发帖
雷达卡
September 1, 2008
China
Telecommunications
Industry Risks Underestimated;
Unicom/Netcom
Look the Best of the Lot
Investment conclusion: We assume coverage on
Chinese Telecoms with a Cautious view. We believe
regulatory / technology risks for the sector are rising as a
whole and despite recent correction in share prices, we
see further downside risk in the coming few quarters.
Prefer CU / CN: Our preferred stock in the sector is
Unicom / Netcom as we believe the company is best
positioned for long-term market share improvement
given its access to the technology with best scale and
likely support from asymmetrical regulation. In the
near-term though, we expect earnings performance to
remain lackluster as management focuses on
restructuring execution and network enhancement.
Neutral on CM / CT: CM will continue to be dominant
post restructuring, but we see rising risks for the
company due to TD-SCDMA responsibility and (to a
smaller extent) from the likely launch of asymmetric
regulations. CT, on the other hand, remains an
unexciting fixed-line player with up to 12% of EBITDA
from CDMA in the next 10 years. Moreover, fixed-line
business could come under greater pressure as
management focus shifts to its mobile business.
Where we differ: We have taken into account
TD-SCDMA in our valuation, the result of which is 4-9%
lower EBITDA and net profit estimates in 2009-10E and
17-20% in 2011E compared to consensus.
Valuation: We believe CU's high near-term P/E
multiples are the result of the company's investment for
growth. Indeed, CU's PEG and EV/EBITDA are among
the lowest in our China telco universe. CM's P/E is
generally in-line with the Asia telco industry, but we see
downside risk to medium-term earnings. CT is most
expensive in P/E terms from 2009E onwards.
Table of Contents
Investment Case .............................................................................................................................................................. 3
We Assume Coverage of the China Telecom Industry with a Cautious View.......................................................................................3
Within the Industry, We Prefer China Unicom / China Netcom to China Mobile … ..............................................................................3
… But Patience Is Warranted..............................................................................................................................................................4
China Mobile’s Dominance to Continue, But We See TD-SCDMA as a Key Risk...............................................................................4
China Telecom Still a Fixed-line Player, with a V-shaped Profitability Trend in the Next 2-3 years .....................................................5
How We Differ from Consensus ..........................................................................................................................................................5
Valuation .............................................................................................................................................................................................7
CU / CN: Biggest Beneficiary Post Restructuring ............................................................................................................. 8
CM: TD-SCDMA – a Meaningful Medium-Term Threat .................................................................................................. 11
CT: An Unexciting Fixed-Line Player with a Technology Disadvantage......................................................................... 13
Asymmetric Regulation: How Will It Affect the Telcos? ................................................................................................. 15
Sensitivity Analysis: Impact from Asymmetric Regulation .................................................................................................................15
Industry Assumptions at a Glance ................................................................................................................................. 18
China Telcos Industry as a Whole.....................................................................................................................................................18
Mobile Industry..................................................................................................................................................................................19
Fixed-Line Industry............................................................................................................................................................................20
Broadband Industry...........................................................................................................................................................................20
Company Analysis.......................................................................................................................................................... 23
China Unicom: Valuation............................................................................................................................................. 25
Risk-Reward Snapshot: China Unicom (0762.HK, HK$12.34, OW, PT HK$16.5) ......................................................... 27
China Unicom: Key Financials ....................................................................................................................................... 28
China Netcom: Valuation............................................................................................................................................. 33
Risk-Reward Snapshot: China Netcom (0906.HK, HK$20.15, OW, PT HK$24.5)......................................................... 35
China Netcom: Key Financials ....................................................................................................................................... 36
China Mobile: Valuation............................................................................................................................................... 41
Risk-Reward Snapshot: China Mobile (0941.HK, HK$89.6, EW, PT HK$100.0) ........................................................... 45
China Mobile: Company Financials................................................................................................................................ 46
China Telecom: Valuation ........................................................................................................................................... 51
Risk-Reward Snapshot: China Telecom (0728.HK, HK$3.99, EW PT HK$4.0)............................................................. 53
China Telecom: Key Financials...................................................................................................................................... 54
Appendix: Sensitivity Analysis....................................................................................................................................... 58
Investment Case
We Assume Coverage of the China Telecom
Industry with a Cautious View
Overall Industry Revenue and EBITDA Growth to Slow
We assume coverage of the China telecom industry with a
Cautious view, as we see increasing risks to the industry and a
less attractive growth profile going forward than has been the
case in the past 2-3 years.
