Telco - Overall - CIMB Group

Telecommunications│ASEAN│Equity research│September 27, 2016

Sector Note │ Alpha series ▎ASEAN

Telco - Overall

Neutral (no change)

Network parity and disparities

Highlighted companies Advanced Info Service ADD, TP THB205.0, THB161.5 close AIS is the largest mobile operator in Thailand, with 47% subscriber market share and 52% revenue market share in 2015. It had 39m subscribers, with THB239 ARPU in 2015. The company’s major shareholders are Intouch (40.5%) and SingTel (23.5%). Maxis Berhad REDUCE, TP RM5.20, RM6.14 close Maxis is regaining mobile revenue market share by increasing its traction in the prepaid segment. However, with postpaid competition intensifying, we believe that it will be difficult to drive up revenue further via MaxisOne plan adoption. Telekomunikasi Indonesia ADD, TP Rp4,800, Rp4,240 close Telkomsel’s superior data network puts the company in a strong position to ride on Indonesia’s robust mobile data demand growth. We expect stronger earnings delivery in FY16-17F on better cost management. Summary valuation metrics P/E (x) Dec-16F Dec-17F Dec-18F Advanced Info Service 16.61 16.08 15.11 Maxis Berhad 25.50 26.26 27.17 Telekomunikasi Indonesia 23.40 19.42 16.58 P/BV (x) Dec-16F Dec-17F Dec-18F Advanced Info Service 9.93 9.93 9.93 Maxis Berhad 10.25 9.71 9.32 Telekomunikasi Indonesia 3.83 3.49 3.25

■ ■

Network parity could lead to structural shifts in market share and dismantling of big price premiums, often at the expense of market leaders. Recent spectrum auction/reallocation in Thailand/Malaysia could bring both markets closer to network parity in the next three years.

■

Even with new network-sharing regulations, we think network parity will be close to impossible in Indonesia over the next five years.

■

In Singapore, new mobile entrant’s network coverage is likely to be comparable with incumbents’ in five years but at inferior speed. Initial battle for price-sensitive subs.

■

Stay sector Neutral. Maintain Add on Telkom Indonesia & AIS. Maxis now Reduce.

Network parity could lead to structural shifts Network parity occurs when the network experience is comparable across operators, and is no longer a key factor in determining which telco a sub chooses. This could lead to structural shifts in market share and dismantling of big price premiums, often at the expense of market leaders. Recent spectrum auction/reallocation in Thailand/Malaysia could bring both markets closer to network parity in next three years. New networksharing rules will help but closing the big network gap in Indonesia is a tough challenge.

Malaysia: Inching towards network parity Post-spectrum reallocation for 900/1800Mhz, we believe DiGi’s and U Mobile’s quality of service (QoS) will improve noticeably, especially indoors. Celcom is also undertaking a big network upgrade that should result in a better network by end-2016. As the network gap narrows, we believe it will be difficult for Maxis to sustain any large price premium over its peers and forecast its postpaid revenue market share (RMS) (Big 3 only) will fall from 44% in 2015 to 39% in 2018F, with DiGi as the main beneficiary (+5% pts).

Indonesia: Network gap too big to close Even if the regulator allows multi-operator core network (MOCN) sharing, we believe it will be close to impossible for Indosat-XL to achieve network parity with Telkomsel exJava in the next five years, given the latter’s significant lead in terms of cell sites and extensive fibre-optic network. We expect Indosat-XL to gain some RMS whenever they expand into new areas ex-Java but we think Telkomsel will cope. Our scenario analysis suggests only mild -0.4% to -2.3% pt impact on Telkomsel’s FY17-19F revenue growth.

Thailand: Down to cost/benefit analysis Dividend Yield Dec-16F Dec-17F Dec-18F Advanced Info Service 6.02% 6.22% 6.62% Maxis Berhad 3.26% 3.26% 3.26% Telekomunikasi Indonesia 2.56% 3.09% 3.57%

In Thailand, the smallest mobile operator (True) has network superiority. However, we foresee the larger mobile operators (AIS and DTAC) catching up by acquiring new spectrum, activating concessionary spectrum and expanding 4G coverage aggressively in 2016. We think this will lead to network parity and neutralise True’s competitive edge in 2017. As competitive intensity eases, we anticipate revitalised revenue growth, EBITDA margin expansion and network investment tapering for the industry in 2017-18.

Singapore: Get ready for more competition

Analyst(s)

We have mobile network parity in Singapore. Any differences in telcos’ QoS are too small to matter and none are able to charge a big price premium. As for the potential new entrant, we think its network coverage will be comparable to incumbents’ in five years but its speed may be inferior due to lesser spectrum. In the first 2-3 years, we believe the battle will be for price-sensitive subs. M1 and, to a lesser extent, StarHub, have bigger exposure to this segment (as % of total base) than SingTel.

Maintain Add on Telkom & AIS; Maxis cut from Hold to Reduce

FOONG Choong Chen, CFA T (60) 3 2261 9081 E [email protected] Pisut NGAMVIJITVONG T (66) 2 657 9226 E [email protected]

Telkom Indonesia remains our top ASEAN telco pick with DCF-based target price of Rp4,800 (raised 7%). We see robust mobile revenue growth in FY16-18F, with peers’ ex-Java expansion as a manageable risk. Maintain Add on AIS and DCF-based target price of THB205. We forecast stronger revenue growth in FY17-18F once its 3G/4G network is on par with True’s. We downgrade Maxis to Reduce and cut DCF-based target price by 16% to RM5.20, as we expect core EPS to fall due to tighter postpaid competition.

[X]

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. CIMB Securities Limited has had an investment banking relationship with Indosat, XL Axiata and Axiata Group within the preceding 12 months.

Powered by the EFA Platform


Figure 1: ASEAN telco sector comparison Company

Bloomberg

Axiata

Ticker AXIATA MK

Maxis DiGi TM

Recom.

Price

Target Price

Mkt Cap

(local curr)

(local curr)

(US$ m)

2016F

2017F

2016F

2017F

2016F

2017F

EPS

EBITDA

2016F

2017F

HOLD

5.37

5.50

11,598

27.6

26.5

7.4

6.8

21.3

16.8

(1.6)

9.0

3.1

3.2

MAXIS MK

REDUCE

6.14

5.20

11,158

25.0

26.3

12.8

12.8

17.7

17.2

(4.6)

(1.3)

3.3

3.3

DIGI MK

HOLD

5.00

5.30

9,406

23.1

23.7

13.8

13.4

19.8

19.1

(1.7)

2.2

4.3

4.2

T MK

HOLD

6.79

6.70

6,174

28.9

29.0

7.9

7.8

29.6

22.7

0.6

3.2

3.1

3.1

26.2

26.4

10.5

10.2

22.1

18.9

(1.8)

3.3

3.4

3.4

MY telcos avg (ex-outliers)

Core P/E (x)

EV/EBITDA (x)

EV/OpFCF (x)

3-year CAGR (%)^

Dvd Yield (%)

SingTel

ST SP

ADD

3.96

4.50

46,455

16.7

15.4

9.1

8.5

19.1

17.6

5.7

5.3

4.4

4.9

Starhub M1

STH SP

HOLD

3.39

3.70

4,315

16.7

16.4

9.0

8.8

15.1

13.6

(6.7)

(2.2)

5.9

5.9

M1 SP

HOLD

2.37

2.80

1,622

13.0

12.6

7.9

7.6

13.0

12.0

(6.6)

(2.7)

6.2

6.3

15.5

14.8

8.7

8.3

15.7

14.4

(2.5)

0.1

5.5

5.7

SG telcos avg (ex-outliers) TLKM

TLKM IJ

ADD

4,240

4,800

32,773

23.4

19.4

10.0

8.7

18.7

14.3

17.1

12.4

2.6

3.1

XL

EXCL IJ

HOLD

2,500

3,300

2,049

585.8

47.0

4.8

4.5

20.5

16.6

36.9

5.0

0.1

0.9

Indosat Link Net

ISAT IJ

ADD

5,700

8,100

2,375

86.1

19.5

3.8

3.2

10.1

7.5

223.4

8.9

0.6

2.6

LINK IJ

ADD

4,400

5,700

1,027

17.3

13.6

7.3

5.9

15.1

10.1

21.8

16.5

0.0

0.0

20.4

17.5

6.5

5.6

16.1

12.1

19.4

10.7

0.8

1.6

Indo telcos avg (ex-outliers) ADVANC TB

ADD

161.50

205.00

13,873

16.6

16.1

9.2

8.3

33.1

19.1

(6.0)

0.5

6.0

6.2

DTAC

DTAC TB

ADD

32.50

41.00

2,223

18.5

44.8

4.1

4.1

11.6

10.9

(28.0)

1.5

5.5

2.4

True

TRUE TB

REDUCE

7.25

5.25

6,990

(46.0)

(136.4)

7.8

7.3

(133.3)

(205.6)

55.5

11.0

0.0

0.0

JAS TB

REDUCE

7.35

6.65

1,261

16.2

11.9

8.7

6.5

(76.2)

18.6

25.8

22.7

2.7

4.4

JASIF TB

ADD

11.70

13.50

1,859

12.9

11.9

10.6

9.8

10.8

9.9

10.7

10.3

7.6

8.2

THCOM TB

ADD

21.00

30.00

665

11.5

11.8

5.0

4.2

8.7

4.5

(2.3)

2.3

5.2

5.1

INTUCH TB

ADD

54.00

64.00

5,003

13.9

13.4

12.8

12.3

12.8

12.3

(4.7)

(4.7)

7.2

7.5

Thai telcos avg (ex-outliers)

14.9

13.0

8.3

7.5

15.4

12.6

7.3

6.2

4.9

4.8

Asean Telcos avg (ex-outliers)

18.8

17.8

8.4

7.8

17.3

14.3

4.7

5.5

3.8

4.0

AIS

Jasmine JASIF Thaicom Intouch

Note: Operating FCF is calculated as EBITDA minus average 3-year forward capex SOURCE: CIMB RESEARCH, COMPANY

2


Network parity and disparities Network parity could effect structural shifts What is mobile network parity? We define mobile network parity as the situation that arises when the network experience (data speed, coverage, consistency/reliability) is comparable across two or more mobile operators, such that the network is no longer one of the main considerations in subscribers’ choice of service providers. True network parity is likely to prove elusive. However, we believe that in certain markets, the mobile network quality/coverage of some of the smaller players will improve over the next 2-3 years, significantly narrowing the gap with market leaders.

Spectrum parity: An important supporting factor The main triggers that prompted us to take a more in-depth look into the issue of network parity were the 900MHz and 1800MHz spectrum auctions that took place in Thailand in Oct-Dec 2015, as well as the reallocations that will take effect in Malaysia in Jul 2017. In Thailand, True (Reduce, TP: THB5.25), the smallest player by revenue market share, now has more low-band spectrum (but same total bandwidth) than AIS (Add, TP: THB205), the market leader. As for Malaysia, the 900MHz and 1800MHz spectrum holdings will be more even among the Big 4 players in Jul 2017 onwards, in our view. This is in contrast to the current situation, with spectrum holdings skewed towards Maxis (Reduce, TP: RM5.20) and Celcom. Even in Indonesia, we believe the soon-to-beannounced new regulations allowing active network sharing and spectrum pooling could result in smaller players catching up with market leader Telkomsel, in terms of ex-Java coverage over the next three years. However, the attempt to cover Indonesia’s wide land mass is still a highly formidable challenge, in our view. Although spectrum parity does not necessarily translate into network parity, it is an important supporting factor. For the longest time and in most markets, smaller and younger players have had to operate networks on higher frequency spectrum. Having greater access to lower frequency spectrum (with longer wavelength) would help them improve indoor coverage, reduce coverage blind spots, accelerate network rollout and/or improve capex efficiency.

What are the implications of network parity? Historically, mobile market leaders have been able to price their services at a premium over other players due to the superiority of their networks. We believe this mainly stemmed from the market leaders’: a) major head start in building their networks (as they received their licenses much earlier than competitors), and b) more favourable spectrum holdings (especially for low-frequency sub1GHz spectrum). However, as markets edge towards network parity in the next three years, market leaders may need to be more price competitive compared to smaller players or risk losing subscriber market share. Either outcome could put pressure on revenues or cap their revenue growth potential. Market leaders are also the most likely to continue incurring high network investments in order to stay (marginally) ahead of the pack, in our opinion.

Singapore: A case study on network parity The Singapore mobile market makes for a good case study on the effects of network parity. Due to its small landmass, relatively even spectrum holdings and the Infocomm Development Authority of Singapore’s (IDA) strict QoS requirements, the Big 3 telcos’ mobile networks are comparable in terms of quality and coverage. In this situation, we observe that pricing of mobile plans is largely the same across all players, with no operator able to price its service at a premium without losing subs. In spite of network parity and limited network choice in Singapore, SingTel (Add, TP: S$4.50) still commands majority mobile 3


revenue market share (54.4% in 2015). While we explore some of the reasons for this in greater detail in the sections below, in short, we believe this suggests that market leaders can retain (or even expand) their mobile revenue market share in a network parity scenario, as long as they stay price competitive (among other factors).

The initial effects of network parity are already visible While network parity is likely to take several years to fully materialise, its initial effects can already be seen, with the Malaysian and Thai mobile markets becoming more competitive in the last 24 months. Smaller players in these markets have improved their 3G coverage and taken strong positions in 4G. As a result, the smaller players have successfully gained traction, with their attractively-priced packages. On the other hand, the market leaders have had to adjust their offerings to defend market share, although their prices largely remain at a premium over competitors today. Base capex levels have also risen over 2013-15 and the new elevated levels could be the new norm going forward. As we march closer to network parity in the next 2-3 years, the above effects would be amplified, in our view.

Factors beyond network parity… While we believe that network parity is a significant structural force that could shape the market share and earnings of industry players over the next three years, we acknowledge that there are other factors that could influence the final outcome. Market leaders may be able to neutralise the negative effects from network parity if they are able to find ways (beyond network) to differentiate themselves, such as attractive digital life services, exclusive content, bundling/convergence products and excellent consumer service/support. Needless to say, the final outcome will also depend on plain old execution by the respective players, in our view. Future spectrum auctions/reallocations could also cause imbalance in the spectrum situation again.

4


A case study on network parity Spectrum holdings in Singapore are largely even… Even existing spectrum holdings given subs base In Singapore, SingTel holds 5-10MHz (paired) extra bandwidth in the 900MHz and 1800MHz spectrum vs. StarHub (Hold, TP: S$3.70) and M1 (Hold, TP: S$2.80). However, given SingTel’s bigger subs base, we consider the spectrum holdings in Singapore to be largely even between the existing three players. In addition, all three players have access to all the spectrum bands, from the low-band 900MHz to the high-band 2500MHz. Figure 2: Existing spectrum holdings in Singapore Spectrum (MHz, paired)

900

1800

2100

2500

Total

SingTel

15

30

20

20

85

StarHub

5

25

20

20

70

M1

10

20

20

20

70

SOURCE: CIMB RESEARCH, COMPANY

Upcoming spectrum auctions unlikely to change situation Assuming a new entrant is successful in qualifying and winning the fourth mobile operator licence in the New Entrant Spectrum Auction (NESA) in Oct, we expect the Big 3 operators to somewhat equally share the 700MHz (new), 900MHz (renewal) and 2500MHz (new) spectrum that is on offer in the General Spectrum Auction (GSA) that will take place right after NESA. In this scenario, spectrum holdings would remain largely evenly distributed amongst the Big 3 operators, and would be 4-5x the amount of spectrum held by the potential fourth mobile operator. Figure 3: Possible spectrum holdings after NESA and GSA Spectrum (MHz)

Paired

Unpaired

700

900

1800

2100

2500

2500

Total*

SingTel

15

10

30

20

20

-

15

103

StarHub

15

5

25

20

20

-

15

93

M1

15

5

20

20

20

-

15

88

-

10

-

-

-

20

-

20

4th mobile player

2300

*Unpaired spectrum is halved to get paired equivalent in calculating total spectrum holdings SOURCE: CIMB RESEARCH, COMPANY

…plus small land mass & IDA’s stringent QoS = network parity Relatively easier to roll out coverage across Singapore Given its small land mass and generally flat terrain, we believe it is relatively easier to roll out a nationwide network in Singapore compared to larger markets. We understand each operator has rolled out about 2,000 sites (including rooftops) in Singapore, compared to 7,000-9,000 for each operator in Malaysia, AIS’s 24,000 sites in Thailand and Telkomsel’s 43,000 sites in Indonesia.

Telcos have to comply with IDA’s strict QoS requirements The regulator, the Infocomm Development Authority (IDA), sets stringent and high quality of service (QoS) requirements that telco operators need to comply with. Failure to comply could result in heavy fines and even revocation of licences.

5


Figure 4: IDA’s stringent QoS requirements Performance Indicators

Compliance QoS Standard

Effective Date

Data Service Coverage* 3G Nationwide Outdoor Coverage

>99%

Apr 2012

- New road & MRT tunnels

>99%

- Existing road & MRT tunnels

>95%

Apr 2012 (ex-Central Expressway which took effect from 1 Jan 2015)

>85%

Apr 2013

Tunnel Coverage

In-building Coverage 4G (for incumbent operators)

>95%

Jul 2016

>99%

Jul 2017

Tunnel Coverage

>99%

In-building Coverage

>85%

Jul 2018 1 Jan 2019 (IDA will start monitoring from Jan 2018 & publish results)

Nationwide Outdoor Coverage

SOURCE: IDA

Any differences in telcos’ QoS are too small to matter Given the small land mass and need to comply with IDA’s stringent QoS licence requirements, Singapore telcos’ network coverage and quality is very high. For example, 3G/4G outdoor coverage is close to 100% for each operator, based on a minimum signal of -100/109 decibel-milliwatts (dBm). While there are some differences in network QoS between the operators, they are too small to matter. Essentially, there is network parity in Singapore and the quality of network is seldom the key deciding factor in consumers’ choice of operator. Factors such as price, handset subsidies, bundled services with discounts and value-added services are normally more important considerations for consumers. Figure 5: Telco's QoS as measured by IDA (Jun 2016) QoS indicators

SingTel

StarHub

M1

3G - Nationwide Outdoor Coverage*

99.7%

99.9%

99.9%

3G - Call Success Rate

99.8%

100.0%

99.9%

3G - Call Drop Rate

0.3%

0.1%

0.2%

3G - Tunnel service coverage^

Pass

Pass

Pass

4G - Nationwide Outdoor Coverage*

100.0%

99.7%

99.3%

4G - Tunnel service coverage

98.1%

96.9%

96.4%

^Service coverage of >95% for existing road/MRT tunnels; and >99% for new road/MRT tunnels *As of Jun 2016. 3G/4G: based on minimum signal of -100/-109dBm SOURCE: IDA

Scant price premiums due to network parity No telco is able to charge a big price premium Due to the largely comparable mobile service coverage and quality, we find that there are also very little pricing differences between the existing operators in both postpaid and prepaid. For example, for postpaid device bundled plans, the total cost (inclusive of upfront device payment for iPhone 6 (64Gb)) of signing up for a 2-year contract with SingTel is a mere 0.5% more expensive than StarHub and 1.8% more expensive than M1. SingTel does tend to have lower value inclusions for their plans but the difference is normally very small and not enough to sway consumers’ decisions.

6


Figure 6: Comparison of postpaid and prepaid offers in the market Postpaid device bundled plans Telco

SingTel

StarHub

M1

Package

Combo 3

4G 4

i-Reg

62.91

62.90

62.00

300

350

300

SMS/MMS

1,200

1,200

1,200

Data (Gb)

3 (WIFI: 2)

4

4

545

534

530

2,055

2,044

2,018

Monthly fees (S$) Voice (mins)

Price (S$): iPhone 6 (64 Gb) Total cost over 24-months (subscription fee + device) Postpaid sim-only plans Telco

SingTel

StarHub

M1

SIM Only

4G 4

mySIM+ 30

30.70

31.45

30.00

200

350

300

SMS/MMS

1,200

1,200

1,000

Data (Gb)

3 (WIFI: 2)

4

4

Package Monthly fees (S$) Voice (mins)

Prepaid simcard Telco

SingTel

StarHub

M1

Package

hi!

Happy

M Card

Starter pack price ($)

15

15

15

Credit included (S$)

18

18

18

Voice tariff (Scts/min) - peak

16

22*

16

5

5

5

10

10 (1.2Gb)

10

120 Free 30SMS with every 10 paid SMS

180

SMS tariff (Scts) Data plans tariff - 1Gb (S$) Validity Others

na

180 Free 10SMS with every 5 na paid SMS Free 500Mb (valid 30 Free 100Gb (valid 5 days) days) *First minute is 22 Scts, thereafter 8 Scts/min SOURCE: CIMB RESEARCH, COMPANY

SingTel has high mobile RMS despite network & price parity SingTel has not only defended but grown RMS Although all three network operators have comparable network quality/ coverage and price plans, SingTel has managed to defend and grow its mobile service revenue market share (RMS) over the past seven years by 5.6% pts to 54.4% in 2015. On the other hand, StarHub lost 1.8% pts and M1 declined 3.8% pts over the same period.

7


Figure 7: Mobile RMS trend (%) 60

50

40

30

20

10

0 2008

2009

2010

2011 SingTel

2012 StarHub

2013

2014

2015

M1


Key reasons for SingTel’s dominance despite network & price parity From our discussions with industry players, we believe that SingTel’s success in growing its mobile service RMS can be attributed to five factors: a) SingTel expanded into the Pay TV business in 2007 and secured exclusive rights (away from StarHub) for the highly popular Barclays Premier League for three seasons from Aug 2010 to 2013. With the ability to offer quad-play services (with bundling discounts) and popular content, SingTel was not only able to stop the erosion in its mobile RMS but also managed to steal some mobile subs from other networks. b) SingTel has done well in prepaid, leveraging on the slight advantage from its stake in overseas associates. It is the only Singapore operator that provides remittance services to Philippines (Globe) and Indonesia (Telkomsel). c) Historically, SingTel has had a larger share of the corporate market as it was the only one with fixed telco infrastructure (i.e. before the National Broadband Network). It has since been able to largely keep its share of this market, given its strong branding and extensive international roaming partners. d) Despite its market leading position, other telcos note that SingTel takes an aggressive position on handset subsidies from time to time to retain subs. e) SingTel had a head start over its peers, with a high share of subs above 45 years old. Unless subscribers have major grievances (e.g. not happy with big difference in price plans, poor network quality), they are not likely to port over to another network.

Key lessons for other markets heading towards network parity Network parity does not necessarily translate into RMS parity, even over the long term, if market leaders are price competitive and execute well in terms of marketing/branding. Market leaders may even be able to grow RMS if they can find avenues to differentiate their offerings and create a competitive edge (e.g. convergence play, exclusive popular content/service), beyond the network.

