ASEAN Telecom Sector - DBS Bank...Economic Value Added (EVA) is a measure of whether a company is...

ed: CK / sa: JC, CW, CS

Revisiting EVA for future direction

• Economic Valued Added (EVA) has been more potentthan earnings in predicting the share price; our EVA- based predictions in 2014 have largely materialised

• Our top picks are companies where capex haspeaked,and sharp EVA improvements are not priced in

• Netlink NBN, Singtel and Axiata Group are our toppicks in the region

EVA is more potent than earnings in predicting share price changes over five years.Earnings growth in the short term is often achievedby deploying more capital with diminishing returns. However, this does not improve EVA due to higher capital charge and might lead to a drop inearnings in the medium term due to rising deprecation. Barring the impact of tail-end events, our EVA-based predictions in 2014 have largely materialised. We prefer companies whose (i) capex has peaked, and (ii) big EVA improvements are not priced in.

Rising revenue and declining capex are idealbut we see either one missing across the countries. Singapore is likely to witness ~5% contraction in mobile revenue in 2019, driven by rising adoption of SIM-only plans, although capex has peaked already. TPG’s potentially weak launch in 2Q19F might lead to revenue stabilisation in Singapore from 2020 onwards, leading to street upgrades perhaps. In Indonesia, 7-8% top-line growthlooks promising in 2019,but capex is likely to rise with 4G rollout outside Java. Malaysia is set to see flattish growth in the mobile sector due to a milder competitive environment, while broadband is likely to see pricing edging downwards. Thailand mobile sector might see 2-3% revenue growth in 2019 with ARPU being pressured by unlimited data plans.

Netlink NBN, Singtel and Axiata are our top picks in the region. Netlink NBN is trading below its book value despite generating positive EVA with 7% regulatory return on its assets vs 6% WACC. Netlink offers 6.6% yield with 4% distribution CAGR over FY19F-21F. Singtel’s capex is on a downward trend led by lower capex in Australia and the share price implies only 2% EVA CAGR over next-10 years. Singtel offers 10% earnings CAGR over FY19F-21F and fixed annual dividend of 17.5Scts (~6% yield). Axiata’s capex is also on a downward trend,led by lower capex at Celcom and its share price implies only slightly positive EVA from 2020 onwards. Axiata offers over 30% earnings CAGR over FY18F-20F led by Celcom and XL Axiata– and offers 4% yield. Potential catalysts are monetisation of stakes in edotco and Idea-Vodafone.

KLCI: 1692.07 SET : 1563.88

TOH Woo Kim+60 32604 3917 [email protected]

Regional FY19F Dividend Yield

12 months of FY19F for Singtel and Net Link NBN (Mar YE) Source: Bloomberg Finance L.P., DBS Bank

3% 3%3%

4%4%

4% 4% 4% 4%

6% 6%7%

7%

FY19F Dividend Yield

DBS Group Research . Equity 2 Jan 2019

Industry Focus

ASEAN Telecom SectorRefer to important disclosures at the end of this report

STI : 3,053.43 JCI : 6194.50 Analysts

Sachin MITTAL+65 66823699 [email protected]

Thailand Research Team

STOCKS

12-mth

Price Mkt Cap Target Price Performance (%)

S$ US$m S$ 3 mth 12 mth Rating

NetLink NBN Trust 0.76 2,168 0.87 (2.6) (8.4) BUY Singtel 2.94 35,147 3.59 (9.3) (18.1) BUY Axiata Group 3.97 8,670 5.05 (12.9) (26.2) BUY

Source: DBS Bank, Bloomberg Finance L.P. Closing price as of 28 Dec 2018

Industry Focus

ASEAN Telecom Sector

The concept of Economic Value Added

Economic Value Added (EVA) is a measure of whether a company is earning better than its cost of capital. A positive EVA indicates that a firm has added value on top of the opportunity cost of capital.

EVA = Net Operating after Tax (NOPAT) – Capital charge Or EVA = (ROIC – WACC) x Invested Capital

Where Invested Capital = Book Value of Equity plus Net Debt ROIC = (EBIT – Tax)/(Book Value of Equity + Net Debt)

WACC is the weighted average cost of capital. ROIC is the Return on Invested Capital.

A positive EVA indicates that ROIC is higher than its WACC and the firm is creating value.

EVA can be enhanced by investing more capital into the business as long as ROIC exceeds WACC. Even if ROIC is declining but is still higher than WACC, the firm will see higher EVA. A negative EVA indicates that ROIC is below its cost of capital and there is value destruction by the firm.

As ROIC x Invested Capital = Net operating profit after tax (NOPAT)

While WACC x Invested Capital = Opportunity cost of capital So EVA = NOPAT – Opportunity cost of capital

EVA has been more potent than earnings in explaining market value changes

In the paper titled “EVA® AND MARKET VALUE” by Stephen F. O’Byrne, Stern Stewart & Co, the authors found asignificant relationship between changes in EVA and marketvalue. More specifically, they observed that 5-year changes inEVA explain 55% of 5-year changes in market value, whereas5-year earnings changes explain only 24%. As per theirresearch, 10-year changes in EVA accounted for 74% ofvariation in market value, as compared to the 64% explainedby 10-year changes in earnings.

There is a formula to value a firm based on EVA

The difference between the market value and book value of a firm is called Market Value Added or MVA.

MVA = Market Value - Book Value of Equity

The link between MVA and EVA is as follows: MVA = Present Value of Annual EVAs

This relationship is reproduced from G. Bennett Stewart III, The Quest for Value (HarperCollins, 1991).

If ROIC <WACC, a firm should trade lower than book value ideally. If a firm consistently generates ROIC equal to its cost of capital, then its EVA is zero, suggesting that MVA is also zero. This implies that the market cap of the firm should be the same as its book value. Similarly, if a company keeps generating high EVA, its market value is likely to be higher than its book value. And if a company consistently generates negative EVA (with no hopes of turnaround in the future), its market cap is likely to be lower than its book value.

Furthermore, a study by McKinsey found that companies with higher EVAs managed to sustain their outperformance over the medium term relative to those in the lower end, through the infusion of more capital into their businesses. As these companies were already generating higher ROICs, the infusion of more capital helped them grow their EVAs even further. Hence, analysing historical performance of EVAs could provide us with a reasonable expectation of the company’s future EVA performance.

2014 vs now – were our predictions correct?

In our report “Economic profit as the guiding light” released in January 2014, we used a two-stage growth model to understand the market expectations of growth in EVA. If the market cap implied >10% EVA CAGR over the next 10 years, then the stock is considered expensive. If the market cap implies less than 4-5% EVA CAGR, then the stock is considered attractive. Ignoring the structural changes in the markets, such as the threat of the entry of a new operator in Singapore and the high spectrum prices in Thailand weighing on the ROIC of operators, we believe that EVA was a good indicator of future performance and a suitable metric for identifying overvalued opportunities in the region.

Industry Focus


Counters with high MVA/EVA valuations have dissappointed the market

Sources: DBS Bank, Reuters, Companies Benchmark indices – Reuters Thailand wireless telecom index, Reuters Indonesia telecom services index, Reuters Malaysia telecom services index (all indices are on total return basis)

We revisit this exercise in 2018, to understand market expectations of growth in EVA for regional counters and have a re-look at the market valuations of counters under our coverage. We use a two-stage growth model to understand the market expectations of growth in EVA.

For the first stage, we assume that companies can grow their EVA at a constant rate over the next 10 years. After 10 years, we assume terminal EVA growth rates of 0% in Singapore, 1.5% in Malaysia and 2% in both Thailand and Indonesia. Based on the existing market cap of companies, we figure out the implied EVA CAGR over the next 10 years using the relationship between MVA and EVA.We then compare the implied EVA CAGR with historical growth rates to see if expectations are too high or low from a historical perspective. We also use the MVA/EVAas a metric to assess the sensibility of the current market valuations of counters under our coverage.

We use 2018 as the base year for this computation for Singapore, Thailand and Malaysia, as market conditions in 2018 were largely reflective of the likely market conditions in the

future. However, for Indonesia, we use 2019 as the base year, as operators were negatively impacted in 1H18 due to the pre-paid SIM registration period and we think that 2019 would be better reflective of future market conditions.

Key risks to our view

Tail-end events could distort predictions based on EVA. Predictions based on EVA ignore potential structural changes in the marketplace, regulatory issues and other tail-end events, which could result in severe disparities between predictions based on EVA and actual performance. For instance, the potential entry of a new player in Singapore and the resultant price competition led to severe declines in the profitability and EVAs of Singapore operators, thus distorting previous predictions based on EVA. High spectrum prices weighed on the ROIC of Thai operators, thereby distorting predictions made based on EVA. Tail-end events could impact the long-term ROIC generation ability of operators, thereby distorting predictions made based on EVA.

Industry Focus


EVA CAGR over next 10-year as implied by the market value

Source: Companies, DBS Bank

Share price

WACC 2018F ROIC

Avg. Book Value 2018

Market Value EVA (2018F) Implied EVA CAGR over next 10-years

StarHub 1.76 7.0% 25% 317 3,126 181 1.9%

Singtel 2.90 6.7% 9% 29,503 47,779 989 2.2%

Net Link NBN 0.76 6.0% 7% 3,102 2,974 35 nm

Advanced Info 171 8.2% 23% 54,885 502,902 22,234 4.7%

Total Access Com 43.00 9.0% 4% 30,853 100,158 1,741 16.0%

Digital Telecommunications Infrastructure Fund

14.50 7.2% 6% 117,009 136,955 (2,322) nm

Indosat 1,695 9.4% nm 13,475,628 9,607,194 (3,774,158) nm

PT Telkom 3,720 9.2% 23% 114,917,817 350,085,873 18,247,709 0.8%

XL Axiata 2,010 9.4% 4% 21,557,162 19,960,835 (1,829,755) nm

Link Net 4,810 10.2% 28% 4,832,323 15,365,379 722,296 4.1%

Digi.Com 4.32 7.0% 62% 519 33,474 1,415 4.2%

Maxis Bhd 5.27 6.8% 16% 7,159 40,944 1,309 5.4%

Telekom Malaysia 2.25 8.2% 2% 7,447 8,681 (872) nm

Time Dotcom 8.00 7.6% 10% 2,368 4,670 46 15.7%

Axiata Group 3.99 7.1% 5% 30,828 36,065 (805) nm

PT Sarana Menara Nusantara

620 9.6% 21% 7,659,407 31,445,414 1,603,138 2.4%

Tower Bersama Infrastructure

3,490 9.4% 10% 3,215,652 15,779,694 169,362 23.3%

Industry Focus


Singapore - EVA vs share price

Singtel’s EVA improved in 2014 largely from growth in associate contributions offsetting declines in Singapore and Australia and mild increases in capex. EVA took a hit from 2016, largely owing to higher capital expenditure on Optus’s accelerating network rollout and spectrum payments in Singapore. Declines in associate contributions from 2017 onwards amplified the dip in EVA, which is reflected in the downward movement of Singtel’s share price from January 2018.

