Regional Industry Focus Asean Telecommunications...Industry Focus Asean Telecommunications No need to visit physical stores to activate – At present, mobile connections need to be

ed-TH / sa- YM, PY

Would eSIMs be disruptive?

eSIM-enabled smartphones to potentially be

launched in 2017

Physical distribution to matter less while

multiproduct bundling will matter more in the

medium term

New mobile entrants with weak distribution are

likely to benefit in Singapore and Malaysia

XL is our top pick while we are cautious on

StarHub over the next 12 months

eSIM - a potential change agent in 2017. SIM (subscriber identity module) identifies and authenticates an individual customer’s device. eSIM or an embedded SIM refers to a SIM card integrated to a handset or device instead of a physically separate SIM card. With eSIMs, subscribers need not visit the carrier as they can activate the mobile service remotely. In February 2016, Samsung unveiled Samsung Gear S2 while Apple’s iPad Pro 9.7”, announced in March 2016, was one of the first non-wearable eSIM devices. In Southeast Asia, Singapore has trialled the use of eSIMs and we expect eSIM-enabled smartphones to be launched in 2017. eSIMs will enable telcos to connect to newer devices in the Internet of things (IoT) era but will also increase churn rate due to the ease of switching mobile carriers. eSIM a potential boon for new entrants in Singapore &

Malaysia. With its ability to negate the advantages of physical distribution, eSIMs could provide support to the potential new mobile entrant in Singapore and Telekom Malaysia in Malaysia. Furthermore, the ease of switching networks would further pressurise roaming revenues of incumbents in Singapore. Revenue share is a critical factor for telco stocks. XL is trading at only 5x FY17x EV/EBIITDA (-2SD of its five-year average), reflecting expectations of further revenue share loss to Telkomsel. In our view, XL is likely to stem revenue share loss as evident from its big 3G network expansion outside Java. XL’s 3G network expansion on the 900 MHz spectrum and 4G network sharing with Indosat would help stabilise its share. In Singapore, StarHub’s earnings have been cushioned by S$40-S$45m grant each year (~12% of group earnings) related to National Broadband Network (NBN). The potential entry of a new player may exacerbate the revenue share loss while NBN-related grants are also likely to reduce sharply from FY17F onwards.

STI : 2,828.94

Analyst Sachin MITTAL +65 6682 3699 William SIMADIPUTRA +62 2130034939 [email protected] [email protected] Woo Kim TOH +60 32604 3917 Wasu MATTANAPOTCHANART +66 2657 7826 [email protected] [email protected] STOCKS

Source: DBS Bank, DBS Vickers, AllianceDBS, Bloomberg Finance L.P. Closing price as of 1 Nov 2016

XL has lost significant mobile revenue share from 21% in 2012 to 16% now

StarHub’s mobile revenue share has declined - from 38 % in 2006 to 31% now

Source: Companies, DBS Bank

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X Share Price XL Rev Share (RHS)

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StarHub Share Price StarrHub's Revenue Share (RHS)

DBS Group Research . Equity 2 Nov 2016

Regional Industry Focus

Asean Telecommunications

Refer to important disclosures at the end of this report

Price Mkt Cap Target Price Performance (%)

(LCL) US$m (LCL) 3 mth 12 mth Rating

M1 2.12 1,420 1.97 (20.6) (25.4) FV StarHub 3.37 4,198 2.80 (14.5) (6.4) FV Digi.Com 5.03 9,339 4.35 1.6 (4.4) HOLD Maxis Bhd 5.97 10,707 5.10 (1.5) (9.4) FV Telekom Malaysia 6.53 5,860 7.50 (4.3) (2.0) BUY Axiata Group 5.07 10,807 4.95 (10.9) (17.8) HOLD Advanced Info Service

154 13,072 160 (11.5) (33.9) HOLD

Total Access Communication

31.50 2,130 33.00 (0.8) (53.7) FV

Indosat 6,600 2,744 5,900 (1.5) 57.5 HOLD Telekomunikasi Indonesia

4,200 32,397 3,800 (3.9) 56.7 HOLD

XL Axiata 2,190 1,791 3,300 (39.8) (28.7) BUY

Page 1

Industry Focus


Analysts Sachin MITTAL +65 6682 3699 [email protected] William SIMADIPUTRA +62 2130034939 [email protected] Woo Kim TOH +60 32604 3917 [email protected] Wasu MATTANAPOTCHANART +66 2657 7826 [email protected]

Table of contents

What is an eSIM? 3 Potential barriers to adoption 5 Regional adoption 7 Strategic implications 10 Our ASEAN telco recommendations Singapore – Further revenue share loss is the key concern 11 Indonesia – Can XL stem the revenue share loss? 12 Thailand – An aggressive TRUE has led to cheapest data pricing in the region 15 Malaysia – Mobile revenue share to decline for incumbents 17 Sector Valuations 18 Company Guides 19 StarHub 20 XL Axiata 26

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Industry Focus


What is an eSIM? eSIM or an embedded SIM, is a SIM integrated to a mobile device. SIMs (subscriber identity modules) are issued by telcos to identify and authenticate an individual customer’s mobile device. At present, telcos issue a physical SIM card to the subscribers at the point of subscribing to a mobile connection, which needs to be inserted into the mobile device. eSIMs are expected to replace this by allowing telcos to activate the eSIM embedded in the mobile device remotely.

How are eSIMs different from traditional SIMs? Installation of the SIM – As the eSIM is embedded, it does not have to be physically installed into the device like its traditional counterpart. Traditional SIMs, in most cases, require users to remove the external cover of the phone and components such as the battery to insert the SIM. In some cases, a pin or a similar component is required to remove the SIM from its berth.

Physical SIM card evolution

Sources: socialcompare.com, Wikimedia.org, DBS Bank

Smaller physical space – As eSIMs are integrated to the device circuitry, they can have a footprint as small as 5mm x 1 mm. This is more than 20x smaller than (in terms of area) the smallest form of physical SIM used today. Activation – Due to the eSIMs being non-removable, they need to support multiple carriers and be able to activate multiple profiles. Furthermore, the carrier needs to activate the SIM without physically accessing it. As a result, eSIMs are required to support remote over-the-air activation while also being able to hold a number of activated profiles. In comparison, physical SIMs are carrier specific and are activated by the carrier internally at the point of issuance.

Advantages of eSIMs over traditional SIMs Easier to incorporate into small products – Due to its smaller footprint, eSIMs would make incorporating mobile connectivity to smaller devices more practical. This includes items such as mobile sensors or wearables which are relatively minor in size.

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Industry Focus


No need to visit physical stores to activate – At present, mobile connections need to be activated over the counter, at a telco outlet or a third-party premise. This limits the users’ ability to activate their connections during certain times of the day while also limiting

their choices, as their preferred carrier may not have a store or a representative in the immediate geographic area. This can be completely avoided with eSIMs due to their ability to be activated over the air. eSIMs would enable subscribers to activate their connections 24/7 from home.

eSIMs can be activated from home

Source: DBS Bank

+

Old way

New way

Physically visit the telco shop or

Buy the phone and SIM

Log in to telco website/portal to sign up

Activation done over the air

Page 4

Industry Focus


No hassle of physically inserting/removing SIMs when alternating between carriers – When switching carriers, physical SIMs need to be removed and a new SIM inserted which can be tedious and time consuming. This would not be an issue with eSIMs as users would be able to switch between profiles on the phone without physically altering what is on the phone. Better suited to sensitive, water-proof, tamper-proof devices and products – As there is no need to insert/remove SIM cards, devices that need cellular connections can be designed to be sealed. As a result, eSIMs would be helpful in cases where the product is highly sensitive or need to be tamper-proof. This includes products such as automobiles, wearables and waterproof smartphones. Potential barriers to adoption Security – Due to the ability to activate connections over the air and to switch between networks through software, telcos and related parties will need to establish secure procedures so that customer data is kept secure. With physical SIMs, due to SIM procurement as well as activation came completely under the control of telcos, telcos were able to completely ensure the integrity of the authentication of the process. However, part of the process will come under manufacturers while consumer input could also play a role in the activation, which can create potential security risks. Faulty eSIMs could render the device unusable – Previously, whenever a physical SIM malfunctioned, the telcos were able to reissue the SIM to the customer, to replace the old one. However, this is not an option for eSIMs. A faulty eSIM could result in failed authentication and connectivity of the mobile device which could render the device useless for the subscriber. As a result, the manufacturers may need to ensure that eSIMs’ fault rates are lower than traditional SIMs'. Early adoption road blocks – Due to the potential security concerns as well as changes in the authentication and activation process, eSIMs' adoption may hit regulatory roadblocks in the near term, especially in the developing world. Furthermore, there could be resistance from certain telco operators due to the potentially higher customer mobility. These barriers could result in much delayed adoption of eSIMs in certain markets.

