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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asian Telecoms
Subsidies stealing data’s thunder
Growth in data not always leading to higher profits
Subsidies have led to EBITDA declines – We observe that higher data
revenues through smartphone adoption have led to EBITDA declines in
markets where subsidies are used. On the other hand, in markets like
Thailand and Malaysia where subsidies are not used, higher data revenues
have translated into higher profits.
Accounting treatments impact EBITDA significantly – Subsidies can be
expensed fully up-front or capitalised over the life of the contract. Handset
sales revenue can also be inflated to include a portion of contracted future
service revenues. While there is no one “correct” way to account for
subsidies, we do think it is important to recognise these differences and have
shown how they can impact the profitability of M1 and SmarTone in this
report.
Strong balance sheets provide a competitive advantage
Rising cost of capital poses a risk to some – Exposure to rising cost of
capital is the highest among the Indian telecom companies even before
considering the contingent liabilities associated with 2G spectrum fees. China
Unicom also shows up as one of the more leveraged companies in the
telecom universe when you include its relatively high accounts payable.
Strong cashflow and balance sheets could again benefit others – To
capture the market for data, we believe operators will need to invest. Those
with the largest scale, strongest balance sheets and highest cashflows should
be in the best position to grow their businesses.
China Mobile & PLDT making strategic investments, in our view – Both
China Mobile and PLDT announced increases to their capex budgets over the
next two years to invest more aggressively in data. While the markets took
this news negatively, at first, we see these decisions as increasing the upside
risk to future revenue growth.
How to play long-term outlook for data growth
Accumulate undervalued market leaders in developing markets – We
conclude that the best way to invest in long-term upside potential from data
growth is to favour market leaders in developing markets. Taking into
consideration valuation and other issues as well, we would highlight China
Mobile and PLDT as two of the best options. We add China Mobile to our
regional top picks in place of KDDI.
How not to play it
Unicom pricing in years and years of 3G sub growth – China Unicom, on
the other hand, has been a market favourite for its 3G subscriber growth.
However, we believe that the stock has now more than priced in the upside
associated with 3G subscriber growth with long-term share price risk now
more skewed to the downside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asian Telecoms
Subsidies stealing data’s thunder
Growth in data not always leading to higher profits
Subsidies have led to EBITDA declines – We observe that higher data
revenues through smartphone adoption have led to EBITDA declines in
markets where subsidies are used. On the other hand, in markets like
Thailand and Malaysia where subsidies are not used, higher data revenues
have translated into higher profits.
Accounting treatments impact EBITDA significantly – Subsidies can be
expensed fully up-front or capitalised over the life of the contract. Handset
sales revenue can also be inflated to include a portion of contracted future
service revenues. While there is no one “correct” way to account for
subsidies, we do think it is important to recognise these differences and have
shown how they can impact the profitability of M1 and SmarTone in this
report.
Strong balance sheets provide a competitive advantage
Rising cost of capital poses a risk to some – Exposure to rising cost of
capital is the highest among the Indian telecom companies even before
considering the contingent liabilities associated with 2G spectrum fees. China
Unicom also shows up as one of the more leveraged companies in the
telecom universe when you include its relatively high accounts payable.
Strong cashflow and balance sheets could again benefit others – To
capture the market for data, we believe operators will need to invest. Those
with the largest scale, strongest balance sheets and highest cashflows should
be in the best position to grow their businesses.
China Mobile & PLDT making strategic investments, in our view – Both
China Mobile and PLDT announced increases to their capex budgets over the
next two years to invest more aggressively in data. While the markets took
this news negatively, at first, we see these decisions as increasing the upside
risk to future revenue growth.
How to play long-term outlook for data growth
Accumulate undervalued market leaders in developing markets – We
conclude that the best way to invest in long-term upside potential from data
growth is to favour market leaders in developing markets. Taking into
consideration valuation and other issues as well, we would highlight China
Mobile and PLDT as two of the best options. We add China Mobile to our
regional top picks in place of KDDI.
How not to play it
Unicom pricing in years and years of 3G sub growth – China Unicom, on
the other hand, has been a market favourite for its 3G subscriber growth.
However, we believe that the stock has now more than priced in the upside
associated with 3G subscriber growth with long-term share price risk now
more skewed to the downside.
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