Is network parity only achievable in smaller markets? David beats Goliath in the US mobile market In its Aug 2016 “State of Mobile Networks: USA” report, OpenSignal declared T Mobile as the winner for fastest 4G speeds (16.3Mbps), edging out Verizon (15.9Mbps) and clearly beating AT&T (12.8Mbps). While its 4G availability of 83.2% is still slightly behind Verizon’s 85.9%, T-Mobile once again beat AT&T 8


(80.4%). The test results were based on 2.8bn measurements collected by 120,000 OpenSignal users to compare the nationwide and regional performance of the country's four major operators. OpenSignal says 4G LTE is now the most important mobile technology in the US and accounts for the vast majority of data connections and an increasing amount of voice traffic. It also says the ascension of 4G has resulted in a shake up among the traditional powers of the US mobile industry, with T-Mobile now challenging AT&T and Verizon’s dominance. Figure 8: OpenSignal – overall download speed

Figure 9: OpenSignal – 4G download speed

SOURCE: OPENSIGNAL

SOURCE: OPENSIGNAL

Figure 10: OpenSignal – 4G availability

Figure 11: OpenSignal – 3G download speed

SOURCE: OPENSIGNAL

SOURCE: OPENSIGNAL

T-Mobile capitalised on its 700MHz spectrum to expand its 4G coverage According to OpenSignal, for more than a decade Verizon and AT&T have been the dominant operators in the US, but in the last few years, T-Mobile has reemerged as a viable competitor to the country's two mega-carriers. Using spectrum gained in the aftermath of AT&T's failed attempt to take over the then 4th-place operator, T-Mobile launched its first LTE service in 2013, three years after the mobile broadband technology’s debut in the US. In those three years, T-Mobile has undergone a remarkable transformation. It passed Sprint in total subscribers last year, and OpenSignal’s data indicates T-Mobile is now challenging the nation's two mobile behemoths in network performance. While T-Mobile has been contesting the top spot for speed for some time, the big surprise was the rapid improvement in T-Mobile’s LTE availability that OpenSignal saw in its data. Over the last 12 months, T-Mobile has been dispensing with the notion that it’s merely an urban-focused operator by building new 4G networks in rural areas. It has also made use of recently acquired 700 MHz airwaves to give those networks more reach. 700 MHz's low frequencies mean signals propagate further in rural areas and penetrate 9


deeper into buildings in urban areas — two factors that help explain its rising availability ranking.

Factors to consider for ASEAN markets T-Mobile’s feat of displacing Verizon as No 1 in 4G speeds and AT&T as No 2 in terms of 4G availability in the US suggests that network parity is achievable even in markets with big land mass, in our view. Nevertheless, we believe there are several factors to assess in determining whether smaller players can indeed achieve network parity to market leaders in ASEAN: a) Access to low-band spectrum is an important factor, as it will help smaller players accelerate their network coverage expansion and have comparable indoor service. b) Smaller players need to have the financial resources to spend substantial capex for extensive network rollout. c) The speed of smaller operators’ network rollout can depend on whether the market has a healthy wholesale fibre market (i.e. plenty of independent fibre lease providers) or there are regulations which mandate open fibre access at reasonable rates (e.g. National Broadband Network in Singapore). d) In markets that are more technologically advanced, it is easier to achieve network parity. For example, in Indonesia, the Big 3 operators all have largely the same 4G coverage (albeit still limited). However, Telkomsel has a big lead in 2G and 3G coverage due to its early head-start. As c.90% of all subscribers in Indonesia use devices that only support 2G and 3G, the average subscriber is still likely to have a better service experience on Telkomsel’s network over the medium term.

10


Malaysia: Inching towards network parity Maxis still has the superior network Maxis leads on 3G/4G coverage and overall speed Mobile market leader, Maxis, continues to have superior network coverage and quality relative to its peers. This was reaffirmed by OpenSignal’s State of Mobile Networks report on Malaysia, issued in Mar 2016. In the report, Maxis won OpenSignal’s award for best 4G coverage (subs were able to lock onto its 4G network 70% of the time, vs. 95%

Oct 2018

>99%

Oct 2019

>99%

Oct 2019

Tunnel Coverage - Road tunnels - Underground MRT stations/lines In-building Coverage

Oct 2021 >85%

Oct 2019 SOURCE: IDA

52


But network speeds may still be inferior Assuming the new entrant does not get any additional spectrum in the GSA, then its overall spectrum holding is only about a quarter to a fifth of the incumbent’s. In carrier aggregation mode, the new entrant’s spectrum will be able to provide peak 4G speeds of up to 295Mbps (two-band carrier aggregation). In comparison, incumbents can already give subscribers peak download speeds of 450Mbps on their 4G LTE-A network, via tri-band carrier aggregation.

More competition in the lower/mid-end of the market Battle for more price-sensitive subs in the first few years The prospective fourth mobile player is expected to launch commercial services in early 2018. In the first two years, as the new entrant rolls out its 4G network, we believe that its services will appeal more to the price-sensitive subs due to its inferior network quality/coverage vs. incumbents (unless it manages to strike a domestic roaming agreement with one of the existing players). M1 and, to a lesser extent, StarHub, would have a bigger exposure to this segment of subs (as % of total base), compared to SingTel. Figure 100: TPG’s current sim-only plans in Australia

SOURCE: TPG TELECOM

Figure 101: MyRepublic’s proposed mobile plans

SOURCE: MYREPUBLIC

New entrant’s addressable market should expand as network improves As the new entrant’s network coverage continues to improve beyond 2019, its addressable market should expand to include subs in the middle-segment of the market. However, we think that corporate and high-ARPU customers are 53


still likely to stick with the existing operators due to their better network speeds and stronger branding.

Incumbents’ mobile ARPUs will come under pressure We think it will be difficult for the new entrant to steal significant market share from the incumbents in the first few years due to its inferior network quality/coverage, coupled with the incumbents’ bundling strategies, as well as the fact that most subscribers are tied to 2-year contracts. Nevertheless, we expect incumbents’ mobile ARPUs to come under pressure as they lower their prices to defend market share. We have factored in a 15% negative impact to mobile ARPU from 2018F to 2020F. This is lower than the c.30% decline in Fixed Broadband ARPU seen in the first three years after new players launched their services under the NBN regime. We believe that the decline in mobile ARPU would be milder because we expect the incumbents’ mobile networks to remain superior, whereas there was essentially no difference in fixed broadband service quality between incumbents and the new entrants given the end-to-end NBN network (except for international capacity).

Maintain Neutral on Singapore Telco sector The lull before the gathering storm We expect industry mobile revenue to be flattish to slightly declining in 2016-17, due to continued decline in roaming revenues, dilution from sim-only plans and aggressive data upsize offers. This gloomy mobile revenue outlook is even before the prospective entry of a fourth mobile operator. When the prospective fourth mobile operator launches its service in early-2018, we forecast industry mobile revenue to decline by 4.2% in 2018F, 4.3% in 2019F and 2.2% in 2020F due to increased competitive pressure. For Pay TV, the emergence of alternative OTT viewing platforms (e.g. NetFlix, Viu) is beginning to have a disruptive impact on the incumbents’ existing business and is chipping away at their quad-play bundling proposition, in our view. We expect StarHub’s and SingTel’s Pay TV revenues to be only flat in the next three years. Meanwhile, in residential broadband, ARPUs have been gradually rising over the past 12 months as subs upgrade to higher speed plans. Nevertheless, competition remains intense with little subs growth. We expect residential broadband revenue to be growing at low- to mid-single digit revenue growth over the next three years.

SingTel is still our top Singapore telco pick Our top Singapore Telco pick is SingTel with an unchanged SOP-based target price of S$4.50 (19.7x FY18F EV/OpFCF). We see core net profit for SingTel easing 1.0% yoy in FY17F, then picking up to +8.4% in FY18F and +10.1% in FY19F. In terms of risk, SingTel will be the least affected among its local peers by the entry of a fourth mobile operator in Singapore, as its mobile business only makes up c.11% of its FY03/16 group EBITDA. SingTel trades at a reasonable 17.6x FY18F EV/OpFCF. Based on a 75% payout policy, SingTel offers attractive FY17-19F dividend yields of 4.4-5.3%. We estimate a potential spin-off of NetLink Trust (NLT) in an IPO by 2H17 could raise S$2.0bn-2.8bn (12.6-17.6 Scts/share) cash, which could be declared by SingTel as a special dividend. We maintain our Hold rating on StarHub with an unchanged DCF-based target price of S$3.70 (WACC: 7.1%) implying 14.8x FY17F, which is based on the mid-point between the scenario of a fourth mobile player entering the market and status quo, though we believe there is a high chance the former scenario could materialize. StarHub trades at 13.6x FY17F EV/OpFCF which is a 5% discount to ASEAN telcos’ average. In terms of dividends, we do not expect StarHub to raise its annual S$0.20 DPS (yield: 5.9%) as FCF/share will stay at S$0.15-0.20 in FY16-18F due to high capex and spectrum payments (1800MHz, 900MHz). Given the business headwinds, we believe that StarHub will not pay any special dividends in FY16-18F in order to maintain some flexibility in its balance sheet. 54


We also retain our Hold rating on M1. Our current DCF-based target price for M1 is S$2.80 (WACC: 7.1%), implying 13.8x FY17F, which is based on the mid-point between the scenario of a fourth mobile player entering the market and status quo. We believe there is a high chance the former scenario could materialise. M1 stands to lose the most from new competition given its largely Singapore mobile focus. Its relatively higher prepaid revenue mix (including IDD calls) and inability to bundle pay TV services in a quad-play offering, may also put it in a weaker position to defend its market share against a fourth mobile operator. M1’s FY17F EV/OpFCF of 12.0x largely reflects the risk of a new mobile entrant, in our view. Based on a 100% payout ratio, M1 offers a dividend yield of 5.3-6.3% in FY16-18F.

55

Telco - Mobile│Thailand│Equity research│September 27, 2016

Company Note

Advanced Info Service

▎Thailand

The worst has passed

ADD (no change) Consensus ratings*: Buy 18 Hold 6 Current price: Target price: Previous target: Up/downside: CIMB / Consensus: Reuters: Bloomberg: Market cap:

Sell 4

■

THB161.5 THB205.0 THB205.0 26.9% 9.8%

Competition is likely to stabilise by next year, at least, due to improving network parity and the fact that all telcos are financially stretched.

■ ■

We forecast AIS’s FY17-18F revenue growth rate at 3-5% yoy vs. 1% yoy in FY16F.

■ ■

We are optimistic about the next auctions (850MHz and 1800MHz) in 2018.

ADVA.BK ADVANC TB US$13,873m THB480,155m US$45.88m THB1,601m 2,973m 36.2%

Average daily turnover: Current shares o/s: Free float: * Source: Bloomberg

Cost structure under licence regime is largely fixed, which may hurt near-term earnings but should be a driver in the medium term. Maintain Add with unchanged DCF-based target price of THB205 (9.2% WACC).

900MHz licence quite expensive but better than not having it at all We think AIS should benefit the most after Jasmine from the latest auctions. This shows that unconditional auctions benefit larger telcos more than smaller ones. Our cost and benefit analysis confirms that the 15-year 900MHz licence upfront fee is expensive but value-accretive. We believe, a 900MHz licence strengthens AIS’s bandwidth capacity and helps it regain its position as the superior network for 2G/3G/4G services. This 3player market is likely to persist at least until the 700MHz auction in 2020.

More favourable network parity situation

Key changes in this note No change.

220

88.7

170

70.9

We believe AIS and TOT should soon conclude the wholesale/resale agreement on TOT’s 2x15MHz on 2.1GHz spectrum after TOT permitted AIS to trail it commercially last week. We admit that the wholesale/resale rate charge of THB3.9bn/yr looks quite expensive at THB130m per MHz/yr vs. THB31m, THB75m and THB253m for AIS’s 2.1GHz, 1800MHz and 900MHz, respectively. However, this rate can establish a new price reference for CAT/True’s 850MHz deal and TOT/DTAC’s potential 2.3GHz deal.

120 100

53.0

Revenue market share vs. revenue growth

Vol m

Price Close

Relative to SET (RHS)

50

Sep-15

Dec-15

Mar-16

Jun-16

Source: Bloomberg

Price performance Absolute (%) Relative (%)

1M -5.6 -1.8

Major shareholders Intouch Holdings Singtel Littledown Nominees

3M 2.2 -3.2

12M -29.8 -38 % held 40.5 23.4 2.6

We forecast AIS’s service revenue excluding interconnection rate (IC) to grow 3-5% in FY17-18F vs. only 1% in FY16F on the back of 2G service continuity, the 4G service launch in full steam, comparable 3G and 4G service coverage with True and more aggressive bundled package offerings that include fixed broadband and digital content. However, we think AIS’s revenue market share (RMS) will continue to fall from 52.4% in FY15 to 49.5-50.2% in FY17-18F, especially in the prepaid provincial segment.

Room for cost-to-sale improvements Moving from a concession to a licence regime has changed AIS’s cost structure from moderate variable cost (24% of revenue) to high fixed cost (12% of revenue for network rental fee and licence amortisation expenses). This may negatively impact earnings in the near term but implies room for margin improvement in the medium term, in our view.

Network investment cycle peak in FY16 We believe AIS’s targeted 98% population coverage for 2G/3G/4G services in 1Q17F will be far ahead of 3G/4G device adoption rates of 65%/20%. Further investments should be about network densification and digital content and applications, which should not require the capex intensity seen during the coverage expansion phase, in our view. However, cash capex may still stay high due to vendor financing before fading in FY17F.

Risks Risks to our Add call are fiercer price competition, spectrum auction delays and cuts in its dividend payout policy from 100% currently. [X]

Financial Summary

Analyst(s)

Pisut NGAMVIJITVONG T (66) 2 657 9226 E [email protected]

Revenue (THBm) Operating EBITDA (THBm) Operating EBITDA Margin Net Profit (THBm) Core EPS (THB) Core EPS Growth FD Core P/E (x) DPS (THB) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing ROE % Change In Core EPS Estimates CIMB/consensus EPS (x)

Dec-14A 148,727 65,839 44.3% 36,032 12.22 1.5% 13.22 12.00 7.43% 7.64 17.72 48% 78.4%

Dec-15A 155,213 70,862 45.7% 39,154 12.86 5.2% 12.56 12.99 8.04% 7.56 37.67 115% 80.3%

Dec-16F 153,879 60,018 39.0% 28,915 9.73 (24.4%) 16.61 9.73 6.02% 9.24 18.62 153% 59.8% 0% 0.93

Dec-17F 154,679 67,577 43.7% 29,858 10.04 3.3% 16.08 10.04 6.22% 8.34 10.59 171% 61.7% 0% 0.94

Dec-18F 160,423 71,987 44.9% 31,774 10.69 6.4% 15.11 10.69 6.62% 8.13 15.26 216% 65.7% 0% 0.99

SOURCE: COMPANY DATA, CIMB FORECASTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. CIMB Securities Limited has had an investment banking relationship with Jasmine Broadband Internet Infrastructure Fund within the preceding 12 months.



BY THE NUMBERS

P/BV vs ROE

12-mth Fwd FD Core P/E vs FD Core EPS Growth

20.3

85.0%

25.0

40.0%

18.3

79.2%

23.0

28.6%

16.3

73.3%

21.0

17.1%

19.0

5.7%

17.0

-5.7%

15.0

-17.1%

14.3

67.5%

12.3

61.7%

10.3

55.8%

13.0

-28.6%

50.0%

11.0 Jan-12A Jan-13A Jan-14A Jan-15A Jan-16F Jan-17F

-40.0%


Rolling P/BV (x) (lhs)

12-mth Fwd Rolling FD Core P/E (x) (lhs)

ROE (rhs)

FD Core EPS Growth (rhs)

Profit & Loss (THBm) Total Net Revenues Gross Profit Operating EBITDA Depreciation And Amortisation Operating EBIT Financial Income/(Expense) Pretax Income/(Loss) from Assoc. Non-Operating Income/(Expense) Profit Before Tax (pre-EI) Exceptional Items Pre-tax Profit Taxation Exceptional Income - post-tax Profit After Tax Minority Interests Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit

Dec-14A 148,727 84,410 65,839 (18,923) 46,916 (1,527) 0 500 45,889 (441) 45,448 (9,416)

Dec-15A 155,213 90,604 70,862 (20,495) 50,367 (1,960) 0 519 48,926 227 49,153 (9,999)

Dec-16F 153,879 90,208 60,018 (21,128) 38,890 (2,289) 0 0 36,601 0 36,601 (7,686)

Dec-17F 154,679 91,029 67,577 (26,765) 40,812 (3,016) 0 0 37,795 0 37,795 (7,937)

Dec-18F 160,423 96,543 71,987 (27,711) 44,276 (4,056) 0 0 40,220 0 40,220 (8,446)

36,032 0 0

39,154 0 0

28,915 0 0

29,858 0 0

31,774 0 0

36,032 36,322 36,322

39,154 38,227 38,227

28,915 28,915 28,915

29,858 29,858 29,858

31,774 31,774 31,774

Dec-14A 65,839

Dec-15A 70,862

Dec-16F 60,018

Dec-17F 67,577

Dec-18F 71,987

(5,561)

(11,580)

9,540

372

(267)

1,309 (1,527) (9,416) 50,643 (36,218) 27 367 76 (35,748) 12,194 0 0 (35,052)

1,020 (1,960) (9,999) 48,343 (56,414) 51 1,607 52 (54,704) 19,108 0 0 (37,042)

891 (2,289) (7,686) 60,474 (44,719) 0 0 37 (44,682) 10,000 0 0 (34,034)

12,704 (3,016) (7,937) 69,700 (35,872) 0 0 1,501 (34,371) 10,000 0 0 (29,387)

0 (4,056) (8,446) 59,218 (49,260) 0 0 1,501 (47,760) 20,000 0 0 (30,816)

10,748 (12,110) 2,785 27,089 16,422

19,902 1,968 (4,393) 12,747 (4,401)

(560) (24,595) (8,803) 25,792 18,081

(14,676) (34,063) 1,266 45,328 38,345

(2,458) (13,274) (1,816) 31,458 15,514

Cash Flow (THBm) EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received Tax Paid Cashflow From Operations Capex Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing Debt Raised/(repaid) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid Preferred Dividends Other Financing Cashflow Cash Flow From Financing Total Cash Generated Free Cashflow To Equity Free Cashflow To Firm

SOURCE: CIMB RESEARCH, COMPANY DATA

57


BY THE NUMBERS

Balance Sheet (THBm) Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets Fixed Assets Total Investments Intangible Assets Total Other Non-Current Assets Total Non-current Assets Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity Minority Interests Total Equity

Dec-14A 14,258 10,510 2,519 11,839 39,127 82,065 58 0 5,234 87,357 2,572

Dec-15A 9,865 16,389 5,059 6,694 38,007 139,274 58 0 4,422 143,754 12,856

Dec-16F 1,062 19,242 5,342 6,570 32,216 162,865 58 0 4,184 167,107 7,543

Dec-17F 2,328 21,824 5,476 6,507 36,136 171,971 58 0 4,065 176,094 8,543

Dec-18F 511 24,234 5,540 6,475 36,760 193,520 58 0 4,003 197,581 10,543

31,878 8,456 42,906 34,478

27,751 16,927 57,533 52,577

36,642 15,593 59,778 67,889

40,208 14,933 63,684 76,889

42,656 14,596 67,796 94,889

2,101 36,580 0 79,486 46,883 114 46,998

23,158 75,735 0 133,268 48,376 117 48,493

23,163 91,052 0 150,831 48,376 117 48,493

23,164 100,053 0 163,737 48,376 117 48,493

23,164 118,053 0 185,849 48,376 117 48,493

Dec-14A 4.13% 4.8% 44.3% (7.67) 15.77 30.72 20.7% 99% 25.49 15.28 123.7 48.4% 59.3% 31.5%

Dec-15A 4.36% 7.6% 45.7% (18.69) 16.27 25.70 20.3% 101% 31.63 21.41 168.4 49.1% 50.9% 26.1%

Dec-16F (0.86%) (15.3%) 39.0% (25.01) 16.27 16.99 21.0% 100% 42.37 29.89 185.1 21.4% 32.7% 16.0%

Dec-17F 0.52% 12.6% 43.7% (27.95) 16.27 13.53 21.0% 100% 48.45 31.02 220.3 19.6% 31.7% 15.5%

Dec-18F 3.71% 6.5% 44.9% (35.29) 16.27 10.92 21.0% 100% 52.40 31.47 236.7 20.0% 30.8% 15.5%

Dec-14A 44.30 N/A N/A N/A 6.8 N/A N/A N/A


Dec-16F 40.57 N/A N/A N/A 7.3 N/A N/A N/A



Key Ratios Revenue Growth Operating EBITDA Growth Operating EBITDA Margin Net Cash Per Share (THB) BVPS (THB) Gross Interest Cover Effective Tax Rate Net Dividend Payout Ratio Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) ROCE (%) Return On Average Assets

Key Drivers Group Mobile Subscribers (m) Group Fixed Voice Subscribers (m) Grp fixed brdband subscribers (m) Group Pay TV Subs (m) Group Mobile ARPU (US$/mth) Grp fixed voice ARPU (US$/mth) Grp fixed brdband ARPU (US$/mth) Group Pay TV ARPU (US$/mth)


58

Telco - Mobile│Malaysia│Equity research│September 27, 2016 Shariah Compliant

Company Note

Axiata Group

▎Malaysia

HOLD (no change) Consensus ratings*:

Buy 3 Hold 22 Sell 4

Current price: Target price: Previous target: Up/downside: CIMB / Consensus:

RM5.37 RM5.50 RM5.50 2.4% -11.2%

Reuters: Bloomberg: Market cap:

AXIA.KL AXIATA MK US$11,598m RM47,934m US$7.68m RM31.04m 8,817m 43.5%

Average daily turnover: Current shares o/s: Free float: *Source: Bloomberg

Key changes in this note FY15F Revenue increased by 5%. FY15F EPS increased by 5%. FY15F ROE increased by 5%.

Not a beneficiary from spectrum reallocation ■ ■ ■ ■ ■

The reduction in Celcom’s 900MHz spectrum will not impact its 3G QoS but is a future opportunity cost in terms of network capacity. Upfront spectrum fee for 900MHz and 1800MHz is manageable. Net debt/EBITDA will only rise by 0.1x to 2.3x/2.2x/2.1x at end-FY16/17/18F. We see core EPS falling 18.2% in FY16F, but growing by 6.7%/12.8% in FY17/18F. However, earnings could potentially be diluted by the Robi-Airtel merger. 700MHz spectrum may cost c.RM500m but there is no certainty Celcom will get it. Maintain Hold, with unchanged SOP-based target price of RM5.50.

Lower 900MHz will not impact 3G QoS but is an opportunity cost Celcom will see a 2x7MHz reduction in its 900MHz spectrum holdings post-spectrum reallocation. It now uses the 900MHz for 2G, so its 3G quality of service (QoS) will not be affected vs. the current levels. However, the lower bandwidth reduces the network capacity it would have otherwise gained from deploying 3G/4G on that spectrum in the future. Meanwhile, Celcom is now embarking on major network upgrade, and should catch up with peers in terms of 4G service coverage/quality by year-end, in our view.

RM817m upfront fee for 900MHz and 1800MHz

6.50

109.4

The Malaysian Communications and Multimedia Commission (MCMC) has set upfront fees of RM816.8m for the 900MHz and 1800MHz spectrums for Celcom. There is also a RM70.3m annual fee, comparable to its current annual fees on the spectrum. Celcom has until 1 Nov to accept the offers. If it makes full settlement, its net debt/EBITDA will only rise by 0.09-0.10x to 2.31x/2.17x/2.06x at end-FY16/17/18F.

6.00

101.6

Outlook in 2H16 and 2016-18

5.50

93.8

5.00 60

86.0

Price Close

Relative to FBMKLCI (RHS)

Vol m

40

20 Sep-15

Dec-15

Mar-16

Jun-16

Source: Bloomberg


1M -2.2 -1.4

Major shareholders Khazanah Employees Provident Fund Amanah Saham Bumi

3M -2.4 -4.6

12M -9 -12.4 % held 38.1 11.8 6.6

We expect Axiata’s core EPS to be flat to slightly improving hoh in 2H16. This is based on: 1) stable to slightly growing Celcom revenue as the negative effects from the VAS platform migration subside, 2) higher XL earnings due to interest cost savings from debt repayment post rights issue/tower sale, and 3) full-half consolidation of Ncell. On an annual basis, we see core EPS falling 18.2% in FY16F and growing 6.7%/12.8% in FY17/18F on gradual recovery at Celcom and XL and full-year Ncell consolidation.

