Singapore Telecom Sector

Singapore Industry Focus Singapore Telecom Sector

Refer to important disclosures at the end of this report

DBS Group Research. Equity 25 Jan 2018

Opportunities from Mispricing STI : 3,609.24 • Mobile pricing onslaught started by M1 is likely to see Analyst competitive response in 2018. Sachin MITTAL +65 6682 3699 [email protected] • Buy Singtel – Sell StarHub. Singtel’s core business trading at ~50% discount to StarHub is an opportunity. Singtel offers 5% yield and is ahead of any other Asian telco in STOCKS the digital space. Buy Netlink for its 5.6% yield. 12-mth Price Mkt Cap Target Price Performance (%) M1 started the data pricing onslaught in Oct 2017; S$ US$m S$ 3 mth 12 mth Rating others have yet to respond. M1 cut data pricing sharply NetLink NBN Trust 0.83 2,474 0.95 0.0 N.A BUY (~16%-22% drop) in Oct 2017 with the launch of its Singtel 3.64 45,466 4.30 (2.4) (4.7) BUY mySIM* plans targeting high-data users. Clearly, M1 is M1 1.87 1,323 1.49 4.5 (11.4) FV StarHub 2.99 3,955 2.20 12.4 (4.5) FV making headway into the high-end segment with these Source: DBS Bank, Bloomberg Finance L.P. plans, making it imperative for its peers to respond or lose Closing price as of 24 Jan 2018 market share in our view. The entry of two new mobile virtual network operators (MVNOs) - Zero Mobile in Dec Forward EV/EBITDA – Singtel is trading near -2 standard deviation 2017 & MyRepublic in 1Q18 - coupled with the entry of a 4th of its historic average mobile network operator (MNO) TPG in 4Q18 - will place (x) 11.0 further pressure on data yields in 2018. Singapore mobile segment accounts for ~80% of M1’s service revenue ~50% 10.5 of StarHub’s and ~13% of Singtel’s service revenue, 10.0 +2sd: 9.98x reflecting resilient business model of Singtel. 9.5 +1sd: 9.51x Buy Singtel – Sell StarHub. Singtel’s core business (Singtel’s Avg: 9.04x enterprise value minus associates market cap) is trading at 5.5x 9.0 FY19F EV/EBITDA vs 10.5x for StarHub as Singtel’s stock price has 8.5 -1sd: 8.57x not kept pace with the rise in the value of its associates. With 8.0 -2sd: 8.09x digital advertising business achieving EBITDA breakeven in 1Q18, investors are likely to appreciate rather than worry about its 7.5 digital businesses. In our proprietary Digital Prism Framework, 7.0 Singtel is ahead of any other Asian telco in the digital Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 transformation. StarHub’s stock price suggests that market has priced in ~20% revenue CAGR over FY18-21 for the enterprise Singtel’s core business (Singtel minus associates) is trading business versus our base-case forecast of 8%. On top of weak at a historic-high discount to its local peers mobile, StarHub’s go-to market strategy of bundling services also faces challenges from weakness in the Pay TV segment.

NetLink NBN Trust (NLT) has ample debt headroom to support growth. We argue that NLT should trade at FY19F yield of 4.9% versus 5.6% currently. NLT’s FY19F total debt-to-EBITDA of 3.2x is far below the 5.3x average for business trusts implying room for higher growth by optimising its capital structure.

Cost escalations to weigh on M1. Even in the unlikely scenario of M1’s EBITDA stabilising over FY18F/19F, its earnings will still decline due to high network and spectrum investments leading to higher depreciation, thus impacting dividends adversely. We Source: DBS Bank expect, M1’s EBITDA to contract at an annual rate of 3.0% over FY18-20F.

ed: JS / sa:YM, PY, CS Page 1 Industry Focus Singapore Telecom Sector

Table of Contents

Mobile Segment 3 Pay TV Segment 5 Enteprise segment 6 Digital Transformation 6 Stock Selection 9 Peers Valuation 11

