Asia telecoms talk:Another good month for Asian telcos

Asian telcos - 270bps outperformance in April

    April was a strong month for Asian telcos, outperforming the MSCI by 270bps. Ex-Japan, telcos outperformed marginally by 32bps. The largest outperformers were in India, Japan and Taiwan, while most of the ASEAN telcos underperformed. In absolute terms, 20 of the 37 stocks we cover were up in April. Results are very much in focus still, and so far they have not been bad: in fact, margins have been resilient and the Indians and Telstra have announced capital management too. However, there are still a lot more results ahead. YTD, telcos continue to outperform: Asia combined is 830bps, and ex-Japan it is 280bps, making it the third-best-performing sector.

    A bit quiet in April

    RCOM, Indosat and Softbank were the top three performers last month, up 9-12% each. DTAC, AIS and PLDT were the worst performers. Auction concerns and uncertainty have picked up again in Thailand (next round expected on 27 May). Korean auctions, however, were more muted (KRW 2.1tn vs KRW3tn expected by the market). Indians were topical again on R-Jio delays; Bharti and IDEA were up 4-8%, and results have been good too. In Singapore, the fourth entrant issue remains an overhang impacting both on M1 (subdued result too) and on StarHub. Telkom was up 7%, Singtel and Telstra 1% each. China Mobile continues to be strong vs peers, up 3% in April.

    Stocks for action - Telkom, Telstra, Thai & Taiwanese, NTT Docomo

    Another strong result from Telkom, and ahead of peers should see further rerating. Telstra’s AUD1.5bn capital management should see the stock outperform too, we think. Thai telcos could be weak going into the auctions, while the Taiwanese could benefit from recent price increases for unlimited entry level plans. NTT Docomo could see upside on mobile data traffic increase, lifestyle business profit contribution and aggressive cash returns.

    Marketing feedback

    It is very much about the results again, but our recent meetings with investors have been focused more on events such as the likelihood of a fourth entrant in Singapore, Thai auctions, India with R-Jio, what Telstra and Telkom could do next, etc. There have been questions like: is HKBN becoming too aggressive and transformational, and what is next for Axiata, especially considering domestic weakness. The other topic being discussed is the telco IPO pipeline for Asia: we think there could 4-5 IPOs in the next few years.

    Consensus earnings estimates

    Negative revisions for DTAC and IDEA, positive for NTT Docomo and Indosat.