Emerging Asia nations may lead telecoms growth in 2002
Tony Munroe, Reuters, Hong Kong
As mature-market telcos in Asia look to data and cost cuts to offset moribund revenues, the most attractive growth prospects for sector investors in 2002 may lurk in the region's developing wireless markets.
Where a year ago China seemed a compelling play for investors looking to cash in on the craze for basic cellular voice service, more exciting growth potential might be found during the year ahead in Indonesia, the Philippines, and vastly underpenetrated India, industry watchers said.
Still, expectations for the sector are mostly guarded.
"We still like things like Korea Telecom. We still think things like China Mobile (Hong Kong) will be pretty mediocre performers, mainly based on valuation," said Geoffrey Wong, head of Asia-Pacific investments at UBS Asset Management, which has a neutral telecoms weighting in its US$2.5 billion regional portfolio.
Korea Telecom trades at a price/earnings ratio of 15.76 times, while China Mobile trades at 24.14 times.
India, with just over five million mobile customers in a nation of more than one billion, is set to see its telecoms market grow at 24 percent annually over the next three years by one forecast, although there are comparatively few listed firms.
Bharti Tele-Ventures, backed by Singapore Telecommunications, is expected to launch an initial public offering worth up to $385 million in early 2002, which would make it the country's biggest- ever IPO.
Other policy shifts of the past two years in India may stimulate competition in both the mobile and fixed arenas.
Indonesia, with a telephone penetration rate of 3.7 percent in a country of 210 million, also presents opportunity and risk.
Surging cellular business helped state giant PT Telekomunikasi Indonesia (Telkom) post sharply higher nine-month profits in November.
The cash-strapped Indonesian government also had reason to be encouraged earlier this month when overseas investors snapped up much of the 11.9 percent Telkom stake it sold in an exercise that raised US$300 million.
"Indosat and Telkom Indonesia are still fairly cheap," although both carry sovereign risk, said UBS's Wong.
Sentiment has turned against both China Mobile and China Unicom Ltd. despite their duopoly status in a cellular market that is adding more than five million users every month.
China's carriers, especially China Mobile, also enjoy fat margins that can only narrow, watchers worry.
"For early 2002, I expect the Korean telco stocks to continue to perform better than their Chinese counterparts," said Morgan Stanley analyst Mark Shuper.
"Korean profitability is generally stabilizing. China, in contrast, is more likely to see margin pressure as Unicom launches its CDMA service. Any weakness in industry profitability (in China) may come sooner than most people think," he said.