particularly surprised if the potential for improved shareholder returns from these telcos resulted in their relative out-performance versus other te
25、lcos if markets remain under sustained downward pressure. Assessing accelerated return potential across the sector In terms of current balance sheets, the 30 Asian (ex-Japan but including Australia and New Zealand) telcos under DB coverage have a cumulative US$64bn in cash with around US$97bn gross
26、short and long-term debt giving an aggregate US$33bn net debt sector balance. However, the sector total is clearly substantially skewed by China Mobiles large (and ever increasing) net cash balance (China Mobiles end-2009 US$39bn cash position is more than that of all the other telcos combined) but
27、even if this is excluded, 15 telcos have a net debt balance below 1x last 12 month EBITDA (although this includes Bharti and its balance sheet will be very different once the 3G auction fees and Zain acquisition are included). 26 May 2010 Telecommunications Asian Telecoms Sector Deutsche Bank AG/Hon
28、g Kong Page 3 Figure 1: Current balance sheet structures of Asian telcos Operator Gross cash (US$m) Net debt / (cash) (US$m) Net debt/last 12M EBITDA (x) Net gearing Net interest coverage (x) China Mobile (4Q09) 38,736 (33,718) (1.0) n/m 184 Chunghwa 2,740 (2,621) (0.9) n/m 4,367 Far Eastone 496 (46
29、8) (0.6) n/m 984 Bharti 1,642 (266) (0.1) n/m 13 AIS 1,129 (6) (0.0) 0% 26 DTAC 430 132 0.2 7% 17 DiGi.Com 206 132 0.2 32% 53 Taiwan Mobile 98 188 0.2 11% 55 Telkom 768 1,426 0.4 39% 18 PLDT 1,109 923 0.5 51% 13 M1 10 167 0.8 78% 49 SK Telecom 951 2,764 0.8 31% 14 China Telecom (4Q09) 5,097 10,412 0
30、.9 32% 17 Maxis (4Q09) 359 1,167 0.9 43% 59 Starhub 225 390 0.9 322% 26 Telekom Malaysia (4Q09) 1,140 882 0.9 41% 9 SingTel 1,148 3,743 1.1 22% 15 LG Telecom 314 1,778 1.1 55% 15 China Unicom (4Q09) 1,291 9,614 1.1 32% 36 TCNZ 238 1,332 1.1 75% 9 Globe Telecom 85 946 1.2 97% 17 Telstra (2H09) 1,288
31、12,343 1.4 117% 11 KT Corp 868 5,638 1.4 67% 10 XL Axiata 149 1,266 1.6 125% 7 Idea Cellular 302 1,371 1.9 32% 9 Axiata (4Q09) 604 3,108 2.0 55% 6 Indosat 333 2,360 2.5 120% 5 RCom 1,034 4,234 2.5 50% 7 Bakrie (4Q09) 138 351 2.6 65% 6 PCCW (2H09) 1,160 3,315 3.4 (1,277%) 5 Total 64,088 32,904 0.3 13
32、% 20 Total (exc China Mobile) 25,352 66,622 0.9 38% 14 Note: All figures and ratios based on 1Q10 unless otherwise stated. Amounts converted from local currency to US$ using current exchange rates. The numbers for China Mobile do not incorporate the recently announced 20% stake acquisition in Shangh
33、ai Pudong Development Bank, while the amounts for the Indian telcos do not incorporate the recent 3G auction bids and Bhartis does not reflect the proposed acquisition of Zains African assets. Source: Company data, Deutsche Bank Given the above, the below table summarizes our views on the potential
34、for telcos across Asia, Australia and New Zealand to offer accelerated shareholder returns through more active capital management programmes. In particular, and given current circumstances and operator strategies, there are three markets which we view as most interesting in terms of potential shareh
35、older accelerated returns Malaysia, Taiwan and Thailand. Figure 2: And where we do not see significant scope for accelerated returns Market Potential for accelerated shareholder returns Australia Despite having one of the more leveraged balance sheets in the sector, we believe Telstra has the potent
36、ial for a share buyback but not until the current National Broadband Network uncertainty is resolved. Longer-term, however, we estimate Telstra could potentially buy-back up to 3% of its share capital per annum (i.e. approx A$1bn p.a. given the companys estimated A$6bn cash-flow). China China Mobile
37、: Substantial (and growing) net cash balance which is now approx 15% of its market cap and in part responsible for a forecasted long-term decline in the companys Return on Equity. But we are not expecting China Mobile to return any substantial portion of this cash position to shareholders over the n