StarHub’s share price has been on a downward spiral, reflecting the continued fall in StarHub’s EVA. StarHub suffered continuous declines in EVA owing to higher capex infusions into its 4G network rollout and spectrum payments. Operating profits also took a dip, especially after 2016, with continued subscriber losses in the Pay-TV segment and exacerbating competitive conditions in the mobile market amid the anticipated entry of the fourth operator.

EVA history and Outlook - Singapore

Source: Companies, Reuters, DBS Bank

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jan‐14 Jul‐14 Jan‐15 Jul‐15 Jan‐16 Jul‐16 Jan‐17 Jul‐17 Jan‐18 Jul‐18

(S$) Share price movement

Singtel Starhub

360 349 329 298 208 181 177 187

2,200 2,391 2,373

2,177

1,690

989 1,206

1,498

‐

500

1,000

1,500

2,000

2,500

3,000

2013 2014 2015 2016 2017 2018F 2019F 2020F

S$mEVA history and Outlook ‐ Singapore

Industry Focus


Singapore - Next 10-year EVA CAGR implied by the current market cap

Share price

WACC FY18F ROIC


Market Value

EVA (2018F) Implied EVA CAGR over next 10-years

Past 5-year EVA CAGR

StarHub 1.77 7.0% 25% 317 3,066 181 1.0% -13%

Singtel* 2.90 6.7% 9% 29,503 47,025 989 2.2% -15%

Net Link* NBN

0.76 6.0% 7% 3,102 2,974 35 nm nm

*FY19F due to March YE Source: Companies, DBS Bank

EVA prospects and key risks

Netlink NBN is trading below its book value despite a positive EVA. Positive EVA is based on ROIC of 7% (regulatory WACC) vs our WACC of 6.0%. Reported earnings are lower than the distributions due to accounting depreciation being much higher than the regulatory depreciation. Netlink will benefit from 100% migration to fibre over the next two-years. As of 30 Sep 2018, NLT’s network had passed 1.36m residential homes out of 1.50m estimated residential homes in Singapore, implying 90% rate. There were 1.24m residential end-user connections, representing c.91% of homes-passed.

Key risk for Netlink’s share price will be sharp rise in interest rates. NLT could trade at S$0.68 or 7.5% yield if Singapore’s 10-year bond yield in the last quarter of 2019 rises to 3.4% vsour expectations of 2.9% (2.45% currently) and yield-spreadstays at 4.1% vs our expectations of 3.0% (4.1% currently).Our bear-case valuation implies ~5% downside risk

Singtel is likely to see EVA grow in the future vs declining EVA in the past due to three key factors. (i) Improvement in associates contribution led by Telkomsel in FY20 (Mar YE) and Bharti entering positive earnings territory in FY21. (ii) Potentially lower annual capex than S$2.2bn in FY19 as Australia capex is trending downwards. (iii) Potentially spinningoff the digital businesses in FY21 which are seeing narrower losses but still loss-making.

We see two key risks to Singtel’s share price. (i) Potential sharp increase in losses from Bharti in FY20 could more than offset the growth from Telkomsel in FY20. (ii) Digital businesses may see further widening of losses instead of being narrowed down. Our bear-case valuation for Singtel is S$2.65, implying only 3% downside potential including the dividend yield.

StarHub likely to see EVA growth due to massive cost-cutting despite revenue under pressure. StarHub is likely to see S$30m in annual cost savings from FY19 onwards due to staff reduction and another S$30m in savings from FY20 onwards due to the shutdown of co-axial cable network. TPG has invested very little so far and may not gain subscribers in 2Q19 launch leading to stabilisation of revenue for StarHub.

Key risk will be TPG having a significant impact.Our bear-case valuation is S$1.75 if TPG causes severe disruption. StarHub could see a 6% drop in FY19 EBITDA under thisscenario vs 2.5% under our base case.

Our investment thesis

Netlink faces negligible earnings risk and offers over 6.6% yield with FY19-21 distribution CAGR of 4%. NLT’s yield is similar to industrial S-REITS despite its much longer asset life as Netlink incurs annual capex to replenish its depreciated asset base. Plus Netlink has ample room to raise its debt at ~3% and invest in regulated return of 7%.

Singtel offers assured annual DPS of 17.5 Scts (6.0% yield) with FY19-21F EPS CAGR of 7%. Associates’ profit contribution has been a critical factor for Singtel’s share price historically. A potential rebound in associate contributions in FY20F led by Telkomsel, AIS and Globe despite a weak Bharti, could prompt the market to re-rate the counter. Singtel is attractive, trading at a 12-month forward PE of 15x, -2SD of its historical average of 17x and offers 7% EPS CAGR over FY19F-21F and 6.0% yield.

Stronger-than-expected earnings rebound in FY20F. The street’s FY19F earnings are edging up and we expect to see more upward revisions going forward. StarHub’s valuation is attractive, trading close to -2SD of its historical EV/EBITDA and PE average, and offers sustainable yield exceeding ~5.7%

Industry Focus


Indonesia EVA vs share price

PT Telkom’s EVA has been rising with growing operating profits in the mobile segment. High double-digit growth in EVA over 2015-16, is clearly reflected in the steady growth of the share price over 2016, while the decline in the share price over late 2017 and over 2018 is explained by the dip in EVA over 2018, which was a result of tight competitive conditions in Indonesia.

Link Net’s share price, on the other hand, exhibits a weak correlation with EVA, largely due to corporate governance issues and Link Net’s slow rollout approach that allows the entry of new competitors.

EVA history and Outlook - Indonesia


High-double digit y-o-y growth in EVA over 2016 sent the price higher

Decline in EVA due to subscriber losses in 1H18 sent the share price lower

Industry Focus


Steady improvement in Indosat’s EVA was rewarded by the market as seen from the improvement in Indosat’s share price over late 2015-mid 2017. However, with EVA tapering off towards mid-2017, the counter experienced sharp declines in the share price from mid-2017, which continued through 2018, reflecting the steep tumble in Indosat’s EVA owing to heavy subscriber losses and tight competition in 1H18 due to the prepaid SIM registration era in Indonesia.

The sharp fall in XL Axiata’s EVA, over 2014-2016, driven by declines in operating profit owing to subscriber losses and higher capital infusions on network expansions during XL’s transformation phase, explains the dip in share price over late 2014-2015. The improvement in EVA over 2017 is also reflected in XL’s share price over 2017.

EVA history and Outlook - Indonesia


Companies, DBS Bank

‐640

‐1,689

‐3,347

‐2,104 ‐1,830 ‐1,489

‐2,863‐2,425

‐526

‐4,252‐3,774

‐3,279

‐5,000

‐4,500

‐4,000

‐3,500

‐3,000

‐2,500

‐2,000

‐1,500

‐1,000

‐500

0

2013 2014 2015 2016 2017 2018F 2019F 2020F

Rp b EVA history and Outlook ‐ Indonesia

XL Axiata Indosat

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Jan‐14 Jul‐14 Jan‐15 Jul‐15 Jan‐16 Jul‐16 Jan‐17 Jul‐17 Jan‐18 Jul‐18

(IDR) Share Price movement

XL Axiata Indosat

Lower operating profits due to subscriber losses and tight competition causes a sharp fall in EVA

Steady improvement in XL’s EVA over 2017

High capital infusions and lower operating profits during XL’s transformation period, sent both EVA and share price down

Industry Focus


EVA history and Outlook – Indonesian Tower

Indonesia (Rp) Share price

WACC FY18F ROIC


Market Value EVA (2018F) Implied EVA CAGR over next

10-yrs

Past 5-yrs EVA

CAGR PT Telkom 3,720 9.2% 23% 114,917,817 350,085,873 18,247,709 0.8% 7%

XL Axiata 2,010 9.4% 4% 21,557,162 19,960,835 (1,829,755) nm nm

Link Net 4,810 10.2% 28% 4,832,323 15,365,379 722,296 4.1% 31%

Indosat 1,695 9.4% nm 13,475,628 9,607,194 (3,774,158) nm nm

Sarana Menara 620 9.6% 20.7% 7,659,407 31,445,414 1,603,138 2.0% 38%

Tower Bersama 3,490 9.4% 10.1% 3,215,652 15,779,694 169,362 23.0% -2%


322,235

1,181,925 1,249,052 1,083,051

1,498,716 1,603,138

1,694,260 1,819,317

188,334

304,316 264,170 125,748

223,896 169,362 196,640 257,404

‐

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2013 2014 2015 2016 2017 2018 2019F 2020F

Rp m EVA History and Outlook ‐ Indonesian Tower

PT Sarana Menara Nusantara Tower Bersama Infrastructure

0

2,000

4,000

6,000

8,000

10,000

12,000

Share price (IDR)

Share Price ‐ Indonesian Tower


Implied EVA CAGR for Indonesian operators

Tower BersamaSarana Menara

Industry Focus



PT Telkom’s ~1% EVA CAGR is justified as competitors may steal most profitable ex-Java business. PT Telkom is reasonably valued, with an implied 10-year EVA CAGR of ~1% vs. 7% recorded over the last five years. PT Telkom is likely to see the pace of EVA growth shrinking as i) Telkomselis likely to shed market share outside Java, which is the most profitable part of the business, to XL Axiata, which could weigh on Telkom’s ROIC, and ii) the growing proportion of non-Telkomsel businesses (~32% of Telkom’s topline) have lower ROIC vs. Telkomsel given their capital-intensive nature and lower margins.

Link Net is attractive with an implied EVA CAGR of 4% vs 31% CAGR over the past five years. Link Net has recorded high double-digit growth in EVA over the past five years, supported by the company’s strategy of conducting network rollouts to maximise ROIC. While Link Net is likely to see lower ROICs going forward, as the company has now taken a more aggressive stance on network rollouts, we believe Link Net is still likely to beat mid-single-digit EVA growth implied by the current valuation.

Key risk for Link Net is potential decline in broadband penetration in existing areas. If broadband penetration in areas with home-passed drops by 20bps each vs our base-case assumption of stable penetration, this may lead to our bear-case valuation of Rp4100.

XL Axiata’s negative EVA likely to narrow down. XL Axiata has recorded narrowing down of its negative EVA since 2016 and we believe this would continue to be the norm going forward, supported by above-average industry growth in topline and continued streamlining of XL’s cost structure. However, XL Axiata is unlikely to turn in a positive EVA in the near term, owing to another year of peak capex of ~Rp7tr in 2019.

