We upgrade our recommendation on
NII Holdings Inc.
) to Neutral based on its low-level of current valuation and two
recently taken strategic decisions.
Why the Upgrade?
NII Holdings has decided to sell its operations in Peru to
Chile's Entel for around $400 million. The company will use the
sale proceeds to focus on two of its largest markets, Mexico and
Brazil. The deal is expected to close in the second half of 2013,
subject to regulatory approvals. In 2012, Nextel Peru contributed
only 5.6% to the company's total revenue. However, Nextel Peru's
2012 revenue suffered a 2.3% decline as cut-throat competition
from larger operators like
America Movil SAB
) affected its average revenue per user.
Recently, NII Holdings combined with Motorola Mobility, a
), to launch Atrix HD smartphone in Mexico. Atrix HD is preloaded
with NII Holdings' push-to-talk (PTT) solutions, called PRIP.
With Atrix HD, Nextel Mexico customers will be able to enjoy the
PTT service with a high-end smartphone. Additionally, the
software of PRIP can be used in other devices running on the
Risk/Reward Almost Balanced
Meanwhile, NII Holdings continues to perform inadequately. Due
to its somber results, management slashed its 2013 financial
outlook. This was primarily due to the volatile economic
condition coupled with huge depreciation of several Latin
American currencies with respect to the U.S. dollar. A stiff
competitive scenario in the Latin American markets is another
reason behind the lowering of the outlook. In our view,
intensifying competition and increased promotional expenses are
major near-term concerns. We do not expect the company to achieve
profitability either in 2013 or in 2014.
Nevertheless, the ongoing restructuring of the business model
may help the company to regain its lost ground. NII Holdings has
already started offering 3G wireless service in Chile and Mexico
and will deploy it on a wider basis in Brazil by mid-2013.
Healthy annual subscriber growth (11,361,500 total digital
subscribers at the end of 2012, up 6.1% year over year)
demonstrates its service capability and prospects over the long
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