Celcom will try to secure the 700MHz spectrum The MCMC will likely announce the reallocation of the 700MHz, 2300MHz and 2600MHz spectrums by year-end, in our view. We believe Celcom will try to secure the coveted 700MHz spectrum. Using the 900MHz spectrum fee as benchmark, it may have to pay RM400m-500m per 10MHz block, if it wins. This is inexpensive compared to the RM1bn2bn in capex and opex over 10 years it may need to incur to make up for the loss of coverage and capacity from the reduction in its 900MHz spectrum holdings.

Maintain Hold and SOP-based target price of RM5.50 We see only slight earnings recovery in the next 6-12 months while FY17-18F earnings could potentially be diluted by the Robi-Airtel merger. We see the potential listing of its regional tower company, edotco, as a re-rating catalyst. However, this is still some 12-18 months away. Its FY17F EV/OpFCF of 16.8x is at 11% discount/17% premium to the Malaysian/ASEAN telco average, while yields of 3.1-3.6% are decent. Upside/downside risks: stronger-than-expected recovery at Celcom and XL/competition in Malaysia.

Financial Summary

Analyst(s)

FOONG Choong Chen, CFA T (60) 3 2261 9081 E [email protected]

Revenue (RMm) Operating EBITDA (RMm) Operating EBITDA Margin Net Profit (RMm) Core EPS (RM) Core EPS Growth FD Core P/E (x) DPS (RM) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing ROE % Change In Core EPS Estimates CIMB/consensus EPS (x)

Dec-14A 18,712 7,000 37.4% 2,365 0.26 (15.2%) 20.37 0.22 4.10% 7.01 NA 38.9% 11.2%

Dec-15A 19,883 7,284 36.6% 2,554 0.24 (9.7%) 22.56 0.20 3.72% 7.08 NA 42.3% 9.4%

Dec-16F 21,330 8,183 38.4% 1,714 0.19 (18.4%) 27.63 0.17 3.08% 7.35 NA 72.1% 7.2% 0% 0.84

Dec-17F 22,628 8,941 39.5% 1,786 0.20 4.2% 26.50 0.17 3.21% 6.79 28.73 72.6% 7.5% 0% 0.76

Dec-18F 23,599 9,430 40.0% 1,998 0.23 11.9% 23.69 0.19 3.59% 6.45 23.57 69.8% 8.2% 0% 0.77

SOURCE: COMPANY DATA, CIMB FORECASTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. CIMB Securities Limited has had an investment banking relationship with XL Axiata and Axiata Group within the preceding 12 months.


Telco - Mobile│Malaysia│Axiata Group│September 27, 2016

Not a beneficiary from spectrum reallocation Figure 102: Axiata's SOP-based target price is RM5.50 Assets Celcom XL Axiata Idea M1 Dialog Robi Ncell Smart Total value Adjust: Net Cash/(Debt)* SOP-based TP

Market cap Local curr (m) Malaysia 27,486 Indonesia 35,426,413 India 409,967 Singapore 2,605 Sri Lanka 149,332 Bangladesh 86,662 Nepal 270,542 Cambodia 3,755,790 Country

Stake (%) 100.0% 66.4% 19.9% 28.7% 85.0% 91.6% 80.0% 90.0%

Forex rate 1.00 3,300 16.5 2.95 36.0 19.5 26.5 1000

Value (RM m) 27,486 7,131 4,949 2,206 3,525 4,070 8,167 3,380 60,915 (13,238) 47,677

Value/share FY17 EV/EBITDA (RM) (x) 3.17 9.9 0.82 5.5 0.57 5.7 0.25 8.8 0.41 6.0 0.47 6.0 0.94 6.0 0.39 6.0 7.03 (1.53) 5.50

Valuation Methodology DCF (WACC: 7.5%, TG: 1.0%) DCF (WACC: 10.1%, TG: 3.0%) Based on consensus TP of Rs114 Based on CIMB's TP of S$2.80 Based on 6x EV/EBITDA Based on 6x EV/EBITDA Based on 6x EV/EBITDA Based on 6x EV/EBITDA

Note: rounded to the nearest RM0.10

*Ex-XL, Dialog, Ncell and Robi's net cash/(debt) SOURCE: CIMB RESEARCH, COMPANY

60


BY THE NUMBERS P/BV vs ROE 3.20

15.0%

3.00

13.7%

2.80

12.4%

2.60


37.0

15.0%

32.0

6.0%

11.1%

27.0

-3.0%

2.40

9.9%

22.0

-12.0%

2.20

8.6% 17.0

-21.0%


-30.0%

2.00

7.3%


6.0%



ROE (rhs)


Profit & Loss (RMm) Total Net Revenues Gross Profit Operating EBITDA Depreciation And Amortisation Operating EBIT Financial Income/(Expense) Pretax Income/(Loss) from Assoc. Non-Operating Income/(Expense) Profit Before Tax (pre-EI) Exceptional Items Pre-tax Profit Taxation Exceptional Income - post-tax Profit After Tax Minority Interests Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit

Dec-14A 18,712 7,000 7,000 (3,639) 3,361 (548) 339 (214) 2,937 209 3,147 (778)

Dec-15A 19,883 7,284 7,284 (4,199) 3,086 (658) 434 (295) 2,567 764 3,331 (695)

Dec-16F 21,330 8,183 8,183 (4,950) 3,233 (882) 235 0 2,586 0 2,586 (688)

Dec-17F 22,628 8,941 8,941 (5,348) 3,594 (934) 221 0 2,880 0 2,880 (815)

Dec-18F 23,599 9,430 9,430 (5,457) 3,973 (976) 276 0 3,273 0 3,273 (942)

2,369 (4)

2,636 (82)

1,898 (185)

2,066 (279)

2,331 (332)

2,365 2,256 2,256

2,554 2,071 2,071

1,714 1,714 1,714

1,786 1,786 1,786

1,998 1,998 1,998

Dec-16F 8,183

Dec-17F 8,941

Dec-18F 9,430

0

0

0

Cash Flow (RMm) EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received Tax Paid Cashflow From Operations Capex Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing Debt Raised/(repaid) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid Preferred Dividends Other Financing Cashflow Cash Flow From Financing Total Cash Generated Free Cashflow To Equity Free Cashflow To Firm

Dec-14A 7,000 1,867

Dec-15A 7,284 300

(1,638) (736) (909) 5,584 (3,748) 115 (3,043) 328 (6,347) 481 147

41 (525) (810) 6,291 (4,861) 21 (1,008) (492) (6,340) (1,943) 43

0 (1,035) (688) 6,461 (5,711) 0 (5,907) (511) (12,128) 4,123 0

0 (1,053) (815) 7,074 (5,593) 0 0 (545) (6,138) 712 0

0 (1,088) (942) 7,400 (5,401) 0 0 (552) (5,952) 561 0

(1,885)

(722)

(1,499)

(1,457)

(1,518)

861 (397) (1,160) (283) (27)

2,146 (476) (525) (1,992) 476

0 2,623 (3,044) (1,545) (4,633)

0 (745) 191 1,648 1,989

0 (957) 491 2,009 2,536


61


BY THE NUMBERS… cont’d Balance Sheet (RMm) Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets Fixed Assets Total Investments Intangible Assets Total Other Non-Current Assets Total Non-current Assets Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity Minority Interests Total Equity

Dec-14A 5,116 3,062 80 59 8,316 19,750 7,505 12,978 557 40,790 1,949

Dec-15A 5,511 3,955 155 236 9,857 23,134 8,208 14,206 713 46,261 2,348

Dec-16F 1,650 3,806 95 236 5,787 26,237 8,444 18,587 713 53,981 2,348

Dec-17F 1,841 4,427 163 236 6,668 26,483 8,665 18,587 713 54,448 2,348

Dec-18F 2,332 4,159 104 236 6,831 31,884 8,940 18,587 713 60,124 2,348

8,375 236 10,559 11,945

9,643 499 12,490 14,045

7,459 496 10,303 18,167

10,202 555 13,105 18,879

8,073 615 11,035 19,440

4,020 15,965 0 26,524 20,761 1,821 22,582

3,860 17,904 0 30,394 23,525 2,199 25,724

5,132 23,299 0 33,602 23,782 2,384 26,166

2,417 21,297 0 34,402 24,050 2,663 26,713

8,600 28,040 0 39,076 24,884 2,995 27,879

Dec-14A 1.86% (3.7%) 37.4% (1.02) 2.42 4.50 24.7% 87.4% 56.01 2.22 225.7 10.3% 9.98% 5.52%

Dec-15A 6.26% 4.1% 36.6% (1.23) 2.67 3.71 20.9% 96.9% 64.41 3.40 261.0 7.9% 8.29% 4.45%

Dec-16F 7.27% 12.3% 38.4% (2.14) 2.70 3.12 26.6% 85.0% 66.58 3.49 238.1 7.1% 7.63% 4.35%

Dec-17F 6.09% 9.3% 39.5% (2.20) 2.73 3.41 28.3% 85.0% 66.40 3.45 235.5 6.0% 7.85% 4.49%

Dec-18F 4.29% 5.5% 40.0% (2.21) 2.82 3.65 28.8% 85.0% 66.40 3.45 235.4 6.8% 8.37% 4.68%






Key Ratios Revenue Growth Operating EBITDA Growth Operating EBITDA Margin Net Cash Per Share (RM) BVPS (RM) Gross Interest Cover Effective Tax Rate Net Dividend Payout Ratio Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) ROCE (%) Return On Average Assets



62

Telco - Mobile│Indonesia│Equity research│September 27, 2016

Company Note

Indosat

▎Indonesia

There’s still fuel in the tank

ADD (no change) Consensus ratings*: Buy 15 Hold 6 Current price: Target price: Previous target: Up/downside: CIMB / Consensus:

Sell 0 Rp5,700 Rp8,100 Rp8,100 42.1% 13.7%


ISAT.JK ISAT IJ US$2,375m Rp30,973,420m US$0.29m Rp3,858m 5,434m 20.7%


Key changes in this note No changes. Price Close

Relative to JCI (RHS)

157

5,300

134

4,300

112

3,300 4 3 2 1

89

Vol m

179

6,300

Dec-15

Mar-16

Jun-16

Source: Bloomberg


Even with less upside from ex-Java expansion, Indosat’s earnings should still do well over the next three years, driven by its Java business, in our view.

■

Indosat’s improved network and enlarged 3G/4G coverage should drive revenue growth of 9.2%/7.2% yoy in FY16/17F.

■ ■ ■

EBITDA to grow at a healthy 3-year CAGR of 8.9% on a steady mid-40s margin. Balance sheet to strengthen considerably in the next three years. Maintain Add and DCF-based target price of Rp8,100. One of our top ASEAN telco picks.

Indosat should do well even with less ex-Java upside Indosat’s share price retraced by 8.1% after the regulator recently postponed the implementation of the interconnection (IC) rate cut. This also raised fresh doubts about whether the regulator would be able to enact the new regulations that allow for spectrum pooling. While ex-Java represents a growth opportunity for Indosat, its contributions will not have been sizeable in the short term, in our view. In the next three years, we expect Java to remain the main driver of Indosat’s earnings growth.

High single-digit revenue growth…

7,300

Sep-15

■

1M -8.1 -6.5

3M -11.3 -22

Major shareholders Ooredoo Govt of Indonesia

12M 54.9 27.8 % held 65.0 14.3

We believe Indosat’s improved network post modernisation and enlarged 3G footprint (all Java sites and 23 main cities ex-Java since end-Nov 2015) will continue to support healthy growth in its mobile data business in FY16-17F. In addition, it commercially launched its 4G service in Nov last year and gained further market traction through effective marketing campaigns. Overall, we expect this to result in high single-digit revenue growth in FY16/17F of 9.2%/7.2%.

…translates into healthy 3-year EBITDA CAGR of 8.9% We expect the EBITDA margin to stay steady at around the mid-40% range in FY1618F. Network-related costs should stay manageable while Indosat is also targeting to reduce power cost, bad debts and marketing spend. We believe there could also be cost savings from active network sharing (either via MOCN or MORAN) as Indosat and XL are planning to collaborate once official regulations are in place. On the back of healthy margins, we forecast Indosat’s 3-year EBITDA CAGR to be 8.9% in FY16-18F.

Balance sheet to strengthen considerably in the next three years Assuming Rp7tr capex p.a., we forecast FCF of Rp2.9tr-4.5tr in FY16-18F or Rp525827/share (FCF yield: 9.2-14.5%). We believe the strong FCF generation could mean a substantial reduction in net debt (ex-finance leases) from Rp19.9tr at end-FY15 to Rp9.8tr by end- FY18F. Correspondingly, net debt/EBITDA will likely improve from 1.7x to 0.7x over the same period. Indosat also plans to reduce its US$-debt exposure from 14% of total debt (70% hedged) at end-June to below 10% in the next 12-18 months.

Maintain Add; target price unchanged at Rp8,100 Maintain Add on Indosat, which is one of our top three ASEAN telco picks. Our DCFbased target price is unchanged at Rp8,100 (WACC: 11.8%). Indosat is currently trading at FY17F EV/OpFCF of 7.5x, which is still the cheapest among tier-1 telcos in ASEAN. Key re-rating catalysts are healthy earnings growth in FY16-17F and an improving balance sheet. A key risk is more intense price competition. [X]

Financial Summary

Analyst(s)


Revenue (Rpb) Operating EBITDA (Rpb) Operating EBITDA Margin Net Profit (Rpb) Core EPS (Rp) Core EPS Growth FD Core P/E (x) DPS (Rp) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing ROE % Change In Core EPS Estimates CIMB/consensus EPS (x)

Dec-14A 24,085 10,033 41.7% (2,008) (170.5) 3% NA 0.0 0.00% 5.11 23.0 137% (6.2%)

Dec-15A 26,769 11,473 42.9% (1,310) 13.4 425.7 0.0 0.00% 4.51 337.0 151% 0.6%

Dec-16F 29,231 12,814 43.8% 360 66.2 394% 86.1 33.1 0.58% 3.83 10.8 126% 2.9% 0% 0.36

Dec-17F 31,345 14,064 44.9% 1,586 291.9 341% 19.5 146.0 2.56% 3.24 8.0 93% 12.1% 0% 0.80

Dec-18F 33,082 14,816 44.8% 2,461 452.8 55% 12.6 226.4 3.97% 2.84 6.9 62% 17.5% 0% 0.83

SOURCE: COMPANY DATA, CIMB FORECASTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. CIMB Securities Limited has had an investment banking relationship with Indosat and XL Axiata within the preceding 12 months.



BY THE NUMBERS

P/BV vs ROE 3.40

15.0%

2.90

10.0%

2.40

5.0%

1.90

0.0%

1.40

-5.0%


-10.0%



14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

Jan12A

Jan13A

Jan14A

Jan15A

Jan16F

10,000% 2,857% -4,286% -11,429% -18,571% -25,714% -32,857% -40,000%

Jan17F


ROE (rhs)


Profit & Loss (Rpb) Total Net Revenues Gross Profit Operating EBITDA Depreciation And Amortisation Operating EBIT Financial Income/(Expense) Pretax Income/(Loss) from Assoc. Non-Operating Income/(Expense) Profit Before Tax (pre-EI) Exceptional Items Pre-tax Profit Taxation Exceptional Income - post-tax Profit After Tax Minority Interests Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit

Dec-14A 24,085 24,085 10,033 (8,226) 1,807 (2,327) 0 (497) (1,017) (945) (1,962) 84

Dec-15A 26,769 26,769 11,473 (8,769) 2,704 (2,646) 0 (1,844) (1,786) 0 (1,786) 622

Dec-16F 29,231 29,231 12,814 (9,788) 3,026 (2,331) 0 0 695 0 695 (174)

Dec-17F 31,345 31,345 14,064 (9,569) 4,494 (2,154) 0 0 2,341 0 2,341 (585)

Dec-18F 33,082 33,082 14,816 (9,347) 5,469 (1,951) 0 0 3,518 0 3,518 (879)

(1,878) (130)

(1,163) (147)

521 (161)

1,756 (169)

2,638 (178)

(2,008) (927) (927)

(1,310) 73 73

360 360 360

1,586 1,586 1,586

2,461 2,461 2,461

Dec-14A 10,033

Dec-15A 11,473

Cash Flow (Rpb) EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received Tax Paid Cashflow From Operations Capex Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing Debt Raised/(repaid) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid Preferred Dividends Other Financing Cashflow Cash Flow From Financing Total Cash Generated Free Cashflow To Equity Free Cashflow To Firm

218

2,140

Dec-16F 12,814

Dec-17F 14,064

Dec-18F 14,816

0

0

0

(372) (2,239) (291) 7,349 (6,432) 41 (4) 1,402 (4,992) (1,008) 0

(3,166) (2,439) 257 8,265 (7,345) 261 (72) 20 (7,136) (1,037) 0

(490) (2,296) (174) 9,855 (7,000) 0 0 20 (6,980) 0 0

(510) (2,118) (585) 10,851 (7,000) 0 0 20 (6,980) 0 0

(525) (1,916) (879) 11,496 (7,000) 0 0 20 (6,980) 0 0

(46)

(47)

(47)

(227)

(840)

(3) (1,057) 1,299 1,348 4,596

(1) (1,085) 44 92 3,568

0 (47) 2,828 2,875 5,171

0 (227) 3,644 3,871 5,989

0 (840) 3,676 4,517 6,432


64


BY THE NUMBERS

Balance Sheet (Rpb) Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets Fixed Assets Total Investments Intangible Assets Total Other Non-Current Assets Total Non-current Assets Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity Minority Interests Total Equity

Dec-14A 3,486 2,101 49 2,955 8,591 40,776 0 1,357 2,546 44,679 3,463 8,334 691 8,661 21,148 3,727

Dec-15A 3,701 2,741 39 3,437 9,919 41,822 0 1,351 2,297 45,470 5,690 1,380 764 12,219 20,053 6,370

Dec-16F 6,519 2,547 56 3,655 12,776 39,033 0 1,361 2,391 42,785 5,690 1,380 797 12,003 19,869 6,370

Dec-17F 10,154 3,124 44 3,823 17,145 36,464 0 1,371 2,463 40,298 5,690 1,380 846 12,092 20,007 6,370

Dec-18F 13,820 2,861 62 4,014 20,757 34,117 0 1,380 2,545 38,042 5,690 1,380 891 12,194 20,154 6,370

14,096 17,823 0 38,971 13,618 681 14,299

15,702 22,072 0 42,125 12,483 781 13,264

15,718 22,088 0 41,957 12,663 942 13,605

16,498 22,868 0 42,875 13,456 1,111 14,567

16,300 22,670 0 42,824 14,686 1,289 15,975

Dec-14A 1.0% (3.3%) 41.7% (3,618) 2,506 0.75 0.0% NA 33.23 N/A N/A 3.0% 4.8% 1.51%

Dec-15A 11.1% 14.4% 42.9% (3,676) 2,297 0.96 0.0% NA 33.01 N/A N/A 5.0% 7.8% 1.51%

Dec-16F 9.2% 11.7% 43.8% (3,157) 2,330 1.16 25.0% 50.0% 33.11 N/A N/A 5.9% 8.9% 4.09%

Dec-17F 7.2% 9.8% 44.9% (2,488) 2,476 1.72 25.0% 50.0% 33.01 N/A N/A 9.3% 13.1% 5.97%

Dec-18F 5.5% 5.4% 44.8% (1,814) 2,703 2.08 25.0% 50.0% 33.01 N/A N/A 11.9% 15.8% 7.06%






Key Ratios Revenue Growth Operating EBITDA Growth Operating EBITDA Margin Net Cash Per Share (Rp) BVPS (Rp) Gross Interest Cover Effective Tax Rate Net Dividend Payout Ratio Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) ROCE (%) Return On Average Assets



65


Company Note

DiGi.com

▎Malaysia

Better network, better business




RM5.00 RM5.30 RM4.80 6.0% 16.0%


DSOM.KL DIGI MK US$9,406m RM38,875m US$6.94m RM28.06m 7,775m 47.5%


Relative to FBMKLCI (RHS) 102.2

5.20

92.4

4.70

82.7

4.20 40 30 20 10

73.0

Vol m

5.70

Sep-15

Dec-15

Mar-16

Jun-16

Source: Bloomberg


1M -0.6 0.2

Major shareholders Telenor EPF Skim Amanah Saham Bumi

3M 4.2 2

Expect more postpaid traction with better 4G coverage post spectrum reallocation.

■ ■

Key risk: DiGi might miss out on 700MHz spectrum, given limited available slots.

Postpaid revenue to grow 9-10% p.a. in FY17-18F; RMS to rise to 28.0% by FY18F. EBITDA to grow at 3-year CAGR of 2.2% in FY16-18F, but core EPS to decline by 1.7% due to rising depreciation. Maintain Hold, with 10% higher DCF-based target price of RM5.30. Our preferred Malaysian telco pick.

DiGi to narrow network gap with Maxis using 4G-900MHz Post-spectrum reallocation, DiGi will effectively get an extra 2x5MHz of 900MHz for urban coverage. DiGi plans to use the 2x5MHz for 4G, which should improve its 4G indoor signal quite noticeably and bring it much closer to Maxis’s. DiGi also plans to expand its fibre transmission network by another 3,000kms by 2018 to support its 4G network. As it further narrows the network gap with Maxis, we expect DiGi to gain more traction in the mass and upper-middle postpaid segments.

Postpaid RMS to grow by 6.7% pts to 28% in 2018

Key changes in this note FY16F-18F EBITDA raised by 2-11%. FY16F-18F Core EPS raised by 3-18%. Price Close

■ ■ ■

12M -8.9 -12.3 % held 49.0 14.1 5.7

We expect DiGi’s postpaid revenue to grow 9-10% p.a. in FY17-18F, boosting its postpaid RMS from 21.4% in 2015 to 28.0% in 2018. We see flattish prepaid revenues due to tight competition as U Mobile gains more market traction, Maxis stays competitive in the migrant workers segment and Celcom regains its footing with an improved network. Overall, we see mobile service revenue growing 1.9%/2.8% yoy in FY17/18F (FY16F: -1.2%). While modest, this should still be the best among the Big 3 telcos.

EBITDA forecast raised mainly for higher mobile service revenue We have raised our FY16-18F EBITDA and core net profit forecasts by 1.9-10.8% and 2.7%-18.4%, respectively. This factors in higher mobile service revenue as it gains further postpaid market traction, higher EBITDA margin and lower depreciation. Postrevision, we expect EBITDA to grow at a 3-year CAGR of 2.2% in FY16-18F, but core EPS to decline by 1.7% due to rising depreciation driven by its RM900m p.a. capex. On 100% payout, we forecast DPS of 21-22 sen or a yield of 4.2-4.3% in FY16-18F.

Key risk is that DiGi misses out on 700MHz There are risks that DiGi might miss out on the 700MHz spectrum. If this was to happen and Maxis and Celcom were both successful, DiGi will only be able to narrow the network gap by a smaller margin. Its share price could react negatively to such a development, as the market may view this as another instance where DiGi has been sidelined by the regulator, and that it may eventually have to fork out substantial cash to gain access to the 700MHz band (e.g. through acquisitions, wholesale leasing etc.).