Key risk for XL Axiata will be Telkomsel disrupting benign competition. If Telkomsel instigates price wars both within and outside Java, it will result in only 3% growth in cellular revenues for FY19 vs +10.2% growth under our base-case scenario and lead to our bear-case valuation of Rp1,900.

Indosat EVA likely to remain in negative territory. Indosat is likely to keep generating negative EVA over the near term due to mounting pressures on the topline. Indosat is also planning to pump over Rp30tr over the next three years to expand its presence in regions outside Java. ROIC generation on these investments is likely to be low as competition in ex-Java regions already remains intense and gaining enough market share to generate double-digit ROICs could prove to be difficult within the first few years.


XL Axiatato gain revenue share in 2019. The market is overly concerned over XL Axiata further lowering its data pricing 8% q-o-q in 3Q18, which we think, has bottomed out in 3Q18. XLintends to double its revenue market share in the ex-Java regionto 30% in 4-5 years largely at the expense of Telkomsel thatderives over 60% of its revenue from ex-Java vs 20% for XL.This coupled with below average exposure to legacy services(~20% of XL Axiata’s top line vs 42% for Telkomsel in 3Q18)should allow XL Axiata to record 10% revenue growth in 2019vs 8% growth for Telkomsel.

PT Telkom (TLKM) is not cheap as we expect capex to rise and consensus EPS to be cut. Firstly, ~60% of Telkomsel’s (TLKM’s cellular arm) revenue comes from outside the Java (ex-Java) region wherecompetition is ramping up and may erode Telkomsel’s market share. Secondly, Telkomsel has ~42% exposure to declining voice and SMS services, much higher than its competitors. Thirdly, non-Telkomsel businesses (~32% of the group’s revenue) not only have lower EBITDA margins but also suffer from high operation expenditure and depreciation costs. In conclusion, consensus FY19F EPS is likely to be cut 8%. TLKM is not cheap either at 17x 12-month forward PE around its historic 5-year average.

Indosat’s negatives are largely priced in with 60% YTD contraction. We expect ISAT to post ~6% growth in cellular revenue over FY19F, supported by benign competition in Java. We expect ~7% EBITDA growth in FY19F, supported by cost- cutting initiatives and lower churn rates. While ISAT has improved its network over the last six months, it may take another 12 months to change the perception and Indosat is likely to lag behind the industry growth rate of 7-8%.

Industry Focus


Sarana Menara Nusantara (TOWR) is trading near replacement cost despite solid return on invested capital (ROIC). TOWR is trading at an attractive 12-month forward EV/EBITDA of 6.0x, ~2SDs below its historical mean of 11.0x while offering 6.7% FY18F-20F EBITDA CAGR and ~5.5% yield. It is now trading near the replacement cost of towers despite generating an ROIC over its average cost of capital. Being the largest operator in the Indonesian tower sector, TOWR will benefit from 4G capacitygrowth in Java and coverage expansion outside Java (ex-Java).

Tower Bersama’s (TBIG) over 60% valuation premium to its peers may narrow. TBIG is trading at a 12-month forward EV/EBITDA of ~10.5x, at 65% premium to Sarana Menara Nusantara (TOWR) vs its 3-year historical average premium of 35%. We think that the premium may narrow as TBIG is likely to face similar pressure on tower leasing price from top-3 customers. TBIG offers 5.5% FY18F-20F EBITDA CAGR while its 5.3x net debt to EBITDA limits the potential for big acquisitions.

Link Net to benefit from accelerating subscriber growth amid benign competition. Link Net has upgraded its guidance on homes passed to 250k for FY19F from 180k in FY18 indicating a potential pick-up in subscriber growth. We think the timing is quite opportune as its key competitor Telkom has been raising pricing for its premium subscribers. We project revenue and EBITDA CAGRs of 11% and 10%, respectively, over FY18-21F at Link Net and we think the counter is attractive trading at an FY19F EV/EBITDA of 5.1x vs. ~7x peer average.

Industry Focus


Malaysia EVA vs share price

Digi’s EVA has suffered declines ever since 2014, due to 4G rollout capex and worsening competitive dynamics with the entry of Telekom Malaysia into the mobile space, coupled with aggressive pricing behaviour of smaller operators after the spectrum re-farming exercise. Digi’s share price dipped in 2015, reflecting the fall in EVA and has remained fairly stable since then, despite seeing declines in EVA.

Time Dotcom has seen steady improvements in EVA, owing to growth in operating profit. This is clearly reflected in Time’s share price, which showed steady improvement over 2014-2017, mirroring the improvement in EVA. Maxis’s EVA, on the other hand, exhibits a relatively weak correlation with the share price, as reflected by the limited upward movement in the share price, despite marginal improvements in EVA over 2014-17.

EVA history and Outlook –Malaysia


Growth in EVA over 2014

4G network roll-out and tightening competition weighed on EVA

Steady rise in Time’s share price mirrors the improvement in EVA

Industry Focus


Axiata group’s EVA witnessed a sharp decline over 2016, largely owing to subscriber losses and pricing pressures experienced by Celcom, lower associate contributionsand currency woes further exacerbating the decline in operating profit of the Axiata group, driving EVA deep into negative territory over 2016/17. Axiata’s share price corrected over 2016 with EVA decline

Telekom Malaysia (TM) has recorded steady declines in EVA since 2015, owing to the contraction of operating profit with Telekom Malaysia’s entry into the mobile sector, coupled with high capital infusions on mobile and fixed network rollouts. Despite the fall in EVA, TM’s share price declined only marginally over 2015-18, before contracting sharply over 2018 on news of the regulatory changes to lower fixed broadband prices. This mirrors the sharp fall in EVA that TM is likely to witness over 2018.

EVA history and Outlook –Malaysia


Sharp fall in EVA led to only a marginal decline in the share price

Share price correction on news of regulatory changes to broadband pricing and resultant decline in EVA

Share price remained stable despite sharp fall in EVA

Industry Focus


Implied EVA CAGR for Malaysian operators

Malaysia Share price WACC FY18F ROIC

Avg. Book Value 2018 Market Value EVA (2018F)

Implied EVA CAGR over next

10-years

Past 5-Year EVA

CAGR

Digi.Com 4.3 7.0% 62% 519 33,474 1,415 4.2% -3%

Maxis Bhd 5.3 6.8% 16% 7,159 40,944 1,309 5.4% -1%

Time Dotcom 8.0 7.6% 10% 2,368 4,670 46 15.7% nm

Telekom Malaysia 2.3 8.2% 2% 7,447 8,681 (872) nm nm

Axiata Group 4.0 7.1% 5% 30,828 36,065 (805) nm nm

Source: DBS Bank

Axiata Group to return to positive EVA territory by FY20F. We expect the Axiata group to record narrowing negative EVA over 2018/19 with a potentially positive EVA over FY20F. This would be primarily driven by i) Improving operating conditions in Malaysia, with limited disruptive pricing practices by smaller operators, potential margin improvements through digitisation and lower capex, improving ROIC by Celcom, ii) above-industry growth and cost controls of XL Axiata, improving operating profit contribution, and iii) lower associate losses from Idea-Cellular after the divesture following the merger of Idea and Vodafone and potential monetisation of Axiata’s remaining stake in Idea-Cellular, allowing capital to be better deployed elsewhere. Deployment of capital to more profitable ventures could further buttress growth in EVA for the Axiata Group.

Key risk for Axiata will be potential disappointment from XL Axiata and forex. Earnings contribution could be lower than expected if XL Axiata is not able to win revenue share despite seeing a rise in capex.

Time DotCom likely to see near 17% growth in EVA over the next two years. Market share gains in the fixed broadband segment and growth in the wholesale (domestic & international) and retail segments should allow Time DotCom to improve ROIC over the near term, with potential EVA CAGR of ~17% EVA over the next two years, marginally above market expectations. EVA generation over and above market expectations could prompt a re-rating of the counter, as the market re-adjusts its expectations of future growth in EVA.

Key risk for Time Dotcom will be steeper decline in bandwidth prices. Steeper-than-expected decline in bandwidth prices and/or slowdown in data demand will be an earnings risk for TIME's bandwidth business.

High expectations for Digi and Maxis.The market is pricing in EVA CAGRs of~4% and 6% for Digi and Maxis respectively, which are at the higher end of our expectations. While we believe the duo would be able to record low-mid single-digit growth in EVA given flattish growth in the mobile sector, we believe at current valuations, the counters have little room for disappointment.

Telekom Malaysia unlikely to see positive EVA in the near term. TM’s EVA dipped into negative territory in 2016, with its entry into the mobile sector, thus weighing on the operator’s high single-digit ROIC for its fixed line and enterprise businesses. Negative EVA has since persisted with growing competitive pressures in both broadband and segments and rising regulatory pricing revisions. With regulatory uncertainties and pricing pressure expected to remain recurring issues for TM, we believe TM’s negative EVA would continue to be the norm over the near term


Top pick is Axiata for recovery play in 2019. Axiata’s share price is down by 30% YTD, and we believe this has largely priced in the near-term weak performance by its operating subsidiaries. We expect to see gradual improvement in Celcom and XL Axiata’s results over the next 12 months, which will be the key catalyst to drive a recovery in its share price. Asset monetisation of its stake in edotco and Idea-Vodafone will be a bonus, if they materialise.

Industry Focus


BUY on TIME due to its strong growth in data. We like TIME for its strong growth profile, contributed by both its wholesale (domestic & international) and retail segments. While the reduction in fixed broadband prices might have short-term impact on margins, we believe this is beneficial for TIME in the medium to long term as it gains meaningful market share. The stock trades at an attractive valuation of 16x FY19 PE (-1SD) and has a strong balance sheet to support its network expansion.

TM - still facing regulatory pressures. We believe the sharp fall in TM’s share price has priced in most of the negatives for the company (i.e. declining broadband prices, regulatory

pressures, exclusion from FBM KLCI, dividend cut, etc.). However, it remains hard for us to be constructive on the stock, given that regulatory uncertainties and pressures would be key recurring issues for TM in the medium term.

Maxis and Digi – supported by domestic liquidity. Domestic-focused operators such as Digi and Maxis are trading at around 11.5-12.4x CY19 EV/EBITDA, a premium relative to the regional average of 7.7x. Given the ample domestic liquidity, we believe the premium valuations can be sustained as long as dividend yields remain decent and are backed by strong free cashflow generation.

Industry Focus


Thailand EVA vs share price

Advanced Info Service’s (ADVANC) EVA remained stable over 2013-15 before sharply declining over 2016, due to heavy capital infusions on spectrum assets acquired at high prices and ADVANC’s expansions into fixed broadband. The impact of capital infusions was further exacerbated by tight competitive conditions in the mobile segment, weighing down ADVAC’s operating profit. The decline in EVA is captured by the sharp fall in ADVANC’s share price in late 2015. EVA has largely remained stable since then, as reflected in ADVANC’s share price.

