Solid Asian telecoms safe havens in storm
Solid Asian telecoms safe havens in storm
By Chris Johnson
BANGKOK (Reuters): Well-established Asian telecoms companies
are some of the safest havens and potentially most lucrative
investments during the region's economic storm, industry analysts
said on Thursday.
Sold down heavily as the financial crisis battered markets in
the former "Asian tigers" earlier this year, many of the region's
telecoms companies are now cheap but still have fundamentally
sound businesses and good cash-flow.
Regional telecoms analysts pick a core of half a dozen firms
running telephone systems in Asia that they see as the most
likely beneficiaries when the regional slump bottoms out.
The list includes operators from China, India, Indonesia, the
Philippines and Thailand and mostly concentrates on firms with
low debt, high income and well established, profitable voice and
data networks.
Most of the names appear again and again on brokerage tip-
sheets and are recommended for immediate purchase.
"We would say 'Go for it now'," said Jake Lynch, telecoms
analyst for Southeast Asia at Jardine Fleming in Singapore.
"Maybe these markets don't turn around for six months or
whatever, but when people start pumping money back in, they are
going to be going into the blue chips that they think are not
going to go bankrupt," he said.
"Telecoms as a sector should rebound because a lot of them
were whipped around for reasons that had nothing to do with their
fundamentals and everything to do with their high liquidity and
the fact you could proxy the market off them."
Lynch argues that many Asian telecoms firms, representing as
much as a quarter or even a third of their local stock markets,
were used as "liquidity shoots" for Western fund managers to
evacuate when panic gripped Asian markets this year.
SG's Global Emerging Markets report this week agreed:
"They (telecoms firms) are sold first as investors scramble
for exits and at current prices some have become oversold."
Many funds have now left the region almost entirely and most
remaining investors in Asia are battened down for a long haul.
"The bull case is that the telco sector is the first to
rebound as most telcos have solid balance sheets and strong long-
term fundamentals despite the current financial crunch," the SG
report said.
Economists and analysts disagree on how long the Asian crisis
is likely to take to unwind, with many seeing several years of
negative or low growth before real recovery.
But many feel the bottom of the trough has either almost been
reached or may be seen by the middle of 1999 and say some key
Asian blue chip shares may already be anticipating this.
The key for investors is to pick stocks with solid finances
and cheap valuations, they say.
Almost all telecoms analysts choose India's Mahanagar
Telephone Nigam Ltd, which they say offers high profit growth but
was punished unfairly with the rest of the Indian market in the
wake of the country's nuclear tests in May.
Indonesia's PT Telekomunikasi Indonesia is favored for similar
reasons as it is trading at distressed valuations after the
country's political crisis.
Most analysts like Philippines Long Distance Telephone Co
because they say it offers fast growth and think it is likely to
be bought soon by a large western investor, possibly by Spain's
Telefonica.
Other favored telecoms stocks include China Telecom, SmarTone
and Thailand's Advanced Info Service because they all offer good
cash flows and have low or manageable debt.
Francis Cheung, Asian regional telecoms analyst at Credit
Suisse First Boston in Hong Kong, says many Asian telecoms firms
may perform best before economic recovery is well established.
"People will buy these telcos for defensive purposes and will
do very well through the bottom of the cycle," he said.
"I think we are starting to see some economic stability in
Asia but I still don't think we have seen the bottom yet. These
stocks will do well as long as there is still economic turmoil.
That could last another two years," said Cheung.