Progress on adoption of eSIMs eSIMs already have the backing of most stakeholders. GSMA, the global body supporting standardisation of mobile technology, has already issued specifications for the use of eSIMs. These specifications have been backed by the world’s leading mobile network operators such as AT&T, CK Hutchison, Deutsche Telekom, Etisalat, EE, KDDI, NTT DOCOMO, Orange, Sprint, Telefónica, Telenor, Telstra, Verizon and Vodafone. In addition, leading device manufactures such as Apple, Huawei, LG, Microsoft, Samsung and Sony have also backed eSIMs. However, Chinese low-cost handset manufacturers such as Xiaomi and Lenovo have yet to make any announcements regarding the use of eSIMs in their smartphones. Important stakeholders have already signed on

Source: DBS Bank

Stakeholders

Manufacturers

Telcos

Regulators

Consumers

Page 5

Industry Focus


First devices using eSIMs are already in the market. In February 2016, Samsung unveiled Samsung Gear S2 3G, one of the first consumer devices using an eSIM. Apple’s iPad Pro 9.7”, announced in March 2016, was one of the first non-wearable devices with an eSIM. Apple has been using proprietary SIMs with remote provisioning (activation), named Apple SIM, in their tablet models (iPads) since late 2014, though they have always been removable. In iPad Pro 9.7”, Apple integrates it to the iPad itself and offers an option of inserting a traditional SIM separately. Though we are yet to see any further product announcements by smartphone manufacturers, we believe there is a high possibility of seeing more eSIMs in smartphones and other devices going forward. Parallel use of eSIMs with traditional SIMs likely to be the norm in the early period. As eSIMs will take time to be fully adopted by different countries and telcos, manufacturers are likely to be compelled to incorporate both eSIMs and physical SIM slots in the near term. Simillarly, telcos are likely to support both forms of SIMs as there will be a large population of smartphones that do not support eSIMs in the market.


Samsung Gear S2 3G, one of the first devices to use an eSIM

Source: gsmarena.com

2017?

eSIM trials announced in

Singapore

Jan 2016

Feb 2016

Mar 2016

Apple iPad 9.7” released

Samsung Gear S2 released

First smartphone with an eSIM

Page 6

Industry Focus


Regional adoption Singapore could see eSIM adoption by 2017. As part of its smart nation plans, the IDA announced plans to trial eSIMs and their over-the-air SIM provisioning technology in January 2016. The progress of the trials is not known, but it is likely to make Singapore one of the earliest adopters of eSIMs in the region. During the unveiling of Samsung’s Gear S2, Samsung mentioned that it worked with several industry partners in driving cross-industry collaboration including the three Singaporean incumbents, indicating that Singapore telcos are also in line to adopt the technology. With general smartphone adoption likely, especially in the higher-end devices, we are likely to see the first eSIM usage in Singapore by 2017. eSIMs likely to see adoption later in Thailand and Indonesia. Unlike Singapore, we have not seen any movement towards eSIM adoption in less mature regional markets such as Thailand and Indonesia. Thailand and Indonesia have traditionally lagged Singapore in adoption of new technologies in mobile communication, which is likely to be the case here as well. However, once the operating procedures of eSIMs are ironed out and more eSIM-supported devices become available in the market, the usage of eSIMs in markets such as Thailand and Indonesia could take place rapidly as the time and capex investment for eSIM support will be relatively low. Wide-ranging effects and implications Adoption of eSIMs could result in a wide range of changes in the way consumers behave and interact with their carriers. As there is no need to be physically present at the point of activating a connection, the carrier switching cost for consumers, in the form of time wasted, will be much lower. A software-based profile-switching option, rather than physically replacing SIMs, also lowers the time and hassle, i.e. cost of switching carriers. As a result, we believe we could see the following changes in user behaviour. Higher churn – As a result of easier switching between connections, we could potentially see subscribers shopping for the best offer on the market. This is likely to increase churn over time as customers constantly switch carriers for the best offer. More impact is likely in non-contract postpaid markets, where customers are not committed.

Higher number of connections per subscriber – Similar to churn, easier switching between connections would result in subscribers opting for a higher number of mobile connections. At present, to use multiple connections, subscribers are compelled to go through the hassle of switching SIMs, use multiple phones or use a phone that offer dual-SIM capabilities. Though dual-SIM phones are the best current alternative, manufacturers avoid incorporating dual-SIM capabilities to their flagship phones as they are not favoured by carriers. Telcos also avoid promoting dual-SIM devices as they allow subscribers to easily use competitors' networks. However, eSIMs would provide an easier path to using multiple connections, without needing a dual-SIM phone or the hassle of carrying multiple phones or switching SIMs. This is likely to be more prominent in the prepaid segment as there is no additional cost of an activated connection (monthly fee). Fewer visits to telco outlets – As new connections can be obtained over the air, telco subscribers will be less inclined to visit telco stores. Telco stores have traditionally played the important role of being the sales point for handsets and SIMs, resolving issues in mobile devices and subscriptions, and providing information on mobile packages. However, over time, telcos have gradually moved the latter two functions to over-the-phone or online-based platforms. Impact on telcos Roaming - from frying pan into the fire. The adoption of eSIMs would exacerbate the declining trend of roaming revenues, which have already been hit with the proliferation of OTT services. Among international travellers, only a certain portion of users currently subscribe to international roaming services. The most value-conscious travellers prefer to switch over to a cheaper local SIM despite the added hassle. This subscriber segment does not contribute to roaming revenues, and would not pose a downside risk for the telcos. Of the subscribers who opt to use international roaming, many do so to avoid the inconvenience of having to visit a mobile shop/retail outlet and switch SIM cards. However, as eSIMs allow subscribers to activate their connections remotely, we may witness a visible increase in the willingness of these subscribers to use the services of a local operator.

Page 7

Industry Focus


International roaming subscribers who value convenience could be lost due to eSIMs

Source: DBS Bank However, we believe there would also be a segment of travellers, mostly business or corporate, who would want to continue using their international roaming plans due to their preference to stay connected through their existing mobile number. This roaming subscriber base is likely to remain safe, in our view. Hence, with the increasing adoption of eSIMs, we believe that IDD revenues of telcos could decline by ~50%. The negative impact would primarily stem from the declining use of international roaming and possible price cuts from telcos on IDD services to make roaming services more attractive to users. We believe roaming would still be used by business travellers and those who wish to maintain their mobile numbers. Prepaid, the next big area of disruption. With the ability to easily activate connections, more prepaid users will become

nomads on carriers, switching carriers whenever a better offer comes along. This is likely to result in a higher number of prepaid customers maintaining multiple connections, and switching between connections according to their requirement. Markets with no upfront subsidies may see a radical change. Consumers will buy the handset directly from the handset vendors and can avoid visiting the telco shops altogether by getting the connection through eSIM. Markets with upfront handset subsidies to remain relatively stable. Consumers will still have to approach telcos to secure upfront handset subsidies in markets like Singapore and commit themselves to a 1- or 2-year plan. Due to their contract commitments, postpaid subscribers are unlikely to utilise the new found ease of switching carriers. As a result, we believe the impact on such market segments would be relatively low in the immediate term.

The value seekers

•Willing to switch SIMs or use a second phone when travelling

•Already not contributing to roaming revenues

The convenience seekers

•Doesn't like the hassle of changing SIMs

•Currently contributing to roaming

•At risk by eSIMs

Business/Corporate travellers

•Does not want to part with his/her domestic mobile number

•Limited impact by eSIMS

Page 8

Industry Focus


Changing the way subscribers interact with their telcos

Source: DBS Bank Mobile ecosystem in M2M and IoT to expand. The smaller footprint and the ability to connect devices without manually installing a SIM will expand the use of mobile networks in M2M and IoT. Smaller devices and sensors, as well as devices that are sealed or go through a lot of physical strain, will be able to incorporate an eSIM and connect to the mobile networks directly. As a result, we are likely to see an expansion in the universe of products that telcos serve.

Cost savings from lower SIM-manufacturing and distribution. Telcos will benefit from lower costs of SIM manufacturing and distribution as the need for physical SIMs will fall. Though the overall cost savings from manufacturing is limited at a fraction of a dollar per SIM, costs saved from distribution could be quite substantial, depending on the telco. Telcos provide prepaid SIMs to distributors in many markets where they allow distributors to retain a small percentage of revenue. As a result, this could add up to substantial savings over time, if these costs were cut.

Log in to telco website/portal to sign up

Activation done over the air

Buy the phone from a third party

Page 9

Industry Focus


Source: DBS Bank

Strategic implications Newer, smaller players to benefit at the expense of existing players. As the requirement for having a wide distribution network and customer touch points for telcos reduces, the advantages enjoyed by the incumbents also reduce. There could also be a case of 4G-only limited area coverage for new entrants, making the initial capital expenditure lower. As subscribers are able to easily switch between networks, the importance of having a nationwide coverage reduces. Subscribers can easily use one network with better data speeds within busy metropolitan areas and switch to a backup connection when travelling beyond these areas. Further new players have the opportunity to cut down initial costs of setting up the logistics of SIM distribution.

