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Web-only Exclusives November 30, 2000 From Our Correspondent: Hirohito and the War A conversation with biographer Herbert Bix From Our Correspondent: A Rough Road Ahead Bad news for the Philippines - and some others From Our Correspondent: Making Enemies Indonesia needs friends. So why is it picking fights? |
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 Munshi Ahmed for Asiaweek Thio Boon Kiat |
Not
a Time for Cold-Calling
Pick
and choose your telecom choices carefully
Stock markets around the world are valuing telecommunications companies
as some of the hottest prospects of the New Economy. Asia is no exception,
as the run-up in stock prices of companies from China Telecom to Japan's
NTT DoCoMo to Korea's SK Telecom demonstrates. But Thio Boon Kiat, portfolio
manager for the United Telecom Fund of UOB Asset Management in Singapore,
an arm of United Overseas Bank, warns that investors shouldn't be blinded.
Thio's fund, with almost $300 million under management, is up over 70%
since it was launched in August last year - more than double the growth
rate of the MSCI World Telecommunications Services Index. In the wake
of Pacific Century CyberWorks' deal to buy Cable & Wireless HKT, Thio
spoke with Asiaweek's Assif Shameen about the need for investors to distinguish
between telecommunications companies.
Given that telecommunications valuations are already so high, do you
still believe that telecom stocks can outperform the MSCI World Index
this year?
Yes. I say this looking at a broad segment of the global communications
landscape - not just those plain old telephone companies like HKT. We
are seeing a convergence of what used to be three different segments -
voice, data and video. Sure valuations are a concern, but there are still
a lot of opportunities. For example: When we started looking at cellular
handset makers in the middle of last year we were looking at growth opportunities
given the low penetration rates in mobile voice services. Now wireless
application protocol [WAP] and mobile data are driving that market. The
key is m-commerce - mobile commerce. If you view things in a static way,
current valuations might seem unjustified. But this industry is changing
so rapidly that valuations are a moving target.
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ALSO
IN ASIAWEEK Which
segments of the telecommunications market look most exciting right now?
We like the wireless data segment. What's happened to NTT DoCoMo and its
i-mode mobile data service is a case in point. It took i-mode six months
to get 1 million subscribers, another three to get the next million, two
to get the third million and one month to get the fourth million. The
next frontier in Asia is Korea, which is why SK Telecom has done so well.
Service operators used to make money from cellular through voice traffic.
Now they have voice and data and they get a cut of the mobile commerce
and other service transactions, perhaps including advertising. The second
broad area we like is optical infrastructure ranging from handset makers
to those providing broadband access. We like the people who provide cable.
In cellular infrastructure with 2.5G and 3G [third generation] cellular
technology coming up, the growth is going to be tremendous. We like Samsung
Electronics, which has been seen as a memory chip maker, but it is already
the [world's] fourth-largest handset maker.
What other global telecom stocks will outperform over the next 12 months?
Let's start with the components and semiconductors used in telecommunications.
We like Advanced Micro Circuit [of the U.S.] which makes communications
chips. We like contract equipment manufacturers like Flextronics [also
U.S.], which is benefiting from outsourcing. We like Chartered Semiconductor
in Singapore, a foundry that is increasingly making communications chips.
And we like handset makers and companies that provide components for handsets.
Kyocera of Japan stands out.
What about traditional telephone companies in Asia that were being
dismissed as dinosaurs, like HKT and Singapore Telecommunications?
Asian telcos are generally undervalued but that doesn't mean we should
rush out and buy every telco stock. We see very little growth for many.
Until now we have under-weighted the telcos whose revenues come from local
or international calls because tariffs are falling like there is no tomorrow.
However, we note that in Europe, some of the incumbent telcos are now
being re-rated because they have a huge client base. [The thought is that]
if you buy fixed-line service from me maybe I can also sell you mobile
data or broadband service. I like Korea Telecom because it has a large
revenue stream from Internet and data.
Will the PCCW-HKT deal change perceptions among Asian telcos?
It's too early to say. Singapore Telecommunications [SingTel] now looks
slightly undervalued if you look at the sum of its parts. If SingTel is
going to list some Internet subsidiaries and affiliates there could be
a decent upside. It is true SingTel made a lot of mistakes and didn't
move fast enough, but that's in the past. I feel that the PCCW deal was
an eye opener for [SingTel]. PCCW has shaken up telcos in Asia. The laggards
are classic old-style telcos whose revenues are being eroded, companies
like Telekom Malaysia and PLDT in Philippines.
What about Asian cellular players?
SK Telecom's share price has gone up nearly ten times in the past 18 months,
but there is upside. In Hong Kong, we like SmarTone, which is one of the
leading cellular players there. In Thailand, we like Advanced Info Service
and Total Access Communications. In the Philippines there is Globe Telecom.
THIO BOON KIAT runs the United Telecom Fund for UOB Asset Management,
which has vastly out-performed the impressive growth of telecommunications
stocks around the world. He sees further potential, but worries about
traditional phone companies that haven't yet figured out how the world
is changing
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