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.