Mobile and fixed bundling, digital services, content to act as differentiators. As subscribers become more transient, telcos will have to use their other competitive advantages to gain long-term commitments from subscribers. One way is through fixed and mobile bundling by the incumbents. Another potential pathway is to develop digital services or content (multimedia) which can differentiate their networks from others.

• Less impact in contract‐based markets

• Potential change in smartphone sales channels Postpaid

• Likely to see a higher number of multiple SIM usersPrepaid

• Accelerated erosion due to the ease of changing SIMsRoaming

• Cellular usage more feasible for machine‐to‐machine (M2M) applicationsM2M

•Cost savings from lower SIM‐manufacturing and distribution costsSIM distribution

Page 10

Industry Focus


Our ASEAN telco recommendations Singapore – Further revenue share loss is the key concern M1’s mobile revenue share fell during 2006-2011 but has been stable thereafter

StarHub’s mobile revenue share has been declining - from 38 % in 2006 to 31% now

Source: Companies, DBS Bank StarHub and M1 have been losing mobile revenue share even in a three-player market. StarHub’s revenue share losses, however, did not translate into earnings decline mainly due to rising National Broadband Network-related grants recognised under “Other Income”. However, we project StarHub’s “Other Income” to fall from S$46m in 2015 to S$35m in 2016F and disappear in 2-3 years as adoption grants are fully utilised. As the market becomes a 4-player market, we expect further loss of revenue share at M1 and StarHub. StarHub is trading at 16x FY17F PE versus 13x for M1 which seems expensive given potential revenue share loss due to the possible entry of a new mobile player.

New entrant to be a potential beneficiary of eSIMs in Singapore. Immediate changes from eSIM will be further pressure on roaming revenues. Roaming accounts for c.10% of cellular service revenue in Singapore and we believe eSIMs could accelerate the already declining revenue from roaming. Due to the postpaid-heavy contract-based subscriber base, Singapore’s domestic market would be somewhat protected in the near term, as subscribers are locked in to 12- to 24-month contracts. However, we believe that eSIMs would work to level the playing field for Singapore’s fourth player, expected in 2017, by reducing the incumbent advantage on distribution channels. This would be particularly effective in the growing the SIM-only market.

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Page 11

Industry Focus


.

Indonesia – Can XL stem the revenue share loss? Telkomsel has been gaining mobile revenue share sharply since 2014

XL has lost significant revenue share since 2014

ISAT has gained some revenue share since 2014

Source: Companies, DBS Bank Telkomsel has been gaining revenue share due to network and distribution advantage. Telkomsel controlled 65% of mobile service revenue and 70% of EBITDA market share in 2015.Telkomsel secures almost 70% of its mobile revenue from outside Java versus 10-15% for Indosat and 20-25% for XL, due to its extensive 2G/3G network and high interconnect

rate of Rp250 per minute for voice. XL and Indosat do not have adequate network coverage outside Java, and XL also lost more share due to its transformation programme, whereby it shed low-end subscribers to focus more on providing quality 4G services. However, XL has faced higher

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Page 12

Industry Focus


cannibalisation of its legacy voice and SMS revenue due to higher smartphone-enabled customer base (60% in 3Q16). Telkomsel also enjoys advantage in retail distribution and controls some of the key SIM card distributors. In 2014, Telkom acquired a 25% stake in TiPhone, a major phone, SIM card and prepaid card distributor, which subsequently stopped servicing XL Axiata and Indosat. Furthermore, XL Axiata has also suffered from the fallout of its distributor-rationalising efforts in the past few quarters. XL is rolling out 3G on 900 MHz along with network sharing with Indosat to raise its market share outside Java. The investment in 3G on 900 MHz will likely help XL bridge some

of the network deficit in the ex-Java region. According to XL, customers will experience 6x better coverage, 2x stronger in-building signal strength, and data speeds of up to 21Mbps on the 900 MHz network. In addition, the implementation of the 4G network sharing agreement with Indosat would be a further positive for XL and Indosat, reducing network ownership costs and improving its overall capacity and coverage. This could potentially improve XL and Indosat’s position and market share in the region.

XL has sharply increased its 3G base stations in the ex-Java region

Source: Companies, DBS Bank Subscriber per 3G base station indicates XL has enough capacity to be aggressive


15,420

27,037

38,439

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68,699

12,68315,068 16,006

18,239

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3G base stations

Telkomsel XL Indosat*XL and Telkomsel data for 9M16, Indosat for 1H16

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Page 13

Industry Focus


XL leads in 4G base stations – its key competitive advantage in Java

Source: Companies, DBS Bank Distribution advantage of Telkomsel could be blunted by eSIMs in the next 2-3 years. Indonesia is likely to see significant shifts due to its prepaid-heavy user base. The introduction of the eSIM could neutralise Telkomsel's distribution advantage. This could help players such as XL and Indosat to claw back some of the lost market share. This would also be supported by the improved presence and coverage in the ex-Java region. In addition, despite Telkom’s extensive fixed product portfolio, we believe Telkomsel is unlikely to see significant benefits from fixed-mobile bundling due to separation of its operations.

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Page 14

Industry Focus


Thailand – An aggressive TRUE has led to cheapest data pricing in the region AIS has been losing mobile revenue share gradually since 2013

DTAC has been losing mobile revenue share sharply since 2013

TRUE has been gaining mobile revenue share sharply since 2013


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Industry Focus


Network gap resulting in AIS and DTAC market share declines in the past. TRUE was the first player to roll out 3G and 4G networks in Thailand due to the advantage offered by its network deal with CAT Telecom. AIS and DTAC players lagged behind due to non-availability of 3G and 4G spectrum while TRUE went ahead. Most recently, the threat of shutdown of AIS’s 2G service on 900 MHz, following AIS’s unsuccessful spectrum bid in late 2015 resulted in AIS losing 200bps of revenue share in 1H16. DTAC has been outspent by its competitors on 3G and 4G investments and has been losing market share consistently to TRUE over the past 12 quarters.

Unexciting revenue growth outlook due to cheap data pricing. AIS’s prospects have improved recently with the acquisition of 900 MHz spectrum in May 2016. However, data pricing in Thailand at ~US$1.42/GB is too cheap at ~40% discount to data pricing in Indonesia. As such, revenue growth is likely to be quite pedestrian in Thailand. However, DTAC may continue to lose revenue share due to TRUE's aggressive market share targets and AIS’s massive network investments earmarked for the next few years.

Data pricing in the region (USD per GB) – Thailand is trailing significantly behind regional counterparts

Source: Companies, DBS Bank DTAC’s woes to increase with eSIMs. Thailand is likely to see significant impact from the introduction of eSIMs as a prepaid-dominated market with mobile number portability. We believe, with eSIMs, consumer stickiness is likely to become extremely low as customers hop networks looking for the best offer in the market. As a result, players such as DTAC, which

has no presence in the fixed line segment, is likely to suffer while gains can be made by AIS and TRUE which are better positioned in the fixed line segment. Hence, we believe DTAC’s market share losses could accelerate in the case of an eSIM introduction in Thailand.

Page 16

Industry Focus


Malaysia – Mobile revenue share to decline for incumbents Maxis lost revenue share in the past but has been enjoying stable share since 2015

Celcom lost revenue share sharply in 2015

Digi has been a consistent revenue share gainer


Page 17

Industry Focus


Digi gains market share on the back of improved network coverge. Digi has managed to capture a higher percentage of the market share at Celcom’s expense by offering better network coverage and faster data transmission speeds, thanks to its network modernisation initiatives. Between 2Q13 and 2Q16, Celcom’s revenue market share declined c.3% while Digi managed to increase its revenue market share by 3%. While Maxis also lost close to 1.2m subscribers (largely prepaid) and revenue share in the past, it has regained some footing since then after introducing new plans and revamping its distribution channel under the helm of a new CEO. A stronger 4th player after spectrum re-allocation. 2017 will be the start of the year where the fourth player, U Mobile will have an almost equal amount of spectrum relative to the incumbents after the spectrum re-allocation exercise. As such, it is reasonable to expect U Mobile to turn more aggressive in order to gain subscriber market share, which currently stands at about 11% for U Mobile vs. 28-29% each for DiGi, Maxis, and Celcom.

U Mobile and Telekom Malaysia could benefit the most from eSIMs. Prepaid-heavy subscriber base, non-contract postpaid users, and the existence of mobile number portability indicate that the introduction of eSIMs would make maintaining customer loyalty extremely difficult for Malaysian telcos. As a result, smaller players like U Mobile and the latest entrant to the mobile market, Webe (Telekom Malaysia’s mobile arm), are likely to be the biggest benefactors from eSIMs. Webe has already startled the incumbents by offering unlimited voice/SMS and data for as low as RM79 since its public launch in September. We believe that Digi would be the most vulnerable to the adoption of eSIMs in the Malaysian market with prepaid subscribers making up close to 85% of its total subscriber base. In comparison, prepaid subscribers account for c.75% of total subscribers for Maxis and Celcom.