Total AccessCommunications’ (DTAC) EVA entered negative territory in 2016, owing to continued pressure on operating profit, as Truemove, equipped with a strong network, aggressively poached DTAC’s subscribers. The decline in DTAC’s EVA explains the steady correction of DTAC’s share price from 2014-2016. EVA has only marginally improved since then, while DTAC’s share price has also remained largely stable since 2016. Digital Telecommunications infrastructure Fund’s share price, on the other hand, exhibits a weak correlation with EVA.

EVA history and Outlook – Thailand

6,765 6,081

1,329

‐2,453 ‐1,844 ‐2,692

1,741

32,59431,504

32,986

23,95222,346 22,234

25,019 25,631

0

‐1,875 ‐1,078 ‐1,593 ‐2,429 ‐2,322 ‐3,051 ‐2,970‐5,000

0

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10,000

15,000

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2013 2014 2015 2016 2017 2018F 2019F 2020F

THB m EVA history and Outlook ‐ Thailand

Total Access Com. Advanced Info. Digital telecom Infra.

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DIFU THBAIS, DTAC THB Share Price movement ‐ Thailand

Total Access Comm. Advanced info. Digital Telecom. Infra

Sharp fall in EVA on higher capital infusions and lower operating profits

Steady decline in EVA due to tight competition in the mobile segment

Industry Focus


Implied EVA CAGR for Thailand operators Thailand (THB m) Share

price WACC FY18F

ROIC Avg. Book Value 2018

Market Value

EVA (2018F)

Implied EVA CAGR over next 10-years

Past 5-Year EVA CAGR

Advanced Info. 171.0 8.2% 23% 54,885 502,902 22,234 4.7% -7%

Total Access Com* 43.0 9.0% 4% 30,853 100,158 1,741 16.0% nm

Digital Telecommunications Infrastructure Fund

14.5 7.2% 6% 117,009 136,955 (2,322) nm nm

*2019F EVA for Total Access Communications. Source: Companies, DBS Bank


ADVAC likely to see high single-digit growth in EVA over the next two years. ADVANC’s EVA declined in 2016, no thanks to its move into the fixedbroadband segment and intensifying competitive pressures on the mobile front that was driven by an aggressive TRUE. Intense competitive conditions on the mobile front, however, have now subsided, allowing ADVANC to improve its temporarily depressed ROIC in the mobile segment. Furthermore, ADVANC’s fixed broadband segment should also see an upliftment in ROIC going forward, with ADVANC penetrating deeper within regions with existing coverage 2-3 years back. This should allow ADVANC to record high single- digit growth in EVA over the next two years vs. market expectations of ~5% growth, potentially prompting a re-rating of the counter.

Key risk for ADVANC will be high handset subsidies. With TRUE looking to gain market share, it may give out high levels of handset subsidies in the postpaid segment. To retain its customers, ADVANC too may have to continue maintaining its handset subsidies for a longer period.

DTAC likely to fall short on market’s expectations of EVA growth. DTAC’s EVA is likely to enter positive territory in FY19F, supported by regulatory cost savings and lower depreciation and amortisation charges. Whilst, DTAC is likely to see low-mid single-digit growth in EVA over the next few years, the high double-digit growth as projected by the market is highly unlikely to materialise, given the current competitive conditions in the mobile segment. Lower than expected growth in EVA over the next two years, could prompt the market de-rate the counter.

Failure to maintain market share will be a key risk for DTAC. If DTAC’s market share is threatened by other operators, the telco’s fixed costs might be affected.

Digital telecommunications Infrastructure Fund (DIF) EVA likely to remain in negative territory in the near term. DIF’s infrastructure driven business model and the existence of an anchor-tenant, TRUE, offers limited room for major improvements in DIF’s ROIC, which hovers around 6% currently, below its WACC of 7%. However, possible improvements in tenancy ratio, with potential rentals secured from DTAC and ADVANC or inorganic growth driven by DIF’s healthy balance sheet, may help DIF improve current ROIC over the medium term, with potential to yield positive EVA.

We see three key risks of DIF’s share price. i) New technological risks such as Single radio access network (RAN) and carrier aggregation could lead to more efficient use of tower slots in the long run. ii) A weak macroeconomic environment could result in lower investments by telcos and iii) If DIF fails to be seen as an independent player, other telcos might not lease towers from DIF for strategic reasons.


Our top pick for the sector is Digital Telecommunications Infrastructure Fund (DIF). Thanks to its c.7% yield in FY19F and 11% upside to our DCF-based TP of Bt16.20. DIF is an infrastructure fund that invests in telecom towers and fibre optics. It has long-term visibility on cashflow, thanks to its lease agreements made with TRUE group which is an anchor tenant of its assets. In addition, DIF is also expected to benefit from DTAC’s network improvement strategy in the coming years.

Industry Focus


In terms of mobile services operators, we prefer ADVANC to DTAC. ADVANC’s share price has been depressed by its weak 3Q18 results and it is currently trading at c.-1SD. Though the driver for its top line may be pressured by ARPU in FY19F, ADVANC has recorded a YTD net gain of 0.59m total subscribers with a clear uptrend for its post-paid subscriber base of 0.63m, representing c.1.5% of its total mobile subscriber base. In addition, ADVANC also has a more diversified portfolio with its fixedbroadband business which should yield higher growth compared to the legacy mobile business in the coming year. Given our DCF-based TP of Bt223 and the potential upside

of 24.6%, we prefer ADVANC to DTAC. DTAC may seem to be attractive for its almost -2SD valuation, but this can be mainly attributed to its huge FY19F earnings growth which is mainly driven by regulatory costsavings as DTAC will be operating fully under a licence model, and also the decrease in depreciation and amortisation of the deferred right to use equipment from the concessionary assets. Given that our TP is based on DCF model where cash capital expenditure is considered, this leaves only 3.1% upside to our TP of Bt49.50.

Industry Focus


SingaporeOutlook

We project annual contraction of 5% for the mobile sector in FY19F. We estimate that mobile service revenues declined ~4.5% over 9M18 vs our projection of a 4% decline over FY18F. Declines were largely driven by postpaid ARPU due to SIM-only plans and contractions in legacy usage. We expect the mobile industry to contract ~5% over FY19F, driven by the

adoption of SIM-only plans (12-13% of postpaid user base currently vs 25% in 2-3 years) and commercial launch of TPG’s services in 2Q19F. However, if TPG faces serious network quality issues, incumbents may not hesitate to raise their pricing in our view, implying room for positive surprises.

Industry to contract ~5% over FY18/19F

Source: Company data, DBS Bank

Pay-TV business model needs to change to stem the shrinking of the Pay-TV market. The pay-TV market in Singapore has shrunk by ~8.5% y-o-y YTD with ~65k subscriber losses over 9M18, as subscribers continued to opt for cheaper OTT alternatives. We believe that pay-TV subscriber losses will continue through FY19 with the industry topline contracting ~5-6% over FY19. The management of StarHub believes that, given the structural decay in the industry's Pay-TV revenues, the current business model needs to evolve. Under the proposed Pay-TV business model, subscribers will be able to choose the content they wish to view. This would also translate to content costs becoming more variable in nature as Pay-TV providers re-negotiate industry contracts to make payments based on the number of subscribers subscribing to a specific channel. StarHub’s management is re-negotiating contracts to make payments based on the number of subscribers as and when they come up for renewal. Content-providers are reaching subscribers directly and are more open to variable-cost contracts than in the past.

Resumption of Smart Nation contracts to benefit telcos amid intensifying competition in the enterprise segment. As the government has lifted its moratorium on new Smart Nations projects, Singtel and StarHub’s investments in fields such as

cybersecurity are expected to bear fruit over the next few years. Singtel is set to benefit from the resumption of Smart Nation projects, and might benefit from a rebound in ICT revenue with ~S$300m of additional ICT revenue over 2H19F (March YE) vs. 1H19 largely stemming from Smart Nation contracts. However, with the entry of StarHub and other mobile operators into the enterprise services segment, Singtel’s pricing premiums in the enterprise segment have come under pressure. StarHub’s joint venture partner Certis Cisco has strong ties with the Singapore government, with its executive team comprising several former government officials from the Ministry of Home Affairs and Singapore Armed Forces. The company has also managed the Cyber-Watch Centre of the Singapore government since 2007, providing round-the-clock monitoring of the government's IT systems and networks. This should make StarHub’s cybersecurity division a likely candidate for clinching future government cybersecurity contracts pertaining to Smart Nation projects.

Hot issues

TPG’s low capex spend and launch delays bring reprieve to telco incumbents. TPG has so far spent A$66.7m (S$65.7m) in cumulative capex on its Singapore rollout, or ~22-32% of its

‐2.1% ‐2.0%

‐4.8% ‐4.8%‐6.0%

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Mobile Service Revenue Growth

Industry Focus


planned S$200-300 of capex. The telco revealed that its production network covers ~90% of outdoor areas during its FY18 results briefing and mentioned that is on track to meet the nationwide coverage requirement by December 2018, as set forth by IMDA. TPG has delayed the commercial launch of its services to 2Q19 from late-2018, citing delays in negotiating access to the jointly built common antenna systems of the incumbents and network testing. TPG is slated to launch 4G trials in 4Q18, followed by a commercial launch of services in 2Q19.

At the current level of capex spend, TPG’s network at commercial launch is unlikely to pose a major threat to the incumbents, in our view. We estimate that StarHub, the second largest operator in Singapore, is likely to have spent over S$600m on its 4G network since 2013, almost 10x of the current capex spend of TPG on its 4G network. We are of the view that to become a disruptive market player in Singapore, TPG would need to significantly ramp up its capex rollout to provide ubiquitous coverage. While TPG is likely to meet the outdoor coverage requirements by 2018, the quality of the outdoor network is likely to be poor with patchy and inadequate coverage inside buildings and MRTs given its current capex spend. This would make it difficult for TPG to lure low-end subscribers, who already enjoy much better network quality and coverage through Mobile Virtual Network operators (MVNOs) that ride on the incumbents’ mobile networks.

TPG not meeting coverage requirements could lead to penalties or forced industry consolidation. We believe TPG would need to significantly boost its capex spend and network rollout over 2019, in order to meet IMDA’s road tunnel and in-building coverage requirements by December 2019. TPG would also need to negotiate access to common antenna systems of the incumbents, given the limited availability of space for deploying antennas in key sites. Any potential delays in TPG’s network

ramp up or negotiating access to the incumbents’ network could lead to TPG failing to meet the coverage deadlines set by IMDA. While this is likely to result in only a fine (S$5,000-S$50,000) in the first few instances, continued failure to meet coverage requirements, particularly owing to issues in securing funding for capex, could prompt the regulator to mediate a forced consolidation of the industry or push TPG to dispose of its spectrum assets to an incumbent.

