We  remain  NEUTRAL  on  regional  telecoms  on  concerns  over  a stumbling  yield  compression  theme  and  on  valuation  grounds.  Thai telcos  offer  superior  long-term  growth  via  the  3G  single  licensing framework,  which  underpins  our  only  OVERWEIGHT  call.  In  Singapore, the improved take-up of tiered data plans is positive but the sector lacks outright  catalysts.  Meanwhile,  easing  competition  and  M&A  vibes  will revive  interest  in  Indonesian  telcos,  while  Malaysian  telcos  should continue  to  lag  on  a  beta-led  play.  Telkom  replaces  Axiata  and  joins Advanc as our top regional picks.  

- Rich valuations for Malaysia. We believe the sector is on track for mid-single digit revenue growth in 2013 but its earnings growth will be flattish, primarily  weighed  down  by  Axiata  (NEUTRAL,  TP:  MYR7.00).  There  is some upside for DiGi (NEUTRAL, TP:MYR5.20) as valuations are not too expensive  relative  to  peers.  Maxis’  (NEUTRAL,  TP:  MYR7.15) organizational  revamp  should  strengthen  operational  execution  but  will have  little  direct  impact  on  its  performance  in  the  medium  term.  Our  top 
pick remains Timecom (BUY, TP: MYR4.05).  

- Singaporean  telcos  face  yield  compression  risk.  The  Singaporean telcos have de-rated due to a sinking yield compression theme. While the operators are seeing  rising  take-ups  of  tiered  data  plans  and  more  users are  exceeding  their  data  caps,  we  do  not  foresee  a  significant  uplift  in average  revenue  per  use  (ARPU)  in  the  medium  term  as  voice  revenue continues to suffer. We prefer M1 (NEUTRAL, TP: SGD2.70) and SingTel (NEUTRAL, TP: SGD3.70) as their earnings prospects are brightening.   

- Indonesia enters the hotspot. We expect competition to step up among Indonesian  telcos  ahead  of  the  Lebaran  period,  which  should  boost revenue and data growth in 3Q2013. Channel checks indicate that smaller operators have scaled back their aggressive pursuits, which is positive for the  market.  M&A  vibes  will  likely  shape  newsflow  for  the  sector  over  the next six months. Our top pick remains Telkom (BUY, TP: IDR13,000).

- OVERWEIGHT  on  Thailand  only.  The  Thai  telcos  should  continue  to outperform  as  they  offer  a  rare  combination  of  respectable  growth  and dividends. The proof of the pudding will be in 2Q2013 when 3G 2100MHz contribution  sets  in.  We  note  upside  to  consensus  numbers  from  lower roaming charges. Advanc (BUY, TP: THB293) remains our top pick.

Source: RHB