38、ear-term and also note that the companys guidance for 2010e dividend payout to be maintained at 43% profits does not suggest an intention to improve shareholder returns over the next 12 months. In part we believe the company may retain its cash balance to allow it to pursue any M Chunghwa; DiGi.Com;
39、 Far Eastone; Maxis; and M1. The below table summarizes our specific views on these six telcos. 26 May 2010 Telecommunications Asian Telecoms Sector Deutsche Bank AG/Hong Kong Page 5 Figure 3: Six telcos with most potential to accelerate returns Operator Notes Potential additional return over ordina
40、ry payouts % current market capAIS (ADVANC TB, Buy, Bt73.25) Delayed 3G process results in lower near-term capex and higher cash flow generation. As recently undertaken, the company has indicated that it will try to return excess cash to shareholders one of the reasons we view any delay in 3G licens
41、ing as positively as if 3G licensing does happen. A repeat of the recent Bt5/share special dividend is considered possible if no 3G issuance over during 2010e (which we consider increasingly likely). In fact, the additional payout could be up to Bt7/share in the best case scenario The special divide
42、nd could represent 7-10% of current market cap.Chunghwa (2412 TT, Buy, NT$61.2) Company has an ongoing capital reduction exercise in order to increase balance sheet efficiency and improve Return on Equity. Has already announced its 2010 capital return but ongoing potential to further leverage its ba
43、lance sheet and improve its efficiency. NT$2/share already announced for 2010 (equating to NT$19.4bn return). Needs to be approved by shareholders at the forthcoming Annual General Meeting (scheduled for 18 Jun 2010). Announced capital return equates to 3% of current market cap.DiGi (DIGI MK, Hold,
44、RM22.58) Company provided guidance during the 1Q10 results of improving the net debt/EBITDA ratio up to 0.8x from 0.2x currently (indicating potential for approx RM1.3bn to be returned to shareholders). Up to RM1.75/share in total if balance sheet gearing increased to 0.8x but associated timelines u
45、nclear and we expect this payout to be phased over a number of years. RM1.75/share additional payout equates to approx 8% of current pricealthough likely this will be phased over anumber of years.Far Eastone (4904 TT, Buy, NT$37.75) No share capital changes permitted prior to the closing of the prop
46、osed 12% stake sale to China Mobile. But subsequent to this, FET intends to stabilize annual dividend per share at approx NT$3-3.50 which may require limited further capital reductions. We expect FET to pay approx NT$2.50/share in ordinary dividends over next few years so a NT$3.50/share target payo
47、ut implies either an annual special dividend or capital return of up to NT$1/share Up to NT$1/share additional return every year equates to up to 3% of FETs current market cap. Maxis (MAXIS MK, Hold, RM5.12) Management has previously indicated a willingness to significantly increase balance sheet le
48、verage and return proceeds to shareholders (Maxis Communication Maxis largest shareholder has funding requirements in India). We believe there is a potential for an increase in balance sheet leverage from 0.9x net debt/EBITDA currently to 1.8x . Up to RM0.53/share through higher leverage but associa
49、ted timelines remain unclear at this stage. Up to nearly 10% of current market cap, but we assume this process will be phased over a number of years. M1 (M1 SP, Hold, S$2.03) Company has indicated a willingness to increase balance sheet leverage and return equity back to shareholders. We believe the company may be targeting a 1.5x net debt/EBITDA ratio (versus 0.8x currently) but the companys entry into Singapores fixed market may delay the timeline to achieve this target. Up to S$0.26/share if 1.5x net debt/EBITDA ratio
