What has held me back on this one is rapidly deteriorating receivables turnover. If that keeps steadily deteriorating there will not be a lot of FCF. The Telcos might use this as a piggy bank by paying their bills really late.
I agree with you. The weakening receivables turnover this year is a red flag, and I'm not sure I buy the company's explanation for it. I'm personally inclined to wait until the end-of-year 2023 balance sheet has been released to see whether the receivables problem has been dealt with.
Yeah this is one to watch for sure. Potential >10% dividend yield on extremely stable cash flows by 2026 at current price. If receivables situation improves in 2024, I will probably jump in at $0.8 or below.
“In the months of January and February, the funds collection amounted to RMB211 billion, showing a significant increase compared to the average monthly revenue collection in the previous year.”
Perhaps the receivables turnover stays high as a new paradigm moving forward, but that just means they need more capital and return on capital drops a little. Underlying earnings does not go away though?
Interesting, yes I do think that receivables will remain high (low turnover) as local governments in China are strapped for cash. Seeing across other industries like pharma distribution as well. I doubt that receivable days will go much beyond the current level as it's already high. But let's see.
Thanks for the write-up! Broadly agree with the points - seems like a interesting opportunity. Regarding the peer group : you mentioned Bharti Airtel as the Indian peer, which is the 2nd largest Telco in India. However, Bharti Airtel had divested its tower business to form another listed entity called Indus Tower (INDUSTOW:IN) - so that would be a better peer to compare to.
Yeah I think that's because my deep-dives are "video posts" rather than regular posts. Second-best option might be to either listen to the video or use a text-to-speech plug-in for Chrome?
Thanks for sharing this interesting idea, Michael. I learnt a lot from your presentation.
The VIC write ups & comments were good too.
What has held me back on this one is rapidly deteriorating receivables turnover. If that keeps steadily deteriorating there will not be a lot of FCF. The Telcos might use this as a piggy bank by paying their bills really late.
I agree with you. The weakening receivables turnover this year is a red flag, and I'm not sure I buy the company's explanation for it. I'm personally inclined to wait until the end-of-year 2023 balance sheet has been released to see whether the receivables problem has been dealt with.
Yeah this is one to watch for sure. Potential >10% dividend yield on extremely stable cash flows by 2026 at current price. If receivables situation improves in 2024, I will probably jump in at $0.8 or below.
From the Q4 2023 earnings call:
“In the months of January and February, the funds collection amounted to RMB211 billion, showing a significant increase compared to the average monthly revenue collection in the previous year.”
Perhaps the receivables turnover stays high as a new paradigm moving forward, but that just means they need more capital and return on capital drops a little. Underlying earnings does not go away though?
Interesting, yes I do think that receivables will remain high (low turnover) as local governments in China are strapped for cash. Seeing across other industries like pharma distribution as well. I doubt that receivable days will go much beyond the current level as it's already high. But let's see.
Whoops my mistake, meant to say receivables turnover stays *low*.
Thanks for the write-up! Broadly agree with the points - seems like a interesting opportunity. Regarding the peer group : you mentioned Bharti Airtel as the Indian peer, which is the 2nd largest Telco in India. However, Bharti Airtel had divested its tower business to form another listed entity called Indus Tower (INDUSTOW:IN) - so that would be a better peer to compare to.
I also did a deep-dive a few months ago on Indus Towers, if you're interested: https://opensourceinvestor.substack.com/p/indus-towers-a-bet-on-the-future
Thanks for clearing that up and thanks for the write-up. Loved it.
Oops.....can't seem to attach pics here. Is there another way to share them with u?
Saw them now on Chat. Thanks Edwin!
Have U deactivated listening mode?
If you click the video, there should be audio playing. Having difficulties? Or are you referring to some kind of audio-only mode?
Referring to audio only, a robo voice reading the text, not too bad. Available for other substack posts like sent in X msg
Yeah I think that's because my deep-dives are "video posts" rather than regular posts. Second-best option might be to either listen to the video or use a text-to-speech plug-in for Chrome?
Thank you for this deep dive. Sharing some comments re from China Tower IR.