汇丰银行-美股-电信行业-美国电信业：2019年导航-2019.1.24-27页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Securities(USA)Inc View HSBC Global Research at:https:/ For 2019,we expect more fragmentation in content/pay TV,steady mobile and an end to M&A approval overhangs We advocate that investors choose sturdy carriers:asset-mix,business momentum,RoICs,leverage and shareholder remuneration potential are key to our stock preferences DISH is our least preferred stock for which we cut our TP to USD24 from USD38 and downgrade to Reduce;we prefer to navigate 2019 through Verizon,TMUS,AT&T and Comcast Navigate 2019 waters on sturdy carriers 2018,as we had outlined in our note Welcome to the ICE2 age of 27 March 2018,was dominated by big M&A moves in the sector driven by the desire or need to add scale.While operators like Verizon remained singularly focused on their existing business,operators like Comcast expanded their portfolios.The latter,in our view,although positive from a long-term perspective,caps shareholder remuneration in the short term.For 2019,we expect to see more fragmentation in the content/pay-TV business as more players(like Apple,Disney,Comcast,Viacom)are set to enter the OTT content market.In pay TV,we expect the base to shrink further;we expect a total of c2.4m pay-TV net subscriber losses(vs 3.1m in 2018e)for the stocks under our coverage.In mobile,we think margins could see upward movement driven by a)lower spending on handset promotions in 1H 2019 and b)the cost reduction steps undertaken by companies(like Verizon).With regard to M&A,while the TMUS/Sprint combination has yet to receive the regulatory green light,we believe there is reasonable probability of the deal going through.TMUS expects the transaction to close in 1H 2019;however,with the partial US government shutdown in effect,there could be delays in regulatory review.We may see an end to the obstacles AT&T has encountered in relation to the Time Warner(TWX)acquisition.A positive outcome for both transactions would likely remove uncertainty and potentially help valuations.In this report,we detail our stock views and our picks for 2019.We downgrade Dish to Reduce(from Hold)with a TP of USD24(from USD38).On a relative risk-reward basis,we prefer to gain exposure to the sector through Verizon,AT&T,TMUS and Comcast(all rated Buy)vs.Dish and Sprint.Key changes to ratings and estimates Current _ Target Price _ _Rating _ Implied Upside/Mkt Cap EV/EBITDA Net Debt/EBITDA Company Ticker Ccy price Old New Old New Downside(USDm)2019e 2020e 2019e 2020e AT&T T USD 30.58 38.00 38.00 Buy Buy 24.3%222,561 5.8x 5.6x 2.7x 2.6x Charter CHTR.OQ USD 284.97 310.00 310.00 Hold Hold 8.8%65,237 8.6x 8.3x 4.5x 4.4x Comcast CMCSA.OQ USD 34.97 45.00 45.00 Buy Buy 28.7%158,766 7.3x 6.6x 2.8x 2.4x DISH DISH.OQ USD 29.51 38.00 24.00 Hold Reduce-18.7%17,747 12.9x 14.2x 5.1x 5.3x Sprint S.N USD 6.04 4.80 4.80 Reduce Reduce-20.5%24,629 6.9x 7.5x 4.4x 4.4x TMUS TMUS.OQ USD 66.83 76.00 76.00 Buy Buy 13.7%56,698 6.5x 6.1x 1.7x 1.2x Verizon VZ.N USD 56.99 62.00 62.00 Buy Buy 8.8%235,484 6.6x 6.3x 2.0 x 1.7x Notes:Priced as of close at 22 January 2019.*Sprint and TMUS multiples are based on cash EBITDA.Source:Refinitiv Datastream,HSBC estimates 24 January 2019 Sunil Rajgopal Analyst,Global Telecoms HSBC Securities(USA)I+1 212 525 0267 Christian Fangmann*Analyst,Telecoms HSBC Trinkaus&Burkhardt AG christian.fangmannhsbc.de+49 211 910 2002 Nicolas Cote-Colisson*Head of European Telecoms Equity Product HSBC Bank plc nicolas.cote-+44 20 7991 6826 Neale Anderson*Head of Telecoms Research,Asia Pacific The Hongkong and Shanghai Banking Corporation Limited .hk+852 2996 6716 *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations US Telecoms EQUITIES TMT United States Navigate 2019 waters on sturdy carriers EQUITIES TMT 24 January 2019 2 To navigate the 2019 waters With global economic growth starting to lose steam(according to the World Bank,global growth is projected to moderate from a downwardly-revised 3 percent in 2018 to 2.9 percent in 2019 and 2.8 percent in 2020-21),the increases in Fed rates,coupled with the government shutdown(see our note US Government Shutdown,17 January 2019),in our view,are likely to dampen consumer sentiment and spending primarily on discretionary items.Although telecom services(chiefly mobile and fixed broadband services),which have become an essential part of consumers lives,are unlikely to be materially impacted by the downbeat external environment,it may nevertheless dampen new housing starts.This may in turn impede broadband subscription growth rates a key growth driver for cable companies given the declines in pay-TV and telephony subscriptions.For mobile operators,although the recent newsflow around Apple(see our note Apple:China bites even more,8 January 2019)and Samsung pointing to reduced demand and the lengthening of handset replacement cycles hints at the potential for improvement in margins