1、MMGlobal Telecom ServicesWhy Its Time to Look at Global TelcosMorgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Researc
2、h.Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures,refer to the Disclosure Section,located at the end of this report.+=Analysts employed by non-U.S.affiliates are not registered wit
3、h FINRA,may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company,public appearances and trading securities held by a research analyst account.Improving revenue fundamentals are not yet reflected in valuation or positioning.
4、We ranked 41 markets and found India,the US,and Central America the most interesting for revenue upturn.Top picks:AT&T,TELUS,VIV,Cellnex,HKT,and TEL2.June 26,2019 08:01 PM GMTMM Contributors MORGAN STANLEY&CO.LLCSimon FlanneryEquity Analyst+1 212 761-6432Simon.FMORGAN STANLEY&CO.LLCCesar A MedinaEqu
5、ity Analyst+1 212 761-4911Cesar.MMORGAN STANLEY&CO.INTERNATIONAL PLC+Emmet B KellyEquity Analyst+44 20 7425-6830Emmet.KMORGAN STANLEY&CO.INTERNATIONAL PLC+Terence TsuiEquity Analyst+44 20 7425-3095Terence.TMORGAN STANLEY ASIA LIMITED+Gary YuEquity Analyst+852 2848-6918Gary.YMORGAN STANLEY ASIA(SINGA
6、PORE)PTE.+Mark Goodridge,CFAEquity Analyst+65 6834-6251Mark.GMORGAN STANLEY AUSTRALIA LIMITED+Andrew McLeodEquity Analyst+61 2 9770-1692Andrew.MMORGAN STANLEY INDIA COMPANY PRIVATE LIMITED+Parag GuptaEquity Analyst+91 22 6118-2230Parag.GMORGAN STANLEY&CO.INTERNATIONAL PLC,SEOUL BRANCH+Seyon ParkEqui
7、ty Analyst+82 2 399-4936Seyon.PMORGAN STANLEY MUFG SECURITIES CO.,LTD.+Tetsuro Tsusaka,CFAEquity Analyst+81 3 6836-8412Tetsuro.TMORGAN STANLEY&CO.LLCMark SavinoEquity Strategist+1 212 761-8576Mark.SMORGAN STANLEY MXICO,CASA DE BOLSA,S.A.DE C.V.+Ernesto GonzalezResearch Associate+52 55 5282-6726Ernes
8、to.GMORGAN STANLEY C.T.V.M.S.A.+Alexandre K NamiokaResearch Associate+55 11 3048-6073Alexandre.NMMGlobal Telecom ServicesWhy Its Time to Look at Global TelcosTime for investors to revisit global telcos.Fundamentals are improving after years of decline,but stocks look under-owned and undervalued(13%d
9、iscount vs.MSCI ACWI,a 10-year low).We expect global telco revenue CAGR in USD to more than double from+1.6%2017-19 to+3.9%2019-21 and drive stock returns.An uncertain global backdrop is supportive of defensive positioning,and telcos remain an attractive bond proxy with a resilient 4.4%dividend yiel
10、d.New proprietary insights support our positive stance.Our case for a doubling of telco revenue CAGRs.Our econometric work shows revenue trends are key drivers of returns and alpha gen-eration.Four pillars support telco revenue acceleration:(1)More rational competition as increased M&A stabilizes ma
11、rket concentra-tion;(2)changing consumer behavior,resulting in users consuming more data more frequently:individuals are now signing up for mul-tiple cellular plans and adopting fixed-wireless products;(3)better commercial execution,boosting revenue growth despite still chal-lenging pricing trends;a
12、nd(4)increased pricing power for carriers as subscriber churn diminishes on longer handset replacement cycles.Introducing the Morgan Stanley Global Mobile Market Scorecard(MSGLOMMS).Our model provides a well-rounded per-spective to global telco investors by combining both industry and macro-level da
13、ta across 41 markets with 5.5bn subscribers.We con-Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research.Investors
14、 should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures,refer to the Disclosure Section,located at the end of this report.+=Analysts employed by non-U.S.affiliates are not registered with FINRA,may
15、 not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company,public appearances and trading securities held by a research analyst account.sider four variables:(1)revenue acceleration,(2)competition,(3)macro trends,and(4)demographi
16、cs.In our ranking,India,the US,and Central America screen as the markets with the most interesting rev-enue fundamentals.Italy,Japan,and Finland appear the most chal-lenged.Where do telcos fit in your portfolio?Global macro and EPS trends are challenging,supporting a defensive stance.Telcos benefit
17、from multi-year lows in both investor positioning and valuation,and an attractive sector dividend yield should be sustained by de-lever-aging and stable capex trends.What to own?Six OW-rated names from our coverage:AT&T(US),Telus(Canada),Telefonica Brasil(Brazil),Cellnex(Spain),HKT(Hong Kong),and Te
18、le2(Sweden).Social impact considerations:Data affordability in emerging mar-kets(EM)has drastically improved,resulting in equilibrium in the rel-ative cost between low-end mobile plans in both EM and developed markets(DM)(+5%p.a.).We anticipate the total European towers market will expand from ca 35
