Telecommunications (Neutral)

3Q11 Results Roundup

'''' YoY industry revenues are growing at slightly above mid-single digit with EBITDAs growing at mid-single digits for 3Q11. Moving forward, the industry is expecting mid-single digit growth with a slight improvement in EBITDA margins from previous guidance.

'''' Fixed-line telcos on aggregate have seen improving yoy revenue growth at mid-single digit, while yoy EBITDA has been outpacing revenue growth with sustainable double-digit growth.

'''' We downgrade the sector to neutral based on the following justifications:

1. Recent price rally has pushed the stock prices close to our fair values;

2. Intensified competition due to market saturation;

3. Coupled with smartphone subsidy, margins for data products is much lower compared to voice;

4. Price war will diminish the lucrative return in this overcrowded market (WiMAX and new entrant);

5. In the next 3 years, there will be heavy CAPEX investment in 4G while this has yet to be proven profitable; and

6. Over-the-top players will supersede telcos as the content providers and eventually "own" the subscribers.

'''' However, we do not deny that telcos enjoys stable recurring revenues strongly supported by resilient domestic demand and are largely seen to be recession-proof. Thus, the high dividend yield characteristic will continue to lure investors especially in this highly volatile market.

''

October Exports Remain Strong

'''' October export growth remained robust at 15.8% yoy (Sep: +16.6% yoy), surprised the market for the four consecutive time (consensus: +7.3% yoy). However, growth in gross imports decelerated sharply to 4.6% yoy (Sep: +12.9% yoy) on contraction in intermediate imports.''

'''' E&E export growth declined by 9.0% yoy (Sep: +2.6% yoy), confirming that September pick-up was a temporary spike rather than a change in trend.

'''' The boost to exports emanated from crude petroleum (+87.0% yoy); shipments of LNG (+82.0% yoy); palm oil (+54.3% yoy) and chemical products (+24.3% yoy).

'''' Exports to China surged by 37.1% yoy in October (Sep: +34.6% yoy). Despite the Euro austerity measure, exports to the Euro area expanded by 5% yoy.

'''' We maintain our full year 2011 and 2012 GDP forecast at 5.1% and 4.5% respectively.

'''' We expect BNM to hold the OPR steady at 3.00% until end-2012 given the resilient economic growth with sticky inflation.

''

Still uncertainties

'''' Unless fresh buying emerges on last Friday's positive Dow and European markets closing and in anticipation of a traditional year-end window dressing activities, downside consolidation remains amid worsening technical readings and the breakdown of the moving average supports at 10-d (1471), 20-d (1464), 30-d and 100-d (1468). Weekly supports are 1430-1447 whilst resistance levels are 1471-1500.

''

MUDAJYA: Base building for an impending breakout''

'''' Mudajya is likely to consolidate for a short while with strong supports near RM2.15 (lower Bollinger band), RM2.05 (38.2% FR) and RM2.00. After a brief consolidation, the next upswing is expected to push prices towards its daily upper Bollinger band (RM2.29).

'''' A breakout above RM2.29 will drive prices higher towards stronger resistance zones at RM2.46 (28 Oct high) and RM2.63 (123.6% FR). Cut loss below RM2.00.