due to reduced spending on smartphone-related promotions,we think handset-related promotions may see acceleration in the latter half of 2019 as operators introduce 5G-enabled services and phones.US Telecoms stock price performances since the beginning of 2018 through 2019 to date Note:Priced as of 22 January 2019.Source:Refinitiv Datastream Cherry-pick sturdy carriers Verizon,AT&T,TMUS and Comcast are our preferred stocks for 2019;DISH is our least preferred stock We cut our TP for DISH to USD24 from USD38 as we turn more cautious on spectrum monetization prospects;downgrade to Reduce Asset-mix,business momentum,RoICs,leverage and shareholder remuneration potential drive our stock picks;on a relative risk-reward basis,we prefer Verizon,AT&T,TMUS and Comcast(all rated Buy)3 EQUITIES TMT 24 January 2019 choose sturdy carriers Verizon We continue to like Verizon due to its relatively better RoIC,strong position in mobile(once again illustrated by the strong net additions and lower churn in Q4 2018),lower debt/leverage position(c2.0 x 2019e net debt/EBITDA),lower exposure to pay-TV(9%of revenues)and cost-cutting initiatives.In September 2018,Verizon announced a voluntary separation program for select US-based management employees.About 10,400 eligible employees are expected to leave under this program by end-June 2019 with nearly half already exiting in December 2018.If we were to assume an average of cUSD100k/employee/annum cost,this implies cost savings of cUSD1bn per annum.This separation program forms part of the planned USD10bn of cost-cutting through 2021,which coupled with the more rational and subdued competition in mobile,in our view,continues to be supportive of the stock.Additionally,the planned rollout of 5G services(nationwide rollout in 2019)should aid the company in potentially garnering a greater share of the broadband market(at the cost of smaller cable players),which should benefit revenue growth.We rate Verizon as Buy with a DCF-based fair value target price of USD62(no change).Our TP implies upside of c9%,and we see a dividend yield of 4.3%for 2019e.AT&T AT&T had a difficult 2018,dragged down by weaker-than-expected growth in mobile,pressure on its pay-TV business and the overhang related to the TWX deal.For 2019,we continue to expect declines for the pay-TV business;however,we expect to see a resolution of the TWX situation(the decision by a panel of judges regarding the Department of Justices appeal on AT&T/TimeWarner merger is expected before 1H 2019,see below).We also expect the companys momentum in mobile to improve,helped by the launch of 5G services(2H 2019).Note:US District Judge Richard Leon(who reviewed the DOJs request to block the AT&T/Time Warner merger)ruled on 12 June 2018 to grant AT&T the right to proceed with its acquisition of Time Warner(de-listed);however,the DoJ filed an appeal against the ruling,and on 6 December 2018,a panel of three Judges heard DoJ appeal.Verizon:The sturdiest ship to sail AT&T:Coming out of rough waters US:Mobile service revenue trends Note:As reported not adjusted for one-offs or restatements.Source:Company data EQUITIES TMT 24 January 2019 4 Despite the short-term headwinds,we think AT&T,with its strong position in mobile,fixed-broadband,pay TV and content assets,remains strategically well placed.Moreover,at current levels,the stock is trading at a significant discount to most of its peers(5.8x 2019e EV/EBITDA vs.6.4x 2019e EV/EBITDA for telecom and 8.0 x 2019e EV/EBITDA for media,peers),and its dividend yield(6.7%2019e)is one of the highest among the stocks in our coverage providing strong support for the stock.Although the companys leverage has increased following the TWX transaction,we do not think there is any risk to the dividend.We rate AT&T as Buy with a DCF-based fair value target price of USD38(unchanged),which implies upside of c24%.T-Mobile T-Mobile(TMUS)continues to deliver positive operational momentum with its subscriber addition numbers for Q4 2018 once-again exceeding consensus expectations(see page 7).Approval of the TMUS/Sprint combination remains a key potential catalyst for the stock.The DoJ and the FCC continue to review the transaction.We believe that the deal has a reasonable probability of approval(see our report The course for the remainder of 2018,22 August 2018).Pairing up with Sprint would allow TMUS to gain meaningful scale,which could help drive better profitability,and eventually put TMUS on a better footing to face,or participate in,any potential changes in the competitive landscape.Nonetheless,we consider that,irrespective of the outcome for the deal,TMUS is well positioned to continue to gain market share(through footprint expansion).We rate TMUS as Buy with a DCF-based target price USD76(unchanged),which implies upside of c14%.US:Fixed-line revenue trends(excluding satellite pay TV)Note:As reported not adjusted for restatements.Source:Company data