Sector Valuations

Source: DBS Bank; DBS Vickers; AllianceDBS

Mkt Price Target CA GR

Company F YE Cap S$ Price % 15-17

(US$m) 1-Nov LCL Upside Rcmd (%) 16F 17F 16F 17F 15A 16F 16F 17F

Malay sia KLCI Index 1670.93

Digi.Com Dec 9,339 5.03 4.35 -14% HOLD -4 24.2 24.7 4.1% 4.0% 75.3x 75.3x 14.2x 13.9x

Maxis Bhd Dec 10,707 5.97 5.10 -15% FULLY VALUED 0 24.0 22.8 3.4% 3.7% 10.7x 9.8x 12.6x 12.7x

Telekom Dec 5,860 6.53 7.50 15% BUY 7 28.5 23.8 3.2% 3.8% 3.2x 3.1x 7.5x 7.2x

Axiata Group Dec 10,807 5.07 4.95 -2% HOLD 0 23.2 21.5 3.7% 4.0% 1.9x 1.9x 8.4x 7.9x

Singapore ST I Index 2813.69

M1 Dec 1,420 2.12 1.97 -7% FULLY VALUED -9 12.9 13.5 6.2% 5.9% 4.8x 4.7x 7.0x 7.1x

Starhub Dec 4,198 3.37 2.80 -17% FULLY VALUED -1 16.0 16.8 5.9% 5.9% 31.1x 26.8x 8.9x 9.1x

Thailand SET Index 1504.52

Advanced Info Serv ice Dec 13,072 154.00 160.00 4% HOLD -12 13.8 15.1 7.3% 5.3% 9.5x 10.0x 8.7x 8.4x

Total Access Comm. Dec 2,130 31.50 33.00 5% FULLY VALUED -30 26.1 24.7 2.5% 3.0% 2.7x 2.8x 3.9x 3.6x

Indonesia J CI Index 5416.007

Indosat Dec 2,744 6,600 5,900 -11% HOLD nm 38.4 nm 0.0% 0.0% 2.9x 2.7x 4.3x 3.8x

PT Telekom Dec 32,397 4,200 3,800 -10% HOLD 11 23.7 21.9 3.4% 3.7% 5.6x 5.5x 8.4x 8.1x

XL Axiata Dec 1,791 2,190 3,300 51% BUY nm 59.1 37.0 1.0% 1.6% 1.7x 1.1x 5.4x 5.3x

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

Page 18

Industry Focus


COMPANY GUIDES

Page 19

ASIAN INSIGHTS VICKERS SECURITIES

ed: TH / sa:JC, PY

FULLY VALUEDLast Traded Price ( 1 Nov 2016): S$3.37 (STI : 2,813.69)

Price Target 12-mth: S$2.80 (-17% downside) (Prev S$3.00)

Potential Catalyst: Award of spectrum to the new player

Where we differ: More adverse impact on earnings in the long term

Analyst Sachin MITTAL +65 6682 3699 [email protected]

What’s New Fy17F/18F earnings trimmed 6%/7% on lower

grants

TP decreased to S$2.80 on reduced earnings

Price Relative

Forecasts and Valuation FY Dec (S$ m) 2015A 2016F 2017F 2018F

Revenue 2,444 2,423 2,418 2,405 EBITDA 712 723 709 700 Pre-tax Profit 440 439 409 395 Net Profit 372 374 348 336 Net Pft (Pre Ex.) 357 364 348 336 Net Pft Gth (Pre-ex) (%) (3.6) 1.7 (4.3) (3.4) EPS (S cts) 21.5 21.6 20.1 19.4 EPS Pre Ex. (S cts) 20.7 21.0 20.1 19.4 EPS Gth Pre Ex (%) (4) 2 (4) (3) Diluted EPS (S cts) 21.5 21.6 20.1 19.4 Net DPS (S cts) 19.9 19.9 19.9 19.9 BV Per Share (S cts) 10.8 12.6 12.8 12.3 PE (X) 15.7 15.6 16.8 17.3 PE Pre Ex. (X) 16.3 16.0 16.8 17.3 P/Cash Flow (X) 10.7 9.4 9.5 9.6 EV/EBITDA (X) 8.9 8.9 9.1 9.3 Net Div Yield (%) 5.9 5.9 5.9 5.9 P/Book Value (X) 31.1 26.8 26.4 27.4 Net Debt/Equity (X) 2.7 2.8 2.9 3.1 ROAE (%) 221.2 184.6 158.8 154.9

Earnings Rev (%): (1) (6) (7) Consensus EPS (S cts): 20.6 20.3 19.6 Other Broker Recs: B: 1 S: 8 H: 11

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P

Lower grant could hurt earnings

StarHub will see moderate impact from potential entry of a new mobile player. We project a 7% drop in industry-wide mobile revenues between 2015 and 2022, while the new entrant could capture 7% of revenue share. With only c.50% of revenues coming from mobile and due to more fixed-mobile-TV bundling, StarHub will be less impacted than M1. We expect StarHub’s mobile revenues to decrease by 15% (8% drop in total revenue) and earnings to contract by 16% in 2022 versus 2015.

Earnings are likely to contract from FY17F onwards. StarHub’s earnings have been cushioned by an estimated S$35-40m grant each year (~10-12% of group earnings) for National Broadband Network (NBN) as StarHub’s subsidiary is the Operating Company (OpCo) for NBN. However, NBN-related grants are coming to an end over next 3-6 months, which may lead to earnings contraction from FY17F onwards.

2Q16 core profit was 5-7% ahead of our estimates. Excluding fair value gains of S$9.5m, 2Q16 core profit of S$100m (+1% y-o-y, +7% q-o-q) was ahead of our S$93-95m estimate. Higher-than-expected “Other Income” from grants for the fibre adoption and lower-than-expected depreciation & amortisation (D&A) costs were the key variances. StarHub revised FY16 service revenue growth guidance to flat from low single digit due to decline in Pay TV & roaming revenue but raised service EBITDA margin to 32% from 31%.

Valuation:

Recommend FULLY VALUED with lower TP of S$2.80. Our

revised DCF-based (WACC 6.5%, terminal growth 0%) TP is

S$2.80 as we factor in the impact of reduced NBN grants. In

the scenario of potential earnings decline, we think forward

PER multiple of telcos could shrink to 13-14x (below -2SD)

versus 17x now.

Key Risks to Our View:

Non-entry of a new player. Disqualification of the current

candidates due to inadequate funding or lack of experience

could wipe out the threat of a new player leading to our bull-

case TP of S$3.70

At A Glance Issued Capital (m shrs) 1,730

Mkt. Cap (S$m/US$m) 5,829 / 4,198

Major Shareholders (%)

Asia Mobile Holdings Pte Ltd 55.8

Nippon Telegraph & Telephone Co 9.9

Free Float (%) 34.3

3m Avg. Daily Val (US$m) 7.6

ICB Industry : Telecommunications / Mobile Telecommunications

DBS Group Research . Equity 2 Nov 2016

Singapore Company Guide

StarHub Version 6 | Bloomberg: STH SP | Reuters: STAR.SI Refer to important disclosures at the end of this report

Page 20


Company Guide

StarHub

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Mobile business to perform better than its local peer M1.

Singapore’s incumbent mobile players slashed mobile data

prices in March 2016 for postpaid users whereby effective

monthly pricing for additional data is lowered by 25-50%. Also,

voice and SMS revenue continue to decline due to structural

shifts in the market. This, coupled with the launch of SIM-only

plans (no subsidised handsets), could result in slightly weaker

top line but improved bottom line due to lower handset

subsidies. Unlike M1, StarHub benefits from slowing iPhone

sales as it does not use fair value accounting.

Handset subsidies are stable or declining each quarter

Source: Company, DBS Bank

Stabilising Fixed Broadband business (10% of service revenue) is

a positive. Broadband revenue is showing encouraging signs of

recovery with improvements in ARPU and subscribers. Though

ARPU is still 20%+ below FY12 levels, it has improved ~9%

since 1Q15. The recovery in broadband revenue and ARPU will

provide much needed support for StarHub’s top line with

broadband currently contributing c.10% of service revenue.

Enterprise Fixed business (18% of service revenue) continues to

grow. This segment, encompassing managed services, cloud

and other enterprise services, is seeing encouraging growth.

Management is intent on developing the segment as an

alternative revenue generator to the traditional telco business

and is likely to maintain investments in the segment. The

segment also offers superior margins compared to the other

segments, and thus could provide better bottom-line

performance.