19、0K sites(end of Dec 2018)to ca 435K sites(end of 2025),driven by white spot coverage and 5G densification.Tele2:Stable market,best-in-class EBITDA growthWe are bullish on the outlook for the Swedish mobile market-as evidenced by the market leader Telia recently increasing prices by 9%-16%.Tele2 mana
20、gement is guiding for stable revenues in 2019-we think this is a conservative outlook,given the health of the Swedish and Baltic markets.Tele2 offers best-in-class EBITDA growth of+6%pa,driven by merger synergies with Com Hem and new cost cutting opportunities(notably head count efficiencies iden-ti
21、fied in our recent report Opex opportunities-May 2019).There is also the potential for special dividends with a special dividend yield approaching 7%(on top of the ordinary DY of 4%)following the announced disposals in Kazakhstan,Netherlands,and Croatia.MMORGAN STANLEY RESEARCH23MExhibit 52:Europe-M
22、SGLOMMS rankingSource:Morgan Stanley ResearchAsia-Divergence in competitionWe recommend being selective in Asian telecom,given divergence in competition.Competition is improving in China,Hong Kong,Thailand,and Indonesia,but remains intense in Taiwan and Malaysia with new entrants in Singapore,the Ph
23、ilippines,Australia,and Japan.We prefer towercos to telcos in China(CTC is our preferred 5G play)and India(Infratel has limited downside risk with attrac-tive valuation):China Tower(CTC)is our preferred 5G play in China.We believe CTC will benefit from the 5G capex cycle after 5G license was granted
24、 to three telcos in June.The current price of HK$2.02 implies 7.8x 2020E EV/EBITDA,a slight discount to 7-9x for Asian towercos and a significant discount to 13-25x for global(US and EU)towercos.Our scenario analysis shows 8%downside risk to CTCs 2020E EBITDA assuming no growth in tower revenue.On B
25、harti Infratel,the tenancy growth could be elusive in the near term but we believe bulk of the tenancy deletions are now in the numbers/estimates and hence priced in to a large extent.Airtel is incrementally adding broadband towers through new tenancy addi-tions as compared to loading,given that 95%
26、of its towers are broad-band towers.Tenancy additions from Vodafone Idea and Jio assume little growth in our base case and hence pose little downside risk.The stock is trading at 7.9x 12-month forward EV/EBITDA which is below its historical average of 9.3x and provides valuation support despite tepi
27、d revenue and EBITDA growth over the next two years.HK is our most preferred defensive yield option,particularly fixed line plays HKT and HKBN:We expect stable competitive envi-ronment for Hong Kong mobile(a round of price hike in Sept 2018),residential broadband(HKBN continues to execute price hike
28、),and enterprise market(number of players reduced to 4 to 3 after HKBN and WTT merger).HKT is well positioned to benefit from the mild competitive as the market leader in all three market.We are con-structive on HKBNs merger with WTT and see ample room for syner-gies in both revenue and cost control
29、.We also think it is positive that HKBN restarted its incentive program with aggressive AFF target of 20%annual growth till 2021.We think both HKT and HKBN offer attractive combination of high yield and growth.We like Thailand and Indonesia in ASEAN on improved competi-tion:Thailand is our most pref
30、erred ASEAN telco market for 2019:We expect:(1)ARPU pressure to ease as AIS takes the lead in removing lower-priced unlimited data plans,(2)ongoing structural shift from prepaid to postpaid,and(3)adoption of TFRS 15 brings lower handset subsidies,particularly from TRUE.We think capex peaked in 2016
31、and expect capital returns to rise,largely driven by AIS.Prefer AISTRUE.Competition is also improved in Indonesia:Competition here has been high in 2018 owing to the prepaid SIM registration event,but we expect it to moderate,and we have seen price hikes coming through from the mobile operators.Furt
32、her upside could come through con-tinuing industry consolidation the market has already moved from 10 players to five.We expect improving data monetization to drive dividend growth,and this is supported by a valuation of 6x 2019e EV/EBITDA vs.the ASEAN telco average of 8x.Prefer TLKM ISAT.M24MWe rec
33、ommend avoiding Australia,Singapore,and Philippines due to rising competitive(new entrants)risk:We expect competi-tion to remain high in Australia until there is a final decision on the TPM and Vodafone merger(a federal court decision is expected in 9-12 months).We think competition may intensify if
34、 the merger is approved,given MergeCo will have a bigger balance sheet and a stronger network to disrupt the incumbents.Philippines and Singapore:The entrance of a new telco player is expected to intensify competition.Mislatel,backed by China Telecom,won the bidding to be the third Philippine telco,
