Transcript Company Presentation June 1, 2010 Jiying Wang YongHui Wu Agenda • • • • • Recap of Recommendations Sector Summary NII Holding Analysis Verizon Analysis Conclusion.

Company Presentation
June 1, 2010
Jiying Wang
YongHui Wu
Agenda
•
•
•
•
•
Recap of Recommendations
Sector Summary
NII Holding Analysis
Verizon Analysis
Conclusion
Recap of Recommendation
• Increase SIM holding by 30 basis points to bring
it to 4%
• Sell Verizon by 101 basis points
• Increase NIHD by 131 basis points
Sector Summary
Sector
S&P 500 Weight
SIM Weight
+/-
Consumer Discretionary
10.55%
10.44%
-0.11%
Consumer Staples
10.91%
11.71%
0.80%
Energy
11.18%
9.76%
-1.43%
Financials
16.47%
11.41%
-5.07%
Health Care
11.55%
14.63%
3.07%
Industrials
10.76%
13.10%
2.34%
Information Technology
18.91%
20.18%
1.27%
Materials
3.45%
1.64%
-1.82%
Telecommunication
Services
2.73%
3.70%
0.98%
Utilities
3.48%
2.10%
-1.38%
Cash
0.00%
1.26%
1.26%
Dividend Receivables
0.00%
0.08%
0.08%
100.00% 100.00%
0.00%
Sector Holdings
Current
Recommended
+/-
SIM Holding
3.7%
4%
0.3%
NIHD
2.69%
4%
1.31%
VZ
1.01%
0%
-1.01%
Target Prices
Company
Current Price
Target Price
Dividend
Upside Potential
NIHD
$36.70
$60
N/A
64%
VZ
$27.52
$32
6.8%
16%
NIHD Overview
• Funded in 1995 as Nextel International, Inc. and
changed its name to NII Holdings, Inc. in
December 2001
• Providing fully integrated mobile communication
services in selected Latin American markets
• Currently operating in Argentina, Brazil, Mexico,
Peru and Chile
NIHD Business Analysis
• Market Cap of $5.71b
• High Beta of 2.09
• Company in growth phase
– High growth rate
– Heavily financed through debt
• Possible factors to affect performance
– Exchange rate
– Interest rate
NIHD Financial Analysis
Revenue Growth Rate
45%
39%
40%
35%
39%
36%
34%
30%
30%
24%
25%
20%
16%
15%
9%
10%
3%
5%
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
NIHD Financial Analysis
NIHD DCF Analysis
NIHD Sensitivity Analysis
Current price
Implied equity value/share
Upside potential
Discount rate = 10%
Terminal growth rate =3%
Terminal Discount Rate
NIHD
Free Cash Flow Growth
$36.7
$66.0
80%
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
2.5%
74.55
68.46
63.19
58.59
54.55
50.96
47.77
3.0%
78.73
71.89
66.04
60.99
56.58
52.70
49.26
3.5%
83.65
75.89
69.34
63.73
58.88
54.65
50.92
4.0%
89.57
80.62
73.18
66.89
61.51
56.86
52.80
4.5%
96.80
86.30
77.72
70.58
64.55
59.39
54.92
5.0%
105.84
93.24
83.17
74.94
68.09
62.30
57.35
NIHD Valuation Analysis
Absolute
Valuation
High
Low
Median
Current
#Your
Target
Multiple
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
34.3
109.6
16.9
213.98
36.5
C.
6.7
0.5
1.2
1.95
2.8
D.
19.0
3.5
7.7
12.62
13.2
E.
17.8
1.5
2.5
5.14
7.6
F.
19.0
2.5
3.8
8.5
10.0
Average price = $60
*Your
Target
E, S, B,
etc/Share
G.
2.3
30.0
15.96
7.76
5.25
Your
Target
Price
(F x G)
H.
43.70
75.00
60.65
65.96
52.50
Potential Catalysts & Risks
Catalysts
• Global economic
recovery
• Growth of emerging
markets
• Expansion of 3G markets