Pay TV business (18% of service revenue) faces limited threat in

the medium term. Netflix entered the Singapore market in early

2016. StarHub saw its pay TV subscribers drop 1.5% q-o-q in

1Q16 due to Netflix’s entry and StarHub ending its “TV lite”

promotion. Netflix has a price tag of S$11 per month, at c.60%

discount to Starhub’s entry level of S$27. However, Netflix does

not offer comprehensive local language and sports content,

Mobile EBITDA Margins

CATV & Broadband EBITDA Margins

Fixed Network EBITDA Margins


166 157

91 96

143

1048878 78

35 4571

4932

-88 -80-56 -51

-73-56 -56

-150

-100

-50

0

50

100

150

200

4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

S$ m Equipment Sales & Costs- StarHub

Equipment cost Equipment revenue Equipment subsidy

Page 21


Company Guide

StarHub

which is a key driver in the Singapore pay TV market. As a

result, we may see only a marginal impact (2-3%) on Pay TV

revenue going forward.

Balance Sheet:

Balance sheet to remain strong. StarHub raised S$300m

through medium-term notes in 2Q16. This and the strong cash

flows will enable StarHub to comfortably maintain its current

dividend payment and the increased capex (due to the

impending spectrum auction). Even with the additional debt,

Starhub’s gearing remains at a comfortable level.

Share Price Drivers:

StarHub could benefit if there is no new mobile entrant. If a

new entrant emerges, we project StarHub’s revenue to drop

8% by 2022 versus 2015, leading to 16% drop in net profit by

2022. Our TP in this scenario will be S$2.80. Conversely, in the

absence of a new mobile entrant, we forecast stable profits and

TP of S$3.70

Key Risks:

Successful entry of a new mobile player. A well-funded new

entrant could capture 6% revenue share, in our view. Though

StarHub will benefit from its diversified revenue sources, we

expect a 4% adverse impact on its revenue due to the fourth

player in 2022, leading to an 8% drop in net profit by 2022.

Our TP will be S$3.30 under that scenario.

An overly aggressive new entrant. Under our bear-case

scenario of an overly aggressive new entrant, we assume a 6%

drop in service revenue by 2022, leading to a 12% drop in

profit by 2022. Our TP in this scenario will be S$3.00.

Sharper-than-expected decline in adoption grant. StarHub has

guided that the adoption grant for fibre is likely to decline

going forward. We project StarHub’s “Other Income” to

decline from S$46m in 2015 to S$41m in 2016F and S$20m in

2017F due to this. However, the drop could be sharper than

expected, depending on the fibre adoption rate.

Company Background

StarHub is the second largest of the three telecom operators in

Singapore. The company provides mobile services, pay TV,

fixed broadband and fixed voice services, popularly known as

quadruple play services.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


Page 22


Company Guide

StarHub

Key Assumptions

FY Dec 2014A 2015A 2016F 2017F 2018F

Mobile EBITDA Margins 36.3 33.8 34.5 35.1 35.1

CATV & Broadband EBITDA Margins

18.4 18.0 18.0 17.9 17.9 Fixed Network EBITDA Margins

36.8 36.8 36.6 36.5 36.5

Segmental Breakdown

FY Dec 2014A 2015A 2016F 2017F 2018F

Revenues (S$m)

Mobile 1,248 1,240 1,241 1,223 1,196

Cable TV & Broadband 592 591 589 588 586

Fixed Network 378 385 406 422 443

Equipment sale 170 228 187 185 180

Others

Total 2,387 2,444 2,423 2,418 2,405

EBITDA (S$m) Mobile 453 419 428 430 419

Cable TV & Broadband 109 106 106 105 105

Fixed Network 139 142 148 154 162

Equipment sale 46.6 45.6 41.0 20.5 14.4

Others

Total 748 713 724 709 700

EBITDA Margins (%) Mobile 36.3 33.8 34.5 35.1 35.1

Cable TV & Broadband 18.4 18.0 18.0 17.9 17.9

Fixed Network 36.8 36.8 36.6 36.5 36.5

Equipment sale 27.5 20.0 21.9 11.1 8.0

Others N/A N/A N/A N/A N/A

Total 31.3 29.2 29.9 29.3 29.1

Income Statement (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F

Revenue 2,387 2,444 2,423 2,418 2,405

Cost of Goods Sold (1,957) (2,049) (2,015) (2,009) (2,004)

Gross Profit 430 396 408 409 401

Other Opng (Exp)/Inc 46.6 45.6 41.0 20.5 14.4

Operating Profit 477 441 449 429 416

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 (0.3) (0.3) (0.3) (0.3)

Net Interest (Exp)/Inc (20.6) (15.8) (18.9) (19.9) (19.9)

Exceptional Gain/(Loss) 0.0 15.0 10.0 0.0 0.0

Pre-tax Profit 456 440 439 409 395

Tax (85.6) (67.9) (65.9) (61.4) (59.3)

Minority Interest 0.0 0.0 0.0 0.0 0.0

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net Profit 371 372 374 348 336

Net Profit before Except. 371 357 364 348 336

EBITDA 748 712 723 709 700

Growth

Revenue Gth (%) 0.7 2.4 (0.9) (0.2) (0.5)

EBITDA Gth (%) 0.7 (4.7) 1.5 (2.0) (1.3)

Opg Profit Gth (%) 0.7 (7.4) 1.7 (4.3) (3.2)

Net Profit Gth (Pre-ex) (%) (2.8) (3.6) 1.7 (4.3) (3.4)

Margins & Ratio

Gross Margins (%) 18.0 16.2 16.8 16.9 16.7

Opg Profit Margin (%) 20.0 18.1 18.5 17.8 17.3

Net Profit Margin (%) 15.5 15.2 15.4 14.4 14.0

ROAE (%) 319.8 221.2 184.6 158.8 154.9

ROA (%) 19.3 19.1 19.5 18.1 17.6

ROCE (%) 39.9 37.1 36.9 34.8 33.7

Div Payout Ratio (%) 92.9 92.4 92.1 98.9 102.4

Net Interest Cover (x) 23.1 27.9 23.7 21.6 20.9


Segmental EBITDA are all estimated, as StarHub does not disclose these numbers

Page 23


Company Guide

StarHub

Quarterly / Interim Income Statement (S$m)

FY Dec 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016

Revenue 590 603 634 591 586

Cost of Goods Sold (404) (416) (491) (420) (402)

Gross Profit 185 187 143 171 184

Other Oper. (Exp)/Inc (60.8) (56.3) (51.3) (53.1) (58.0)

Operating Profit 125 131 91.9 118 126

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 (0.2) (0.1) (0.2) (0.3)

Net Interest (Exp)/Inc (4.0) (3.7) (4.5) (4.7) (5.1)

Exceptional Gain/(Loss) 0.0 15.0 0.0 0.0 9.50

Pre-tax Profit 121 142 87.3 113 130

Tax (21.4) (23.4) (6.5) (19.9) (21.6)

Minority Interest 0.0 0.0 0.0 0.0 0.0

Net Profit 99.1 119 80.8 92.8 109

Net profit bef Except. 99.1 104 80.8 92.8 99.1

EBITDA 195 199 157 183 192

Growth

Revenue Gth (%) (4.6) 2.3 5.1 (6.8) (0.9)

EBITDA Gth (%) 20.1 2.2 (21.1) 16.7 4.7

Opg Profit Gth (%) 32.6 5.2 (29.8) 28.0 7.2

Net Profit Gth (Pre-ex) (%) 34.5 4.6 (22.1) 14.9 6.8

Margins

Gross Margins (%) 31.4 31.1 22.6 28.9 31.4

Opg Profit Margins (%) 21.1 21.7 14.5 19.9 21.5

Net Profit Margins (%) 16.8 19.7 12.7 15.7 18.5

Balance Sheet (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F

Net Fixed Assets 911 890 1,000 1,025 1,035

Invts in Associates & JVs 0.0 27.5 27.2 26.9 26.6

Other LT Assets 405 388 388 388 388

Cash & ST Invts 264 173 74.1 48.2 26.0

Inventory 42.4 54.3 53.8 53.7 53.4

Debtors 162 153 152 152 151

Other Current Assets 203 223 223 223 223

Total Assets 1,987 1,909 1,918 1,916 1,902

ST Debt 200 138 138 138 138

Creditor 796 687 681 680 676

Other Current Liab 197 203 188 184 182

LT Debt 488 550 550 550 550

Other LT Liabilities 158 144 144 144 144

Shareholder’s Equity 149 188 217 221 213

Minority Interests 0.0 0.0 0.0 0.0 0.0

Total Cap. & Liab. 1,987 1,909 1,918 1,916 1,902

Non-Cash Wkg. Capital (586) (460) (441) (436) (431)

Net Cash/(Debt) (423) (514) (613) (639) (662)