Maintain Hold with a 10% higher target price of RM5.30 We have maintained our Hold rating on DiGi, despite expecting it to gain postpaid RMS and having relatively better topline growth among the Big 3. Post-earnings revision, our DCF fair value rises by 10% to RM5.30, implying less than 10% total upside potential. DiGi’s FY17F EV/OpFCF of 19.1x is at a 1%/34% premium to the Malaysian/ASEAN telco average, while dividend yields are decent at 4.2-4.3% p.a. Key upside/downside risks are better-than-expected postpaid traction/missing out on 700MHz spectrum. [X]

Financial Summary

Analyst(s)



Dec-14A 7,019 3,163 45.1% 2,031 0.26 19.1% 19.14 0.26 5.20% 12.45 18.37 76% 302%

Dec-15A 6,914 2,982 43.1% 1,723 0.23 (13.5%) 22.13 0.22 4.40% 13.39 24.51 204% 292%

Dec-16F 6,746 2,952 43.8% 1,683 0.22 (4.2%) 23.10 0.22 4.33% 13.78 17.08 349% 324% 2.7% 1.00

Dec-17F 6,889 3,042 44.2% 1,639 0.21 (2.6%) 23.72 0.21 4.22% 13.42 21.07 376% 316% 9.2% 0.97

Dec-18F 7,070 3,188 45.1% 1,669 0.21 1.8% 23.30 0.21 4.29% 12.79 20.21 369% 321% 18.4% 0.98

SOURCE: COMPANY DATA, CIMB FORECASTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. CIMB Securities Limited has had an investment banking relationship with Axiata Group within the preceding 12 months.


Telco - Mobile│Malaysia│Equity research│September 27, 2016

Better network, better business Figure 103: DiGi’s DCF-based target price raised to RM5.30 (WACC: 7.0%, terminal growth: 2.0%) FYE 31 Dec (RM m) EBIT (1-T) Depreciation Capex Annual FCFF Terminal value Present value of cash flow Value of firm Net cash/(debt) at end-2016 Value of Equity Value of Equity per share (RM)

2017F 1,716 785 (900) 1,601

2018F 1,751 884 (900) 1,735

2019F 1,919 822 (900) 1,841

2020F 2,014 878 (900) 1,992

2021F 2,119 924 (900) 2,143

2022F 2,251 927 (900) 2,278

2023F 2,373 930 (900) 2,403

2024F 2,477 932 (900) 2,509

2025F 2,586 934 (900) 2,620

1,496

1,516

1,504

1,521

1,529

1,519

1,498

1,462

1,427

2026F 2,695 935 (900) 2,730 55,924 29,873

43,347 (1,814) 41,533 5.30 SOURCE: CIMB RESEARCH, COMPANY

Figure 104: Sensitivity of target price to changes in WACC and terminal growth rate WACC/Terminal growth rate 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5%

1.0% 6.45 5.74 5.16 4.70 4.28 3.93 3.63

1.5% 7.05 6.20 5.52 4.99 4.51 4.12 3.79

2.0% 7.82 6.78 5.97 5.30 4.79 4.35 3.98

2.5% 8.85 7.52 6.52 5.77 5.12 4.61 4.19

3.0% 10.30 8.51 7.23 6.31 5.53 4.93 4.45


Figure 105: DiGi’s EV/OpFCF trading band (x) 26.0 24.0 22.0 20.0 18.0 16.0 14.0 12.0 10.0 Sep-11

Sep-12 EV/OpFCF

Sep-13 Mean

1+ Std Dev

Sep-14 1- Std Dev

Sep-15 1+ 2 Std Dev

Sep-16 1- 2 Std Dev


67


BY THE NUMBERS

P/BV vs ROE 170 150 130 110 90 70 50 30 10 Jan-12A Jan-13A Jan-14A Jan-15A Jan-16F Jan-17F Rolling P/BV (x) (lhs)

410% 366% 323% 279% 235% 191% 148% 104% 60%


31.0

50.0%

29.0

40.0%

27.0

30.0%

25.0

20.0%

23.0

10.0%

21.0

0.0%

19.0

-10.0%


-20.0%


ROE (rhs)



Dec-14A 7,035 7,035 3,163 (492) 2,671 (26) 0 0 2,645 2,645 (614)

Dec-15A 6,927 6,927 2,982 (582) 2,400 (46) 0 0 2,355 (46) 2,309 (586)

Dec-16F 6,766 6,766 2,952 (674) 2,278 (64) 0 0 2,214

Dec-17F 6,909 6,909 3,042 (785) 2,257 (101) 0 0 2,156

Dec-18F 7,090 7,090 3,188 (884) 2,304 (108) 0 0 2,195

2,214 (531)

2,156 (517)

2,195 (527)

2,031 0

1,723 0

1,683 0

1,639 0

1,669 0

2,031 2,031 2,031

1,723 1,757 1,757

1,683 1,683 1,683

1,639 1,639 1,639

1,669 1,669 1,669


Dec-14A 3,163

Dec-15A 2,982

Dec-16F 2,952

Dec-17F 3,042

Dec-18F 3,188

(29)

(121)

0

0

0

101 (35) (501) 2,699 (900) 7 0 13 (880) 297 0 0 (2,006)

21 (53) (601) 2,228 (897) 0 0 11 (886) 243 0 0 (1,889)

21 (71) (531) 2,370 (900) 0 0 8 (892) 799 0 0 (1,633)

21 (112) (517) 2,434 (900) 0 0 11 (889) 300 0 0 (1,683)

21 (126) (527) 2,556 (900) 0 0 18 (882) 250 0 0 (1,639)

0 (1,709) 110 2,116 1,855

(0) (1,646) (304) 1,586 1,396

(0) (834) 644 2,277 1,549

(0) (1,383) 162 1,845 1,657

(0) (1,389) 285 1,924 1,800


68


BY THE NUMBERS

Balance Sheet (RMm) Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets Fixed Assets Total Investments Intangible Assets Total Other Non-Current Assets Total Non-current Assets Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity Minority Interests Total Equity

Dec-14A 526 828 65 0 1,419 2,382 0 502 0 2,884 804

Dec-15A 234 1,070 117 0 1,420 2,643 0 517 82 3,242 1,269

Dec-16F 279 841 59 0 1,178 2,999 0 1,036 0 4,035 1,269

Dec-17F 441 1,104 119 0 1,664 3,263 0 936 0 4,199 1,269

Dec-18F 726 885 60 0 1,671 3,448 0 767 0 4,215 1,269

1,840 439 3,083 244

2,056 433 3,757 25

1,711 432 3,411 824

2,108 432 3,808 1,124

1,746 432 3,447 1,374

290 534 0 3,617 686 0 686

360 386 0 4,143 519 0 519

459 1,282 0 4,694 519 0 519

412 1,536 0 5,344 519 0 519

546 1,920 0 5,367 519 0 519

Dec-14A 4.23% 3.97% 45.1% (0.07) 0.088 69.27 23.2% 100% 37.19 N/A N/A 165% 171% 50.9%

Dec-15A (1.49%) (5.73%) 43.1% (0.14) 0.067 42.69 25.4% 97% 43.69 N/A N/A 120% 136% 40.2%

Dec-16F (2.43%) (1.02%) 43.8% (0.23) 0.067 31.93 24.0% 100% 43.81 N/A N/A 88% 103% 35.0%

Dec-17F 2.11% 3.07% 44.2% (0.25) 0.067 20.13 24.0% 100% 43.69 N/A N/A 61% 82% 31.0%

Dec-18F 2.63% 4.78% 45.1% (0.25) 0.067 18.30 24.0% 100% 43.69 N/A N/A 60% 76% 29.8%

Dec-14A 11,421.00 N/A N/A N/A 47.1 N/A N/A N/A


Dec-16F 12,525.00 N/A N/A N/A 42.4 N/A N/A N/A






69

Telco - Mobile│Singapore│Equity research│September 27, 2016

Company Note

M1 Limited

▎Singapore

Down and still out


Buy 6

Hold 6


Sell 9 S$2.37 S$2.80 S$2.80 %


MONE.SI M1 SP US$1,622m S$2,204m US$4.15m S$5.61m 1,086m 39.2%


Relative to FSSTI (RHS) 99.2

2.70

93.7

2.50

88.1

2.30

82.6

2.10 8 6 4 2

77.0

Vol m

2.90

Sep-15

Dec-15

Mar-16

1M -11.9 -11.6

3M -7.1 -11.3

Major shareholders Sunshare (Axiata) Keppel T&T Singapore Press Holdings

■ ■ ■ ■

Healthy fixed services growth to partially help buffer weaker mobile revenue. EBITDA to stay largely flattish in FY16-17F and could decline by 20% in FY17-20F. Payout ratio likely to stay at 80%, even if there is no new mobile entrant. Maintain Hold with unchanged target price of S$2.80.

Soft mobile revenue before bigger decline in 2018 We expect M1’s mobile service revenue to be slightly under pressure in FY16F (-2.2%) and FY17F (+0.8%) due to the recent launch of lower priced sim-only plans and upsized data promos. Thereafter, we expect mobile service revenue to fall by 11.3% between 2017F and 2020F as competition intensifies once the potential fourth mobile player launches its service in early-2018.

Fixed services growth will help to provide some cushion

EBITDA to stay flattish in FY16-17F; 19% decline from FY17-20F We forecast EBITDA to decline slightly by 1.7% in FY16F and to recover by 3.1% yoy in FY17F due to a reduction in handset subsidies. Driven by a substantial drop in revenue, we forecast EBITDA to fall by 20.2% in FY17-20F, with EBITDA margin falling to a low of 34.6% in FY20.F In our bear/bull case, EBITDA could fall by 38%/7% in the same threeyear period.

Capex to stay high for another two years

Jun-16

Source: Bloomberg


New promos to put some pressure on mobile revenue in FY16-17F. New mobile entrant to drive it down by 11% between 2017F and 2020F.

We expect fixed services revenue to increase by a healthy 3-year CAGR of 17.7% in FY16-18F, driven by new government contracts, gradually rising corporate market share (only c.5% now) and growth in residential fibre subscribers. Growth in fixed services, which formed 10.4% of FY15’s total service revenue, will help to cushion revenue in FY16/17F (-0.8%/+1.7%) and lessen the drop to 5.6% between FY17F-20F, in our view.


■

12M -18.3 -18.9 % held 29.7 19.0 13.9

We believe capex is likely to stay high at c.S$130m-140m p.a. (capex/sales: 15.717.2%) in FY16-17F before easing to S$120m p.a. over the long term. About S$100m will likely be spent on mobile network maintenance/upgrades, while the remaining S$30m-40m will be largely on fibre investments, i.e. to connect more buildings and for mobile backhaul.

Payout ratio increase and special dividends unlikely Even if a fourth mobile player does not enter the market, we do not expect M1 to raise its payout ratio (FY15: 80%) or pay special dividends in the next two years. Due to high capex and spectrum payments, we forecast net debt/EBITDA at 1.2x/1.1x/1.1x by endFY16/17/18F, which is within its optimal capital structure range of 1.0x to 1.5x, in our view.

Maintain Hold with unchanged target price of S$2.80 We maintain our Hold rating on M1, given the uncertainty regarding the possible entry of a fourth mobile player. Our DCF-based TP of S$2.80 (WACC: 7.1%) is unchanged and is based on the mid-point between the scenario of a fourth mobile player entering the market (S$2.40) and status quo (S$3.20), though we believe the former scenario is more likely. At 12.0x FY17F EV/OpFCF, M1 trades at a 16% discount to the group. Key upside/downside risk is the non-entry/emergence of a fourth mobile operator. [X]

Financial Summary

Analyst(s)


Revenue (S$m) Operating EBITDA (S$m) Operating EBITDA Margin Net Profit (S$m) Core EPS (S$) Core EPS Growth FD Core P/E (x) DPS (S$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing ROE % Change In Core EPS Estimates CIMB/consensus EPS (x)

Dec-14A 1,076 333.3 31.0% 175.8 0.19 8.5% 12.52 0.19 7.97% 7.43 15.01 70.8% 44.5%

Dec-15A 1,157 335.7 29.0% 178.5 0.19 1.0% 12.39 0.15 6.46% 7.62 14.85 83.2% 44.2%

Dec-16F 1,061 330.0 31.1% 170.8 0.18 (4.7%) 13.01 0.15 6.15% 7.89 17.76 82.5% 39.0% 0% 0.98

Dec-17F 1,164 340.2 29.2% 175.6 0.19 2.8% 12.65 0.15 6.32% 7.63 19.56 73.0% 36.0% 0% 1.02

Dec-18F 1,058 309.3 29.2% 146.3 0.16 (16.7%) 15.19 0.12 5.27% 8.25 19.56 59.4% 27.4% 0% 0.89

SOURCE: COMPANY DATA, CIMB FORECASTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.



BY THE NUMBERS

P/BV vs ROE


10.50

55.0%

23.0

15.0%

9.50

50.8%

21.0

9.2%

8.50

46.7%

19.0

3.3%

7.50

42.5%

17.0

-2.5%

6.50

38.3%

15.0

-8.3%

5.50

34.2%

13.0

-14.2%


30.0%


-20.0%



ROE (rhs)


Profit & Loss (S$m) Total Net Revenues Gross Profit Operating EBITDA Depreciation And Amortisation Operating EBIT Financial Income/(Expense) Pretax Income/(Loss) from Assoc. Non-Operating Income/(Expense) Profit Before Tax (pre-EI) Exceptional Items Pre-tax Profit Taxation Exceptional Income - post-tax Profit After Tax Minority Interests Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit Recurring Net Profit Fully Diluted Recurring Net Profit

Dec-14A 1,076 1,076 333 (114) 219 (2) 0 0 217 0 217 (41)

Dec-15A 1,157 1,157 336 (118) 217 1 0 (0) 218 0 218 (40)

Dec-16F 1,061 1,061 330 (124) 206 (0) 0 0 206 0 206 (35)

Dec-17F 1,164 1,164 340 (128) 212 (0) 0 0 212 0 212 (36)

Dec-18F 1,058 1,058 309 (133) 176 0 0 0 176 0 176 (30)

176 0

179 0

171 0

176 0

146 0

176 176 176

179 179 179

171 171 171

176 176 176

146 146 146

Cash Flow (S$m) EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received Tax Paid Cashflow From Operations Capex Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing Debt Raised/(repaid) Proceeds From Issue Of Shares Shares Repurchased Dividends Paid Preferred Dividends Other Financing Cashflow Cash Flow From Financing Total Cash Generated Free Cashflow To Equity Free Cashflow To Firm

Dec-14A 333.3

Dec-15A 335.7

Dec-16F 330.0

Dec-17F 340.2

Dec-18F 309.3

(30.8)

(60.1)

0.0

0.0

0.0

3.3 (4.0) (29.0) 272.8 (139.6) 1.3 0.0 (40.1) (178.4) 52.0 18.8

8.0 (4.9) (39.6) 239.1 (133.5) 0.1 0.0 (8.4) (141.8) 51.8 15.1

8.0 (5.6) (35.0) 297.5 (140.0) 0.0 0.0 (72.4) (212.4) 40.0 15.0

8.0 (5.8) (36.0) 306.4 (130.0) 0.0 0.0 (52.9) (182.9) (10.0) 15.0

8.0 (5.4) (30.0) 282.0 (120.0) 0.0 0.0 (8.4) (128.4) (40.0) 15.0

(196.9)

(177.0)

(143.4)

(136.6)

(131.1)

0.0 (126.1) (31.7) 146.4 98.4

0.0 (110.1) (12.8) 149.1 102.2

0.0 (88.4) (3.3) 125.1 90.6

0.0 (131.6) (8.1) 113.5 129.4

0.0 (156.1) (2.5) 113.6 159.0


71


BY THE NUMBERS

Balance Sheet (S$m) Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets Fixed Assets Total Investments Intangible Assets Total Other Non-Current Assets Total Non-current Assets Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity Minority Interests Total Equity

Dec-14A 22.8 172.3 30.3 0.5 225.9 685.9 0.0 13.9 102.2 802.0 52.0

Dec-15A 10.0 198.8 51.5 0.2 260.5 713.9 0.0 13.8 97.8 825.5 353.8

Dec-16F 12.3 156.3 25.1 0.2 194.0 744.1 0.0 13.8 147.3 905.2 353.8

Dec-17F 9.8 227.0 66.1 0.2 303.1 760.8 0.0 13.8 176.7 951.3 353.8

Dec-18F 12.9 127.3 21.6 0.2 162.0 765.9 0.0 13.8 158.4 938.1 313.8

157.3 65.2 274.5 250.0

145.5 62.5 561.8 0.0

151.2 62.5 567.5 40.0

183.4 62.5 599.7 30.0

120.6 62.5 496.9 30.0

108.7 358.7 0.0 633.2 394.6 0.0 394.6

111.0 111.0 0.0 672.8 413.2 0.0 413.2

29.3 69.3 0.0 636.8 462.4 0.0 462.4

112.3 142.3 0.0 742.0 512.5 0.0 512.5

16.4 46.4 0.0 543.3 556.7 0.0 556.7

Dec-14A 6.80% 7.31% 31.0% (0.30) 0.42 54.73 19.0% 100% 49.91 N/A N/A 26.1% 32.9% 17.6%

Dec-15A 7.51% 0.72% 29.0% (0.37) 0.44 44.35 18.3% 80% 49.77 N/A N/A 23.0% 30.5% 16.8%

Dec-16F (8.32%) (1.69%) 31.1% (0.41) 0.49 36.83 17.0% 80% 49.91 N/A N/A 19.7% 26.0% 15.6%

Dec-17F 9.75% 3.09% 29.2% (0.40) 0.55 36.45 17.0% 80% 49.77 N/A N/A 20.1% 24.8% 14.9%

Dec-18F (9.14%) (9.07%) 29.2% (0.35) 0.59 32.39 17.0% 80% 49.77 N/A N/A 14.6% 20.2% 12.4%

Dec-14A 1.85 N/A 0.10 N/A 54.2 N/A 44 N/A

Dec-15A 1.93 N/A 0.13 N/A 50.9 N/A 47 N/A

Dec-16F 2.01 N/A 0.16 N/A 49.6 N/A 46 N/A

Dec-17F 2.06 N/A 0.19 N/A 46.5 N/A 46 N/A

Dec-18F 2.10 N/A 0.22 N/A 43.8 N/A 47 N/A

Key Ratios Revenue Growth Operating EBITDA Growth Operating EBITDA Margin Net Cash Per Share (S$) BVPS (S$) Gross Interest Cover Effective Tax Rate Net Dividend Payout Ratio Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) ROCE (%) Return On Average Assets



72


Company Note

Maxis Berhad

▎Malaysia

More postpaid pressure to come

REDUCE (previously HOLD) Consensus ratings*:



RM6.14 RM5.20 RM6.20 -15.3% -8.8%


MXCS.KL MAXIS MK US$11,158m RM46,113m US$3.96m RM16.04m 7,510m 35.0%


Key changes in this note FY16-18F EBITDA cut by 4.1/1.1/1.1%. FY16-18F Core EPS cut by 5.6/1.9/2.4%. Price Close


■ ■ ■ ■ ■

Postpaid business to face more competition as Maxis’s network lead narrows. Postpaid RMS to fall by 5.3% pts from 2015-18F, on lower subs and price pressure. EBITDA and core EPS expected to fall at 3-year CAGR of 1.3%/4.6% in FY16-18F. Net debt/EBITDA to stay above 2x in FY16-18F, implying little room for DPS hike. Downgrade to Reduce with lower target price of RM5.20.

Postpaid business to face more competition with network lead cut Post spectrum reallocation, we expect Maxis’s 3G service to slightly deteriorate, while DiGi’s/U Mobile’s indoor coverage to improve. Celcom should also recover some market traction after its network modernisation project completes by year-end. Given Maxis’s smaller network lead, we think it will be difficult to sustain the current big price premiums on its MaxisONE sim-only plans. This could put pressure on its unbundled postpaid revenues, which form a substantial 40% of its total postpaid revenue.

Postpaid RMS expected to decline by 5% pts to 39% by 2018 With more postpaid competition, we expect Maxis’s postpaid revenue market share (RMS) (among the Big 3 only) to decline from 44.2% in 2015 to 38.9% by 2018. Overall, we forecast Maxis’s mobile service revenue (ex-U Mobile RAN sharing) to decline by 3.8%/ 3.1%/3.4% in 2016/17/18F, led by postpaid with prepaid relatively steady. However, total service revenue should decline by a milder 1.4%/1.0%/1.4% in 2016/17/18F, after factoring in rising 3G RAN sharing revenue from U Mobile, as U Mobile’s traffic grows.

99.8

6.20

92.9

Earnings to decline over next three years

5.70

85.9

5.20 40 30 20 10

79.0

We have cut our FY16/17/18F EBITDA only by 4.1%/1.1%/1.1% but by a bigger 8-15% for our remaining DCF-period to factor in lower postpaid mobile service revenue. On the back of this, we cut our FY16/17/18F core EPS forecasts by 6.6.x%/1.9%/2.4%. Postrevision, we now forecast EBITDA and core EPS to decline at a 3-year CAGR of 1.3% and 4.6%, respectively. We maintain our FY16-18F DPS forecasts at 20 sen, implying 81-86% payout.

Vol m

6.70

Sep-15

Dec-15

Mar-16

Jun-16

Source: Bloomberg


1M -3.8 -3

Major shareholders Maxis Communications Employees Provident Fund

3M 5.9 3.7

12M -4.8 -8.2 % held 65.0 7.0

Balance sheet a bit stretched; little room for DPS hike Including the upfront 900/1800MHz spectrum fee, we forecast Maxis’s net debt/EBITDA to rise from 1.94x at end-15 to 2.13x at end-16. Assuming its capex declines from RM1.3bn in FY16F to RM1.1bn in FY18F and DPS stays at 20 sen p.a., Maxis’s net debt/EBITDA would inch lower to 2.09x/2.04x by end-FY17/18F. As these are above its net debt/EBITDA target of 2.0x, we believe there is little room for Maxis to raise its DPS over the next three years, even though FCF/share is 30-31 sen in FY17-18F.

Downgrade to Reduce, with lower target price of RM5.20 We downgrade Maxis to Reduce with a lower DCF-based target price of RM5.20 (WACC: 6.9%) to factor in lower mobile service revenue from 2018 due to increased postpaid competition. Another potential risk is 700MHz re-farming. If it is unsuccessful, it may have to raise capex to make up for its reduced 900MHz holding. FY17F EV/OpFCF of 17.2x is at a 9% discount/20% premium to the Malaysian/ASEAN telco average, while dividend yield is 3.3% p.a. Upside risk is higher-than-expected postpaid RMS.

[X]

Financial Summary

Analyst(s)



Dec-14A 8,389 4,251 50.7% 1,718 0.26 (7.40%) 23.79 0.40 6.51% 12.60 12.53 158% 36.1%

Dec-15A 8,601 4,425 51.4% 1,739 0.26 0.77% 23.61 0.20 3.26% 12.36 22.30 203% 43.8%

Dec-16F 8,482 4,328 51.0% 1,808 0.25 (5.47%) 24.98 0.20 3.26% 12.79 23.40 204% 42.5% (5.59%) 0.97

Dec-17F 8,401 4,304 51.2% 1,755 0.23 (4.89%) 26.26 0.20 3.26% 12.81 21.56 188% 38.0% (1.90%) 0.94

Dec-18F 8,280 4,260 51.4% 1,697 0.23 (3.35%) 27.17 0.20 3.26% 12.87 21.70 174% 35.0% (2.40%) 0.91

SOURCE: COMPANY DATA, CIMB FORECASTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. CIMB Securities Limited has had an investment banking relationship with Axiata Group within the preceding 12 months.