Risks
• Exchange rates
• Possible double dip
recession
Brazilian Real to USD
0,62
0,6
0,58
0,56
Ряд1
0,54
0,52
0,5
0,48
01.01.2010
01.02.2010
01.03.2010
01.04.2010
01.05.2010
Chilean Peso to USD
0,00215
0,0021
0,00205
0,002
0,00195
Ряд1
0,0019
0,00185
0,0018
0,00175
0,0017
01.01.2010
01.02.2010
01.03.2010
01.04.2010
01.05.2010
Mexican Peso to USD
0,084
0,082
0,08
0,078
Ряд1
0,076
0,074
0,072
Argentine Peso to USD
0,27
0,265
0,26
Ряд1
0,255
0,25
0,245
01.01.2010
01.02.2010
01.03.2010
01.04.2010
01.05.2010
Peruvian Nuevo Sol to USD
0,365
0,36
0,355
0,35
Ряд1
0,345
0,34
0,335
01.01.2010
01.02.2010
01.03.2010
01.04.2010
01.05.2010
Verizon Overview
The largest mobile operator in the States.
The second largest US-based telecom company.
Two major business lines:
• Domestic wireless
Offer wireless voice and data products, and other value-added services, as well as sells
equipment.
• Wireline
Provide voice, Internet access, broadband video and data, next generation Internet protocol (IP)
network services, network access, and long distance services to consumers, carriers, businesses,
and government customers.
VZ Business Analysis
• Market Cap of $77.79b
• Beta: 0.62
• Company in mature phase
– Slow growth rate of wireless unit
– Wireline unit is slightly decreasing
• Possible factors to affect performance
–
–
–
–
GDP growth
Consumer confidence
Unemployment rate
Interest rate
VZ Financial Analysis
12 Year Revenue Growth Rate
25%
22%
20%
15%
11%
10%
6%
5%
5%
4%
4%
2%
2%
2%
11
12
1%
0%
0%
0%
1
2
3
4
5
6
7
8
9
10
VZ Financial Analysis
VZ DCF Model
VZ Sensitivity Analysis
Current price
$27.52
Implied equity value/share
$31
Upside potential
12.65%
Terminal Discount Rate
VZ
Free Cash Flow Growth
Discount rate = 9.5%
Terminal growth rate =3%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
2.0%
32.78
30.19
27.79
26.00
24.28
22.70
21.41
20.20
2.5%
34.56
31.65
29.17
27.02
25.15
23.51
22.05
20.05
3.0%
36.67
33.6
30.58
28.19
26.13
24.34
22.76
21.36
3.5%
39.19
35.58
32.22
39.54
27.26
25.28
23.56
22.04
4.0%
42.28
37.81
34.16
31.12
28.55
26.36
24.46
22.81
VZ Valuation Analysis
Absolute
Valuation
A.
High
Low
Median
Current
#Your
Target
Multiple
*Your
Target E,
S, B,
etc/Share
Your
Target
Price
(F x G)
B.
C.
D.
E.
F.
G.
H.
P/Forward E
17.6
11.1
12.9
12.7
13
2.33
30.29
P/S
1.5
0.8
1.2
0.8
1
38.27
38.27
P/B
2.7
1.7
2.2
2.1
2.5
13.83
34.58
P/EBITDA
5.22
2.69
3.50
3.03
3.5
9.59
33.57
P/CF
6.0
3.6
4.3
3.6
4
8.07
32.28
Average price: $34
VZ Summary
Catalysts:
Risks:
 4G Technology
 Its Wireline unit declines year by
year and offsets the benefits
generated from Wireless unit.
 Verizon iphone!

Changes of regulation

Increased competition
 Verizon’s financial performance
is not very satisfactory.
NIHD vs. VZ
Five Year Stock Comparison
Conclusion
Verizon is a good stock but NIHD just performs
better. So we decide to:
• Sell Verizon (101 BP)
• Buy NIHD (131 BP to 400 BP)
• Total Telecom sector holdings – 400 BP (an increase of
30 BP)
Q&A