Debtors Turn (avg days) 21.8 23.5 23.0 22.9 23.0

Creditors Turn (avg days) 167.7 152.3 143.5 143.7 144.0

Inventory Turn (avg days) 9.3 9.9 11.3 11.4 11.4

Asset Turnover (x) 1.2 1.3 1.3 1.3 1.3

Current Ratio (x) 0.6 0.6 0.5 0.5 0.5

Quick Ratio (x) 0.4 0.3 0.2 0.2 0.2

Net Debt/Equity (X) 2.8 2.7 2.8 2.9 3.1

Net Debt/Equity ex MI (X) 2.8 2.7 2.8 2.9 3.1

Capex to Debt (%) 46.8 47.6 56.0 44.3 42.8

Z-Score (X) 3.5 3.7 3.7 3.7 3.7


Net debt-to-EBITDA below 1x indicates ample room to raise debt

Page 24


Company Guide

StarHub

Cash Flow Statement (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F

Pre-Tax Profit 456 440 439 409 395

Dep. & Amort. 271 271 275 280 285

Tax Paid (65.3) (92.7) (80.6) (65.9) (61.4)

Assoc. & JV Inc/(loss) 0.0 0.30 0.30 0.30 0.30

Chg in Wkg.Cap. 2.50 (108) (4.2) (1.0) (2.6)

Other Operating CF (9.6) 33.5 (10.0) (10.0) (10.0)

Net Operating CF 655 545 620 613 606

Capital Exp.(net) (322) (327) (385) (305) (295)

Other Invts.(net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 (12.0) 0.0 0.0 0.0

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF 2.80 38.9 0.0 0.0 0.0

Net Investing CF (319) (300) (385) (305) (295)

Div Paid (345) (346) (344) (344) (344)

Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0

Capital Issues 0.0 0.0 0.0 0.0 0.0

Other Financing CF 6.20 10.6 10.0 10.0 10.0

Net Financing CF (339) (335) (334) (334) (334)

Currency Adjustments 0.20 0.30 0.0 0.0 0.0

Chg in Cash (2.7) (90.8) (99.3) (25.9) (22.2)

Opg CFPS (S cts) 37.9 37.7 36.1 35.5 35.2

Free CFPS (S cts) 19.4 12.6 13.6 17.8 18.0


Target Price & Ratings History

Source: DBS Bank

Analyst: Sachin MITTAL

Fixed dividend commitment not tied to earnings

Page 25

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:MA, PY

BUY Last Traded Price ( 27 Oct 2016): Rp2,340 (JCI : 5,416.80) Price Target 12-mth: Rp3,300 (41% upside) (Prev Rp4,100) Potential Catalyst: Positive subscribers addition Where we differ: We believe EXCL's management can turnaround the company

Analyst Sachin MITTAL +65 6682 3699 [email protected] William SIMADIPUTRA +62 2130034939 [email protected]

What’s New Share price is at our bear-case scenario TP

Currently trading at low-end EV/EBITDA multiple

Service quality improvement should attract subs

Maintain our BUY rating with lower TP of Rp3,300

Price Relative

Forecasts and Valuation FY Dec (Rp m) 2015A 2016F 2017F 2018F Revenue 22,876 22,146 22,361 23,013 EBITDA 8,393 8,327 8,399 8,739 Pre-tax Profit (631) 529 843 1,622 Net Profit (25.3) 396 632 1,216 Net Pft (Pre Ex.) (25.3) 396 632 1,216 Net Pft Gth (Pre-ex) (%) 97.9 nm 59.5 92.3 EPS (Rp) (2.4) 37.1 59.2 114 EPS Pre Ex. (Rp) (2.4) 37.1 59.2 114 EPS Gth Pre Ex (%) 98 nm 60 92 Diluted EPS (Rp) (2.4) 37.1 59.2 114 Net DPS (Rp) 0.0 22.3 35.5 68.3 BV Per Share (Rp) 1,318 1,983 2,020 2,099 PE (X) nm 63.1 39.6 20.6 PE Pre Ex. (X) nm 63.1 39.6 20.6 P/Cash Flow (X) 3.6 9.7 4.0 3.6 EV/EBITDA (X) 6.1 5.6 5.5 5.2 Net Div Yield (%) 0.0 1.0 1.5 2.9 P/Book Value (X) 1.8 1.2 1.2 1.1 Net Debt/Equity (X) 1.8 1.0 1.0 0.9 ROAE (%) (0.2) 2.2 3.0 5.5 Earnings Rev (%): (30) (29) (13) Consensus EPS (Rp): 27.1 111 164 Other Broker Recs: B: 17 S: 1 H: 6

Source of all data on this page: Company, DBS Bank, DBS Vickers, Bloomberg Finance L.P

Valuation hits five-year low We maintain our BUY rating for EXCL. We have a BUY rating on EXCL with a lower target price of Rp3,300. We believe its share price correction on slower-than-expected turnaround progress is overdone. Currently, EXCL is trading at 5.5x FY17 EV/EBITDA, close to -2SD of its five-year average EV/EBITDA multiple. The current share price level is near our bear-case scenario target price of Rp2,200, which implies an EV/EBITDA of 5.0x, or at the low end (-2SD) of its five-year EV/EBITDA multiple (see next page for our scenario analysis). New earnings forecast. Our new earnings forecast takes into account some short-term impact on EXCL transformation efforts such as the drop in voice and SMS usage in the Java area, as EXCL reinvigorates its service quality and incurs higher selling & marketing expenses to overhaul its traditional distribution channel. Our new FY17 and FY18 EBITDA forecasts are 5% lower than our previous forecasts. 3Q16 EBITDA met our expectation. EXCL’s 3Q16 revenue of Rp5.3tr and EBITDA of Rp1.9tr met our expectations, with major improvements in subscriber acquisition being evident. EBITDA margin inched down q-o-q on higher selling and marketing expenses due to its subscriber acquisition efforts. Valuation:

We rate EXCL a BUY with a new DCF-based TP of Rp3300, assuming 9.4% WACC and 1% terminal growth rate. Our target price implies FY17 EV/EBITDA of 6.7x. Key Risks to Our View:

Disruption to benign competition. If any player gets aggressive in gaining market share, the whole sector could be affected. Slower-than-expected turnaround effort. Slower-than-expected turnaround efforts can lead to lower-than-expected revenue and earnings growth. At A Glance Issued Capital (m shrs) 10,688 Mkt. Cap (Rpbn/US$m) 25,010 / 1,916 Major Shareholders (%) Axiata Group 66.6 Elisalat Intl 13.3 Parkmix Ltd 13.3

Free Float (%) 20.1 3m Avg. Daily Val (US$m) 3.7 ICB Industry : Telecommunications / Mobile Telecommunications

DBS Group Research . Equity 31 Oct 2016

Indonesia Company Guide

XL Axiata Version 3 | Bloomberg: EXCL IJ | Reuters: EXCL.JK Refer to important disclosures at the end of this report

Page 26


Company Guide

XL Axiata

WHAT’S NEW

EXCL's share price is trading at our bear-case scenario TP, as its valuation hit a five-year low

EXCL’s slow turnaround priced in We believe the market has priced in EXCL’s slow business turnaround at the current share price. EXCL is trading at 5.0x FY17 EV/EBITDA, its five-year historical low. EXCL’s new management strategy is to transform itself from a low cost operator into a value operator, by focusing on acquiring high value and profitable subscribers.

Scenario analysis We have conducted a target price scenario analysis on EXCL with the key variables being subscriber acquisition, revenue growth and EBITDA margin outlook that can determine its overall financial performance.

Base case – TP of Rp3,300 We have a BUY rating with a target price of Rp3,300 for EXCL, which implies an FY17F EV/EBITDA of 6.7x. We believe EXCL’s share price correction on slower-than-expected turnaround progress is overdone. Currently, EXCL is trading at 5.3x FY17 EV/EBITDA, close to -2SD of its five-year average. We believe EXCL’s financial performance will improve going forward on the back of Indonesia’s positive ARPU trend, coupled with its new subscriber addition. We believe EXCL is capable of growing its profitable subscribers given its improving service quality by leveraging its biggest chunk of 1,800MHZ spectrum.

Bear case – TP of Rp2,200 Our base-case scenario assumes EXCL being unable to acquire subscribers in the next two years. This leads to a negative growth outlook for services revenue, i.e. flattish performance in FY16-18F. Our scenario also takes into account the lower EBITDA margin of 35%, in case EXCL needs to incur larger-than-expected marketing expenses to accelerate its both traditional and modern distribution channels. Our base-case DCF target price is Rp2,200 with an FY17F EV/EBITDA multiple of 5.0x and zero terminal growth rate. Our bear-case target price implies -2SD of its five-year EV/EBITDA multiple, or the valuation level of c.2012 when price wars were raging.

Bull case – TP of Rp4,900 Our bull-case scenario assumes EXCL acquires subscribers at a faster pace, which implies an expected subscriber CAGR of 10% over FY16-18F. The better outlook for subscriber acquisition will also be followed by better service revenue CAGR of 7% in FY16-18F. There is further EBITDA margin upside if EXCL successfully renegotiates its tower lease rate at Rp10m per month, or lower than the existing tower lease market price. Moreover, if EXCL modern channel distribution starts to pick up, it can lower overall selling & marketing expenses. Our bull-case

scenario target price DCF is Rp4,900, which implies an FY17F EV/EBITDA of 7.2x.