More postpaid pressure to come Figure 106: Maxis’s revised DCF-based target price is RM5.20 (WACC: 6.9%, terminal growth: 2.0%) FYE 31 Dec (RM m) EBIT (1-T) Depreciation & Amortisation Capex Annual FCFF Terminal value Present value of cash flow

2017F 2,086 1,407 (1,200) 2,293

2018F 2,021 1,453 (1,100) 2,374

2019F 1,969 1,447 (1,000) 2,417

2020F 1,998 1,432 (1,000) 2,430

2021F 2,050 1,420 (1,000) 2,470

2022F 2,113 1,410 (1,000) 2,524

2023F 2,189 1,403 (1,000) 2,591

2024F 2,270 1,397 (1,000) 2,667

2025F 2,358 1,392 (1,000) 2,750

2,145

2,077

1,978

1,860

1,769

1,691

1,624

1,564

1,508

Value of firm Net cash/(debt) at end-2016 Value of Equity Value of Equity per share (RM)

47,979 (9,233) 38,746 5.20

2026F 2,449 1,388 (1,000) 2,837 59,060 31,761


Figure 107: Sensitivity of target price to changes in WACC and terminal growth rate WACC 1.0% 6.26 5.49 4.44 3.91 3.53

5.5% 6.0% 6.9% 7.5% 8.0%

1.5% 6.90 5.99 4.77 4.16 3.74

Terminal growth rate 2.0% 7.74 6.61 5.20 4.46 3.98

2.5% 8.85 7.41 5.64 4.82 4.27

3.0% 10.41 8.47 6.25 5.25 4.61


Figure 108: Maxis’s EV/OpFCF trading band (x) 23.0

21.0

19.0

17.0

15.0

13.0

11.0 Sep-11

Sep-12 EV/OpFCF

Sep-13 Mean

1+ Std Dev

Sep-14 1- Std Dev

Sep-15 1+ 2 Std Dev

Sep-16 1- 2 Std Dev


74


BY THE NUMBERS

P/BV vs ROE 12.6 11.6 10.6 9.6 8.6 7.6 6.6 5.6 4.6 Jan-12A Jan-13A Jan-14A Jan-15A Jan-16F Jan-17F Rolling P/BV (x) (lhs)

49.0% 45.9% 42.8% 39.6% 36.5% 33.4% 30.3% 27.1% 24.0%


32.0

10.0%

30.0

3.3%

28.0

-3.3%

26.0

-10.0%

24.0

-16.7%

22.0

-23.3%


-30.0%


ROE (rhs)



Dec-14A 8,496 8,496 4,251 (1,404) 2,847 (380) 0 0 2,467 (31) 2,436 (711)

Dec-15A 8,675 8,675 4,425 (1,432) 2,993 (412) 0 0 2,581 (121) 2,460 (713)

Dec-16F 8,632 8,632 4,328 (1,387) 2,941 (419) 0 0 2,522 0 2,522 (706)

Dec-17F 8,551 8,551 4,304 (1,407) 2,897 (448) 0 0 2,449 0 2,449 (686)

Dec-18F 8,430 8,430 4,260 (1,453) 2,806 (439) 0 0 2,367 0 2,367 (663)

1,725 (7)

1,747 (8)

1,816 (8)

1,763 (8)

1,704 (8)

1,718 1,936 1,936

1,739 1,952 1,952

1,808 1,846 1,846

1,755 1,755 1,755

1,697 1,697 1,697


Dec-14A 4,251 448

Dec-15A 4,425 139

Dec-16F 4,328

Dec-17F 4,304

Dec-18F 4,260

0

0

0

1 (381) (637) 3,682 (978) 4 0 (258) (1,232) 1,227 19

135 (413) (681) 3,605 (1,512) 0 0 (367) (1,879) 341 20

134 (419) (706) 3,337 (1,300) 0 0 (367) (1,667) 300 0

134 (448) (686) 3,305 (1,200) 0 0 (367) (1,567) 400 0

134 (439) (663) 3,291 (1,100) 0 0 (367) (1,467) 300 0

(3,002)

(2,327)

(1,502)

(1,502)

(1,502)

(396) (2,152) 298 3,677 2,874

(463) (2,429) (703) 2,067 2,194

(483) (1,685) (15) 1,970 2,151

(500) (1,602) 136 2,138 2,236

(517) (1,719) 106 2,124 2,339


75


BY THE NUMBERS


Dec-14A 1,531 971 12 64 2,578 4,008 0 11,176 347 15,531 880

Dec-15A 1,296 1,218 13 291 2,818 4,227 0 11,267 672 16,166 1,077

Dec-16F 945 941 12 320 2,218 4,460 0 11,247 739 16,447 1,077

Dec-17F 1,579 1,197 13 352 3,141 4,600 0 11,200 813 16,613 1,077

Dec-18F 2,200 910 12 387 3,509 4,620 0 11,126 894 16,641 1,077

3,002 301 4,183 8,118

3,467 349 4,893 8,801

3,084 349 4,510 9,101

3,379 349 4,805 9,501

2,968 349 4,394 9,801

1,070 9,188 0 13,371 4,716 22 4,738

1,070 9,871 0 14,764 4,190 30 4,220

519 9,620 0 14,130 4,496 38 4,534

652 10,153 0 14,958 4,750 46 4,796

956 10,757 0 15,151 4,945 54 4,999

Dec-14A (7.65%) (5.99%) 50.7% (0.99) 0.63 6.71 29.2% 172% 41.73 N/A N/A 15.5% 21.2% 11.5%

Dec-15A 2.53% 4.09% 51.4% (1.14) 0.56 6.40 29.0% 81% 46.45 N/A N/A 16.9% 21.9% 11.7%

Dec-16F (1.39%) (2.20%) 51.0% (1.23) 0.60 6.11 28.0% 83% 46.57 N/A N/A 15.9% 20.8% 11.3%

Dec-17F (0.96%) (0.54%) 51.2% (1.20) 0.63 5.82 28.0% 86% 46.45 N/A N/A 15.2% 19.6% 10.9%

Dec-18F (1.44%) (1.03%) 51.4% (1.16) 0.66 5.45 28.0% 89% 46.45 N/A N/A 14.6% 18.4% 10.2%









76

Telco - Integrated│Singapore│Equity research│September 27, 2016

Company Note

SingTel

▎Singapore


Sell 0 S$3.96 S$4.50 S$4.50 13.6% 6.6%


STEL.SI ST SP US$46,455m S$63,137m US$69.59m S$94.05m 15,944m 43.6%

Average daily turnover: Current shares o/s: Free float:

Yields & safety for now; growth in FY18-19F ■ ■ ■ ■ ■

Optus: FY17F earnings to be held back by rising depreciation and falling A$. S’pore: flattish FY17F consumer & enterprise EBITDA; wider Digital Life losses. Associates: to be dragged down by dip at AIS and flat contribution from Bharti & Globe in FY17F. Netlink Trust selldown could result in special DPS of 12.6-17.6 Scts. Maintain Add with unchanged target price of S$4.50. Attractive yields of 4.4-5.3%.

Optus’s profits to be held back by rising depreciation, falling A$ Further mobile/fixed network improvements and content differentiation will help drive more subscriber share gains at Optus, in our view. We see EBITDA growing a healthy 5.9% in FY17F but core net profit rising by a more modest 3.6% due to increases in depreciation and interest costs on higher capex. We expect its earnings contribution to SingTel to rise by only 1.6% in FY17F as we assume the A$ will dip 2% to parity with S$. On stable currency, we forecast Optus contribution to rise 4.9%/1.4% in FY18/19F.

*Source: Bloomberg

Singapore earnings to be slightly under pressure in FY17F

Key changes in this note FY15F Revenue increased by 5%. FY15F EPS increased by 5%. FY15F ROE increased by 5%.

We see consumer EBITDA rising by only 0.9% in FY17F on flat mobile service revenue. While the cybersecurity business looks promising, we see flat enterprise EBITDA in FY17F with price pressure from National Broadband Network (NBN) players and Trustwave only breaking even. As SingTel ramps up HOOQ (premium video streaming service), we project a wider LBITDA of S$164m (FY16F: -S$137m) at Digital Life. Overall, we expect Singapore EBITDA to fall 1.0% while core net profit drops by 6.2%.

Price Close

Relative to FSSTI (RHS) 117.8

3.70

107.4

3.20 80 60 40 20

97.0

Vol m

4.20

Sep-15

Dec-15

Mar-16

Jun-16

Source: Bloomberg


1M -6.2 -5.9

Major shareholders Temasek Hldgs

3M 3.7 -0.5

12M 8.8 8.2 % held 54.3

AIS a drag on associates earnings growth in FY17F In S$ terms, we expect the share of associate earnings to be flat in FY17F (FY16F: +9.5%). We forecast strong 12.3% growth at Telkomsel, largely offset by a 29.4% drop in AIS’s earnings (1800MHz license amortisation, handset subsidies) in FY17F. Contribution from Bharti and Globe should be largely steady yoy, in our view. We see associate earnings expanding by a stronger 11.2%/17.6% in FY18/19F, driven by Telkomsel and Bharti.

Possible special dividend from NLT spinoff but 12-18 months away We believe SingTel is likely to spin off 100%-owned NetLink Trust (NLT) in an IPO by 2H17, in line with its undertaking to Infocomm Development Authority of Singapore (IDA) to divest its stake to less than 25% by 22 Apr 2018. An 80% stake sale could raise S$2.0bn-2.8bn (12.6-17.6 Scts/share) cash, based on our estimated valuation of S$2.5bn-3.5bn for NLT. On the back of this, we think it is likely for SingTel to declare a special dividend, possibly in its 4QFY18’s results announcement.

Maintain Add call and SOP-based target price of S$4.50 We see SingTel’s core EPS easing 1.0% yoy in FY17F, then growing 8.4%/10.1% in FY18/19F. SingTel is our preferred Singapore telco pick as it: a) has better medium-term earnings growth outlook, and b) will be least impacted by the potential entry of a fourth mobile player. SingTel’s FY18F EV/OpFCF of 17.6x is at 23% premium to the ASEAN Telco average, but this is supported by attractive FY17-19F yields of 4.4-5.3%. Downside risks are more intense competition in Australia, India and Singapore.

Financial Summary

Analyst(s)



Mar-15A 17,223 5,090 29.6% 3,782 0.24 4.7% 16.70 0.18 4.42% 11.93 24.25 34.0% 15.6%

Mar-16A 16,961 5,013 29.6% 3,871 0.24 0.7% 16.58 0.18 4.42% 12.28 23.67 37.9% 15.3%

Mar-17F 16,637 5,098 30.6% 3,769 0.24 (1.0%) 16.74 0.18 4.42% 11.94 22.15 36.7% 14.8% 0% 0.94

Mar-18F 16,654 5,335 32.0% 4,087 0.26 8.4% 15.44 0.19 4.85% 11.26 22.49 35.0% 15.4% 0% 0.95

Mar-19F 17,324 5,398 31.2% 4,500 0.28 10.1% 14.02 0.21 5.34% 10.89 20.62 32.6% 16.1% 0%



Telco - Integrated│Singapore│SingTel│September 27, 2016

Yields & safety for now; growth in FY18-19F Figure 109: SingTel’s SOP-based target price is S$4.50 FYE 31 March (S$ m) EBIT (1-T) Depreciation Capex Annual FCFF Terminal value Present value of cash flow Total NPV (Singapore & Optus) Net cash/(debt) at end-FY15F Regional investments# Value of Equity No of shares (m) Value of Equity per share (S$)

FY17F 2,170 2,279 (2,400) 2,048

FY18F 2,279 2,373 (2,750) 1,901

FY19F 2,316 2,386 (2,450) 2,252

FY20F 2,477 2,342 (2,500) 2,319

FY21F 2,548 2,288 (2,368) 2,467

FY22F 2,734 2,226 (1,900) 3,060

FY23F 2,808 2,167 (1,900) 3,076

FY24F 2,960 2,119 (1,900) 3,179

FY25F 2,996 2,080 (1,900) 3,175

1,908 43,506 (9,142) 37,457 71,821 15,955 4.50

1,650

1,821

1,747

1,732

2,001

1,874

1,804

1,679

FY26F 3,124 2,047 (1,900) 3,271 52,131 27,290


Figure 110: Associates are valued at S$2.35 per SingTel share Associates Advanced Info (ADVANC TB) Globe Telecom (GLO PM) Bharti (BHARTI IN) Telkomsel Singapore Post (SPOST SP) Bangladesh Telecom Warid Total NAV

% of RNAV 7.6% 5.4% 16.8% 21.0% 1.3% 0.3% 0.3%

Stake (%) 23.3 47.2 32.9 35.0 25.7 45.0 30.0

Value (S$ m) 5,462 3,885 12,078 15,077 955 238 188 37,457

Value/share (S$) 0.34 0.24 0.76 0.94 0.06 0.01 0.01 2.35

Valuation Methodology Based on CIMB TP of THB205 Based on consensus TP Based on CIMB TP of Rs450 Based on DCF Based on CIMB TP of S$1.76 Based on investment to-date Based on disposal price SOURCE: CIMB RESEARCH, COMPANY

Figure 111: Breakdown of SOP-based target price S$ 0.98 1.18 0.76 0.94 0.34 0.24 0.06 4.50

SingTel Optus Bharti Telkomsel ADVANC Globe Singapore Post Total SoTP

% 22% 26% 17% 21% 8% 5% 1% 100% SOURCE: CIMB RESEARCH, COMPANY

78


BY THE NUMBERS P/BV vs ROE

12-mth Fwd FD Core P/E vs FD Core EPS

2.90 2.80 2.70 2.60 2.50 2.40 2.30 2.20 2.10 Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F Rolling P/BV (x) (lhs)

16.50% 16.19% 15.88% 15.56% 15.25% 14.94% 14.63% 14.31% 14.00%

Growth 19.00 18.50 18.00 17.50 17.00 16.50 16.00 15.50 15.00 14.50 14.00 Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F

15.0% 12.5% 10.0% 7.5% 5.0% 2.5% 0.0% -2.5% -5.0% -7.5% -10.0%


ROE (rhs)



Mar-15A 17,223 5,090 5,090 (2,161) 2,929 (216) 2,579 0 5,291 3 5,294 (1,510)

Mar-16A 16,961 5,013 5,013 (2,149) 2,864 (265) 2,791 0 5,390 66 5,456 (1,597)

Mar-17F 16,637 5,098 5,098 (2,279) 2,820 (287) 2,847 0 5,379 0 5,379 (1,623)

Mar-18F 16,654 5,335 5,335 (2,373) 2,962 (286) 3,161 0 5,837 0 5,837 (1,763)

Mar-19F 17,324 5,398 5,398 (2,386) 3,011 (283) 3,721 0 6,450 0 6,450 (1,963)

3,785 (3)

3,858 13

3,756 13

4,075 13

4,487 13

3,782 3,779 3,779

3,871 3,805 3,805

3,769 3,769 3,769

4,087 4,087 4,087

4,500 4,500 4,500


Mar-15A 5,090 1,215 86

Mar-16A 5,013 1,351 (1,042)

Mar-17F 5,098 1,220 0

Mar-18F 5,335 1,341 0

Mar-19F 5,398 1,442 0

(1) (1,306) (598) 4,487 (2,238) 15 (451) 52 (2,621) 737 0

(3) 33 (658) 4,694 (1,930) 6 (1,275) 43 (3,156) 1,129 0

(3) (457) (710) 5,149 (2,400) 0 0 0 (2,400) 100 0

(3) (415) (751) 5,506 (2,750) 0 0 0 (2,750) 50 0

(3) (357) (770) 5,710 (2,450) 0 0 0 (2,450) (200) 0

(2,678)

(2,789)

(2,789)

(2,789)

(3,062)

(1,940) (75) 2,602 2,235

(1,661) (123) 2,666 1,921

(2,689) 60 2,849 3,158

(2,739) 18 2,806 3,169

(3,262) (2) 3,060 3,670


79


BY THE NUMBERS… cont’d Balance Sheet (S$m) Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets Fixed Assets Total Investments Intangible Assets Total Other Non-Current Assets Total Non-current Assets Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity Minority Interests Total Equity

Mar-15A 563 3,885 290 30 4,768 10,683 11,115 11,949 3,553 37,299 174

Mar-16A 462 4,366 320 18 5,165 11,154 11,234 12,968 3,044 38,400 686

Mar-17F 522 3,727 269 18 4,536 11,275 11,947 13,453 3,044 39,720 686

Mar-18F 539 4,375 309 18 5,240 11,653 12,756 13,912 3,044 41,365 686

Mar-19F 537 4,053 300 18 4,908 11,717 13,843 14,329 3,044 42,932 686

5,078 504 5,757 8,804

5,397 457 6,540 9,255

4,302 457 5,444 9,355

5,215 457 6,358 9,405

4,806 457 5,948 9,205

2,216 11,020 522 17,299 24,733 35 24,768

2,183 11,438 585 18,563 24,967 36 25,003

2,901 12,256 585 18,285 25,947 23 25,970

3,001 12,406 585 19,349 27,245 11 27,256

3,420 12,625 585 19,159 28,683 (2) 28,682

Mar-15A 2.23% (1.26%) 29.6% (0.53) 1.55 9.47 28.5% 74.8% 78.85 6.91 143.2 9.32% 8.93% 9.69%

Mar-16A (1.52%) (1.52%) 29.6% (0.59) 1.57 7.96 29.3% 74.6% 89.03 9.33 160.4 8.36% 8.35% 9.31%

Mar-17F (1.91%) 1.71% 30.6% (0.60) 1.63 7.42 30.2% 74.1% 88.79 9.31 153.4 7.80% 7.95% 9.03%

Mar-18F 0.10% 4.64% 32.0% (0.60) 1.71 7.74 30.2% 75.0% 88.79 9.31 153.4 7.88% 8.09% 9.42%

Mar-19F 4.02% 1.18% 31.2% (0.59) 1.80 7.93 30.4% 75.0% 88.79 9.31 153.3 7.82% 7.95% 9.93%

Mar-15A 14.26 1.57 1.11 0.42 38.9 1.0 67 104.1

Mar-16A 14.66 1.53 1.12 0.43 39.0 1.0 67 109.3

Mar-17F 15.05 1.49 1.14 0.44 38.9 0.9 68 114.8

Mar-18F 15.05 1.49 1.14 0.44 38.9 0.9 68 114.8

Mar-19F 15.05 1.49 1.14 0.44 38.9 0.9 68 114.8




80


Company Note

Starhub

▎Singapore

Not a starry-starry night




S$3.39 S$3.70 S$3.70 9.1% 8.3%


STAR.SI STH SP US$4,315m S$5,864m US$7.97m S$10.77m 1,736m 33.2%


Key changes in this note No change.

■

StarHub’s mobile business is at risk of being negatively affected in FY17F onwards by the possible entry of a fourth mobile operator.

■

Impact on Starhub likely less severe than on M1, as mobile accounted for only 56% of StarHub’s FY16F service revenue and it is able to bundle quad-play services.

■

On the positive side, we expect its broadband revenue to rise by low-to-mid single digit in the next three years.

■

We forecast annual DPS to stay at S$0.20 in FY15-17F. Special dividends are unlikely.

■

Maintain Hold with unchanged target price of S$3.70.

At risk from fourth mobile operator but likely lower impact than M1 While already exhibiting flat to slightly declining revenue in FY16-17F, StarHub’s mobile business is at risk of further negative impact in FY18F onwards from the possible entry of a fourth mobile operator. Nevertheless, the impact on StarHub is likely to be less severe than on M1, as the mobile business accounts for only 56% of its FY16F service revenue (estimated 71% of EBITDA) and its ability to bundle quad-play services puts it in a stronger position to defend mobile market share.

Sensitivity analysis on FY18-20F earnings Price Close

Relative to FSSTI (RHS)

4.00

116.0

3.80

108.5

3.60

101.0

3.40

93.5

3.20 15

86.0

Vol m

10

5 Sep-15

Dec-15

Mar-16

Jun-16

Source: Bloomberg


1M -9.1 -8.8

Major shareholders STT Com Ltd NTT Communication Temasek Capital

3M -4.2 -8.4

12M -5.1 -5.7 % held 49.2 10.1 7.5

We have factored in a negative 15% impact on StarHub’s mobile ARPU in 2018-20. The impact would be worse, in our opinion, if the new entrant employs highly aggressive pricing strategies, or milder if the new entrant’s execution is poor (network, branding). Our sensitivity analysis suggests that our FY18-20F net profit forecasts for StarHub would be cut by 14-47% if its mobile ARPU is negatively affected by 30% (bear-case), or raised by 9-22% if the negative impact on mobile ARPU is only 5% (bull-case).

Broadband revenue expanding again On the positive side, StarHub’s broadband business has resumed positive revenue growth since 3Q15. From a low base, broadband ARPUs have gradually risen as subs upgrade to higher speed plans. Nevertheless, competition remains intense with little subs growth. We expect StarHub’s residential broadband segment to register revenue growth of low-to-mid single digit over the next three years.

Dividends to stay the same Overall, we forecast EBITDA to be flat in FY16F, before rising by a modest 3.4% in FY17F due to lower handset subsidies. In FY18F, we expect EBITDA to fall 9.8% due to competition from the possible fourth mobile operator. We do not expect StarHub to raise its annual S$0.20 DPS as FCF/share will likely stay at S$0.15-0.20 in FY16-18F due to high capex and spectrum payments. Given the business headwinds, we believe StarHub will not pay any special dividends in FY16-18F to maintain balance sheet flexibility.