• We expect the on-going implementation of Calling Party
Pays (CPP) and the adoption of the new roaming fee cap
to reduce mobile service revenue growth to 15% in 2008
and 14% in 2009 versus 17% in 2007 and 19% in 2006.
• Accelerated mobile cannibalization on the traditional fixed
line business will also drive down fixed line revenue growth,
in our view. We estimate industry fixed line revenue
growth to slow to 0.7% in 2008 and 2009 versus 2-3% in
2006-07.
• Intensifying mobile competition post restructuring due to
the greater number of mobile operators, CT’s aggressive
CDMA targets, and the government’s wish to promote
TD-SCDMA, will likely place increasing pressure on
EBITDA margins going forward.
• As a result, we estimate:
o total industry service revenue growth will go through a
dip in 2008, dropping to less than 8% from 12% in
2006-07; it will recover slightly to 9% in 2009, but will
go on a downtrend again from 2010 onwards; and
o total industry service EBITDA growth will be only 9%
in 2008, with a likely 4% decline in 2009 compared to
11% growth in each of 2006; it will continue to slow
from 2009 onwards.
For greater detail on our assumptions, please see Industry
Assumptions at a Glance later in this report.
With industry fundamentals trending down, we believe the
China telecom space has become riskier than other Asia telco
markets such as India and Indonesia. We prefer Bharti (India,
(Rs837.2, OW) and PT Telkom (Indonesia, Rp8,000, OW) for
more visible earnings outlook and StarHub (S$2.70, OW) and
ChungHwa (NT$78.70, OW) as defensive options within the
Asian telco space. We also highlight SK Telecom (W200,500,
OW) as our preferred stock in Korea where competition is
expected to improve from 3Q08 and IC rate changes will likely
be favorable to SKT later this year.
Key Points
We prefer China Unicom (CU) and China
Netcom (CN) to China Mobile (CM) and
China Telecom (CT).
We are Overweight CU and CN, and
Equal-weight CM and CT.
The key difference between us and
consensus is that we have taken
TD-SCDMA into our CM valuation.
Within the Industry, We Prefer China Unicom / China
Netcom to China Mobile …
Our Cautious view on the industry notwithstanding, we
believe investors with long-term horizons should
accumulate positions in China Unicom (and China Netcom
as a proxy), as we believe the company is best positioned to
gain market share in the post restructuring regulatory
environment, for the following reasons:
• By virtue of its GSM/WCDMA platform, CU/CN1 will have a
technological advantage over both China Telecom
(CDMA) and China Mobile (GSM/TD-SCDMA). As we
have seen in other emerging markets, CDMA operators
have struggled to make much impact due to an inferior
handset eco-system and lack of scale;
• CU/CN will be in the best position to benefit from potential
asymmetric regulation that we expect the government to
introduce over the medium term. In particular, since it has
the same 2G technology as China Mobile, it should
achieve immediate and more visible synergies from
measures such as network roaming and mobile number
portability (MNP) as and when these are introduced;
• While CU/CN’s headline 2009E P/E of 15x is higher than
those of CM and CT, its 2009E EV/EBITDA multiple of 4x
is among the lowest. We believe investors should not pay
undue attention to Unicom’s P/E, as the capex cycle for
the company will pick up in the coming 12-24 months,
leading to higher depreciation and hence lower earnings.
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