Mobile Virtual Network Operators (MVNOs) march on with their aggressive expansion plans. Against a backdrop where TPG was expected to enter Singapore in 2H18, each incumbent operator partnered with MVNOs takes the total number of mobile service providers in the country to seven from three players at the end of 2015. By partnering with MVNOs, the incumbents are 1) making it difficult for TPG to succeed by stirring up competition in the SIM-only segments, which TPG is likely to target first, and 2) generating wholesale mobile revenues, offsetting anypotential revenue impact in the low-end segments that is likelyto be caused by TPG.

MVNOs such as MyRepublic and Circles.Life, with their low-cost model, superior network quality (as they leverage on the network assets of established players) and convenient customer service (100% app-based), may attract a substantial number of customers, especially the low-income segments, in shifting to cheaper SIM-only plans. As the majority of MVNOs’ revenues will flow back to their telco partners, telcos are better off losing revenue share to MVNOs than TPG by offering flexible wholesale pricing to their MVNOs. TPG is likely to compete on cheaper pricing but will be challenged by MVNOs that offer superior network quality and differentiated services. As MVNOs are already disrupting the Singapore telco market, we do not expect a major disruption from TPG in 2H19 when it launches its services in Singapore.

Industry Focus


3.5% and 4% revenue share grab by MVNOs and TPG respectively by 2022 under our base case scenario

We have assumed that 65% of MVNO revenue will flow back to their telco partners Source: Company data, DBS Bank

SIM-only plans to continue weighing on ARPU. Both Singtel and StarHub witnessed y-o-y declines of 10% and 8% in postpaid ARPUs over 3Q18, respectively, largely owing to the growing adoption of SIM-only plans. We believe SIM-only plans will rise in popularity over the medium term, with lengthening smartphone replacement cycles, which could further incentivise subscribers to move away from bundled plans. The growing adoption of SIM-only plans presents a challenge to operators, with potential declines in mobile service revenues, dilution of ARPU and profitability. Customer spend over the life of SIM-only contracts tends to be substantially lower than handset plans, and SIM-only plans remain less profitable than handset plans, even after taking handset subsidies into consideration.

Our industry checks indicate that SIM-only plan adoption among Singapore postpaid customers grew from 8-9% in 1Q18 to 12-13% by 3Q18. Judging from Australia’s experience, where SIM-only plans constitute ~25% of the total postpaid plans, Singapore is likely to see a leap in these plans. Customer spend on SIM-only plans vis-à-vis handset plans tends to be substantially lower and growing uptake would negatively impact mobile service revenues and dilute industry ARPU going forward.

Regulations and Risks

Significant capex outlay by TPG in 1H19. The telco revealed that its production network covers ~90% of outdoor areas during its FY18 results briefing and mentioned that is on track to meet the nationwide coverage requirement by December 2018, as set forth by IMDA. We believe that, whilst, TPG is likely to meet the outdoor coverage requirements by 2018, quality of the outdoor network is likely to be poor with patchy and inadequate coverage inside buildings and MRTs given its current capex spend. However, there is a risk of TPG incurring high capex in 1H19 to create a formidable network to compete with the incumbents. This could potentially disrupt pricing and mobile services revenue.

Cost-cutting initiatives may be less impactful than expected. Singtel has spoken of plans for a ~S$70m cost savings initiative while StarHub has announced plans to save ~S$210m in operating expenses over a period of three years, largely through reductions in staff expenses, procurement, leasing, maintenance and sales and distribution expenses. StarHub is expected to terminate ~300 full-time employees, leading to annual cost savings of ~S$30-35m along with digitisation and rationalisation of expenses in other categories that support savings. Even though telcos have announced ambitious cost-cutting plans, the actual savings may be materially less than those announced due to their investments in new businesses such as cybersecurity.

53.4% 53.7% 52.7% 51.6% 50.5% 49.5%

27.5% 27.0% 26.6% 26.1% 25.6% 25.1%

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Singtel StarHub Other TPG MVNOs*

Industry Focus


Indonesia Outlook

Mobile sector to witness 7-8% revenue growth in 2019. We assume benign competition in Java over FY19, despite intensive competition outside Java under our base case. XL Axiata is likely to grab ~2-3% revenue market share outside Java through aggressive pricing strategies as the telco plans to double its market share in ex-java regions to 30% in 4-5 years. This should allow XL Axiata to grow its ex-Java base by high double digits, which coupled with benign competition in Java (~80% of XL Axiata’s topline) should allow XL Axiata to grow at ~10% in FY19. The bulk of the market share gains forXL Axiata would likely stem from Telkomsel (~80% market share in regions outside Java) which, coupled with declines in legacy services (~42% of Telkomsel’s top line in 3Q18) would lead to ~8% growth in Telkomsel’s revenue base over FY19. Supported by benign competitive conditions in Java, which accounts for ~90% of Indosat’s (ISAT) topline, ISAT should be able to record mid-single-digit growth, in our view.

High-speed fixed broadband penetration in Indonesia on a growth trajectory. We estimate that high-speed fixed broadband penetration (connections over 5Mbps) in Indonesia doubled over the past year from 4% household penetration in1H17 to 8% household penetration as of 3Q18. This was largely driven by aggressive expansions by Telkom Indonesia (TLKM), which added nearly 2.7m subscribers over the same period. All major fixed broadband players are aggressively expanding their coverage regions to capitalise on the growing appetite for high-speed data among the expanding middle-income class in Indonesia. Extrapolating the growth in high-speed broadband penetration over the past year coupled with the growing interest in the segment by incumbents and new operators like XL Axiata and ISAT, we expect to see penetration of high-speed broadband services rising to at least 20% over the next three years, adding ~9m new households to the high-speedbroadband segment.

Accelerating coverage and high-speed fixed broadband coverage in Indonesia

Sources: Telkom Indonesia, Link Net, MNC Play Media, MyRepublic, Department of Statistics Indonesia, World Bank estimates, DBS Bank

Hot issues

Mobile Sector

Ex-Java to be the key focus in FY19. XL Axiata’s management reiterated its commitment to keep expanding coverage outside Java with ~50% of capex allocated to expanding coverage in the region. XL Axiata hopes to achieve ~80% 4G population coverage outside Java by the end of the year vs

40% penetration 3-4 years ago. XL Axiata is now the second operator in many second and third tier cities outside Java and continues to push hard with a focus on commodity related markets, such as Sumatra, Kalimantan and Sulawesi.

Based on our checks with tower operators, ISAT is currently upgrading the equipment of its network in existing coverage

Total high speed broadband Coverage (Homes Passed in 000's) 4Q17 3Q18 Growth

Telkom Indonesia* 18,700 27,925 49%

Link Net 2,000 2,146 7%

MNC Play Media** 1,209 1,399 16%

BizNet N/A 448

MyRepublic* 500 575 15%

* - Estimated based on 17% penetration rate ** - Estimated based on 20% growth in homes passed over 2017 *** - Estimated based on 15% growth in broadband subscribers and 28% penetration

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High Speed Fixed Broadband Penetration - Indonesia

Industry Focus


regions, but order flows for ex-Java coverage has been slow. The new management has pledged to invest ~Rp30tr(US$2bn) over the next three years to close the existing network gaps of ISAT with other operators. ISAT currently covers only ~27% of the population outside Java via 4G and plans to improve this to 60% over the next few years. Hence, we expect to see more ex-Java action from ISAT in 2019 once the ongoing network upgrade is complete.

Telkomsel is also expanding 4G coverage and quality in the region aggressively with the recently acquired 2.3GHz spectrum. With all three operators racing to expand coverage, to leverage on the rising adoption of smartphones in the region, we believe the market’s focus should shift to operations outside Java in FY19, as ex-Java would likely account for the lion’s share of incremental growth in the mobile industry.

Data pricing may have bottomed out. XL Axiata lowered the data pricing 8% q-o-q in 3Q18 as its data-pricing discount to Telkomsel had narrowed to 15%-20% in 1Q18-2Q18 vs an average discount of 34% in 2017 when XL Axiata had gained significant market share. Witha 32% discount to Telkomsel in 3Q18, we think that XL Axiata should be looking to sustain 32% discount to optimiseits subscriber and revenue share. Data-pricing outside Java (ex-Java) is higher than the pricing in Java, so overall data-pricing is likely to trend upwards for XL Axiata from gains in the ex-Java region.

Data-pricing differential had narrowed too much in 1H18


Telkomsel likely to cede revenue market share to XL Axiata in 2019. We estimate that XL Axiata shed ~0.6% revenue market share in 3Q18, largely due to the re-pricing of data services by Telkomsel. However, we believe the service revenue growth of Telkomsel would normalise in 4Q18, with the impact of the re-pricing largely baked into its 3Q18 numbers.

Telkomsel controls ~80% of market share outside Java with XL Axiata accounted for ~15% of the remainder. XL Axiata is planning to double its market share over the course of the next five years. We believe that the bulk of these gains would stem from Telkomsel as, 1) with XL Axiata aggressively

bridging its network gaps with Telkomsel, we may see price-sensitive customers switching to XL Axiata, and 2) with XL Axiata becoming the second operator in most second- and third-tier cities, any market share gains for XL Axiata would have to stem from Telkomsel.

XL Axiata is also at an advantage with the lack of exposure to legacy revenues, the declines of which are accelerating in ex-Java regions as seen in Telkomsel’s recent quarterly results. Telkomsel, which generates ~60% of its top line from regions outside Java (vs. ~20% for XL Axiata), has seen legacy revenues contracting in the recent past, primarily due to rising smartphone adoption in ex-Java regions that is supported by

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Telkomsel XL Axiata Indosat

Industry Focus


the proliferation of cheap Chinese handsets. This could further exacerbate potential revenue share losses for Telkomsel in the region. Revenue market share in Indonesia- Telkomsel benefited from re-pricing in 3Q18 despite subscriber losses

Sources: Companies, DBS Bank

Fixed broadband industry

TLKM dominates the market but smaller players are creeping up. TLKM continued its dominance in the high-speed fixed broadband market, accounting for ~82% of subscriber market share as of 3Q18. TLKM’s early entry to fixed broadband and extensive legacy network infrastructure is driving the telco’s dominance in the fixed broadband space, but smaller operators are aggressively expanding their coverage regions, with the hope of claiming dominance in selected regional clusters that are yet to be occupied by two or more players. Link Net is the second biggest operator by subscriber market share, with its network predominantly

concentrated in the greater Jakarta region. MyRepublic, BizNet and Media Nusantara Citra (MNC) operate smaller regional networks concentrated on residential areas and central business districts in Jakarta.

