Telecommunication
Company Presentation
Michael Watson
Jiyuan (Eric) Wang
Kaihua Yu
SECTOR OVERVIEW
Size of Sector
Telcm.
3.10%
SIM Weight
SIM Weight
Telcm
4.21%
• Still 110bps Overweight
Sector Overview
Sector
S&P 500 Weight
SIM Weight
+/-
Consumer
Discretionary
10.65%
8.74%
-1.91%
Consumer
Staples
11.05%
12.24%
1.19%
Energy
12.27%
12.41%
0.14%
14%
10.06%
-3.94%
Health Care
11.51%
11.77%
0.26%
Industrials
10.56%
9.08%
-1.48%
Information
Technology
19.68%
21.69%
2.01%
Materials
3.56%
3.25%
-0.31%
Telecom
3.10%
4.21%
1.10%
Utilities
3.7%
2.57%
-1.14%
Financials
Main Industries
1. Wireless
–
Cell phone services,
pager services, and
broadband personal
communications.
2. Wired
–
Traditional wire line
services such as local,
long distance, and
international phone
services.
3. Satellite
–
Provides telecom
services via satellite.
Sector Revenue By Industry
(Billions)
$5.10
$141.4
$204.4
Wireless
Wired
Satellite
Performance Comparison
Shares
Cost
Current Price
Unrealized
Gain/(Loss)
Dividend
Income
Total
AMT
4,000
$ 48.83
$
56.55
$30,874
-
$30,874
T
7,800
$ 28.53
$
27.95
$6,102
$13,416
$19,518
Total
$44,392
Sell 100bps
2.14% of SIM portfolio
Overall Gain 15%
Stock Overview
Current Price
Price Target
55.19
63.5
Dividend Yield
1 Year Target Return
Beta
52 Week Range
Market Cap
0.39
45.85 - 58.60
$21.9B
Business Overview
• Build infrastructures (Towers) and rent them to
wireless service providers. (>97%)
– Domestic (79% FY10, 71% 3Q2011)
– International (21% FY10, 29% 3Q2011)
• Tower related service (<3%)
International
Market ($370.9M)
19%
Network
development
services ($38.9M)
2%
Rental and
Management
Operation
($1936M)
98%
FY 2010 Revenue
Domestic
Market($1564.4M)
79%
• Strengths:
– Domestic Market Leader
– Outperform industry over the
past 5 years
– Real Estate Investment Trust
(REIT ) Conversion (Tax)
• Risks:
– FX ($145M Loss 3Q2011)
– Wireless Carriers
Consolidation
– REIT Conversion (Obligation)
Drivers
• Correlation with
Cellphone consumption
( r=0.95)
– Population
– Technology
• Strong Emerging Market
Economy
– India (Forecast 7.5% 2012)
– Brazil (4.0%)
– Mexico (2.9%)
Valuation
DCF
Multiples
Absolute High
Valuation
A.
P/Forwar
dE
P/S
P/B
P/EBITD
A
P/CF
Low
Media Current #Your
n
Target
Multipl
e
45
H.
75.6
D.
56.2
13.9
.2
6.6
.1
24.47 1.7
8.6
9.4
3.7
6.2
15.62 16.16
10
5.5
16.5
6.5
9
3.8
65
49.5
62.7
72.6
27.5
25
2.6
65
23.1
F.
Your
Target
Price
B.
C.
447.4 40.6
4
E.
40.6
Targe
t E,
S, B,
etc/S
hare
G.
1.68
Target Price: 63.7
1 Year Target Price:
$63.5
• Could buy more, but:
– High Multiples ( 16x EV/EBITDA 80P/E), does
it worth more?
– Upside movement is not big enough.
NII Holdings, INC.
Buy 100 bps
Company Overview
• NII Holdings Inc. , (NASDAQ: NIHD) a publicly held
company based in Reston, Va., provides mobile
communications for business customers in Latin
America. NII, which operates under the Nextel brand,
has operations in Argentina, Brazil, Chile, Mexico and
Peru and offers fully integrated wireless
communications tools with digital cellular voice
services, data services, wireless Internet access and
Nextel Direct Connect® and International Direct
ConnectSM, a digital two-way radio feature. NII, a
Fortune 500 company, trades on the NASDAQ market
under the symbol NIHD and is a member of the
NASDAQ-100 Index.
Key Statistics
•
•
•
•
•
•
•
•
Market Cap: $ 3.79 Billion
Current Price: $22.12
52 Week Range: $ 21.19 – $ 46.32
52-Week Change3: -47.09%
Beta: 1.73
Operating Margin (ttm):15.65%
Return on Equity (ttm):9.59%
No dividend paid
52 Weeks Performance
Catalysts
• High growth potential in Latin America
Market
• strong financial and operational metrics
and subscriber volume
Risks
• Increased competitive intensity in Latin
American market (especially in Brazil,
Mexico), America Movil(AMX), Telmex,
etc.
• Uncertainty with future massive expansion
as a young company
Valuation
Relative
to
Industry
P/Trailing
E
P/Forwar
dE
P/B
High
Low
Median
Current
Relative to
S&P 500
High
Low
Median
Current
3.2
0.09
1.2
NM
P/Trailing E
3.2
0.43
1.3
0.92
2.2
0.04
1.2
NM
P/Forward E
2.3
0.52
1.2
1.1
9.3
0.8
4.1
0.8
P/B
5.3
0.6
2.3
0.7
P/S
3.3
0.8
1.7
1.0
P/S
3.7
0.6
1.6
0.7
P/CF
5.7
0.6
2.0
0.7
P/CF
3.0
0.3
1.1
0.6
Absolute ValuationHigh
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Low
B.
