Telecommunications (Neutral)
3Q11 Results Roundup
§ YoY industry revenues are growing at slightly above mid-single digit with EBITDAs growing at mid-single digits for 3Q11. Moving forward, the industry is expecting mid-single digit growth with a slight improvement in EBITDA margins from previous guidance.
§ Fixed-line telcos on aggregate have seen improving yoy revenue growth at mid-single digit, while yoy EBITDA has been outpacing revenue growth with sustainable double-digit growth.
§ We downgrade the sector to neutral based on the following justifications:
1. Recent price rally has pushed the stock prices close to our fair values;
2. Intensified competition due to market saturation;
3. Coupled with smartphone subsidy, margins for data products is much lower compared to voice;
4. Price war will diminish the lucrative return in this overcrowded market (WiMAX and new entrant);
5. In the next 3 years, there will be heavy CAPEX investment in 4G while this has yet to be proven profitable; and
6. Over-the-top players will supersede telcos as the content providers and eventually "own" the subscribers.
§ However, we do not deny that telcos enjoys stable recurring revenues strongly supported by resilient domestic demand and are largely seen to be recession-proof. Thus, the high dividend yield characteristic will continue to lure investors especially in this highly volatile market.
October Exports Remain Strong
§ October export growth remained robust at 15.8% yoy (Sep: +16.6% yoy), surprised the market for the four consecutive time (consensus: +7.3% yoy). However, growth in gross imports decelerated sharply to 4.6% yoy (Sep: +12.9% yoy) on contraction in intermediate imports.
§ E&E export growth declined by 9.0% yoy (Sep: +2.6% yoy), confirming that September pick-up was a temporary spike rather than a change in trend.
§ The boost to exports emanated from crude petroleum (+87.0% yoy); shipments of LNG (+82.0% yoy); palm oil (+54.3% yoy) and chemical products (+24.3% yoy).
§ Exports to China surged by 37.1% yoy in October (Sep: +34.6% yoy). Despite the Euro austerity measure, exports to the Euro area expanded by 5% yoy.
§ We maintain our full year 2011 and 2012 GDP forecast at 5.1% and 4.5% respectively.
§ We expect BNM to hold the OPR steady at 3.00% until end-2012 given the resilient economic growth with sticky inflation.
Still uncertainties
§ Unless fresh buying emerges on last Friday's positive Dow and European markets closing and in anticipation of a traditional year-end window dressing activities, downside consolidation remains amid worsening technical readings and the breakdown of the moving average supports at 10-d (1471), 20-d (1464), 30-d and 100-d (1468). Weekly supports are 1430-1447 whilst resistance levels are 1471-1500.
MUDAJYA: Base building for an impending breakout
§ Mudajya is likely to consolidate for a short while with strong supports near RM2.15 (lower Bollinger band), RM2.05 (38.2% FR) and RM2.00. After a brief consolidation, the next upswing is expected to push prices towards its daily upper Bollinger band (RM2.29).
§ A breakout above RM2.29 will drive prices higher towards stronger resistance zones at RM2.46 (28 Oct high) and RM2.63 (123.6% FR). Cut loss below RM2.00.
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