Competition in the fixed broadband segment remains benign, as indicated by TLKM’s decision to raise pricing by 5-10% on a selected set of its subscribers. Link Net followed TLKM’s lead and instituted similar price changes in its package offerings. Given the low penetration of fixed broadband services, providing enough room for several operators, and the heavy investments required to provide regional coverage, we do not expect major price wars between operators.

67.5% 68.1% 67.7% 67.2% 67.3% 68.1% 70.3% 69.8% 70.7%

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Telkomsel XL Axiata Indosat

Industry Focus


TLKM dominates the fixed broadband market in Indonesia

Fixed broadband market getting crowded with the entry of XL Axiata and ISAT. In 1H18, XL Axiata announced plans to invest US$ 500m to introduce triple-play service packages covering mobile/fixed broadband and Pay TV services. The telco also launched ‘XL Home POW!’ home internet broadband services targeting areas with difficult internet access. Although the service is still in pilot stages, XL Axiata’s management indicated its ambition to target not only tier 1 but also tier 2 and tier 3 cities. The service, with packages starting at Rp300,000 is currently online in selected regional clusters of tier 1 cities surrounding Jakarta such as Bogor, Depok and Bekasi. Assuming that XL Axiata sets aside ~US$100m for preliminary network set-ups and bandwidth purchases, and spends ~US$400m on rolling out its broadband network, we estimate that XL Axiata could provide coverage to over 1.1m households, based on our estimate of ~US$350 roll-out capex per home passed. ISAT also made its entry to the fixed broadband space with the launch of GIG early this year, offering triple play services via fixed fibre networks. In relation to this, ISAT launched GIG 2 Go in April 2018, a prepaid Wi-Fi home fibre service available in main cities like Jakarta, Tengah, Yogyakarta, Timur and Banten and plans to expand to cities such as Jabodetabek, Bandung, Surabaya and Semarang. ISAT’s broadband-only packages start at Rp280,000 for 20Mbps speed.

Regulations and risks

Regulator pushes hard for M&A in the industry. The Indonesian mobile market is dominated by five licensed network operators accounting for ~99% of the market share: Telkomsel, ISAT, XL Axiata, Tri and Smartfren. BOLT! and Hinet are also present in the country, accounting for ~1% of the market between them. With many operators in competition, smaller players have attempted to scale up, sparking price wars and eroding ARPUs. Besides the allocation of limited spectrum resources among a larger number of players has raised quality issues and restricted the ability of large scale incumbents to expand. Kemkominfo, the regulatory body of the telecom industry, has called on the country’s mobile phone operators to consolidate through mergers and acquisitions. Kemkominfo has renewed the public campaign to encourage M&A among the operators encouraging the smaller operators without sufficient resources for network investments to merge with one another or with larger operators. Going forward, in the absence of any voluntary M&A among operators, Kemkominfo may seek to force smaller operators to consolidate with large-scale operators or re-allocate the spectrum assets of the smaller operators to large-scale incumbents.

83%11%

3%

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High Speed Fixed Broadband Market Share - Indonesia

TLKM4.7m Households

Link Net600,000 Households

MyRepublic160,000 Households

Assuming 8.4% High speed fixed broadband penetration in Indonesia. Estimated subscribers for MyRepublic and MNC Play Media. Ignoring subscribers of other operators such as BizNet, Indosat and XL AxiataSources: Company Data, DBS Bank

MNC Play Media216,000 Households

Industry Focus


Thailand Outlook

To record a mild topline growth in FY19F.Despite healthy growth in data consumption, the sector is expected to see only a mild topline growth of c.2-3% in 2019, no thanks to the impact of the popular fixed-speed, unlimited-data plans offered by operators in FY18, especially during the DTAC transition period from concessionary model to licence model. The migration of subscribers wasprompted by ADVANC and TRUE’s attractive packages including low-priced, fixed-speed, unlimited data plans. Nonetheless, we expect the value-driven offering for service quality upgrade in both mobile and fixed broadband services to be the key driver for FY19F.

Shifting from aggressive handset subsidies to value-for-money package offerings. The Thai telecommunication industry has experienced less intense competition in FY18 in terms of handset subsidies.However, the operators competed in terms of mobile data packages instead. The notable strategy adopted in FY18 is the fixed-speed, unlimited data plan which was first launched by DTAC in its attempt to defend its market share during the transition period from concessionary model to a full licence model in mid-September 2018. Other operators like ADVANC and TRUE have caught up with DTAC’s strategy and started to offer the same packagesat a lowprice starting from Bt299 per month. In addition, ADVANC and TRUE also competed head-to-head in selected areas in northeast Thailand with a more localised campaign, thus minimising the acquisition cost per subscriber.

Thailand mobile subscriber revenue market share (9M18)

Source: Companies, DBSVTH

Thailand’s mobile subscribers market share


Mobile/fixed broadband outlook for FY19

Pressure on APRU uplift mainly due to the popularity of low-price unlimited-data plans. A stable to a slight downward trend in average mobile ARPU is expected, as witnessed in the downward movement of 3Q18 weighted average ARPU by subscriber base.As Thailand has a mobile penetration rate of over 130%, we expect to see minimal increments in the number of subscribers over the next few years. Hence, the major revenue driver for the mobile sector will be price increments rather than volume-driven factors. ADVANC had recorded a net gain in subscriber number in 2Q18, for the first time after five consecutive quarters of net losses. The net addition momentum also carried into 3Q18, thanks to concerns over DTAC’s long-term service quality during the transition period from concessionary model in September 2018. For the first ninemonths of FY18, ADVANC and TRUE had recorded net subscriber gains of 0.6m and 1.5m respectively. Though both operators’ subscriber base has expanded in 3Q18, both had experienced a decline in an ARPU. ADVANC has suffered from the impact of the low-priced fixed-speed, unlimited data plan. TRUE also offers a low-priced unlimited data plan and is at the same time gaining more pre-paid subscribers which generally yield lower-than-average ARPU per subscriber per month.

29.1% 28.4%

27.2% 26.8% 26.2%25.7% 25.1%

24.4% 24.1%

23.5%

45.9% 45.7% 45.6% 44.8% 44.8% 44.7% 44.6% 44.8% 44.7% 44.8%

25.0% 25.9%

27.2% 28.4% 29.0% 29.7% 30.3% 30.9% 31.3% 31.7%

15%

20%

25%

30%

35%

40%

45%

50%

2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

DTAC ADVANC TRUE

DTAC23%

ADVANC48%

TRUE29%

Industry Focus


Weighted average mobile ARPU by no. of subscribers


DTAC to heat up competition in FY19F. Thanks to DTAC’s decision to acquire the 900MHz spectrum and incur a huge capital expenditure of Bt38bn, we expect DTAC to put togethera marketing campaign to regain market share lost during the concession’s expiry in last September. We expect DTAC to aggressively leverage its expanding 2.3GHz network to attract higher-ARPU subscribers. Nonetheless, we expect ADVANC and TRUE to take cautious steps in reacting to promotional campaigns rolled out by DTACas the deadline for the huge 900MHz licence payments is approaching in FY20F. Though DTAC may have more room to play in FY19F, as the timeline for huge cash outflow is further away, we expect DTAC to be aggressive in its targeted segment of postpaid subscribers, as DTAC also needs to preserve cash for a huge 900MHz licence payment in FY23F.

Settlement on telecom tower ownership. Post DTAC settlement on the dispute over the ownership of telecommunication towers procured during the concession period with CAT Telecom in late September, TRUE had also announced during its 3Q18 results briefing that it is likely to reach an amicable agreement with CAT Telecom on the tower ownership issue. Therefore, we also expect ADVANC to follow suit. As a result of DTAC’s settlement plan with CAT Telecom, the former has also entered into an agreement to lease telecom towers and other related equipment from CAT Telecom. Under the scenario that TRUE and ADVANC

also ink a similar deal, we see potential downside risks to the forecast in terms of higher network costs.

Spectrum roadmap for 5G technology is unclear. According to the latest statement released by the National Broadcasting and Telecommunications Commission (NBTC), a committee will be set up in December 2018 to carry out the review and revision of auction guideline for spectrums that can be supported by 5G technology. Given the upcoming general election expected in February 2019, we also expect to see some changes in NBTC committee that may impact the spectrum roadmap for 5G technology.

Fixed broadband market also facing downward pressure on APRU uplift. Given the intense competition, the fixed broadband industry also faceddownward ARPU trend in 3Q18 as witnessed by TRUE and ADVANC. TRUE has introduced the plan for customers to upgrade their subscriptions to asuperior package, while also offering a discount on the upfront entrance fee, therebypressuring TRUE’s ARPU. JAS, which is the second largest fixed broadband service provider, also launched new FTTx package with 50/20 Mbps at a monthly subscription fee of Bt590 on par with its xDSL service (30/10Mbps). As JAS previously offered smaller or larger packages for its FTTx service, therefore we expect the competition in this segment to be more intense in FY19F.

Fixed broadband ARPU trend

Source: Company, DBSVTH

anies, DBSVTH

..

220

225

230

235

240

245

250

4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Bt/Sub/m

onth

530

545

560

575

590

605

620

635

650

665

1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Bt/user/month

TRUE

AIS

JAS

Industry Focus


Malaysia Outlook

Flattish mobile revenue growth in 2019. Amid the already high penetration rate in Malaysia, we expect competition and data pricing to remain stable for the mobile segment in 2019. We assume relatively stable market share for the incumbents, with Digi slightly ahead as it catches up against peers in the postpaid segment. Meanwhile, service revenue for Maxis could be tepid as its RAN sharing agreement with U Mobile will be gradually terminated by 1H19. We think competitive pressures from smaller players should lessen in 2019 due to company-specific internal issues. For U Mobile, this refers to its network quality issues post the termination of network sharing with Maxis, while TM will need to focus on its fixed broadband business.

Overall, data now contribute approximately 55-60% of mobile operators’ revenue, which means diminishing impact from declining legacy voice and SMS over the next few years. We believe it is possible for the mobile industry to return to a low-growth period, as long as data pricing stays rational.

Re-pricing in the fixed broadband segment. The fixed broadband market is dominated by TM with close to 80% market share. Despite relatively flattish fixed broadband penetration rate at 35-37% of household over the last few years, TM was still able to grow its Internet segment revenue by 8-15% annually as more subscribers took up or switched to high-speed fibre broadband plans (Unifi) with ahigher ARPU. However, we expect TM’s broadband revenue to decline by 5% in 2019, as the full-year impact from the recent reduction in fixed broadband prices starting 4Q18 is felt. This was regulatory-driven by the implementation of MSAP (Mandatory Standard on Access Pricing), generally a short-term negative for incumbent (i.e. TM), but could be potential gains for other players that can be competitive (i.e. TIME and Maxis).

