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India Equity Research Reports, IPO and Stock News
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LTE roll-out begins; migration phase to have large share price impact
Network infrastructure is generating greater attention due to the spread of
smartphones, and KDDI has now set rates based on network quality. As carriers
get ready to shift to Long Term Evolution (LTE) technology, the 3.9G mobile
communications standard, we expect network quality to differentiate the carriers
and impact share prices. While we think NTT Docomo is likely to maintain its lead
in terms of infrastructure, we expect to see improvements at Softbank. We do not,
however, expect to see a dramatic increase in capex.
Chance to revisit Japan's telecom shares: Japanese carriers undervalued relative
to global peers and face little pressure to increase capex
Since Japan's telecom carriers have been handling substantial traffic volume for video
transmissions for feature phones, they are not facing serious capacity issues like
overseas carries that are suddenly switching to smartphones. We thus doubt that
capex will increase rapidly. Now that Japanese carriers have revised the flat fee
system and introduced fees commensurate with network quality, we view the traffic
issue as a chance for Japan's relatively undervalued telecom stocks to attract attention.
KDDI, Softbank, and NTT Docomo (in that order) to benefit, but not electrical
machinery makers
In 2011, we expect KDDI, to offer reliable connectivity for the iPhone, whereas in 2012
we think Softbank’s 900MHz coverage will improve. In 2013 and beyond, we expect
Docomo’s consistently stable quality to contribute to growth. By contrast, we are not
bullish on the electrical machinery sector. Although long-term opportunities might exist
for semiconductor manufacturer Renesas Electronics, our rating of the stock for the
coming year is Sell.
Related industries: imported network equipment, measurement equipment,
network construction, electronic components/semiconductors, and apps
In related industries, we recommend timing investments as follows: from 2011,
network equipment imports, and measurement equipment used in LTE product
development; from 2013, network construction as the build-out of LTE networks
accelerate, but also crystals, filters, semiconductors and other electronics components
as the production of handsets compatible with multiple bandwidths and LTE networks
picks up globally; from 2015, the game industry as the commercialization of
applications takes off. See pg 9 for details.
Investment benchmark to shift from net subscriber growth to service sales
Since subscribers are likely to pay fees based on quality, we expect service sales to
become a more important factor for carriers than net subscriber growth. In our view,
carriers are unlikely to be differentiated based on handsets in the future. Instead, over
the long term we believe investors will pay increasing attention to network quality,
which reflects a new, fundamental game changer.
Valuation and risk
Our sector view is Overweight. We value NTT Docomo using its historical dividend
yield and spread versus TOPIX, and the other carriers using both a PEG and 10-year
DCF models. Risk premiums factor the spread versus TOPIX after SoftBank's arrival
created a three-way market. We adjust PEG for market trends, and adjust for
excessively high/low annual profits from new mobile phone sales arrangements. We
also exclude the equity-method value of investments from TPs. Sector downside risks
include less subscribers and greater competition. Upside risks include surprisingly
strong subscriber growth. We use both P/E and P/B to value stocks in the industrial
electronics and semiconductor sector as earnings often fluctuate widely and companyspecific
factors affect the shares. Our sector view is Neutral for industrial electronics.
Upside risks include a much stronger macro environment and major yen depreciation.
Downside risks include sharp yen appreciation and a capex slowdown overseas.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
LTE roll-out begins; migration phase to have large share price impact
Network infrastructure is generating greater attention due to the spread of
smartphones, and KDDI has now set rates based on network quality. As carriers
get ready to shift to Long Term Evolution (LTE) technology, the 3.9G mobile
communications standard, we expect network quality to differentiate the carriers
and impact share prices. While we think NTT Docomo is likely to maintain its lead
in terms of infrastructure, we expect to see improvements at Softbank. We do not,
however, expect to see a dramatic increase in capex.
Chance to revisit Japan's telecom shares: Japanese carriers undervalued relative
to global peers and face little pressure to increase capex
Since Japan's telecom carriers have been handling substantial traffic volume for video
transmissions for feature phones, they are not facing serious capacity issues like
overseas carries that are suddenly switching to smartphones. We thus doubt that
capex will increase rapidly. Now that Japanese carriers have revised the flat fee
system and introduced fees commensurate with network quality, we view the traffic
issue as a chance for Japan's relatively undervalued telecom stocks to attract attention.
KDDI, Softbank, and NTT Docomo (in that order) to benefit, but not electrical
machinery makers
In 2011, we expect KDDI, to offer reliable connectivity for the iPhone, whereas in 2012
we think Softbank’s 900MHz coverage will improve. In 2013 and beyond, we expect
Docomo’s consistently stable quality to contribute to growth. By contrast, we are not
bullish on the electrical machinery sector. Although long-term opportunities might exist
for semiconductor manufacturer Renesas Electronics, our rating of the stock for the
coming year is Sell.
Related industries: imported network equipment, measurement equipment,
network construction, electronic components/semiconductors, and apps
In related industries, we recommend timing investments as follows: from 2011,
network equipment imports, and measurement equipment used in LTE product
development; from 2013, network construction as the build-out of LTE networks
accelerate, but also crystals, filters, semiconductors and other electronics components
as the production of handsets compatible with multiple bandwidths and LTE networks
picks up globally; from 2015, the game industry as the commercialization of
applications takes off. See pg 9 for details.
Investment benchmark to shift from net subscriber growth to service sales
Since subscribers are likely to pay fees based on quality, we expect service sales to
become a more important factor for carriers than net subscriber growth. In our view,
carriers are unlikely to be differentiated based on handsets in the future. Instead, over
the long term we believe investors will pay increasing attention to network quality,
which reflects a new, fundamental game changer.
Valuation and risk
Our sector view is Overweight. We value NTT Docomo using its historical dividend
yield and spread versus TOPIX, and the other carriers using both a PEG and 10-year
DCF models. Risk premiums factor the spread versus TOPIX after SoftBank's arrival
created a three-way market. We adjust PEG for market trends, and adjust for
excessively high/low annual profits from new mobile phone sales arrangements. We
also exclude the equity-method value of investments from TPs. Sector downside risks
include less subscribers and greater competition. Upside risks include surprisingly
strong subscriber growth. We use both P/E and P/B to value stocks in the industrial
electronics and semiconductor sector as earnings often fluctuate widely and companyspecific
factors affect the shares. Our sector view is Neutral for industrial electronics.
Upside risks include a much stronger macro environment and major yen depreciation.
Downside risks include sharp yen appreciation and a capex slowdown overseas.
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