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Reiterate Sell on TCOM/MTNL as outlook remains lackluster
Reiterate Sell ratings on TCOM and MTNL
We revise down our 12-month SOTP-based target price on TCOM 10% to
Rs220 (8% downside potential) and our 12-month DCF-based target price
on MTNL 17% to Rs40 (13% downside potential) as we adjust our models
to factor in their weaker-than-expected 3Q results. Retain Sell ratings.
Near-term resolution of TCOM’s surplus-land issue still less likely
As per CNBC (Mar 21), the India telcos minister has ordered a probe into
the delay in the demerger of TCOM’s surplus land — with findings in the
next 2-3 weeks. Subsequently, TCOM stated on March 24 that reports
about a demerger of surplus-land are speculative and TCOM has not
received any recent communication from the government on this issue.
Acting against a swift resolution to the issue are: 1) TCOM would have to
pay the capital gains taxes and stamp duties, which would likely
discourage TCOM from monetizing these assets, in our view; and 2) The
time needed to get the requisite approvals (already pending for the last 9
years). Note that the land bank makes up 46% of our valuation on TCOM.
TCOM: Lower our estimates to factor in weaker operations
We cut EBITDA estimates 7%-8% over FY11-13E as: 1) 3Q results missed
our estimates 6%; 2) higher-than-expected contribution from low-margin
international business (margins of 4% vs. 24% for domestic business). Our
EPS estimates also fall by a proportionate amount. TCOM is currently
trading at 2.4X FY12E P/B (ROE: -24.6%) and 11.5X FY12E EV/EBITDA,
which are at premium to the Asian telcos' average of 1.9X/5.7X. Risks: 1)
Lower-than-expected tariff decline, 2) Value unlocking due to resolution of
surplus land issue.
MTNL: Downside to EPS due to MNP and higher costs
To factor in the higher than estimated negative impact from MNP we
reduce our FY11-13E revenue estimates by 1-3%. Combined with higher
staff cost, we increase our FY11E/FY12E/FY13E EBITDA loss estimates by
37%/14%/4% to Rs8.5 bn/Rs8.5 bn/Rs7.4 bn —and note these are well
below Bloomberg consensus in FY12/FY13 of -Rs780mn/+Rs262mn. Our
EPS estimates also fall by a proportionate amount. Risks: 1) Faster-thanexpected
uptake in the broadband business; 2) Lower-than-expected
decline in subscriber market share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reiterate Sell on TCOM/MTNL as outlook remains lackluster
Reiterate Sell ratings on TCOM and MTNL
We revise down our 12-month SOTP-based target price on TCOM 10% to
Rs220 (8% downside potential) and our 12-month DCF-based target price
on MTNL 17% to Rs40 (13% downside potential) as we adjust our models
to factor in their weaker-than-expected 3Q results. Retain Sell ratings.
Near-term resolution of TCOM’s surplus-land issue still less likely
As per CNBC (Mar 21), the India telcos minister has ordered a probe into
the delay in the demerger of TCOM’s surplus land — with findings in the
next 2-3 weeks. Subsequently, TCOM stated on March 24 that reports
about a demerger of surplus-land are speculative and TCOM has not
received any recent communication from the government on this issue.
Acting against a swift resolution to the issue are: 1) TCOM would have to
pay the capital gains taxes and stamp duties, which would likely
discourage TCOM from monetizing these assets, in our view; and 2) The
time needed to get the requisite approvals (already pending for the last 9
years). Note that the land bank makes up 46% of our valuation on TCOM.
TCOM: Lower our estimates to factor in weaker operations
We cut EBITDA estimates 7%-8% over FY11-13E as: 1) 3Q results missed
our estimates 6%; 2) higher-than-expected contribution from low-margin
international business (margins of 4% vs. 24% for domestic business). Our
EPS estimates also fall by a proportionate amount. TCOM is currently
trading at 2.4X FY12E P/B (ROE: -24.6%) and 11.5X FY12E EV/EBITDA,
which are at premium to the Asian telcos' average of 1.9X/5.7X. Risks: 1)
Lower-than-expected tariff decline, 2) Value unlocking due to resolution of
surplus land issue.
MTNL: Downside to EPS due to MNP and higher costs
To factor in the higher than estimated negative impact from MNP we
reduce our FY11-13E revenue estimates by 1-3%. Combined with higher
staff cost, we increase our FY11E/FY12E/FY13E EBITDA loss estimates by
37%/14%/4% to Rs8.5 bn/Rs8.5 bn/Rs7.4 bn —and note these are well
below Bloomberg consensus in FY12/FY13 of -Rs780mn/+Rs262mn. Our
EPS estimates also fall by a proportionate amount. Risks: 1) Faster-thanexpected
uptake in the broadband business; 2) Lower-than-expected
decline in subscriber market share.
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