34.30
5.60
16.80
20.86
32.80
Median
C.
6.70
0.50
1.00
0.17
2.70
Current
D.
17.30
2.40
6.80
6.96
11.80
Your
*Your
#Your
Target E, Target
Target
Price
S, B,
Multiple
etc/Share (F x G)
E.
13.90
0.50
1.00
2.28
3.80
F.
17.50
2.50
6.80
7.00
11.50
G.
1.94
15.38
5.21
5.13
3.17
H.
33.97
38.45
35.46
35.89
36.50
Average:
$36.1
DCF
Target Price and recommedation
• 50% from DCF:
• 50%*$36.1=$18.05
• 50% from Absolute Valuation:
50%*$39.88=$19.94
• 1 Year Target Price: $18.05+$19.94=$38
Buy 100 bps
Current
price:$22.12
71.8% upside
AT&T (NYSE: T)
Recommendation:
HOLD
Company Overview
• One of the largest telecommunications
companies in the U.S.
Company Overview
Three Main Business Segments
• Wireless
• Wireline
• Advertising Solutions
Stock Overview
Current Price:
$27.95
52 Week Range:
$27.20 – 31.94
Market Cap:
$162.43BB
Outstanding Shares:
5.93BB
Dividend Yield:
6.28%
Recent M&A Activity
March 20, 2011: Company announces plans to purchase T-Mobile from
Deutsche Telekom.
March 28, 2011: Sprint pleads with the government to put a halt to the
deal. Claims it would create a duopoly between AT&T and Verizon.
July 20, 2011: Chairman of senate subcommittee, Sen. Herb Kohl, says
proposed deal would create market detrimental to consumers.
August 31, 2011: DOJ Sues to block the deal.
November 22, 2011: AT&T expects $4 billion 4th Quarter breakup
charge.
Future Projections
Future Estimated Financial Performance
Segment
(millions)
Net Sales
Wireless
Wireline
Advertising Solutions
Other
Total
Consensus
Operating Earnings
Wireless
Wireline
Advertising Solutions
Other
Total
FY
2013E
81,453
54,712
489
472
137,126
23,621
4,377
88
24
28,110
FY
2012E
72,403
56,991
589
492
130,475
128,000
20,273
5,129
112
(246)
25,268
FY
2011E
64,935
59,366
710
553
125,564
126,000
17,532
6,530
142
(553)
23,652
FY
2013E
FY
2012E
FY
2011E
Sales Growth
Wireless
Wireline
Advertising Solutions
Other
Total
12.50%
-4.00%
-17.00%
-4.00%
5.10%
11.50%
-4.00%
-17.00%
-11.00%
3.91%
11.00%
-3.00%
-17.00%
-14.00%
1.03%
Operating Earnings
Wireless
Wireline
Advertising Solutions
Other
Total
29.00%
8.00%
18.00%
5.00%
20.50%
28.00% 27.00%
9.00% 11.00%
19.00% 20.00%
-50.00% -100.00%
19.37% 18.84%
Valuation Ratios
Relative to Industry High Low Median Current
P/Trailing E
20.1 9.1
14.6
14.2
P/Forward E
22.4 9.9
14.1
13.6
P/B
3.4
1
2
1.7
P/S
2
1
1.4
1.2
P/CF
7.5 3.5
5.3
5.1
Relative to S&P 500
P/Trailing E
P/S
P/B
P/EBITDA
P/CF
Weighted Target Price
High
1.2
1.2
1.1
1.4
0.6
Low
0.58
0.68
0.4
0.8
0.4
Median
0.86
0.9
0.8
1
0.5
Relative to S&P 500
P/Trailing E
P/S
P/B
P/EBITDA
P/CF
Current
1.1
1.1
0.9
1
0.6
High
1.2
1.2
1.1
1.4
0.6
Low
0.58
0.68
0.4
0.8
0.4
Median
0.86
0.9
0.8
1
0.5
My
My Target
My
Target
E,S,B,
Target
Multiple etc/chare Price
13.4
2.49
33.37
1.44
21.33
30.72
2
15.5
31
4.58
7.25
33.21
6.1
5.33
32.5
Current
1.1
1.1
0.9
1
0.6
Weight
0.6
0.05
0.05
0.2
0.1
$
33
DCF Model
– 10% Interest Rate.
– 2.7% Terminal Growth
Rate.
– 400MM share buyback
program.
– Slowing future margins
• Price Target:
$35.71
Growth Rate
• Assumptions:
2.00%
2.35%
2.70%
3.05%
3.40%
$
$
$
$
$
Sensitivity Analysis
Discount Rate
9%
9.50%
10%
10.50%
39.03 $ 36.33 $ 33.97 $ 31.89
40.22 $ 37.32 $ 34.80 $ 32.59
41.54 $ 38.41 $ 35.71 $ 33.36
43.02 $ 39.62 $ 36.72 $ 34.21
44.68 $ 40.97 $ 37.83 $ 35.13
$
$
$
$
$
11%
30.04
30.65
31.30
32.01
32.79
Price Target & Recommendation
• 50% Valuation Ratios.
• 50% DCF Model.
.5 * (33 + 35.71) =
$34.35
Total Return:
Price Target + Div Yield
=
30.06% Upside
• Recommendation:
HOLD.
– Solid dividend paying
stock.
– Still plenty of growth
potential.