Asia Telecoms Sector - Four underperforming Asian incumbents worth another look - Credit Suisse

● Of the ‘incumbent’ telecoms operators in Asia ex-Japan, only three have outperformed domestic competitors in share price terms over the last year; Bharti, SK Telecom and PLDT. Within China, Singapore, Indonesia and Thailand we believe that incumbents’ underperformance has created an opportunity.

● China Mobile has lost 3.2 p.p. of market share over the last year but this was not unexpected; we note that EPS has actually been revised up. Relative underperformance, attractive valuations, and the proximity of a hard catalyst (dividend payout) lead us to retain China Mobile as a top-five regional pick, and remove Unicom.

● SingTel has also enjoyed upward earnings revisions, and capital management is also a potential catalyst for this laggard incumbent. We, therefore, express a strong preference for SingTel over StarHub, and we elevate SingTel to a top-five regional pick.

● PT Telkom has returned to attractive valuations, and recent cellular tariff increases should ease earnings downgrades. We therefore add it as our fifth top regional pick, replacing KT.

Rearranging our top picks
We retain China Mobile as a regional top-five OUTPERFORM call, on valuation and dividend payout prospects, but we remove China Unicom after its strong share price outperformance. In Unicom’s place we put SingTel, which is attractive on valuation and a potential dividend payout catalyst. We also remove KT from our top picks and replace it with PT Telkom; we see better hopes of an improving competitive environment in Indonesia than in Korea. Our top-five regional OUTPERFORM calls are therefore now China Mobile, Axiata, SingTel, Indosat and PT Telkom.

Our top UNDERPERFORM calls include TM on valuation, True Corp on valuation and balance sheet weakness, and SmarTone on valuation.