T-Mobile:Continuing its northward course 5 EQUITIES TMT 24 January 2019 Comcast Comcast closed the acquisition of Sky paying almost USD50bn for the asset in October 2018(See our note Astronomical quest towards Sky,27 September 2018).The acquisition improves the companys geographical diversification and adds to its scale in pay TV.However,the deal has also led to a material increase in debt levels,pushing up net debt/EBITDA from c2.1x times(pre-transaction)to 3.4x(post transaction).This limits the potential for shareholder remuneration via buy backs for the next three years as the company works to reduce its debt and leverage.In addition,Comcasts exposure to the UK and other European countries is likely to add Brexit-related FX risks to earnings.However,despite our concern around debt levels and the limited potential for shareholder remuneration(in particular via share buybacks),we think the companys strong foothold in content,pay TV,and the internet,together with its ability to generate relatively higher RoIC(versus peers),merit a premium.At the current level,however,the company is trading at a discount to peers,at 7.3x 2019e EV/EBITDA versus peers at c8.0-10 x(Altice,Charter,Cable one,Walt Disney,CBS).We rate the stock Buy,with a DCF-based fair value target price of USD45(unchanged),which implies upside of c29%at the current price.Charter Charter,in our view,lacks any near-term catalyst that could lead to material rerating of the stock.We remain concerned about a)the companys reliance on pay TV(c40%of revenues)b)high leverage and c)its relatively lower RoIC.At the current level,the stock is trading at 2019e EV/EBITDA of 8.6x and EV/OCF of 19.5x,which compares to 7.3x EV/EBITDA and 10.5x EV/OCF for Comcast.We rate the stock Hold,with a DCF-based fair value target price of USD310,which implies upside of c9%at the current price.Sprint Sprints position remains tough from both a strategic/operational perspective and with regard to its financial situation.Despite Sprints continued progress in halting declines in services revenues and improving its profitability,we believe that,as a stand-alone entity,the company may not be able to materially transform its subscale position.The companys historical underinvestment versus peers(like Verizon and AT&T)limits its ability to substantially improve its position,its high net debt(c4.4x 2019e cash EBITDA vs c2.0-3.0 x 2019e EBITDA for peers like AT&T,Verizon,and TMUS)limits its ability to scale up its investments materially,without raising additional capital.We rate Sprint Reduce,with a DCF-based fair value TP(reflecting our assessment of the value of the standalone business)of USD4.80(no change),implying downside of c21%.We note that the current Sprint share price of USD6.04 is largely tracking the TMUS/Sprint combination terms,and we therefore doubt that there would be any material near-term upside for the stock in the event that the tie-up with TMUS were to gain regulatory approval.In our assessment,at the current share price,50%of the deal-related upside is already priced in and we believe that any further rerating would depend largely on a successful integration progress.Dish We have previously flagged DISH as one of our least preferred stocks in the sector(see our report Welcome to the ICE2 age,27 March 2018.This remains the case,even though the stock is down c41%since beginning of 2018,as the company continues to struggle.In fact,our bearishness has increased.Dishs core cash generating business(pay TV)is likely to shrink further,in our view,with the anticipated entry of yet more OTT services(from the likes of Apple,Disney,and AT&T)and the Comcast Transatlantic voyage adds more weight;but steady Charter Heavily laden,with little wind in the sails Sprint:Waiting for“merger approval”boat Dish:Lost at sea EQUITIES TMT 24 January 2019 6 continued shift of consumers towards OTT platforms(like Hulu and Netflix).We also remain unenthusiastic about DISHs spectrum monetization path and the revenue opportunity arising from spectrum/IoT network deployment.On pages 11-12,we evaluate the potential value from the IoT network undertaking.We had previously assumed that DISH would eventually sell all of its spectrum holdings.However,as the window for 700MHz and AWS-4 spectrum sales has likely closed,our hypothesis now is that Dish may use part of its spectrum for IoT network rollout while still selling its AWS-3 spectrum(over time),given that the final rollout deadline for AWS-3 is still far away.However,we do not think DISH would reap a huge premium from any sale.We also remain concerned about DISHs leverage and its potential options for funding the IoT mobile network rollout.According to Dish Chairman Charlie Ergen(see Bloomberg,24 May,2018)DISH may need cUSD10bn or more for phase 2 of its 5G network build out,and is expected to spend USD500m-USD1bn through 2020 for its NB-IoT build-out.DISH currently has net debt of c13bn(4.7x LTM EBITD