3Q16 performance came in line with our expectations 9M16 EBITDA met our forecast. 3Q16 EBITDA reached Rp1.98tr (-9.9% y-o-y, -9.7% q-o-q), bringing its 9M16 EBITDA to Rp6.2tr (+3% y-o-y) – forming 74% of our FY16 EBITDA forecast of Rp8.55tr, which we deem in-line. EBITDA margin was stable at 38% in 3Q16, given the stable operational costs (mainly marketing expenses) and despite EXCL’s continuous efforts to grow its subscribers. Its NPAT turned positive in 9M16 to the tune of Rp160bn vs a net loss of Rp460bn in the previous year.

Revenue also met our expectation. 3Q16 revenue came in at Rp5.2tr (-10.3% y-o-y, -6.9% q-o-q), brining 9M16 revenue to Rp16tr – also meeting our expectation. EXCL booked a positive subscriber addition of 8% y-o-y, similar to Telkomsel’s pace in 3Q16, to bring its subscribers to 45m. The ARPU trend is also still positive, coming in at Rp36k per user (+13% y-o-y).

Earnings revision summary Our new earnings forecast takes into account some short-term impact from EXCL transformation efforts such as the drop in voice and SMS usage in the Java area, as EXCL effort revamps its service quality. Higher data service quality could lead to further voice cannibalization, as subscribers will take advantage of the better data service quality by utilising application-based calling services such as Whatsapp.

We also expect higher selling & marketing expenses for revamping its traditional distribution channel. EXCL’s traditional channel revamp seems to be successful, as evidenced by its 3Q16 subscriber addition of 8% y-o-y. However, this also entails higher marketing and selling expenses, which could reach 7% of its revenue – higher than the historical level of 6%.

Our new FY17 and FY18 EBITDA forecasts are 5% lower than our previous forecasts. Our overall forecast is lower than consensus, as we are mainly more conservative on EXCL’s top-line growth.

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Company Guide

XL Axiata

Scenario analysis summary Five-year forward EV/EBITDA multiple (X)

Source: Company, DBS Bank, DBS Vickers

Quarterly / Interim Income Statement (Rpbn)

FY Dec 3Q2015 2Q2016 3Q2016 % chg yoy % chg qoq

Revenue 5,831 5,616 5,229 (10.3) (6.9)

Cost of Goods Sold (534) (405) (526) (1.5) 30.0

Gross Profit 5,297 5,212 4,704 (11.2) (9.8)

Other Oper. (Exp)/Inc (4,781) (4,892) (4,524) (5.4) (7.5)

Operating Profit 515 320 179 (65.2) (43.9)

Other Non Opg (Exp)/Inc (390) 468 108 nm (77.0)

Net Interest (Exp)/Inc (185) (546) (378) (103.6) 30.8

Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm

Pre-tax Profit (59.7) 242 (90.6) (51.7) nm

Tax 404 (72.2) 25.6 nm (135.4)

Minority Interest 0.0 0.0 0.0 nm nm

Net Profit 344 169 (65.0) nm nm

Net profit bef Except. 344 169 (65.0) nm nm

EBITDA 2,196 2,191 1,979 (9.9) (9.7)

Margins (%)

Gross Margins 90.8 92.8 89.9

Opg Profit Margins 8.8 5.7 3.4

Net Profit Margins 5.9 3.0 (1.2)

Source of all data: Company, DBS Bank, DBS Vickers

Earnings revision summary

2016F 2017F 2018F Old New Changes Old New Changes Old New Changes

Revenue 22,146 22,146 0% 22,802 22,361 -2% 23,922 23,013 -4% Gross profit 18,935 18,935 0% 19,564 19,185 -2% 20,621 19,838 -4% EBITDA 8,548 8,326 -3% 8,849 8,399 -5% 9,202 8,739 -5% NPAT 562 396 -30% 887 632 -29% 1,404 1,216 -13%

Subscribers (m) 62,581 62,581 0.0% 65,710 62,581 -4.8% 68,995 66,110 -4.8% Blended ARPU (Rp '000) 38 37.5 0.0% 38.6 38.6 0.0% 39.8 39.8 0.0% Source : Company, DBS Bank, DBS Vickers

Average

+1 stdev

+2 stdev

-1 stdev

-2 stdev

4.0

6.0

8.0

10.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

(x)Bear Base BullTerminal growth rate 0.0% 1.0% 1.0%FY16-18F subscriber growth 0% 3.0% 10%FY16-18F service income growth -2.8% 2.0% 7.0%FY17F EBITDA margin 34.5% 37.6% 40.0%

Target price (Rp) 2,200 3,300 4,900 FY17 EV/EBITDA 5.0 6.7 7.2 Source : DBS Vickers

Page 28


Company Guide

XL Axiata

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

New management, new strategy. After the appointment of the new CEO, EXCL has changed its strategy to focus on profitability and accelerating Axis-EXCL integration. EXCL plans to adopt the dual-brand strategy – XL will be the premium digital lifestyle brand while Axis will be a tactical brand to serve the lower-end market. EXCL also intends to change the distribution model in Indonesia. It wants to control and directly deal with the retail outlets and end customers. The role of the big distributors will change to that of a fulfilment centre.

Focus on profitability rather than pricing wars. Going forward, EXCL will move away from its 'minute factory' strategy (i.e. high gross add model) and focus on improving EBITDA instead of attracting mid- and high-value subscribers. Axiata has committed to the new strategy and is willing to sacrifice some revenues in the near term.

Largest beneficiary when operators consolidate. Indonesia’s telecommunication industry is bottoming out as operators are now trying to raise data pricing. The consolidation could take off in the next 2-3 years according to our channel checks. The government has also given the green light.

Uptrend in ARPU, but data yield still low. Despite raising headline pricing, telco operators have failed to raise effective pricing per MB. Data plans are costing consumers more but operators are also offering larger data volumes, which is hurting per MB data revenue. However in the 4G era, operators can maximise their data capacity potential from the new 4G network without incurring extra cost – hence, the lower data yield does not always translate into margin compression.

Lower data pricing is hurting Indonesian telcos more due to high reliance on SMS revenues. SMS and voice services contributed around 40% of XL's revenues. But these will be cannibalised by rising data usage as EXCL’s subscribers and service areas are mainly in the greater Java region. Greater Java subscribers use more data than SMS services, given the better network infrastructure and data services in Java areas.

Transformation takes time. Beyond the top-line growth, we continue to see turnaround efforts by management such as the 10% y-o-y EBITDA growth in 1H16 and better y-o-y EBITDA margin of 39%.

Subscribers (m)

ARPU (Rp K)

EBITDA margins (%)

Capex (Rp tn)

EBITDA (Rpbn)


Page 29


Company Guide

XL Axiata

Balance Sheet:

Exposure to foreign debt. This means EXCL’s earnings would be affected by movements in foreign exchange rates. EXCL will continue to deleverage its balance sheet. EXCL also plans to divest non-core assets such as towers, like what Protelindo did in February this year.

Stable capex to expand BTS network. EXCL’s capex will be stable at Rp6.5tr on average for the next three years, which implies capex per sales of 30%. The bulk of the capex will be allocated for network and BTS expansion in order to maintain market share and grow revenues.

Share Price Drivers:

Stock de-rating on delayed completion of Axis network integration. The share price de-rated in the last year because of the integration with Axis’s network took longer than expected, which resulted in EXCL missing consensus earnings expectations.

IDR volatility also pressuring share price. Since EXCL’s balance sheet has a larger exposure to foreign debt, the share price is also pressured by a weakening IDR as investors continue to underweight companies with high exposure to USD debt.

Key Risks:

Disruption to benign competition. If any player becomes aggressive in gaining market share and triggers a new wave of price wars, the whole sector could be hurt.

Weaker rupiah. Due to high foreign debt, a weak rupiah could adversely hurt bottom-line. EXCL booked net losses in the past two years due to foreign exchange translation losses.

Slower-than-expected turnaround effort. Slower-than-expected turnaround effort can cause lower-than-expected revenue and earnings growth.

Company Background

EXCL provides a wide range of mobile telecommunication services in Indonesia. EXCL is owned by Axiata Group Berhad through Axiata Investments (Indonesia) Sdn Bhd (66.5%) and the public (33.5%).