Maintain Hold with unchanged target price of S$3.70 We maintain our Hold rating on StarHub with an unchanged DCF-based target price of S$3.70 (WACC: 7.1%). This is based on the mid-point between the valuation under the scenario of a fourth mobile player entering the market (S$3.20) and status quo (S$4.20), although we believe there is a high chance of the former scenario materialising. StarHub trades at 13.6x FY17F EV/OpFCF, at a 5% discount to ASEAN telco average. Key upside/downside risk is the non-entry/emergence of a fourth mobile operator. Financial Summary

Analyst(s)



Dec-14A 2,387 747.9 31.3% 370.5 0.21 (2.6%) 15.83 0.20 5.90% 8.39 18.71 272% 320%

Dec-15A 2,444 712.7 29.2% 357.3 0.21 (3.1%) 16.34 0.20 5.90% 8.93 30.99 260% 214%

Dec-16F 2,397 714.3 29.8% 351.5 0.20 (2.4%) 16.74 0.20 5.90% 9.08 18.62 309% 185% 0% 0.98

Dec-17F 2,449 738.5 30.2% 358.2 0.21 1.9% 16.43 0.20 5.90% 8.82 16.11 305% 180% 0% 1.01

Dec-18F 2,367 665.8 28.1% 292.8 0.17 (18.3%) 20.10 0.20 5.90% 9.80 15.36 420% 163% 0% 0.83




BY THE NUMBERS

P/BV vs ROE 213 193 173 153 133 113 93 73 53 33 13 Jan-12A Jan-13A Jan-14A Jan-15A Jan-16F Jan-17F Rolling P/BV (x) (lhs)

1,280% 1,160% 1,040% 920% 800% 680% 560% 440% 320% 200% 80%


24.0

25.0%

22.0

19.2%

20.0

13.3%

18.0

7.5%

16.0

1.7%

14.0

-4.2%


-10.0%


ROE (rhs)



Dec-14A 2,387 701 748 (271) 477 (21) 0 0 456

Dec-15A 2,444 667 713 (271) 441 (16) (0) 0 425

Dec-16F 2,397 689 714 (273) 441 (18) 0 0 424

Dec-17F 2,449 739 739 (288) 451 (19) 0 0 432

Dec-18F 2,367 666 666 (293) 373 (20) 0 0 353

456 (86)

425 (68)

424 (72)

432 (73)

353 (60)

371 0

357 0

352 0

358 0

293 0

371 371 371

357 360 360

352 352 352

358 358 358

293 293 293


Dec-14A 747.9

Dec-15A 712.7 (36.7) (36.7)

Dec-16F 714.3 0.0 0.0

Dec-17F 738.5 0.0 0.0

Dec-18F 665.8 0.0 0.0

(35.8) (22.6) (65.3) 632.3 (321.6) 0.8 0.0 2.0 (318.8) 0.0 0.6

(38.8) (17.8) (92.7) 490.0 (328.8) 1.6 0.0 26.9 (300.3) 0.0 0.3

(17.0) (19.1) (72.0) 606.2 (311.6) 0.0 0.0 (78.5) (390.1) 100.0 0.0

8.0 (21.0) (73.4) 652.1 (293.9) 0.0 0.0 (42.9) (336.8) 50.0 0.0

8.0 (22.3) (60.0) 591.5 (260.3) 0.0 0.0 1.8 (258.5) 50.0 0.0

(345.2)

(345.9)

(345.8)

(345.8)

(345.8)

5.6 (339.0) (25.5) 313.5 336.1

10.3 (335.3) (145.6) 189.7 207.5

0.9 (244.9) (28.8) 316.1 235.2

(21.0) (316.9) (1.5) 365.4 336.4

(22.3) (318.2) 14.9 383.0 355.4

8.1


82


BY THE NUMBERS

Balance Sheet (S$m) Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets Fixed Assets Total Investments Intangible Assets Total Other Non-Current Assets Total Non-current Assets Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities Total Provisions Total Liabilities Shareholders' Equity Minority Interests Total Equity

Dec-14A 282 162 42 186 672 911 0 405 0 1,316 200

Dec-15A 199 153 54 197 604 890 0 388 27 1,306 138

Dec-16F 190 150 39 197 575 961 0 436 27 1,424 138

Dec-17F 209 154 54 197 614 1,000 0 463 27 1,490 138

Dec-18F 246 134 38 197 615 1,000 0 430 27 1,458 138

796 197 1,193 488

687 203 1,028 550

709 203 1,049 650

661 203 1,002 700

674 203 1,015 750

7 495 151 1,838 149 0 149

1 551 143 1,722 188 0 188

1 651 105 1,805 193 0 193

1 701 196 1,899 206 0 206

1 751 154 1,920 153 0 153

Dec-14A 0.74% 0.66% 31.3% (0.23) 0.09 21.09 18.8% 94% 21.80 9.27 167.7 58.9% 50.0% 20.2%

Dec-15A 2.39% (4.71%) 29.2% (0.28) 0.11 24.79 16.0% 97% 23.52 9.93 152.3 52.4% 44.2% 19.0%

Dec-16F (1.94%) 0.22% 29.8% (0.34) 0.11 23.10 17.0% 99% 23.12 9.96 149.6 44.7% 42.1% 18.7%

Dec-17F 2.16% 3.40% 30.2% (0.36) 0.12 21.44 17.0% 97% 22.61 9.93 146.2 41.7% 38.9% 18.2%

Dec-18F (3.36%) (9.85%) 28.1% (0.37) 0.09 16.71 17.0% 119% 22.16 9.93 143.3 30.0% 30.8% 14.8%

Dec-14A 2.15 N/A 0.47 0.54 35.7 N/A 28 40.2

Dec-15A 2.19 N/A 0.48 0.54 35.8 N/A 25 37.1

Dec-16F 2.24 N/A 0.49 0.54 34.6 N/A 25 37.2

Dec-17F 2.28 N/A 0.49 0.54 34.1 N/A 27 38.9

Dec-18F 2.32 N/A 0.50 0.54 32.0 N/A 27 38.9




83

Telco - Integrated│Malaysia│Equity research│September 27, 2016 Shariah Compliant

Company Note ▎Malaysia

Telekom Malaysia

HOLD (no change)

Convergence for longer-term value creation

Consensus ratings*: Buy 12 Hold 12 Sell 5 Current price: Target price: Previous target: Up/downside: CIMB / Consensus:

RM6.79 RM6.70 RM6.70 -1.3% -2.9%


TLMM.KL T MK US$6,174m RM25,516m US$9.45m RM38.25m 3,758m 47.7%

Average daily turnover: Current shares o/s: Free float:

■ ■ ■

Internet revenue at healthy 3-year CAGR of 11.2%, driven by HSBB2 and SUBB.

■ ■

Core EPS to fall 4.7% in FY16F, stay flat in FY17F before rising 7.0% in FY18F.

Webe’s LBITDA to peak in FY17F before it turns profitable from FY20F onwards. Heavy capex in FY16-17F to drive future growth. Higher depreciation and interest cost in the short term. Maintain Hold, with unchanged DCF-based target price of RM6.70.

Healthy Internet revenue growth outlook We forecast TM's Internet revenue to record a healthy 3-year CAGR of 11.2%, and form 35% of its total revenue by 2018, driven by: 1) mid-single-digit fixed broadband subs growth p.a. as the HSBB2 and SUBB projects expand its network coverage, 2) gradually rising UniFi and Streamyx ARPUs, and 3) Webe’s revenue growth. This should more than offset the 2% p.a. decline in fixed voice and modest 1-3% growth in data and other revenues to drive overall revenue growth of 3.3-4.3% in FY16-18F.

* Source: Bloomberg

Webe could turn EBITDA positive by FY20F Key changes in this note No change. Price Close


6.900

99.3

6.700

95.9

6.500

92.4

6.300 30

89.0

Vol m

20

10 Sep-15

Dec-15

Mar-16

Jun-16

Source: Bloomberg


1M -0.6 0.2

Major shareholders Khazanah Nasional Employees Provident Fund Amanah Saham Bumi

3M -0.4 -2.6

12M 2 -1.4 % held 28.8 15.1 11.9

Targeting TM’s existing fixed broadband subs, Webe’s initial addressable market is c.10m people when it launches in 2H16. Assuming 1.3m mobile subs by end-2018 and blended ARPU of RM55-70, we forecast revenue to rise more than threefold to RM724m by 2018. Taking a focused go-to-market approach and digitalisation could help Webe minimise distribution costs. We see Webe’s core LBITDA at RM99m in FY16F, peaking at RM142m in FY17F and turning profitable from FY20F onwards.

Heavy capex in FY16-17F for future growth We expect TM’s net capex to rise 33% yoy in FY16F to a peak of RM3.3bn, driven by HSBB2, SUBB and Webe’s 4G network rollout. This assumes 25% capex/sales and RM600m capex for Webe. Net capex should then ease 9%/20% yoy to RM3.0bn/2.4bn in FY17/18F. We expect the high capex cycle to lead to rising depreciation and interest cost in FY16-18F. On the balance sheet, we see net debt/EBITDA rising from 1.1x at end- FY15 to a manageable 1.4x by end-FY17F, then ease to 1.2x by end-FY18F.

Earnings and dividend outlook We forecast EBITDA growth of 2.4%/2.2% yoy in FY16/17F, and then a stronger 5.0% yoy in FY18F when Webe’s losses start to narrow. However, due to rising depreciation and interest cost, we see TM’s core net profit declining 4.7% this year and staying flat in FY17F, before rebounding by 7.0% in FY18F. Based on a 90% payout ratio, we forecast DPS of 21.1/21.1/22.5 sen in FY16/17/18F (yield: 3.1-3.4%). In our view, TM’s gearing is at optimal levels over FY16-18F and we do not expect it to pay special dividends.

Maintain Hold with unchanged target price of RM6.70 Maintain DCF-based target price of RM6.70 (WACC: 7.2%), and Hold rating. Due to the high capex, TM’s FY17F EV/OpFCF of 22.7x is at 59% premium to the ASEAN telco average but is supported by decent yields of 3.1-3.3% p.a. Upside risks: stronger-thanexpected UniFi growth and Webe turning profitable earlier than expected. Downside risk: higher-than-forecast Webe losses in the short term.

[X]

Financial Summary

Analyst(s)



Dec-14A 11,235 3,725 33.2% 831.8 0.26 (10.6%) 26.15 0.23 3.37% 7.60 38 43.5% 12.7%

Dec-15A 11,722 3,677 31.4% 700.3 0.25 (5.1%) 27.57 0.21 3.15% 7.88 22 50.7% 11.7%

Dec-16F 12,105 3,767 31.1% 852.9 0.23 (4.7%) 28.93 0.21 3.11% 7.88 1,334 60.0% 10.9% 0.006% 1.02

Dec-17F 12,596 3,851 30.6% 850.5 0.23 (0.3%) 29.01 0.21 3.10% 7.78 65 64.7% 10.8% 0.003% 0.93

Dec-18F 13,141 4,044 30.8% 910.1 0.25 7.0% 27.11 0.23 3.32% 7.29 21 59.7% 11.4% (0.001%) 0.91



Telco - Integrated│Malaysia│Equity research│September 27, 2016

BY THE NUMBERS


16.0% 14.9% 13.8% 12.6% 11.5% 10.4% 9.3% 8.1% 7.0%


41.0

50%

36.0

35%

31.0

20%

26.0

5%

21.0

-10%

16.0

-25%


-40%


ROE (rhs)



Dec-14A 11,389 11,389 3,725 (2,341) 1,384 (155) 9 (48) 1,190 (85) 1,106 (263)

Dec-15A 11,845 11,845 3,677 (2,437) 1,240 (159) 25 (211) 894 17 912 (320)

Dec-16F 12,235 12,235 3,767 (2,546) 1,221 (178) 25 0 1,068 0 1,068 (256)

Dec-17F 12,726 12,726 3,851 (2,644) 1,207 (210) 25 0 1,022 0 1,022 (245)

Dec-18F 13,271 13,271 4,044 (2,759) 1,285 (210) 25 0 1,100 0 1,100 (264)

842 (11)

592 109

812 41

777 74

836 74

832 936 936

700 895 895

853 853 853

850 850 850

910 910 910


Dec-14A 3,725 29

Dec-15A 3,677 507

Dec-16F 3,767

Dec-17F 3,851

Dec-18F 4,044

0

0

0

(326) (300) (114) 3,014 (2,021) 11 (122) (30) (2,162) (213) 779

(605) (304) (333) 2,942 (2,493) 8 (67) 1 (2,550) 743 269

0 (350) (256) 3,161 (3,314) 0 0 172 (3,143) 0 0

0 (350) (245) 3,256 (3,014) 0 0 140 (2,875) 0 0

0 (350) (264) 3,431 (2,414) 0 0 140 (2,275) 0 0

(932)

(848)

(796)

(768)

(765)

(25) (391) 461 639 1,152

(22) 143 535 1,136 697

0 (796) (777) 18 368

0 (768) (386) 382 731

0 (765) 391 1,156 1,506


85

Telco - Integrated│Malaysia│Equity research│September 27, 2016

BY THE NUMBERS


Dec-14A 2,986 2,825 116 554 6,481 14,785 106 582 670 16,142 197

Dec-15A 3,512 2,947 237 602 7,298 15,187 182 608 1,139 17,116 408

Dec-16F 2,733 3,014 129 602 6,477 16,242 207 608 1,139 18,196 408

Dec-17F 2,347 3,189 254 602 6,392 16,899 232 608 1,139 18,877 408

Dec-18F 2,738 3,282 144 602 6,766 16,841 256 608 1,139 18,844 408

3,605 1,055 4,857 6,251

4,367 1,047 5,823 7,175

3,897 1,047 5,353 7,175

4,764 1,047 6,220 7,175

4,241 1,047 5,696 7,175

3,555 9,806 0 14,663 7,571 389 7,960

3,376 10,552 0 16,374 7,781 258 8,039

4,062 11,237 0 16,590 7,866 217 8,083

3,780 10,955 0 17,175 7,951 143 8,094

4,627 11,802 0 17,498 8,042 69 8,111

Dec-14A 5.71% 5.86% 33.2% (0.95) 2.08 4.75 23.8% 91% 83.07 N/A N/A 7.24% 10.8% 4.77%

Dec-15A 4.33% (1.29%) 31.4% (1.12) 2.14 3.83 35.1% 114% 89.87 N/A N/A 6.25% 9.4% 2.95%

Dec-16F 3.27% 2.45% 31.1% (1.33) 2.16 3.49 24.0% 90% 90.12 N/A N/A 6.06% 8.9% 3.86%

Dec-17F 4.06% 2.24% 30.6% (1.44) 2.19 3.45 24.0% 90% 89.87 N/A N/A 5.46% 8.6% 3.75%

Dec-18F 4.33% 5.02% 30.8% (1.33) 2.21 3.68 24.0% 90% 89.87 N/A N/A 5.79% 9.1% 3.91%

Dec-14A N/A 3.53 0.73 N/A N/A 30.5 189 N/A

Dec-15A N/A 3.40 0.84 N/A N/A 29.8 191 N/A

Dec-16F N/A 3.29 0.96 N/A N/A 29.2 193 N/A

Dec-17F N/A 3.19 1.06 N/A N/A 28.4 194 N/A

Dec-18F N/A 3.09 1.16 N/A N/A 27.7 194 N/A




86

Telco - Integrated│Indonesia│Equity research│September 27, 2016

Company Note

Telekomunikasi Indonesia

▎Indonesia

Keep this winner


Sell 0 Rp4,240 Rp4,800 Rp4,500 13.2% 23.5%


TLKM.JK TLKM IJ US$32,773m Rp427,392,000m US$28.04m Rp368,513m 100,800m 39.5%


Key changes in this note FY16-18F core EPS raised by 2.2-4.5%. Price Close

Relative to JCI (RHS)

4,900

155.0

4,400

141.0

3,900

127.0

3,400

113.0

2,900

99.0

2,400 300

85.0

Vol m

200

100 Sep-15

Dec-15

Mar-16

Jun-16

Source: Bloomberg


1M 0.7 2.3

Major shareholders Govt of Indonesia JPMCB Bank of New York

3M 11 0.3

12M 59.7 32.6 % held 52.5 9.3 7.4

■ ■ ■ ■ ■

Impact on revenue from Indosat-XL’s ex-Java expansion should be manageable. Mobile revenue to rise 13%/8%/7% yoy in FY16/17/18F, outpacing XL and Indosat. Revival in fixed line revenue growth, driven by broadband and data/IT services. EBITDA margin to rise on better managed FTTH rollout costs and staff cost savings. Maintain Add; target price raised 7% to Rp4,800. Still our ASEAN telco top pick.

Manageable impact from Indosat-XL’s ex-Java expansion We think it will take Indosat-XL easily more than 5 years to close the current ex-Java coverage gap with Telkomsel given the latter’s big lead, physical rollout time and lack of fibre backbone access. We do expect Indosat-XL to pick up some revenue market share whenever they expand into new areas ex-Java but we think Telkomsel can cope, leveraging on its cheap on-net tariff promos, strong brand and wider network. A scenario analysis suggests possible mild 0.4-2.3%-pt hit to its FY17-19F revenue.

Strong mobile revenue growth to outpace peers in FY16-18F We expect mobile revenue (under 65%-owned Telkomsel) to expand a robust 14.1%/ 9.6%/7.5% in FY16/17/18F, faster than XL and Indosat. Besides mobile Internet, the continued growth in legacy services provides an extra revenue growth kicker. While this will eventually fall, we think Telkomsel can better manage the impact through its clusterbased pricing strategy, especially in ex-Java, where competition is limited. The proposed IC rate cut of 18% does not significantly change the competitive dynamics in ex-Java.

Getting its act right in the fixed business Its fixed business (ex-Telkomsel) revenue rose by 12.7% in FY15 vs. an anaemic 1.4% average growth in FY12-14. Driven by a revival in fixed broadband (with triple-play IndiHome), strong corporate data/IT services revenue growth and a slower decline in fixed voice revenue (due to bundling), we forecast fixed business revenue to expand a healthy 7.2%/12.2%/9.9% in FY16/17/18F. With the fixed business no longer a drag, we see Telkom’s total revenue growing a healthy 12.3%/10.2%/8.1% in the same period.

Upward earnings revision Post the strong 1H16 results, we revisit our earnings model. We believe we may have been a bit conservative in terms of our previous mobile revenue forecasts and too aggressive on depreciation. After adjusting our assumptions, we raise our FY16-18F core EPS by 2.2-4.5%. Post revision, Telkom’s 3-year EBITDA and core EPS CAGR are a robust 12.4% and 17.7%, respectively, which are some of the highest in the region. On a flat 60% payout ratio, this translates into a DPS of Rp109-151 (yield: 2.6-3.6%).

Maintain Add; DCF-based target price now Rp4,800 Telkom’s FY17F EV/OpFCF of 14.3x is in line with the ASEAN telco average despite its superior earnings growth outlook. It is also still trading near its 5-year historical mean. We raise our DCF-based target price by 6.7% to Rp4,800 (FY17 EV/OpFCF: 16.2x). Maintain Add on Telkom, which remains our top ASEAN telco pick. A key re-rating catalyst is the delivery of strong earnings growth while downside risks to our call are more intense competition and higher-than-expected IndiHome costs.

[X]

Financial Summary

Analyst(s)



Dec-14A 89,696 45,673 50.9% 14,471 155.5 4.5% 27.27 89.5 2.11% 9.37 24.16 (2.1%) 23.7%

Dec-15A 102,470 51,517 50.3% 15,489 159.3 2.5% 26.62 94.7 2.23% 8.40 15.03 (1.0%) 21.8%

Dec-16F 115,063 59,331 51.6% 17,786 181.2 13.7% 23.40 108.7 2.56% 7.31 21.75 (2.9%) 19.4% 2.20% 0.94

Dec-17F 126,849 66,556 52.5% 21,431 218.3 20.5% 19.42 131.0 3.09% 6.42 15.17 (8.3%) 18.8% 4.50% 0.98

Dec-18F 137,168 73,176 53.3% 25,434 255.7 17.1% 16.58 151.4 3.57% 5.80 12.66 (14.1%) 20.3% 4.50% 1.03

SOURCE: COMPANY DATA, CIMB FORECASTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. CIMB Securities Limited has had an investment banking relationship with Indosat and XL Axiata within the preceding 12 months.



Keep this winner Figure 112: Telkom’s revised DCF-based target price is Rp4,800 (WACC: 10.2%, terminal growth: 3.0%) Year-end 31 Dec (Rp bn) Telkom (ex-Telkomsel) EBIT (1-T) Depreciation & Amortisation Capex Annual FCFF Terminal value Present value of cash flow Total NPV Net cash/(debt) at end-2016 Value of Equity (ex-Telkomsel) Equity value of Telkomsel (65% stake) Treasure shares^ Total equity value of Telkom No of shares (b) (incld Treasury Stocks) Value of Equity per share (Rp)

2017F

2018F

2019F

2020F

2021F

2022F

2023F

2024F

2025F

2026F

2,062 8,933 (10,798) 197

4,003 9,247 (10,449) 2,802

6,335 9,404 (9,099) 6,641

8,484 9,471 (8,749) 9,207

9,949 9,516 (8,749) 10,716

11,547 9,549 (8,574) 12,523

13,211 9,564 (8,399) 14,376

14,528 9,554 (8,049) 16,032

16,247 9,529 (8,049) 17,726

179 162,648 (9,679) 152,969 310,010 17,386 480,365 100.8 4,800

2,308

4,967

6,251

6,604

7,005

7,300

7,390

7,417

17,932 9,506 (8,049) 19,389 278,728 113,227

Note: rounded to the nearest Rp100 SOURCE: CIMB RESEARCH, COMPANY

Figure 113: DCF-based valuation for Telkomsel (WACC: 10.2%, terminal growth: 3.0%) Year-end 31 Dec (Rp bn) EBIT (1-T) Depreciation (ex-finance lease) Capex Annual FCFF Terminal value Present value of cash flow Total NPV Net cash/(debt) at end-2016 Value of Equity

2017F 30,882 12,765 (13,000) 30,647

2018F 33,502 12,989 (13,000) 33,492

2019F 35,823 12,718 (13,000) 35,540

2020F 37,303 12,853 (13,000) 37,155

2021F 38,337 12,957 (13,000) 38,294

2022F 39,310 13,038 (13,000) 39,348

2023F 40,297 13,098 (13,000) 40,395

2024F 41,251 13,143 (13,000) 41,394

2025F 42,056 13,175 (13,000) 42,231

27,819 463,506 13,432 476,938

27,596

26,582

25,226

23,600

22,012

20,513

19,080

17,670

2026F 43,197 13,197 (13,000) 43,394 623,804 253,407


Figure 114: Sensitivity of target price to changes in WACC and terminal growth rate WACC/Terminal Growth 8.0% 9.0% 10.2% 11.0% 12.0%

2.0% 6,141 5,216 4,429 3,992 3,567

2.5% 6,498 5,455 4,587 4,113 3,657

3.0% 6,928 5,734 4,800 4,249 3,757

3.5% 7,453 6,063 4,973 4,402 3,868

4.0% 8,109 6,459 5,214 4,578 3,993


Figure 115: Telkom Indonesia’s EV/OpFCF trading band (x) 23.0 21.0 19.0 17.0 15.0 13.0 11.0 9.0 7.0 Sep-11

Sep-12 EV/OpFCF

Sep-13 Mean

1+ Std Dev

Sep-14 1- Std Dev

Sep-15 1+ 2 Std Dev

Sep-16 1- 2 Std Dev


88


BY THE NUMBERS

P/BV vs ROE 4.60 4.40 4.20 4.00 3.80 3.60 3.40 3.20 3.00 2.80 2.60 Jan-12A Jan-13A Jan-14A Jan-15A Jan-16F Jan-17F Rolling P/BV (x) (lhs)

29.0% 27.8% 26.6% 25.4% 24.2% 23.0% 21.8% 20.6% 19.4% 18.2% 17.0%


22.6

25.6%

20.6

22.0%

18.6

18.5%

16.6

14.9%

14.6

11.3%

12.6

7.7%

10.6

4.2%


0.6%


ROE (rhs)



Dec-14A 89,696 89,696 45,673 (16,326) 29,347 102 (17) (14) 30,037 (805) 28,613 (7,339)

Dec-15A 102,470 102,470 51,517 (18,534) 32,983 (1,491) (2) (46) 32,367 (102) 31,342 (8,025)

Dec-16F 115,063 115,063 59,331 (19,559) 39,771 (2,108) (17) 0 38,708 0 37,647 (10,162)

Dec-17F 126,849 126,849 66,556 (22,630) 43,925 (790) (17) 0 44,286 0 43,119 (10,780)

Dec-18F 137,168 137,168 73,176 (23,169) 50,007 (235) (17) 0 50,981 0 49,755 (12,439)

21,274 (6,803)

23,317 (7,828)

27,485 (9,699)

32,339 (10,908)

37,316 (11,882)

14,471 15,085 15,085

15,489 15,600 15,600

17,786 17,786 17,786

21,431 21,431 21,431

25,434 25,434 25,434

Dec-14A 45,673

Dec-15A 51,517

Dec-16F 59,331

Dec-17F 66,556

Dec-18F 73,176

0

0

0


(1,299)

2,311

2,141 (675) (7,436) 38,404 (24,798) 501 (1,438) 987 (24,748) 3,370 0

987 (1,237) (9,299) 44,279 (26,499) 733 (1,553) (102) (27,421) 10,772 0

0 (1,386) (10,162) 47,783 (25,148) 0 (1,500) 0 (26,648) (2,000) 0

0 (1,039) (10,780) 54,737 (23,798) 0 (1,500) 0 (25,298) (2,000) 0

0 (484) (12,439) 60,253 (23,449) 0 (1,500) 0 (24,949) (2,000) 0

(9,943)

