During our roadshow in the US, we found that there was strong
interest in small cap, higher-growth telcos, especially tower companies.
However, interest in the large-cap, high dividend yield stocks has
waned. We remain Neutral on the sector.
Our top picks are M1 and Telkom
Indonesia. We also like SK Telecom
and Thaicom. Our top sells include
Telstra, Idea and XL Axiata. We
recently downgraded both Tower
Bersama and Jasmine to Neutral
ratings as they have reached our
We met 19 investors at our recent
roadshow that covered nine cities in
the United States. There was strong
interest in small cap growth stocks
like Jasmine, Thaicom and Tower
Bersama. Our top picks are M1,
Telkom Indonesia, SK Telecom,
Thaicom and Tower Bersama
(downgraded to Neutral recently).
Investors generally liked our view on
M1, which is the biggest beneficiary of
the rapid adoption of tiered data
plans. It is the only telco to have
repriced its data plans by 5%.
However, there was some pushback
because of its rich valuation.
There was fairly strong interest in
Telkom Indonesia, which we like for
its growth, solid balance sheet and
relatively benign competitive
environment. The likely listing of its
tower company is an additional
re-rating catalyst. However, there was
little interest in the two smaller
Investors were also very receptive to
the small cap Thai telcos Thaicom
and Jasmine for their growth and
high trading liquidity.
Similarly, there was some interest in
the small cap Australia/New Zealand
telcos such as iiNet, TPG and Chorus.
Many investors found Malaysian
telcos expensive and lacking in major
re-rating catalysts. There was little
interest in Indian telcos given the
Investors generally felt
that Korean telcos have re-rated
sharply. The concern over corporate
governance at SKT still persists.
What We Think
Interest remains strong in the telco
space, especially for growth ideas.
Investors are prepared to consider
liquid small cap stocks (less than
US$2bn). Not surprisingly, interest in
dividend yield stocks has waned.
What You Should Do
Stay invested in M1 and Telkom
We also like Thaicom and
SK Telecom. (Read Report)
Source : CIMB Research
Labels: M1, Telco