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雷达卡
Brazil Wireless Services
We Still Prefer VIV Over TSU
We are changing our estimates on VIV and TSU to
incorporate our economists’ more positive assumptions
for Brazil and the companies’ recent results. We are
raising our price targets on both stocks, moving to
year-end 2010 from year-end 2009. Our target for VIV
(Overweight) goes to US$32 per ADR from US$24; our
target for TSU (Underweight), to US$24 per ADR from
US$14. Our TSU target rises by a greater percentage
due to the recent decline in the price of voting shares.
Under our valuation approach, a reduction in the relative
value of the voting shares causes the relative value of
the non-voting (ADR, PN) to rise.
Wireless companies a play on a recovery in
consumption in Brazil. Recent currency appreciation
helps the industry’s profitability, as handset and network
equipment costs are denominated in USD. Despite the
positive view on the industry, we recommend stock
picking as performance may vary significantly going
forward, as it has in the past 12 months.
We continue to prefer VIV (Overweight) over TSU
(Underweight). We expect VIV to maintain its EBITDA
margins around 30% in 2009, well above TSU’s at 23%.
We believe it may take some time for TSU’s margins to
converge with VIV’s, if they do so at all. It is difficult to
see from 2Q09 whether the quality of TSU’s client base
is improving. A turnaround in TSU’s operating
performance would require significant time and effort.
Where we differ: In our view, competition in wireless
remains focus on price per minute reduction, not on
handset subsidies. We think the market underestimates
the price/volume elasticity of wireless and the effect of
the migration of traffic from wireline to wireless. VIV and
AMX’s EBITDA margins were not negatively affected in
2Q09 by TNE and TSU’s aggressive pricing promotions.
What’s next: The next quarterly results will indicate
whether TSU is making progress in growing revenues
and EBITDA. We believe revenues and EBITDA growth
will be the leading indicators for companies’
performance.
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