(8,783)

(9,293)

(10,672)

(13,200)

(3,510) (10,083) 3,573 17,026 14,331

(8,396) (6,407) 10,451 27,630 18,095

(7,950) (19,244) 1,891 19,135 22,521

(9,634) (22,305) 7,134 27,439 30,477

(10,721) (25,921) 9,383 33,304 35,789


89


BY THE NUMBERS


Dec-14A 20,469 7,380 474 5,971 34,294 94,809 1,767 2,463 8,489 107,528 1,810 5,328 12,476 12,704 32,318 11,525

Dec-15A 30,935 7,872 528 8,577 47,912 103,700 1,807 3,056 9,698 118,261 602 3,201 14,284 17,326 35,413 26,229

Dec-16F 31,785 9,254 568 8,851 50,458 135,955 1,807 3,495 10,668 151,924 602 3,201 11,589 17,326 32,718 24,229

Dec-17F 37,878 9,626 618 9,152 57,273 138,895 1,807 3,827 11,735 156,264 602 3,201 14,023 17,326 35,152 22,229

Dec-18F 46,220 10,790 641 9,483 67,134 141,005 1,807 4,101 12,908 159,821 602 3,201 11,532 17,326 32,661 20,229

11,987 23,512 0 55,830 67,721 18,271 85,992

11,103 37,332 0 72,745 75,136 18,292 93,428

15,862 40,091 0 72,809 108,629 20,945 129,574

13,644 35,873 0 71,025 119,388 23,124 142,512

17,254 37,483 0 70,144 131,623 25,189 156,812

Dec-14A 8.1% 7.6% 50.9% 18.5 693 16.52 25.6% 55.0% 29.29 N/A N/A 27.2% 31.7% 16.7%

Dec-15A 14.2% 12.8% 50.3% 9.2 765 13.67 25.6% 56.3% 27.16 N/A N/A 26.9% 31.0% 16.5%

Dec-16F 12.3% 15.2% 51.6% 38.2 1,106 13.51 27.0% 56.6% 27.24 N/A N/A 30.1% 30.2% 16.3%

Dec-17F 10.2% 12.2% 52.5% 120.7 1,216 15.85 25.0% 56.9% 27.16 N/A N/A 24.2% 28.8% 16.4%

Dec-18F 8.1% 9.9% 53.3% 220.2 1,306 19.22 25.0% 57.2% 27.16 N/A N/A 27.0% 30.6% 17.6%









90


Total Access Communication

▎Thailand

Too cheap to ignore

ADD (no change) Consensus ratings*:

Buy 6


Hold 7 Sell 14 THB32.50 THB41.00 THB41.00 26.2% 6.2%


DTAC.BK DTAC TB US$2,223m THB76,954m US$13.74m THB478.5m 2,368m 29.4%


Key changes in this note No change. Price Close


73.0

121

63.0

103

53.0

85

43.0

67

33.0

49

23.0 150

31

Vol m

100

50 Sep-15

Dec-15

Mar-16

Jun-16

Source: Bloomberg


1M -6.5 -2.7

Major shareholders Telenor Asia Pte. Ltd. Thai Telco Holding TOT

3M 1.6 -3.8

12M -47.2 -55.4 % held 42.6 22.4 5.6

■ ■ ■ ■ ■

DTAC’s earnings contraction should bottom out in FY17, in our view. DTAC’s future will rely on upcoming auctions (850MHz and 1800MHz) in 2018F. 2.3GHz deal with TOT will likely relieve DTAC’s spectrum shortage issue. DTAC’s tower JV deal with CAT may offer more upside but is less likely to happen. Maintain Add, with unchanged DCF-based target price of THB41 (9.5% WACC).

Soon to be number three We expect DTAC to lose the second largest mobile operator position to True in 2019F. Although we see DTAC’s spectrum disadvantage as quite marginal given spectrum holdings of 2x50MHz vs. 2x55MHz for AIS and True, the majority of DTAC’s spectrum holding is under an unfavourable concession regime, forcing DTAC to balance between network competitiveness and financial return. Meanwhile, management is simply aiming to stabilise revenue amid the growing industry revenue base (4-6% yoy in FY17-18F).

Earnings under pressure until FY18F Other than targeting to retain its customer and revenue base, management says it aims to achieve EBITDA margin stability, at the least. Management told us that core net losses are unacceptable. However, we forecast DTAC’s core net profit to bottom in FY17F due to higher amortisation expenses on its investment in concessionary spectrum in FY15-16F. Meanwhile, we expect DTAC’s core net profit to grow faster in late-FY18F after all spectrum comes under the licence regime, lowering regulatory cost and D&A expenses.

Auction or exit? We believe DTAC’s spectrum shortage will become a critical issue in 2017-18, if there is no clarity on the 850MHz and 1800MHz spectrum auctions. Long delays may force DTAC to exit the Thai mobile market painfully. However, we believe a long delay is less likely as the junta government has absolute power and can expedite the passage of the new Frequency Allocation Act (FAA) and the selection of new commissioners. We believe the government will then ensure the auctions take place to gain public popularity.

Two additional white knights First, we think its spectrum shortage can be alleviated by the 2.3GHz TOT wholesale/resale deal if it happens soon and that TOT is likely to conclude the 2.1GHz deal with AIS and the 2.3GHz deal with DTAC together, adding THB11bn p.a. revenue to TOT. Second, the tower JV deal with CAT should progress only when the junta government assigns TOT and CAT to set up the national tower company. The latter deal clearly improves operations but we believe the former is more likely to take place.

Valuation distressed DTAC’s stock is certainly cheap, in our opinion, from both DCF and relative valuation perspectives, which should reflect its revenue loss for 9 consecutive quarters and uncertainty in spectrum auctions. DTAC’s valuation multiples, i.e. FY16F EV/EBITDA, EV/sub and EV/sale are 50-60% cheaper than AIS’s and 30-40% cheaper than True’s.

Risks Key risks to our Add call are 1) fiercer price competition, 2) its failure to recover revenue growth, and 3) delay in spectrum auctions beyond 2018.

[X]

Financial Summary

Analyst(s)



Dec-14A 90,119 30,484 33.8% 10,729 4.52 (2.9%) 7.18 6.91 21.3% 3.44 11.13 85% 32.8%

Dec-15A 87,267 27,109 31.1% 5,893 2.71 (40.2%) 12.01 3.13 9.6% 4.24 6.56 139% 21.4%

Dec-16F 87,920 26,453 30.1% 4,264 1.75 (35.1%) 18.52 1.80 5.5% 4.13 NA 131% 16.0% 0% 1.35

Dec-17F 87,495 25,177 28.8% 1,825 0.73 (58.6%) 44.77 0.77 2.4% 4.05 9.42 102% 7.0% 0% 0.54

Dec-18F 87,018 28,317 32.5% 2,491 1.01 38.9% 32.24 1.05 3.2% 5.40 NA 309% 9.7% 0% 0.57

SOURCE: COMPANY DATA, CIMB FORECASTS

91


BY THE NUMBERS


39.0% 34.6% 30.3% 25.9% 21.5% 17.1% 12.8% 8.4% 4.0%


42.0

20%

37.0

5%

32.0

-10%

27.0

-25%

22.0

-40%

17.0

-55%


-70%


ROE (rhs)



Dec-14A 90,119 43,848 30,484 (16,608) 13,876 (1,175) 0 571 13,272 8 13,279 (2,551)

Dec-15A 87,267 42,349 27,109 (18,773) 8,336 (1,248) 0 648 7,736 (286) 7,450 (1,557)

Dec-16F 87,920 43,689 26,453 (19,912) 6,541 (1,680) 0 648 5,509 61 5,570 (1,307)

Dec-17F 87,495 42,389 25,177 (21,706) 3,472 (1,680) 0 648 2,440 61 2,501 (676)

Dec-18F 87,018 44,151 28,317 (23,247) 5,070 (2,205) 0 648 3,513 61 3,574 (1,083)

10,729 0 0

5,893 0 0

4,264 0 0

1,825 0 0

2,491 0 0

10,729 10,714 10,714

5,893 6,406 6,406

4,264 4,155 4,155

1,825 1,719 1,719

2,491 2,387 2,387


Dec-14A 30,484

Dec-15A 27,109

Dec-16F 26,453

Dec-17F 25,177

Dec-18F 28,317

(2,656)

(3,338)

(22,697)

779

(324)

0 (1,175) (2,551) 24,102 (19,510) 90 27

0 (1,248) (1,557) 20,966 (24,329) 709 48

0 (1,680) (1,307) 770 (20,444) 0 0

0 (1,680) (676) 23,601 (15,430) 0 0

(19,393) 2,204 0 0 (10,800)

(23,572) 14,336 0 0 (11,242)

(20,444) 0 0 0 (4,264)

(15,430) 0 0 0 (1,825)

0 (2,205) (1,083) 24,705 (15,346) 0 0 (21,752) (37,098) 0 0 0 (2,491)

4,238 (4,358) 351 6,913 5,884

3,810 6,903 4,297 11,729 (1,358)

29,955 25,691 6,017 (19,674) (17,994)

2,129 303 8,474 8,171 9,851

(4,628) (7,119) (19,513) (12,394) (10,189)


92


BY THE NUMBERS


Dec-14A 5,823 10,453 3,891 3,845 24,013 77,970 310 0 4,133 82,413 5,664

Dec-15A 10,121 9,722 2,826 3,526 26,195 79,434 306 0 5,032 84,771 15,000

Dec-16F 15,808 10,844 3,753 4,724 35,129 70,554 306 0 7,513 78,373 4,800

Dec-17F 22,863 11,363 4,240 4,333 42,798 64,278 306 0 7,953 72,537 4,800

Dec-18F 1,931 11,827 4,485 4,138 22,381 114,886 306 0 8,172 123,363 7,800

31,301 7,938 44,903 28,000

29,868 4,975 49,843 33,000

9,913 26,248 40,962 43,200

9,232 29,055 43,087 43,200

8,414 30,426 46,640 70,200

925 28,925 0 73,828 32,591 7 32,598

899 33,899 0 83,742 27,221 2 27,224

4,721 47,921 0 88,883 24,616 3 24,619

4,429 47,629 0 90,716 24,616 3 24,619

4,286 74,486 0 121,126 24,616 3 24,619

Dec-14A (4.59%) 2.8% 33.8% (11.76) 13.76 11.81 19.2% 153% 42.13 21.99 234.6 17.8% 21.3% 11.0%

Dec-15A (3.16%) (11.1%) 31.1% (16.00) 11.50 6.68 20.9% 120% 42.19 27.29 248.5 10.9% 11.8% 6.6%

Dec-16F 0.75% (2.4%) 30.1% (13.60) 10.40 3.89 23.5% 101% 42.81 27.22 164.6 8.0% 8.8% 4.9%

Dec-17F (0.48%) (4.8%) 28.8% (10.62) 10.40 2.07 27.0% 103% 46.32 32.34 77.5 4.5% 4.8% 2.7%

Dec-18F (0.55%) 12.5% 32.5% (32.13) 10.40 2.30 30.3% 103% 48.64 37.14 75.1 7.5% 5.8% 3.2%









93

Telco - Integrated│Thailand│Equity research│September 27, 2016

Company Note

True Corporation

▎Thailand

Not harvest time yet

REDUCE (no change) Consensus ratings*:

Buy 6

Hold 6 Sell 12


THB7.25 THB5.25 THB5.25 -27.6% -24.5%


TRUE.BK TRUE TB US$6,990m THB241,919m US$49.95m THB1,745m 24,608m 34.0%


Key changes in this note No change. Price Close


11.20

119.0

9.20

99.0

7.20

79.0

5.20 1000

59.0

Vol m

500

Sep-15

Dec-15

Mar-16

1M -12.1 -8.3

Major shareholders CP group Thai Trust Fund Thai NVDR

3M 3.6 -1.8

True Mobile’s revenue market share (22% in 2Q16) should continue to expand. True Mobile should begin to benefit from economies of scale… … but investments in spectrum, network and content delay earnings turnaround. Maintain Reduce and DCF-based target price of THB5.25 (9.7% WACC).

Mobile revenue market share gain to continue True’s mobile network superiority and secular convergence proposition will sustain its revenue market share gain (RMS) momentum. We forecast True Mobile’s RMS to jump from 22% in 2Q16 to 28% in 2020F and that the telco will in fact take over DTAC’s second-largest mobile operator position in 2019F. We expect True Mobile’s revenue growth to be 9-12% in FY17-20F vs. mobile industry revenue growth of 4-6% in the same period.

Earnings recovery on the cards We believe management is intensely focused on cost controls now that its revenue growth momentum is likely to continue. We agree with management that cost control is now key. We believe True Mobile should benefit from improving economies of scale, which should drive EBITDA margin expansion from 12% in FY15 to 13-19% in FY1820F. We forecast True Mobile will break even at the core net profit level in FY20F.

Unfavourable cost/benefit analysis Like AIS, True should benefit from a transition in its cost structure from variable to fixed in the long run, in our opinion. However, its fixed cost base should be much bigger than AIS’s due to its smaller revenue base and its sale and lease back transactions in the past, which will drag True’s core net loss deeper in the early stages. We also question True’s ability to generate sizeable incremental revenue that can recoup the significant spectrum, network and content investment costs incurred in the past 4-5 years.

A perfect devil’s advocate

Jun-16

Source: Bloomberg


■ ■ ■ ■

12M -25.7 -33.9 % held 64.8 5.7 2.3

We believe that True will benefit the most from the regulatory status quo. While AIS and DTAC will see upside from partnership deals with TOT and CAT on spectrum and towersharing, True’s network superiority will be compromised, in our view. Furthermore, True, which has a significant spectrum portfolio, will not be happy if the new NBTC auctions 850MHz and 1800MHz spectrum on schedule in 2H18. In fact, True will benefit the most if the spectrum auction is delayed as it may cause Telenor to exit the Thai market.

Stretched balance sheet despite a recent rights issue After the recent rights issue that raised THB60bn in proceeds, True’s balance sheet still looked quite stretched at 2.1x net debt to EBITDA in 2Q16. This should now prompt True to forgo aggressive network investment, device subsidies for low-income prepaid customers and selling and marketing activities in lieu of strengthening 2G/900MHz network coverage and M&A deals, in our view.

Risks Key risks to our Reduce call on True are 1) better-than-expected cost control implementation, 2) no progress in possible partnership deals between private and stateowned telcos, and 3) a long delay in spectrum auctions in 2018.

[X]

Financial Summary

Analyst(s)



Dec-14A 109,217 20,051 18.4% 1,426 0.04 133.9 0% 10.78 NA 52.5% 2.85%

Dec-15A 110,404 20,816 18.9% 7,492 (0.05) (206%) NA 0% 9.88 NA 29.6% (1.41%)

Dec-16F 127,806 25,987 20.3% (3,463) (0.16) 246% NA 0% 7.78 NA 26.9% (4.44%) 0% 1.44

Dec-17F 136,969 29,542 21.6% (889) (0.05) (66%) NA 0% 7.34 NA 44.2% (1.54%) 0% 1.90

Dec-18F 138,054 28,456 20.6% (3,800) (0.17) 223% NA 0% 8.65 NA 82.3% (5.09%) 0% (2.01)

SOURCE: COMPANY DATA, CIMB FORECASTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. CIMB Securities Limited has had an investment banking relationship with Jasmine Broadband Internet Infrastructure Fund within the preceding 12 months.



BY THE NUMBERS

P/BV vs ROE


25.0

30%

20.0

-10%

15.0

-50%

10.0

-90%

5.0

-130%


-170%


Growth 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Jan-12AJan-13AJan-14AJan-15AJan-16FJan-17F

3,200% 2,600% 2,000% 1,400% 800% 200% -400% -1,000% -1,600% -2,200% -2,800%


ROE (rhs)



Dec-14A 109,217 38,918 20,051 (17,167) 2,884 (5,359) 1,420 0 (1,055)

Dec-15A 110,404 43,690 20,816 (19,511) 1,305 (3,576) 2,208 0 (64)

Dec-16F 127,806 51,852 25,987 (25,931) 56 (4,625) 2,299 0 (2,271)

Dec-17F 136,969 56,592 29,542 (26,872) 2,670 (4,684) 2,299 0 284

Dec-18F 138,054 55,042 28,456 (29,167) (711) (5,947) 2,299 0 (4,360)

(1,055) 2,064 366 1,375 51 0

(64) (1,159) 8,614 7,391 101 0

(2,271) (1,713) 418 (3,565) 102 0

284 (1,694) 418 (991) 102 0

(4,360) 40 418 (3,901) 102 0

1,426 1,060 1,060

7,492 (1,121) (1,121)

(3,463) (3,882) (3,882)

(889) (1,308) (1,308)

(3,800) (4,218) (4,218)

Dec-14A 20,051

Dec-15A 20,816

Dec-16F 25,987

Dec-17F 29,542

Dec-18F 28,456

(19,132)

(10,204)

2,007

3,469

5,420

3,200 6,821 0 0 10,940 (27,506) 3,457 2,612 0 (21,436) (47,858) 64,852 0 0

1,144 6,188 0 0 17,944 (23,061) 0 0 0 (23,061) 0 0 0 0

1,144 (1,951) 0 0 27,187 (9,339) 0 0 (28,000) (37,339) 10,000 0 0 0

1,144 (1,981) 0 0 32,174 (29,614) 0 0 (14,000) (43,614) 10,000 0 0 0

1,144 (1,981) 0 0 33,039 (43,564) 0 0 (14,000) (57,564) 20,000 0 0 0

(14,612) 2,382 (8,114) (58,354) (10,496)

15,961 15,961 10,844 (5,117) (5,117)

0 10,000 (151) (151) (10,151)

(0) 10,000 (1,440) (1,440) (11,440)

0 20,000 (4,525) (4,525) (24,525)



95


BY THE NUMBERS


Dec-14A 7,753 62,973 4,294 13,046 88,066 75,085 16,797 46,088 8,534 146,504 11,850

Dec-15A 19,904 26,397 6,194 9,149 61,645 83,182 16,559 40,284 5,769 145,794 13,637

Dec-16F 19,753 26,963 8,163 9,149 64,028 162,847 16,559 0 0 179,406 170

Dec-17F 18,313 26,658 10,197 9,149 64,318 165,620 16,559 0 0 182,179 3,248

Dec-18F 13,789 25,504 12,525 9,149 60,966 193,711 16,559 0 0 210,270 8,135

101,370 4,429 117,649 33,137

48,392 5,319 67,348 32,821

52,126 5,747 58,042 42,821

56,487 6,229 65,964 52,821

62,244 6,229 76,607 72,821

12,843 45,980 0 163,629 70,349 592 70,941

17,511 50,332 0 117,680 89,096 662 89,758

56,275 99,096 0 157,139 85,633 662 86,295

42,307 95,128 0 161,092 84,744 662 85,406

40,202 113,023 0 189,630 80,944 662 81,606

Dec-14A 13.5% 22.4% 18.4% (1.51) 2.86 0.52 0% NA 169.9 26.91 492.6 2.94% 2.91% 2.41%

Dec-15A 1.1% 3.8% 18.9% (1.08) 3.62 0.35 0% NA 147.7 28.69 409.7 1.00% 1.14% 0.74%

Dec-16F 15.8% 24.8% 20.3% (0.94) 3.48 0.01 0% NA 76.4 34.59 242.2 0.04% 0.15% (0.13%)

Dec-17F 7.2% 13.7% 21.6% (1.53) 3.44 0.55 595% NA 71.4 41.69 246.6 1.43% 2.07% 0.95%

Dec-18F 0.8% (3.7%) 20.6% (2.73) 3.29 (0.12) 0% NA 69.0 49.95 261.0 (0.38%) (0.38%) 0.17%

Dec-14A 23.65 1.66 1.94 0.94 4.1 7.4 22 22.2

Dec-15A 19.11 1.56 2.23 1.40 5.1 6.5 20 15.5

Dec-16F 21.68 1.43 2.55 2.07 4.9 6.1 19 12.2

Dec-17F 24.27 1.27 2.89 2.98 4.4 6.3 19 11.2

Dec-18F 26.08 1.41 2.77 2.21 3.5 6.6 20 13.9




96


Company Note

XL Axiata

▎Indonesia

Growth to lag behind peers

HOLD (no change) Consensus ratings*: Buy 14 Hold 6 Current price: Target price: Previous target: Up/downside: CIMB / Consensus:

Sell 2 Rp2,500 Rp3,300 Rp3,300 32.0% -28.4%


EXCL.JK EXCL IJ US$2,049m Rp26,719,902m US$3.60m Rp47,419m 10,688m 29.3%



Relative to JCI (RHS) 168

4,100

148

3,600

128

3,100

108

2,600

88

2,100 150

68

Vol m

100

50 Dec-15

Mar-16

Jun-16

Source: Bloomberg


XL is unlikely to see a major earnings rebound in 2H16 as legacy revenues should stay weak. Resolving issues with its traditional distribution channels also takes time.

■

Rights issue and tower sale proceeds of Rp10.3tr (US$789m) will be used to repay debt.

■

We expect net debt/EBITDA to halve to 1.4x by end-FY16F. Forex exposure is now nil.

■ ■

Flat EBITDA in FY16F, with growth gradually recovering to 5.4%/8.9% in FY17/18F. Maintain Hold with unchanged target price of Rp3,300. Lacks short-term catalysts.

Do not anticipate major recovery in 2H16 After the very weak 2Q16 results, we do not anticipate a major earnings rebound at XL in 2H16. Its new combo XTRA plans, which were launched in May and aimed at optimising voice/SMS revenues, will only have any positive impact closer towards yearend, in our view. The recent issues with its traditional distribution channels will also take time to resolve as XL needs to find a way to better incentivise its dealers without reverting to its previous strategy of chasing after high gross adds.

Rights issue and tower sale proceeds for debt repayment

4,600

Sep-15

■

1M -20.1 -18.5

3M -32.4 -43.1

Major shareholders Axiata Group Emirates Telecom (Etisalat)

12M 7.5 -19.6 % held 66.5 4.2

XL completed its 1-for-4 rights issue at end-May, issuing 2.14bn new shares at Rp3,150/share. The entire proceeds were used to repay the US$500m shareholder’s loan from Axiata. In addition, XL completed the sale-and-leaseback of 2,500 towers to Protelindo for Rp3.57tr (US$273.62m) cash at end-Jun. The sale proceeds will be used to repay higher interest rate Rp-denominated loans raised to refinance US$ debt.

Balance sheet to improve significantly Post rights issue and tower sale, we estimate that XL’s net debt will nearly halve from Rp23.2tr (US$1.78bn) at end-2015 to Rp12.8tr (US$981m) by end-2016F. Correspondingly, net debt/EBITDA should drop from 2.8x to a manageable 1.4x. In addition, repayment of the US$500m shareholder’s loan (previously unhedged) will bring XL’s forex exposure to nil as its remaining US$ debt is fully hedged until maturity.

Modest earnings growth outlook in the short term XL’s legacy revenues are declining due to data substitution while data monetisation itself has been weak as it focuses on building the scale of its data business. As such, we expect EBITDA to be largely flat (+0.8%) in FY16F, before gradually recovering to post growth of 5.4%/8.9% in FY17/18F. We expect core EPS to be near breakeven in FY16F, then rebound to Rp53/99 in FY17/18F, taking into account a) interest cost savings from debt repayments, and b) a 25% increase in the share base post the rights issue.