35、and has announced aggressive targets:population coverage of 37%in Year One and 84%by Year Five.Globe and PLDT expect competition to remain rational ahead of the third players launch,but we see risk of intense competition as the incumbents try to preempt the launch,similar to the experience in Singap
36、ore.PLDT and StarHub are least preferred.Top PickHKT We believe HKT is well positioned to benefit from milder com-petition in mobile,residential broadband and enterprise market,where HKT is market leader in all three markets.HK telcos are our most preferred defensive yield option and HKTs 6%dividend
37、 yield and 4%sustainable annual DPS growth are attractive.Latin America falls within the best half of our global ranking but there is wide dispersion among individual markets.Indeed,Central America benefits from robust demographics and an upturn in industry consolidation and Colombia is supported by
38、 improving macro trends and revenue acceleration.Meanwhile,the most challenging industry dynamics appear to be on Argentina(macro)and Mexico(increased market share from AT&T).Of note,our regional equity strategist,Guilherme Paiva,has a slight UW rating on regional Telcos due to an UW rating in Mexic
39、o(affecting the allocation of the largest telco stock in Latam,AMX)and a growth tilt in Brazil(impacting portfolio weight of defensive VIV,see details here and here).Exhibit 54:Latin America-MSGLOMMS rankingSource:Morgan Stanley ResearchExhibit 53:Asia-MSGLOMMS RankingSource:Morgan Stanley ResearchL
40、atin America-Diverging MarketsMMORGAN STANLEY RESEARCH25MOur favorite telco stock in the region is Telefonica Brasil-VIVO(VIV US).We expect an acceleration in revenue growth from+1.2%in BRL CAGR for 2017-19,to+4.2%in 2019-21(-8.1%,+6.9%in USD).Further,we think the approval of Brazils telco reform(ex
41、pected by YE2019e)could be an important catalyst as a new legal framework could 1)boost CAPEX efficiency by substituting copper for fiber investments and reducing spectrum costs,and 2)reducing uncertainty regarding the reversible assets of the expiring concessions.We note the ulti-mate details of th
42、e reform should come 12 months after congres-sional approval and include investment commitments for the operators.Exhibit 55:We expect VIV to benefit from revenue acceleration in both BRL and USD 1.2%-8.1%4.2%6.9%-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%in BRLin USDVIV:Net Revenue CAGR(MS estim
43、ates)2017-192019-21Source:Company data and Morgan Stanley ResearchExhibit 56:The approval of Brazils telco reform could be an added benefit00.511.522.533.5Voice/copperCAPEX/Opex costReversibleassetsSpectrumRenewalInvestmentCommitmentVIV:Telco reform benefits(PLC 79)Estimated:BRL9bn(2017)Lic.exp.of 8
44、50-2,100 Mhz by 2023 To be determined during 12 mo.after reform approval Estimated:5-10%CAPEX p.a.Source:Morgan Stanley ResearchFrom a valuation perspective,we note VIVs valuation is now at 5.4x EV/EBITDA representing a-11%discount vs global peers,despite the significant tightening on Brazils sovere
45、ign risk premium on the back of prospected for pension reform implementation.In addition,with a ND/EBITDA ratio of just 0.1x as of 1Q19(ex IFRS-16),the companys 2020e+7.0%dividend yield should be resilient.Exhibit 57:VIV is trading at a-11%discount vs.global peers despite significant reduction in Br
46、azilian sovereign risk0.01.02.03.04.05.06.07.020122013201420152016201720182019Consensus NTM EV/EBITDA BZ Sov SpreadVIVGlobal TelcoSource:Bloomberg and Morgan Stanley ResearchExhibit 58:The company has a solid balance sheet which supports an interesting dividend yield0%1%2%3%4%5%6%7%8%9%10%2012201320
47、1420152016201720182019VIVO:Consensus NTM dividend yield VIVO Div.YieldUST 10Y YieldSource:Bloomberg and Morgan Stanley ResearchM26MBottom-line:Amid downside global risks,telcos are a defensive sector that benefits not only from improving fun-damentals but also:1)A sustainable+4.4%dividend yield on i
48、mproving leverage and OCF margins,and 2)A multi year low in both valuation and investor positioning.Recent trends in global fundamentals are not encouraging.Indeed,our global economists see a downside risk-skew for global GDP growth(Exhibit 59,details here)and consensus trends for global EPS revisio
49、ns are challenging.In this context,we think investors that rotate into global telco stocks will not only benefits from improving industry fundamentals but also will be locking in some of the YTD gains by turning more defensive amid a more challenging global risk environment.Exhibit 59:Amid downside
50、growth risks,and challenging EPS trends.1.9%3.2%3.4%3.7%4.3%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%20062007200820092010201120122013201420152016201720182019E2020EMS Global real GDP growth forecast(%p.a.)BearBaseBullUpside+0.9 p.p.Downside-1.5 p.p.Source:Morgan Stanley ResearchExhibit 60:.telcos are a defen