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward EV/EBITDA Band (x)

PB Band (x)


Average

+1 stdev

+2 stdev

-1 stdev

-2 stdev

4.0

6.0

8.0

10.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

(x)

Page 30


Company Guide

XL Axiata

Key Assumptions

FY Dec 2014A 2015A 2016F 2017F 2018F

Subscribers (m) 60.8 66.3 63.0 63.0 66.1 ARPU (Rp K) 25.9 25.3 37.5 38.6 39.8 EBITDA margins (%) 35.3 36.7 37.6 37.6 38.0 Capex (Rp tn) 7.10 8.30 6.00 5.70 5.60 EBITDA (Rpbn) 8,161 8,393 8,327 8,399 8,739

Segmental Breakdown

FY Dec 2014A 2015A 2016F 2017F 2018F

Revenues (Rpbn)

GSM Revenue 18,445 19,454 18,988 18,511 19,043 GSM interconnect 3,007 2,308 2,308 3,000 3,120 Other GSM 197 0.0 0.0 0.0 0.0 Others 1,457 1,115 850 850 850 Total 23,106 22,876 22,146 22,361 23,013

(Rpbn)

Income Statement (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F

Revenue 23,106 22,876 22,146 22,361 23,013 Cost of Goods Sold (3,465) (2,321) (3,211) (3,175) (3,176) Gross Profit 19,641 20,555 18,935 19,186 19,838 Other Opng (Exp)/Inc (18,301) (19,298) (16,393) (16,329) (16,496) Operating Profit 1,340 1,258 2,542 2,857 3,342 Other Non Opg (Exp)/Inc (1,390) (808) (8.7) (8.7) (8.7) Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (1,346) (1,080) (2,005) (2,005) (1,712) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit (1,397) (631) 529 843 1,622 Tax 179 605 (132) (211) (405) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit (1,218) (25.3) 396 632 1,216 Net Profit before Except. (1,218) (25.3) 396 632 1,216 EBITDA 8,161 8,393 8,327 8,399 8,739 Growth

Revenue Gth (%) 8.2 (1.0) (3.2) 1.0 2.9 EBITDA Gth (%) (5.8) 2.8 (0.8) 0.9 4.0 Opg Profit Gth (%) (53.8) (6.1) 102.1 12.4 17.0 Net Profit Gth (Pre-ex) (%) nm 97.9 nm 59.5 92.3 Margins & Ratio

Gross Margins (%) 85.0 89.9 85.5 85.8 86.2 Opg Profit Margin (%) 5.8 5.5 11.5 12.8 14.5 Net Profit Margin (%) (5.3) (0.1) 1.8 2.8 5.3 ROAE (%) (8.3) (0.2) 2.2 3.0 5.5 ROA (%) (2.4) 0.0 0.7 1.0 1.9 ROCE (%) 3.1 2.5 3.7 3.9 4.5 Div Payout Ratio (%) N/A N/A 60.0 60.0 60.0 Net Interest Cover (x) 1.0 1.2 1.3 1.4 2.0


Page 31


Company Guide

XL Axiata

Quarterly / Interim Income Statement (Rpbn)

FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016

Revenue 5,831 5,954 5,237 5,616 5,229 Cost of Goods Sold (534) (557) (418) (405) (526) Gross Profit 5,297 5,397 4,820 5,212 4,704 Other Oper. (Exp)/Inc (4,781) (4,958) (4,844) (4,892) (4,524) Operating Profit 515 439 (24.2) 320 179 Other Non Opg (Exp)/Inc (390) 1,132 413 468 108 Net Interest (Exp)/Inc (185) (555) (415) (546) (378) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit (59.7) 1,016 (26.1) 242 (90.6) Tax 404 (197) 81.6 (72.2) 25.6 Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 344 480 55.5 169 (65.0) Net profit bef Except. 344 480 55.5 169 (65.0) EBITDA 2,196 2,320 2,065 2,191 1,979

Growth

Revenue Gth (%) 3.9 2.1 (12.0) 7.2 (6.9) EBITDA Gth (%) 9.8 5.6 (11.0) 6.1 (9.7) Opg Profit Gth (%) 136.4 (14.9) nm nm (43.9) Net Profit Gth (Pre-ex) (%) nm 39.5 (88.4) 205.1 nm Margins

Gross Margins (%) 90.8 90.6 92.0 92.8 89.9 Opg Profit Margins (%) 8.8 7.4 (0.5) 5.7 3.4 Net Profit Margins (%) 5.9 8.1 1.1 3.0 (1.2)

Balance Sheet (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F

Net Fixed Assets 35,859 33,427 32,568 32,765 32,967 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 14,538 15,266 15,266 15,266 15,266 Cash & ST Invts 6,951 3,312 7,680 7,991 8,889 Inventory 77.2 79.0 38.5 39.2 40.3 Debtors 1,130 898 532 537 552 Other Current Assets 5,151 5,863 5,863 5,863 5,863 Total Assets 63,707 58,844 61,946 62,460 63,578

ST Debt 4,077 4,290 4,290 4,290 4,290 Creditor 4,445 5,257 5,304 5,393 5,549 Other Current Liab 6,877 6,201 2,118 2,148 2,273 LT Debt 27,628 25,054 25,054 25,054 25,054 Other LT Liabilities 6,720 3,950 3,982 3,982 3,982 Shareholder’s Equity 13,961 14,092 21,198 21,593 22,429 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 63,707 58,844 61,946 62,460 63,578

Non-Cash Wkg. Capital (4,963) (4,619) (989) (1,103) (1,367) Net Cash/(Debt) (24,753) (26,032) (21,664) (21,353) (20,455) Debtors Turn (avg days) 13.0 16.2 11.8 8.7 8.6 Creditors Turn (avg days) (483.1) (367.8) (749.1) (824.8) (899.0) Inventory Turn (avg days) (6.0) (5.9) (8.3) (6.0) (6.5) Asset Turnover (x) 0.4 0.4 0.4 0.4 0.4 Current Ratio (x) 0.9 0.6 1.2 1.2 1.3 Quick Ratio (x) 0.5 0.3 0.7 0.7 0.8 Net Debt/Equity (X) 1.8 1.8 1.0 1.0 0.9 Net Debt/Equity ex MI (X) 1.8 1.8 1.0 1.0 0.9 Capex to Debt (%) 22.4 28.3 20.4 19.6 19.1 Z-Score (X) 0.9 0.9 1.2 1.2 1.3


Page 32


Company Guide

XL Axiata

Cash Flow Statement (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F

Pre-Tax Profit (1,397) (631) 529 843 1,622 Dep. & Amort. 6,821 7,135 5,784 5,542 5,397 Tax Paid (518) (15.5) (66.1) (171) (308) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 362 513 (3,664) 74.4 167 Other Operating CF 1,881 0.0 0.0 0.0 0.0 Net Operating CF 7,150 7,002 2,583 6,288 6,878 Capital Exp.(net) (7,095) (8,317) (5,979) (5,739) (5,600) Other Invts.(net) (9,583) 0.0 1,054 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (16,678) (8,317) (4,925) (5,739) (5,600) Div Paid (540) 0.0 0.0 (238) (379) Chg in Gross Debt 16,070 (2,360) 0.0 0.0 0.0 Capital Issues 0.0 35.8 6,710 0.0 0.0 Other Financing CF (370) 0.0 0.0 0.0 0.0 Net Financing CF 15,161 (2,325) 6,710 (238) (379) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 5,633 (3,639) 4,368 311 898 Opg CFPS (Rp) 635 607 584 581 628 Free CFPS (Rp) 5.18 (123) (318) 51.4 120


Target Price & Ratings History

Source: DBS Bank, DBS Vickers

Analyst: Sachin MITTAL

William SIMADIPUTRA

S.No.Date of Report

Closing Price

12-mth Target Price

Rat ing

1: 01 Feb 16 3689 4902 BUY

2: 30 Mar 16 3946 4902 BUY

3: 13 Apr 16 3822 4902 BUY

4: 21 Apr 16 3803 4902 BUY

5: 11 May 16 3265 4902 BUY

6: 30 May 16 3470 4902 BUY

7: 24 Aug 16 3150 4100 BUY

Note : Share price and Target price are adjusted for corporate actions.

1

2

3

4

5

6

7

2175

2675

3175

3675

4175

Oct-15 Feb-16 Jun-16

Rp

Page 33

Industry Focus


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

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

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

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

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

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

Share price appreciation + dividends Completed Date: 2 Nov 2016 10:00:38 Dissemination Date: 2 Nov 2016 12:29:20

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,

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

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

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

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

the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to

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

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in the past twelve months and does not engage in market-making.

Page 34

Industry Focus


ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 2 Nov 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in M1,

StarHub, Advanced Info Service, Total Access Communications recommended in this report as of 30 Sep 2016.

2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a net long position

exceeding 0.5% of the total issued share capital in M1 recommended in this report as of 30 Sep 2016.

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

securities of M1 as of 30 Sep 2016.

Compensation for investment banking services:

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

investment banking services from StarHub, Indosat as of 30 Sep 2016.

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

StarHub, Indosat in the past 12 months, as of 30 Sep 2016.

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

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

Directorship/trustee interests:

8. Peter Seah Lim Huat, Chairman of DBS Group Holdings, is a Director of Starhub as of 30 June 2016. Nihal Vijaya Devadas Kaviratne CBE, a

member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 3 Aug 2016.

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

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Hong Kong This report is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.) For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

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

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Industry Focus


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

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

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

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

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

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

DBS Bank Ltd

12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888

e-mail: [email protected] Company Regn. No. 196800306E

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