Measuring relative value in an underpriced sector    While the APAC ex-Japan market is back at pre-GFC highs, telcos need to rise41% to get there, and are up just 27% from GFC lows. As a result, half of theUSD10bn+ Asian telcos now sell at or below 12x 2018 P/E. Sector relative P/E hasdropped to 1.0x, a level only exceeded this decade during the GFC. While 1x maynot sound low, this is a sector picking up from the low end of its margin cycle, thatpays out the vast majority of earnings. This report attempts to screen for whererebounds are potentially available, with China Mobile, Telstra, Singtel, StarHuband China Telecom standing out. CT, CM and TLS, for example, are close to twostandard deviations cheap on relative P/E. Interestingly, StarHub's outgoing CEOjust bought SGD0.5m of stock. We would have made insider transactions a factor- but it is so rare in telcos, it seemed pointless.    Investors see value, but are waiting for catalysts, due to earnings sluggishness inrecent years. While a strong earnings pickup is not obvious, the sector is likely toclimb the wall of catalyst worry. We note margins have started to pick up afterhalving over the last 20 years. Disintermediation (by OTT) has hurt revenue, andthe cost of major network upgrades has lifted opex - as 3G, 4G and FTTx were builtout. Government efforts to improve competition, have also been painful. Suchearnings challenges, however, occur in all businesses, and telcos have failed toset pricing at levels to account for these issues. There is reason for hope though.    In almost all markets there have been attempts to normalize pricing and cutmarketing costs, suggesting management is under some pressure to do better.    And US and Japanese telecom stocks have had solid rallies, proving that thesector has its time and place.    Telcos trading at fairly extreme relative lows don't need to grow earnings sharply,but just have investors believe profits are not anchored. That's a fairly low bargiven the phase in the earnings cycle and IoT optionality. Chinese telcos couldalso rise simply by non-telco SOEs lifting payouts. We suggest that operators thatscreen well, and are Buy rated, such as China Mobile, China Telecom and Telstra,are good places for investors to start looking for sector exposure.    The Screener is designed to fill the gap between our more comprehensivequarterly Tracker reports.

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