Fixed line broadband subscriptions in Malaysia (in ‘000)

Source: TM, Maxis

Hot issues

Mobile Sector

Mobile penetration rate in Malaysia

Sources: MCMC

Prepaid to postpaid migration to continue. Amid the fall in data pricing and introduction of affordable plans, we saw a general shift in subscriber preference towards postpaid, which now makes up about 26% of the market (compared to just 18% a few years ago). In our view, subscribers have fewer incentives to hold multiple SIMs now – this explains the declining mobile penetration rate as well as prepaid subscriber base over the past few years. After three years of decline, mobile penetration rate seems to have stabilised in 2018 based on the latest statistics from MCMC.

In prepaid, Digi still have the highest subscriber base (9.1m subs vs. 6.3-6.6m of peers), partly due to its larger market share in the migrant workers segment. On revenue basis, the gap is not that huge as Digi has a relatively lower prepaid ARPU.

For postpaid, subscriber market share is finally converging close to equilibrium with the three incumbents having about 2.7m to 3.0m subs. However, there are still clear segmentations in subscriber profile between Maxis (high-end/corporate), Celcom (mid-end) and Digi (value-for-money).

A year-long of truce in data pricing. Based on our observation, baseline pricings and data quota for most popular plans have largely remained unchanged since 2017. There were only a few limited promotions during the August-September period, where free data was given in conjunction with National Day. On competition, incumbents have been disciplined and did not respond to some aggressive plans by the smaller players. Particularly, U Mobile introduced two unlimited plans at very

7.1 7.4 7.8 8.1 8.7 9.6 10.2 11.2

29.6 34.0 35.2 36.8 35.4 34.3 32.1 32.8

127.7

142.5 143.8 148.3

143.8 141.3

131.2 135.5

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No. of m

obile

sub

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Postpaid Prepaid Penetration rate (%)

Industry Focus


low price points of RM30 (prepaid) and RM50 (postpaid), respectively, albeit with a speed limit of 5Mbps.

Growth in data usage remains strong with 50-80% increase y-o-y as at 3Q18. However, this did not help to lift ARPU for mobile operators. Beside higher base quota, mobile operators have also been giving data freebies (i.e. free or extra data for social media, Youtube, video streaming, etc.) to subscribers, which remain prevalent till now.

Data usage per subscriber (GB/month)

Sources: Companies

Fixed Broadband Industry

TM – ARPU to decline in FY19-20 but could be compensated by higher take-up rates. To meet the government’s agenda of cheaper broadband prices, TM has started to upgrade its Unifi subscribers to faster speeds (8-10x) since Aug 2018 for free. Indirectly, this has led to a re-pricing in the fixed broadband market, where Unifi plans are now among the cheapest in the market. This has also forced Maxis and TIME to adjust their broadband packages as well. As a reseller of HSBB fibre broadband, Maxis is likely to have signed a new access agreement with TM recently at a lower wholesale price, following the implementation of MSAP.

All in, we expect Unifi ARPU to fall by 10%/6% in FY19-20 as: 1) some of the low-tier subscribers would take-up the cheapestbasic entry-level plan, and 2) mot all of the subscribers aretechnically able to upgrade to >100Mbps speed, while somesubscribers might downgrade.

Overall, we think lower pricing coupled with more variety of broadband packages offered by TM and access seekers should accelerate the take-up rate for HSBB services, which is only at about 55% of premises passed, and only about 20% of household penetration as at 3Q18.

Market share gain for TIME and Maxis In the long term, we expect TM’s retail market share for fixed broadband to gradually fall from the current dominant >80% to 50-60%, as new and smaller players gain more market share with the aid of regulations. Apart from lower wholesale prices, we believe the implementation of MSAP has also given more assurance to access seekers, as government policy is seen to be shifting towards promoting more competition in the fixed broadband market. Maxis and TIME are key potential beneficiaries given that they already have existing fixed broadband offerings, while new players might take some time to come out with new products.

Regulations and risks

Further liberalisation in fixed broadband. To drive growth in the digital economy, the Government is allocating RM1bn for the National Fiberisation and Connectivity Plan (NFCP) under Budget 2019. Compared to previous broadband projects such as the HSBB and SUBB which were awarded solely to TM, the NFCP will adopt an “open access” concept where new and existing providers can participate in providing backhaul and retail broadband services. For example, utilities provider TNB is currently running a pilot project in rural Melaka to provide high-speed broadband services using its existing fibre-optics network. Depending on the outcome, TNB might embark on a possible larger-scale NFCP participation nationwide, if it is commercially viable to do so.

For its longer-term target, the government hopes to achieve broadband speed of 30Mbps in rural areas within five years. This is in line with our view that the MCMC’s next focus will likely be on improving service quality and expanding broadband coverage.

Spectrum risks for mobile operators. MCMC has been quite hands off with regard to its policy on the mobile segment. This is mainly due to healthy competition in the mobile space, where data pricing had declined quite sharply over the past few years.

Nevertheless, mobile players are still relatively cautious given the lack of updates on the delayed 700MHz spectrum auction. We view this as an important development for the industry, as this would set the tone and expectations for any future spectrum policy under the Pakatan Harapan-led (PH) government. To recap, past government policy on spectrum had been very accommodative for the mobile sector (no auction, fixed allocation and fees). It remains to be seen whether this will still be the case, in view of the current government’s need to raise more revenue.

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3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

DiGi Maxis Celcom

Industry Focus


Regional Trends

Regional data yields on a downward trajectory

All figures are at constant US$ rates of Singapore Dollar – 1.37, Malaysian Ringgit – 4.14, Indian Rupee – 72.33, Indonesian Rupiah – 14,900, Thai Baht – 32.18 Source: Companies, DBS Bank

Data yields likely to remain under pressure over FY19.Singapore is likely to see yields edging down with the anticipated entry of the fourth mobile operator, TPG, into the market in 2Q19. While any major pricing disruption from TPG is likely to be confined in the low-end segments, some pricing pressure is likely to trickle down to the high-end segments, where incumbents largely focus on. Yields in Thailand are likely to edge down too, with the growing uptake of fixed speed, unlimited data plans popularised by DTAC and now offered by all three operators. We believe DTAC is likely to maintain an aggressive pricing stance in FY19, as the operator looks to rake back the market share it has lost since 2016. India is also likely torecord declines in yields albeit at a slower pace than 2018, as Reliance Jio’s continues to maintain an aggressive stance to reach its goal of ~50% market share.

However, we do not expect to see major disruptions to data yields in Indonesia over FY19, as we believe yields may have bottomed out in 1H18. Telkomsel and Indosat have already raised data pricing in the country and we believe XL Axiata may also do so over 4Q18/1Q19 in selected regions within and outside Java. Hence, yields are likely to remain stable or decline

only marginally in Indonesia over FY19, in our view. Benign competition in Malaysia should also only lead to marginal declines in data yields in our view.

Growing data consumption on cheap data and accelerating smartphone adoption. Consumption of data in the region has accelerated, fuelled by cheap data, emergence of Over-the-Top (OTT) video and music services and growing smartphone adoption. India and Indonesia recorded the highest growth in data consumption, driven by the proliferation of cheap Chinese handsets and growing network expansions of operators. Thailand and Malaysia also witnessed steep improvements, backed by the emergence of unlimited data plans and growing popularity of OTT services. Singapore, however, recorded only marginal improvements in data consumption as wireless data remains pricey and the ubiquity of fixed broadband, coupled with unlimited data, provides users with alternative wireless connectivity such as Wi-Fi. We believe there is ample room for data consumption to grow by high double digits in the ASEAN region whosesmartphone adoption remains well below that of an average developed market.

5.6

1.5

2.7

1.6 2.2

4.2

0.9 0.4

0.9 1.2

3.5

0.6 0.2 * 0.5 0.9

India Indonesia Thailand***

Data pricing trends in Asia (USD per GB)

3Q16 3Q17 3Q18Singapore Malaysia

All figures are in USD. Denotes the cost per GB *2Q18 figures for India, ***AIS

Industry Focus


Accelerating data usage in the region


Stable ARPU in the region despite competitive pressures. Average Revenue per User (ARPU) of regional operators have largely remained stable over the past six years, despite growing competitive pressures and declines in the usage of legacy services. ARPU of operators in Singapore and Indonesia have been on a downward trajectory over the past 2-3 years, owing to growing competitive pressures in each market, while Thailand and Malaysia have witnessed an upliftment of ARPU backed by more stable competitive dynamics. Going forward, we expect the ARPU of Indonesian operators to trend upwards, driven by improvements in data yields and growing data usage, offsetting any potential declines in legacy services. ARPU in

Singapore is likely to continue on a downward trajectory, with the anticipated entry of TPG in 2Q19. Though data consumption is growing healthily in Thailand, we expect to see a stable to slight downward trend in average ARPU in FY19F, no thanks to the competitive package launched during FY18F to take market share from DTAC during the transition period out from the concessionary operating model. Malaysia is likely to see stable or only marginal decline in ARPU over FY19, supported by stable competition as internal pressures on smaller operators discourage them from adhering to disruptive pricing measures.

ARPU of regional operators have remained stable

9M18 figures for Singapore cannot be used for comparative purposes due to changes in the classification of revenue under SFRS. All figures are at constant US$ rates of Indonesian Rupiah – 14,490, Malaysian Ringgit – 4.17, Singapore Dollar – 1.37, Thai Baht – 32.26 Source: Companies, DBS Bank

3,400 3,020

847 730

2,960

4,200

6,395

3,946

1,456

5,900 5,500

11,100

9,221

2,786

10,100

Singapore Malaysia India Indonesia Thailand**

Data consumption trends in Asia - Average MB per User

3Q16 3Q17 3Q18**AIS, Data consumption in MBs

2.2 2.1 2.1 2.4 2.4 2.2 2.0

12.0 11.3 11.4 11.2 11.1 11.6 11.8

31.7 31.7 33.2 33.3 31.9 30.7

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2012 2013 2014 2015 2016 2017 9M 2018

US$ARPU trends in the ASEAN

Indonesia Malaysia Singapore Thailand

Industry Focus


Data revenues to comprise >60% service revenues for Malaysia and Indonesia by end0FY19. Contribution of data services to the industry topline in the region continue to edge up, backed by declining usage of legacy services and growing consumption of data. We estimate that Singapore and Thailand already derive over 60% of service revenue from data services, at which point the contribution of growing data services becomes substantial

enough to offset the impact of declining legacy revenues. Contribution of data services to the topline in Malaysia and Indonesia is likely to exceed this inflection point of 60% over FY19 in our view, as growing consumption of data services and stable or marginal declines in data yields continue to support data revenues.

