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Telco - Notes from CIMB US roadshow

Shared By Stock Fanatic on Friday, August 23, 2013 | 23.8.13

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 target prices.

What Happened
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 Indonesian telcos.

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 high risks. 

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 Indonesia. We also like Thaicom and SK Telecom. (Read Report)

Source : CIMB Research

Posted on Friday, August 23, 2013 | 23.8.13

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