Overpayment risks may be reduced.
According to Barclays Research, Hong Kong Telecom's proposed acquisition of CSL is a material positive for the competitive dynamics in Hong Kong wireless and it remains OW on HKT, PCCW, HTHK and SmarTone. However, immediate report cards are likely to still look poor.
We expect pretty ordinary results for the half year to June 2014 – but potential consolidation suggests that forward-looking prospects are much better than would be implied by these results. Our regional top picks are AIS, Bharti Airtel, DTAC, HKT, PT Telkom, SingTel and SKT (all rated OW).
We see three clear positives from HKT acquiring CSL: 1) We see earnings revisions bias to the upside for the Hong Kong wireless operators on higher pricing power and better control of subscriber acquisition costs on a 12-month view;
2) HKT-CSL's decision to not participate in the spectrum auctions in 4Q14 should reduce overpayment risk significantly; and 3) solid balance sheets and cash flows should support potential yield delivery to the upside following the spectrum auctions.
However, immediate report cards likely to still be poor: Regulatory approvals for the HKT-CSL deal came in just last week and the deal will close shortly. The intra-market consolidation impacts will only start to be felt into the year, in our opinion. We expect pretty ordinary report cards for the half year to June (we are trimming short-term estimates for HTHK and SmarTone) but potential consolidation suggests that forward-looking prospects are much better than would be implied by these results.
Do you know more about this story? Contact us anonymously through this link.