Data revenues to account for >60% of topline in Indonesia and Malaysia

Total data revenue as a percentage of service revenue of the operators mentioned below has been used to arrive at the country average. Indonesia – Telkomsel, XL Axiata and Indosat, Malaysia – Digi.com and Celcom, Singapore – Singtel , Thailand – DTAC and AIS, Indonesia Source: Companies, DBS Bank

Regional 4G capex cycle nearing the end. Singaporean operators have achieved almost 100% population coverage on 4G networks, followed by Thailand, which boasts >90% 4G population coverage although 4G speeds lag behind those of regional peers. The 4G deployments of Malaysian operators have slowed down amid intense competition, resulting in population coverage of only 77% as at end-2017. Delays in 4G spectrum auctions and inherent difficulties in providing coverage have resulted in only ~55% of population coverage in

Indonesia as at end-2017. Having reached the population coverage goals on 4G, Thai telcos are likely to trim their capex allocations going forward and shift their focus to improving capacity in existing coverage regions in a bid to uplift the country’s poor download speeds. Capex spend by Indonesian operators on the other hand is likely to remain elevated as Telkomsel and XL Axiata are aggressively expanding coverage in ex-Java regions, with Indosat planning to join the duo in 2019.

36%44%

53%41%

50%56%

64%70% 70%

49%

59%66%

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9M16 9M17 9M18

Data revenue as a % of service revenue

Indonesia Malaysia Singapore Thailand

Industry Focus


Regional 4G coverage to peak over 2019/20

Sources: Info-communications Media Development Authority of Singapore, Malaysian Communications and Multimedia Commission, Kemkominfo Indonesia, DTAC, AIS and TrueMove

Indonesian operators to see elevated capex ratios in the near term

Total capex spend by operators has been taken as a percentage of total service revenue to arrive at the country average. Singapore – Singtel, and StarHub, Indonesia – Telkomsel, XL Axiata and Indosat, Malaysia – Celcom, Maxis and Digi.com, Thailand – DTAC and AIS. Source: Companies, DBS Bank

Growing interest in network sharing among regional operators. StarHub rekindled its interest in network sharing in 3Q18 as the operator looks for avenues to cut costs. StarHub hopes to reach a commercial agreement on network sharing with an undisclosed MNO in Singapore by the end of 2018 with implementation taking place over 2019. Indosat and XL Axiata also expressed an interest in network sharing in early 2016, but the plans were put on hold, pending regulatory clarity on

network sharing. Estimates indicate that, the simplest form of network sharing – Radio Access Network sharing, where operators share towers and base stations responsible for connecting individual devices to the network – could save as much as 30-40% in opex and ~20% in cash flow for operators. With growing competitive pressures across the region weighing on operators’ cash flow and interests among regional operators to deploy 5G(that would resultin a need for operators to closely

99% 90%77%

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120%

Singapore Thailand Malaysia* Indonesia

Regional 4G population coverage

* ‐ End 2017

13% 12% 12% 12%14% 16% 15% 14%

19% 19% 20%24%

28%

36%

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2015 2016 2017 2018F

Regional Capex to Service Revenues

Singapore Malaysia Indonesia Thailand

Industry Focus


share network infrastructure, according to our research findings), we believe more operators in the region would look for network-sharing arrangements over the next 2-3 years.

Singapore and Malaysia trailing 5G but deployment could be 2-3 years away. Singaporean operators are leading the 5G charge in the region, with Singtel and StarHub partnering with Ericsson and Nokia, respectively, to conduct trials. Nokia and StarHub completed their first outdoor pilot of 5G New Radio on the 3.5GHz frequency band in Singapore in November 2018, while Singtel plans to deploy a pilot 5G network by the end of 2018 in one-north, the country’s business and IT hub. Malaysian operators have also commenced 5G trials and trial networks are

expected to be set up in Cyberjaya and Putrajaya over 2018/19. In Thailand, AIS and TrueMove are competing to be the first mover in 5G readiness, and are conducting preliminary testing using the 26GHz spectrum range allocated by the regulator for 5G testing. Indonesian operators have also shown a keen interest in jumping on the 5G bandwagon, with Telkomsel conducting limited 5G trials during the Asian Games held in the country in 2018. However, despite the ongoing hype, the commercial launch of 5G networks is likely to be 2-3 years away, given the limited use-cases for 5G at present and the very-high capex involved in deploying 5G networks.

Regional Peers Valuation

Singtel & NetLink 19&20 forecast; Source: DBS Bank; DBS Vickers; AllianceDBS

Mkt Price CA GR

Company Cap S$ 18-20(US$m) 28-Dec (%) 18E 19F 20F 18E 19F 20F 18E 19F 18E 19F 20F

China / Hong Kong SHCOMP Index 2,494

China Mobile 193,234 73.90 2 11.8 11.5 11.3 4.1% 4.2% 4.3% 1.3x 1.2x 2.8x 2.6x 2.4x

China Telecom 7,053 3.98 10 14.4 13.1 11.9 2.9% 3.2% 3.5% 0.8x 0.8x 3.2x 2.9x 2.6x

China Unicom 31,768 8.13 51 24.8 16.5 10.9 1.4% 2.1% 3.2% 0.7x 0.7x 2.3x 1.7x 1.1x

Smartone Telecom 1,250 8.73 10 15.8 14.8 12.9 4.7% 5.0% 5.7% 2.0x 2.0x 4.9x 4.4x 4.0x

Hutchison Telecom 1,785 2.90 -2 37.0 39.1 38.2 2.0% 1.9% 2.0% 0.9x 0.9x 3.2x 3.1x 2.9x

HKT Trust 10,888 11.26 3 17.3 16.9 16.3 6.0% 6.1% 6.2% 2.2x 2.2x 9.3x 9.0x 8.7x

Malay sia KLCI Index 1,692

Digi.Com 8,386 4.48 2 23.2 23.0 22.1 4.3% 4.3% 4.5% 67.2x 67.2x 12.6x 12.4x 12.1x

Maxis Bhd 10,275 5.46 6 21.4 20.8 19.2 3.7% 4.0% 4.0% 5.8x 5.5x 12.0x 11.7x 11.1x

Telekom 2,398 2.65 1 14.9 17.5 14.5 3.3% 2.9% 3.4% 1.3x 1.2x 3.8x 4.3x 4.0x

Singapore ST I Index 3,053

NetLink NBN Trust 2,168 0.760 16 38.3 33.5 28.4 6.5% 6.7% 7.0% 1.0x 1.0x 13.5x 12.6x nm

Singtel 35,147 2.940 8 15.9 15.2 13.6 6.0% 6.0% 6.0% 1.6x 1.6x 8.6x 8.3x nm

Starhub 2,230 1.760 3 13.8 14.1 12.8 9.1% 6.0% 6.2% 35.7x 25.9x 6.7x 7.1x 6.7x

T hailand SET Index 1,564

Advanced Info Serv ice 15,754 172.50 8 17.1 15.7 14.6 4.1% 4.5% 4.8% 8.7x 7.3x 8.2x 7.4x 7.3x

Digital Telecommunications 4,263 14.40 -2 13.2 13.9 13.8 7.1% 7.2% 7.3% 0.6x 0.6x 13.9x 14.4x 14.3x

Total Access Comm. 3,146 43.25 75 49.0 15.6 16.0 1.2% 3.2% 3.1% 3.2x 2.6x 4.5x 5.2x 4.8x

Indonesia J CI Index 6,194

Indosat 631 1,685 nm nm nm nm 0.0% 0.0% 0.0% 0.8x 1.0x 4.6x 4.4x 4.2x

PT Link Net Tbk 1,027 4,900 12 12.9 11.3 10.2 3.9% 4.4% 4.9% 2.8x 2.4x 6.1x 5.3x 4.7x

PT Telekom 25,588 3,750 6 18.4 17.0 16.4 4.1% 4.4% 4.6% 4.1x 4.1x 6.6x 6.2x 5.9x

XL Axiata 1,458 1,980 43 34.0 23.0 16.8 1.8% 2.6% 3.6% 1.0x 0.9x 4.6x 4.0x 3.5x

PT Sarana Menara 2,425 690 5 14.2 13.7 13.0 3.4% 4.0% 4.2% 4.3x 3.8x 8.6x 7.7x 7.4x

Tower Bersama 1,124 3,600 9 21.6 20.2 18.2 4.6% 4.8% 4.8% 5.1x 5.1x 9.9x 9.7x 9.3x

21.9 18.6 17.1 7.1 6.9 6.3

EV /EBITDAPE (x ) Div idend Y ield (%) P/BV

Industry Focus


DBS Bank, DBSVTH, AllianceDBS recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 02 Jan 2019 08:20:37(SGT) Dissemination Date: 2 Jan 2019 08:38:07(SGT)

Sources for all charts and tables are DBS Bankunless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd, DBSVTH, AllianceDBS. This report is solely intended for the clients of DBS Bank Ltd, its respective

connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form

or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other

factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or

warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without

notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific

investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees

only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial

advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)

arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not

to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons

associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may

not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to

update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

Industry Focus


(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public

offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage

in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the

issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real

estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the

management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or

his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the

DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”) or their subsidiaries and/or other affiliates have

proprietary positions in China Mobile, China Telecom, China Unicom, Hutchison Telecom, NetLink NBN Trust, Singtel, StarHub,

Advanced Info Service, Total Access Communication, recommended in this report as of 30 Nov 2018.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.

3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued

share capital in NetLink NBN Trust, recommended in this report as of 30 Nov 2018.

4. DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of

common securities of NetLink NBN Trust, as of 30 Nov 2018.

Compensation for investment banking services:

5. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12

months for investment banking services from Singtel, Indosat, XL Axiata, Tower Bersama Infrastructure, as of 30 Nov 2018.

6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend

to seek compensation for investment banking services from XL Axiata, as of 30 Nov 2018.

7. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering

of securities for Indosat, XL Axiata, in the past 12 months, as of 30 Nov 2018.

8. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of

securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons

1An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which

the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Industry Focus


wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any

security discussed in this document should contact DBSVUSA exclusively.

Directorship/trustee interests:

9. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of StarHub as of 30 Sep

2018.

Disclosure of previous investment recommendation produced:

10. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published

other investment recommendations in respect of the same securities / instruments recommended in this research report during the

preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment

recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other

affiliates in the preceding 12 months.

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.

DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

For any query regarding the materials herein, please contact Carol Wu (Reg No. AH8283) at [email protected]

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Industry Focus


Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn

No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United Kingdom

This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai International Financial Centre

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United Arab Emirates

This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

Industry Focus


United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Regional Research Offices

HONG KONG DBS (Hong Kong) Ltd Contact: Carol Wu 11th Floor The Center 99 Queen’s Road Central Central, Hong Kong Tel: 852 3668 4181 Fax: 852 2521 1812 e-mail: [email protected]

MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: 603 2604 3333 Fax: 603 2604 3921 e-mail: [email protected]

SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] Company Regn. No. 196800306E

THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 857 7831 Fax: 66 2 658 1269 e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected]

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