Maintain Hold with unchanged DCF-based target price of Rp3,300 Maintain Hold with an unchanged DCF-based target price of Rp3,300 (WACC: 10.1%). We believe XL’s mobile revenue growth will continue to lag behind Telkomsel’s and Indosat’s in the near term due to greater data substitution effects while improving the performance of its traditional distribution channels will take time. XL’s FY17F EV/OpFCF of 16.6x is also at a 16% premium over the ASEAN telco average. Key upside/downside risks: stronger-than-expected revenue growth/more intense competition.

[X]

Financial Summary

Analyst(s)



Dec-14A 23,569 8,623 36.6% (804) 3.43 (98%) 728.5 0.00 0.00% 5.10 22.79 162% 0.20%

Dec-15A 22,960 8,393 36.6% (25) 38.62 1025% 64.7 0.00 0.00% 5.30 NA 164% 2.35%

Dec-16F 21,913 8,460 38.6% 41 4.27 (89%) 585.8 1.26 0.05% 4.43 NA 65% 0.23% 0% 0.11

Dec-17F 22,382 8,915 39.8% 569 53.24 1148% 47.0 21.28 0.85% 4.50 NA 63% 2.69% 0% 0.45

Dec-18F 23,347 9,708 41.6% 1,057 99.03 86% 25.2 49.47 1.98% 4.08 50.76 58% 4.84% 0% 0.56

SOURCE: COMPANY DATA, CIMB FORECASTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. CIMB Securities Limited has had an investment banking relationship with Indosat, XL Axiata and Axiata Group within the preceding 12 months.



BY THE NUMBERS

P/BV vs ROE


4.50

30.0%

4.00

25.7%

3.50

21.4%

3.00

17.1%

2.50

12.9%

2.00

8.6%

1.50

4.3%


0.0%


Growth 1,600 1,400 1,200 1,000 800 600 400 200 0 Jan-12AJan-13AJan-14AJan-15AJan-16FJan-17F

1,400% 900% 400% -100% -600% -1,100% -1,600% -2,100% -2,600%


ROE (rhs)



Dec-14A 23,569 23,460 8,623 (6,841) 1,782 (1,691) (102) (992) (1,003) 0 (1,003) 200

Dec-15A 22,960 22,876 8,393 (7,135) 1,258 (977) (147) (2,521) (2,387) 1,757 (631) 605

(804) 0 0 0 0 (804) 29 29

(25) 0 0 0 0 (25) 330 330

Dec-14A 8,623

Dec-15A 8,393

Dec-16F 21,913 21,831 8,460 (7,207) 1,253 (1,174) (150) 0 (71)

Dec-17F 22,382 22,298 8,915 (7,360) 1,556 (774) (150) 0 632

Dec-18F 23,347 23,259 9,708 (7,465) 2,242 (808) (150) 0 1,284

(71) 112

632 (64)

1,284 (226)

41 0 0 0 0 41 41 41

569 0 0 0 0 569 569 569

1,057 0 0 0 0 1,057 1,057 1,057


1,336

1,103

(1,029) (1,697) (389) 6,843 (7,095) 93 (10,079) 403 (16,678) 10,771 0

(2,202) (1,808) 212 5,699 (4,146) 24 (152) (331) (4,605) (5,287) 0

(540) 3,538 13,769 3,935 936 (8,137)

0 (1,269) (6,556) (5,463) (4,194) 2,901

Dec-16F 8,460

Dec-17F 8,915

Dec-18F 9,708

0

0

0

(1,000) (1,793) 112 5,779 (6,500) 0 0 81 (6,419) (10,301) 6,733 0 1,775 (1,793) (2,433) (10,941) 1,154

(1,000) (1,351) (64) 6,501 (6,500) 0 0 81 (6,419) (838) 0

(1,000) (1,372) (226) 7,110 (6,500) 0 0 81 (6,419) (165) 0

(12)

(227)

(1,351) (2,201) (2,119) (755) 1,433

(1,372) (1,764) (1,073) 526 2,063


98


BY THE NUMBERS


Dec-14A 6,951 1,188 77 5,094 13,310 35,207 104 12,841 2,169 50,321 3,922

Dec-15A 3,312 921 79 5,840 10,152 33,427 109 13,008 2,149 48,693 3,431

Dec-16F 2,673 1,091 65 5,532 9,361 32,719 109 13,008 2,149 47,985 3,431

Dec-17F 1,905 964 79 5,535 8,483 31,860 109 13,008 2,149 47,126 3,431

Dec-18F 2,204 1,180 67 5,582 9,032 30,894 109 13,008 2,149 46,160 3,431

4,444 7,032 15,398 19,487

5,283 7,034 15,748 15,133

3,133 7,034 13,598 11,730

5,033 7,034 15,499 10,892

3,235 7,034 13,700 10,727

14,698 34,185 0 49,583 13,961 0 13,961

13,871 29,004 0 44,753 14,092 0 14,092

11,153 22,883 0 36,480 20,866 0 20,866

7,796 18,688 0 34,187 21,422 0 21,422

8,512 19,240 0 32,940 22,252 0 22,252

Dec-14A 10.4% (0.42%) 36.6% (2,657) 1,636 1.05 0.0% NA 19.51 211.2 12,808 3.94% 4.66% 0.89%

Dec-15A (2.6%) (2.67%) 36.6% (2,710) 1,650 0.70 0.0% NA 16.76 339.9 21,168 2.09% 4.96% (1.71%)

Dec-16F (4.6%) 0.80% 38.6% (1,263) 1,954 0.70 0.0% 30.0% 16.81 325.3 18,979 2.18% 4.83% 1.59%

Dec-17F 2.1% 5.38% 39.8% (1,257) 2,006 1.15 10.0% 40.0% 16.76 314.3 17,777 2.63% 5.78% 2.03%

Dec-18F 4.3% 8.89% 41.6% (1,213) 2,084 1.63 17.6% 50.0% 16.76 304.3 17,215 4.05% 7.57% 3.00%









99


#03 DISCLAIMER The content of this report (including the views and opinions expressed therein, and the information comprised therein) has been prepared by and belongs to CIMB and is distributed by CIMB. 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. By accepting this report, the recipient hereof represents and warrants that he is entitled to receive such report in accordance with the restrictions set forth below and agrees to be bound by the limitations contained herein (including the “Restrictions on Distributions” set out below). Any failure to comply with these limitations may constitute a violation of law. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this report may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB. The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB may or may not issue regular reports on the subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. CIMB is under no obligation to update this report in the event of a material change to the information contained in this report. CIMB has no, and will not accept any, obligation to (i) check or ensure that the contents of this report remain current, reliable or relevant, (ii) ensure that the content of this report constitutes all the information a prospective investor may require, (iii) ensure the adequacy, accuracy, completeness, reliability or fairness of any views, opinions and information, and accordingly, CIMB, or any of their respective affiliates, or its related persons (and their respective directors, associates, connected persons and/or employees) shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. In particular, CIMB disclaims all responsibility and liability for the views and opinions set out in this report. Unless otherwise specified, this report is based upon sources which CIMB considers to be reasonable. Such sources will, unless otherwise specified, for market data, be market data and prices available from the main stock exchange or market where the relevant security is listed, or, where appropriate, any other market. Information on the accounts and business of company(ies) will generally be based on published statements of the company(ies), information disseminated by regulatory information services, other publicly available information and information resulting from our research. Whilst every effort is made to ensure that statements of facts made in this report are accurate, all estimates, projections, forecasts, expressions of opinion and other subjective judgments contained in this report are based on assumptions considered to be reasonable as of the date of the document in which they are contained and must not be construed as a representation that the matters referred to therein will occur. Past performance is not a reliable indicator of future performance. The value of investments may go down as well as up and those investing may, depending on the investments in question, lose more than the initial investment. No report shall constitute an offer or an invitation by or on behalf of CIMB or its affiliates to any person to buy or sell any investments. CIMB, its affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CIMB, its affiliates and its related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report. CIMB or its affiliates may enter into an agreement with the company(ies) covered in this report relating to the production of research reports. CIMB may disclose the contents of this report to the company(ies) covered by it and may have amended the contents of this report following such disclosure. The analyst responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his or her personal views and opinions about any and all of the issuers or securities analysed in this report and were prepared independently and autonomously. No part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations(s) or view(s) in this report. CIMB prohibits the analyst(s) who prepared this research report from receiving any compensation, incentive or bonus based on specific investment banking transactions or for providing a specific recommendation for, or view of, a particular company. Information barriers and other arrangements may be established where necessary to prevent conflicts of interests arising. However, the analyst(s) may receive compensation that is based on his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations and the research personnel involved in the preparation of this report may also participate in the solicitation of the businesses as described above. In reviewing this research report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request. Reports relating to a specific geographical area are produced by the corresponding CIMB entity as listed in the table below. The term “CIMB” shall denote, where appropriate, the relevant entity distributing or disseminating the report in the particular jurisdiction referenced below, or, in every other case, CIMB Group Holdings Berhad ("CIMBGH") and its affiliates, subsidiaries and related companies.

100


Country Hong Kong India Indonesia Malaysia Singapore South Korea Taiwan Thailand

CIMB Entity CIMB Securities Limited CIMB Securities (India) Private Limited PT CIMB Securities Indonesia CIMB Investment Bank Berhad CIMB Research Pte. Ltd. CIMB Securities Limited, Korea Branch CIMB Securities Limited, Taiwan Branch CIMB Securities (Thailand) Co. Ltd.

Regulated by Securities and Futures Commission Hong Kong Securities and Exchange Board of India (SEBI) Financial Services Authority of Indonesia Securities Commission Malaysia Monetary Authority of Singapore Financial Services Commission and Financial Supervisory Service Financial Supervisory Commission Securities and Exchange Commission Thailand

(i) As of September 26, 2016, CIMB has a proprietary position in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report: (a) Advanced Info Service, Axiata Group, DiGi.com, Intouch Holdings, Jasmine International, M1 Limited, Maxis Berhad, SingTel, Starhub, Telekom Malaysia (ii) As of September 27, 2016, the analyst(s) who prepared this report, and the associate(s), has / have an interest in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report: (a) This report does not purport to contain all the information that a prospective investor may require. CIMB or any of its affiliates does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Neither CIMB nor any of its affiliates nor its related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates’ clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto. Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors. Australia: Despite anything in this report to the contrary, this research is provided in Australia by CIMB Securities (Singapore) Pte. Ltd. and CIMB Securities Limited. This research is only available in Australia to persons who are “wholesale clients” (within the meaning of the Corporations Act 2001 (Cth) and is supplied solely for the use of such wholesale clients and shall not be distributed or passed on to any other person. You represent and warrant that if you are in Australia, you are a “wholesale client”. This research is of a general nature only and has been prepared without taking into account the objectives, financial situation or needs of the individual recipient. CIMB Securities (Singapore) Pte. Ltd. and CIMB Securities Limited do not hold, and are not required to hold an Australian financial services licence. CIMB Securities (Singapore) Pte. Ltd. and CIMB Securities Limited rely on “passporting” exemptions for entities appropriately licensed by the Monetary Authority of Singapore (under ASIC Class Order 03/1102) and the Securities and Futures Commission in Hong Kong (under ASIC Class Order 03/1103). Canada: This research report has not been prepared in accordance with the disclosure requirements of Dealer Member Rule 3400 – Research Restrictions and Disclosure Requirements of the Investment Industry Regulatory Organization of Canada. For any research report distributed by CIBC, further disclosures related to CIBC conflicts of interest can be found at https://researchcentral.cibcwm.com . China: For the purpose of this report, the People’s Republic of China (“PRC”) does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region or Taiwan. The distributor of this report has not been approved or licensed by the China Securities Regulatory Commission or any other relevant regulatory authority or governmental agency in the PRC. This report contains only marketing information. The distribution of this report is not an offer to buy or sell to any person within or outside PRC or a solicitation to any person within or outside of PRC to buy or sell any instruments described herein. This report is being issued outside the PRC to a limited number of institutional investors and may not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument. Germany: This report is only directed at persons who are professional investors as defined in sec 31a(2) of the German Securities Trading Act (WpHG). This publication constitutes research of a non-binding nature on the market situation and the investment instruments cited here at the time of the publication of the information. The current prices/yields in this issue are based upon closing prices from Bloomberg as of the day preceding publication. Please note that neither the German Federal Financial Supervisory Agency (BaFin), nor any other supervisory authority exercises any control over the content of this report. Hong Kong: This report is issued and distributed in Hong Kong by CIMB Securities Limited (“CHK”) which is licensed in Hong Kong by the Securities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB Securities Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial 101


Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CHK. CIMB Securities Limited does not make a market on the securities mentioned in the report. India: This report is issued and distributed in India by CIMB Securities (India) Private Limited (”CIMB India") which is registered with SEBI as a stock-broker under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992, the Securities and Exchange Board of India (Research Analyst) Regulations, 2014 (SEBI Registration Number INH000000669) and in accordance with the provisions of Regulation 4 (g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CIMB India is not required to seek registration with SEBI as an Investment Adviser. The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from equity stock broking and merchant banking of CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CIMB India or its affiliates.” Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (“CIMBI”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable Indonesian capital market laws and regulations. This research report is not an offer of securities in Indonesia. The securities referred to in this research report have not been registered with the Financial Services Authority (Otoritas Jasa Keuangan) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market law and regulations. Ireland: CIMB is not an investment firm authorised in the Republic of Ireland and no part of this document should be construed as CIMB acting as, or otherwise claiming or representing to be, an investment firm authorised in the Republic of Ireland. Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (“CIMB”) solely for the benefit of and for the exclusive use of our clients. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update, revise or reaffirm its opinion or the information in this research reports after the date of this report. New Zealand: In New Zealand, this report is for distribution only to persons who are wholesale clients pursuant to section 5C of the Financial Advisers Act 2008. Singapore: This report is issued and distributed by CIMB Research Pte Ltd (“CIMBR”). CIMBR is a financial adviser licensed under the Financial Advisers Act, Cap 110 (“FAA”) for advising on investment products, by issuing or promulgating research analyses or research reports, whether in electronic, print or other form. Accordingly CIMBR is a subject to the applicable rules under the FAA unless it is able to avail itself to any prescribed exemptions. Recipients of this report are to contact CIMB Research Pte Ltd, 50 Raffles Place, #19-00 Singapore Land Tower, Singapore in respect of any matters arising from, or in connection with this report. CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If you have not been sent this report by CIMBR directly, you may not rely, use or disclose to anyone else this report or its contents. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. If the recipient is an accredited investor, expert investor or institutional investor, the recipient is deemed to acknowledge that CIMBR is exempt from certain requirements under the FAA and its attendant regulations, and as such, is exempt from complying with the following : (a) Section 25 of the FAA (obligation to disclose product information); (b) Section 27 (duty not to make recommendation with respect to any investment product without having a reasonable basis where you may be reasonably expected to rely on the recommendation) of the FAA; (c) MAS Notice on Information to Clients and Product Information Disclosure [Notice No. FAA-N03]; (d) MAS Notice on Recommendation on Investment Products [Notice No. FAA-N16]; (e) Section 36 (obligation on disclosure of interest in securities), and (f) any other laws, regulations, notices, directive, guidelines, circulars and practice notes which are relates to the above, to the extent permitted by applicable laws, as may be amended from time to time, and any other laws, regulations, notices, directive, guidelines, circulars, and practice notes as we may notify you from time to time. In addition, the recipient who is an accredited investor, expert investor or institutional investor acknowledges that a CIMBR is exempt from Section 27 of the FAA, the recipient will also not be able to file a civil claim against CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA, the recipient will also not be able to file a civil claim against CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA. CIMB Research Pte Ltd ("CIMBR"), its affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CIMBR, its affiliates and its related companies do and seek to do 102


business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report. As of September 26, 2016, CIMBR does not have a proprietary position in the recommended securities in this report. CIMB Securities Singapore Pte Ltd and/or CIMB Bank does not make a market on the securities mentioned in the report. South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch (“CIMB Korea”) which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. In South Korea, this report is for distribution only to professional investors under Article 9(5) of the Financial Investment Services and Capital Market Act of Korea (“FSCMA”). Spain: This document is a research report and it is addressed to institutional investors only. The research report is of a general nature and not personalised and does not constitute investment advice so, as the case may be, the recipient must seek proper advice before adopting any investment decision. This document does not constitute a public offering of securities. CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden. Switzerland: This report has not been prepared in accordance with the recognized self-regulatory minimal standards for research reports of banks issued by the Swiss Bankers’ Association (Directives on the Independence of Financial Research). Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China. Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (“CIMBS”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CIMBS has no obligation to update its opinion or the information in this research report. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient are unaffected. CIMB Securities (Thailand) Co., Ltd. may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions. AAV, ADVANC, AMATA, ANAN, AOT, AP, BA, BANPU, BBL, BCH, BCP, BDMS, BEAUTY, BEC, BEM, BH, BJCHI, BLA, BLAND, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EGCO, EPG, ERW, GL, GLOBAL, GLOW, GPSC, GUNKUL, HANA, HMPRO, ICHI, IFEC, INTUCH, IRPC, ITD, IVL, JWD, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LPN, MAJOR, MINT, MTLS, PLANB, PS, PTG, PTT, PTTEP, PTTGC, QH, ROBINS, RS, S, SAMART, SAWAD, SCB, SCC, SGP, SIRI, SPALI, SPCG, STEC, STPI, SVI, TASCO, TCAP, THAI, THCOM, TISCO, TMB, TOP, TPIPL, TRC, TRUE, TTA, TTCL, TTW, TU, TVO, UNIQ, VGI, VNG, WHA, WORK. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result. Score Range: Description:

90 - 100 Excellent

80 - 89 Very Good

70 - 79 Good

Below 70 or N/A

No Survey Result

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates. United Kingdom: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (“CIMB UK”). CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. Unless specified to the contrary, this report has been issued and approved for distribution in the U.K. and the EEA by CIMB UK. Investment research issued by CIMB UK has been prepared in accordance with CIMB Group’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters 103


relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom subject to relevant regulation in each jurisdiction, or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons. Where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “investment research” under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. Any such non-independent report must be considered as a marketing communication. United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. CIMB Securities (USA) Inc does not make a market on the securities mentioned in the report. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. Distribution of stock ratings and investment banking clients for quarter ended on 30 June 2016 1574 companies under coverage for quarter ended on 30 June 2016 Rating Distribution (%)

Investment Banking clients (%)

Add

56.5%

7.1%

Hold

32.2%

2.9%

Reduce

9.8%

0.6%

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2015, Anti-Corruption Progress Indicator 2015. AAV – Very Good, 3B, ADVANC – Excellent, 3A, AEONTS – Good, 1, AMATA – Very Good, 2, ANAN – Very Good, 3A, AOT – Very Good, 2, AP Good, 3A, ASK – Very Good, 3B, ASP – Very Good, 4, BANPU – Very Good, 4, BAY – Very Good, 4, BBL – Very Good, 4, BCH – not available, no progress, BCP - Excellent, 5, BEM – not available, no progress, BDMS – Very Good, 3B, BEAUTY – Good, 2, BEC - Good, 3B, BH - Good, 2, BIGC - Excellent, 3A, BJC – Good, 1, BLA – Very Good, 4, 1, BTS - Excellent, 3A, CBG – Good, 1, CCET – not available, 1, CENTEL – Very Good, 3A, CHG – Good, 3B, CK – Excellent, 3B, COL – Very Good, 3A, CPALL – Good, 3A, CPF – Very Good, 3A, CPN - Excellent, 5, DELTA Very Good, 3A, DEMCO – Very Good, 3A, DTAC – Excellent, 3A, EA – not available, 3A, ECL – Good, 4, EGCO - Excellent, 4, EPG – not available, 3B, GFPT - Very Good, 3A, GLOBAL – Very Good, 2, GLOW - Good, 3A, GPSC – not available, 3B, GRAMMY - Excellent, 3B, GUNKUL – Very Good, 1, HANA - Excellent, 4, HMPRO - Excellent, 3A, ICHI – Very Good, 3A, INTUCH - Excellent, 4, ITD – Good, 1, IVL Excellent, 4, JAS – not available, 3A, JASIF – not available, no progress, JUBILE – Good, 3A, KAMART – not available, no progress, KBANK Excellent, 4, KCE - Excellent, 4, KGI – Good, 4, KKP – Excellent, 4, KSL – Very Good, 2, KTB - Excellent, 4, KTC – Very Good, 3A, LH - Very Good, 3B, LPN – Excellent, 3A, M - Good, 2, MAJOR - Good, 1, MAKRO – Good, 3A, MALEE – not available, 2, MBKET – Good, 2, MC – Very Good, 3A, MCOT – Excellent, 3A, MEGA – Very Good, 2, MINT - Excellent, 3A, MTLS – Good, 2, NYT – Good, no progress, OISHI – Very Good, 3B, PLANB – Good, 3B, PS – Excellent, 3A, PSL - Excellent, 4, PTT - Excellent, 5, PTTEP - Excellent, 4, PTTGC - Excellent, 5, QH – Very Good, 2, RATCH – Excellent, 3A, ROBINS – Excellent, 3A, RS – Very Good, 1, SAMART - Excellent, 3B, SAPPE - Good, 3B, SAT – Excellent, 5, SAWAD – Good, 1, SC – Excellent, 3B, SCB - Excellent, 4, SCBLIF – not available, no progress, SCC – Excellent, 5, SCN – Good, 1, SCCC Good, 3A, SIM - Excellent, 3B, SIRI - Good, 1, SPALI - Excellent, 3A, SPRC – not available, no progress, STA – Very Good, 1, STEC – Very Good, 3B, SVI – Very Good, 3A, TASCO – Very Good, 3A, TCAP – Very Good, 4, THAI – Very Good, 3A, THANI – Very Good, 5, THCOM – Excellent, 4, THRE – Very Good, 3A, THREL – Very Good, 3A, TICON – Very Good, 3A, TISCO - Excellent, 4, TK – Very Good, 3B, TKN – not available, no progress, TMB - Excellent, 4, TPCH – Good, 3B, TOP - Excellent, 5, TRUE – Very Good, 2, TTW – Very Good, 2, TU – Very Good, 3A, UNIQ – not available, 2, VGI – Excellent, 3A, WHA – Good, 3A, WORK – not available, no progress. Comprises level 1 to 5 as follows: Level 1: Committed Level 2: Declared Level 3: Established (3A: Established by Declaration of Intent, 3B: Established by Internal Commitment and Policy) Level 4: Certified Level 5: Extended 104


CIMB Recommendation Framework Stock Ratings Definition: Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months. Sector Ratings Overweight Neutral Underweight

Definition: An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Overweight Neutral Underweight

Definition: An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

105

Telco - Overall - CIMB Group

Telco - Overall - CIMB Group

Suggest Documents

Telco - Overall - CIMB Group

Telco - Overall - CIMB Group

Telco - Overall - Morgans

Telco - Overall - Morgans

Telco - Overall - Morgans

Telco - Overall - Morgans

CIFI Holdings - CIMB Group

sustainability report - CIMB Group

CIFI Holdings - CIMB Group

sustainability report - CIMB Group

Property Devt & Invt - CIMB Group

Stronger 2H expected - CIMB Group

United Overseas Bank - CIMB Group

Smelling the roses - CIMB Group

May growth resume - CIMB Group

Successful capital recycling - CIMB Group

Property Devt & Invt - CIMB Group

Stronger 2H expected - CIMB Group

Negatives priced in - CIMB Group

2Q15 CIMB Group Press Release.pdf

Successful capital recycling - CIMB Group

Negatives priced in - CIMB Group

Headwinds from lower adex - CIMB Group

Time to re-enter - CIMB Group