Company Guide NetLink NBN Trust 13 Singtel 23 M1 41 Starhub 50

Page 2 Industry Focus Singapore Telecom Sector

Mobile Segment MyRepublic, known for its aggressive pricing strategies and generous data allowances, has a strong footing after securing M1 stirring up competition. Singtel and StarHub attempted to S$70m in funding from Singapore-based Makara Capital and is stabilise postpaid ARPUs in Aug-Sep 2017 by offering more likely to cause further woes in the already heated data market. bundled data, but with upward revision in package pricing. TPG will also start commercial operations by the end of 2018 as However, M1’s handset-based MySIM* plans that were the telco is required to provide outdoor mobile coverage by the launched in October offer more bundled data at a lower end of 2018 according to the IMDA and has earmarked S$ 200- package price. This effectively reduces the pricing of packages 300m for the deployment of its network in Singapore. by 16%-22% versus its older plans on our estimates, and Competition is expected to remain high in the medium term would lead to a dilution of M1’s postpaid ARPU. We believe specially among low-end, data heavy subscribers as the that with MySIMe, M1 is trying to shift its focus on locking-in saturated nature of the mobile market, with mobile penetration high value subscribers before competition in the low-end already at a peak at 150%, will result in new entrants resorting segment intensifies with the entry of MVNOs and TPG. Our to price competition to snatch subscribers from the incumbents. channel checks indicate that the uptake of MySIM plans has been positive and should allow M1 to extend its revenue share Entry of Zero Mobile unlikely to lead to much pain. Australian- gain of 60bps accumulated since 3Q16. We believe the based Zero Mobile launched mobile services in Singapore after cheaper MySIM plans will trigger a response from Singtel and reportedly having struck a MVNO deal with Singtel. Presently the StarHub in 1Q18 as the duo reacts to prevent further loss of company offers a limited number of subscriptions and one plan revenue share to M1. This coupled with the entry of at S$ 45 which offers 6GB of data (+3GB given out as a reward) MyRepublic in the first quarter 2018 could lead to a rough coupled with unlimited calls and SMS. The company aims to start for mobile operators in Singapore. capture subscribers through a reward based model, and gives a S$9 reduction on the monthly bill for each subscriber referred to M1 has reversed the trend of revenue share loss the company by a subscriber. Subscribers introducing 5 new customers (totaling S$45 in rewards) can therefore enjoy mobile Singapore mobile revenue share services free of charge. 60.0% 51.9% 52.2% 52.1% 52.6% 52.0% 52.2% 51.5% 51.8% Entry of Zero mobile is unlikely to disrupt the market in the short 50.0% term in our view. The S$45 plan offers little room for customisation and the incumbents’ offer similar if not better 40.0% data quotas at a similar price point, thus reducing the incentive 30.3% 30.3% 30.3% 30.8% 30.3% 30.8% 30.4% 29.9% for subscribers to switch operators. The relatively higher price 30.0% point of S$45 also makes the plan less attractive for young, data 17.8% 18.0% 17.7% 17.2% 17.2% 17.5% 17.7% 17.8% 20.0% savvy subscribers.

10.0% Similar SIM-only no-contract offerings by incumbents

0.0% Zero Mobile Circle.Life* Starhub** Singtel^ M1^^ 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Price (S$) 45 48 44 46.75 40 Data 6GB 26GB 5GB 6GB 10GB Talktime (Mins) Unlimited 100 Unlimited 200 100 Source: Company, DBS Bank SMS Unlimited None None 1200 100

* - Base plan of Ciricle.life plus 20GB add-on available for S$20 Overcrowded market place? Singapore mobile industry will likely ** - Sim only "M" plans of Starhub. Starhub offers unlimited data on weekends add two new mobile service providers in 2018, doubling the ^ - Singtel Sim only plans with no contract with voice, SMS and data add-ons. number of service providers within a span of just three years. ^^ - MySim3 plans with no contract. December 2017 witnessed the entry of the second MVNO provider in Singapore, Zero Mobile, which has reportedly struck Source: Companies, DBS Bank a deal with Singtel to provide mobile services in the country. MyRepublic, which is rumored to have struck a MVNO deal with StarHub, is expected to enter the mobile sphere in early 2018 and TPG, the fourth full service mobile operator is expected to start offering services towards the later part of the year.

Page 3 Industry Focus Singapore Telecom Sector

Despite challenges TPG is on track to provide nationwide We believe data yields will continue to fall through 2018 with coverage in 2018. Despite the challenges faced in deploying a the entry of two new service providers, whose focus is likely greenfield mobile network, TPG is on track to meet the IMDA to be on acquisition of data heavy subscribers. Data yields in requirement of providing nationwide outdoor mobile India for example, declined by over 80% upon the entry of coverage by the end of 2018. TPG has to secure roof-top Reliance Jio, which entered the market with a Greenfield 4G space for an estimated 3,000 base stations by the end of network in 3Q16. While, Singapore is unlikely to witness such 2020 which remains a challenging and an expensive task in drastic drops, we believe data pricing will come under Singapore as building owners are not obliged to provide roof- pressure in 2018 and likely record a high single digit to low top space for mobile operators and often charge hefty rents double digit contraction. for doing so. However, the changes to regulations on Mobile Deployment Space regulations by the IMDA, requiring Telcos will switch to fair value (FV) accounting for handsets building owners to provide roof-top space to mobile service with the adoption of IFRS 15. As announced by the Singapore providers for free could enable TPG to fast-track the Accounting Standards Council and Singapore Exchange in deployment of its network. TPG has also benefitted from 2014, all companies listed on the SGX would be required to recent revisions of regulated interconnection offer rates by adopt a framework similar to the International Financial NetLink Trust. The trust has waived the S$ 150 connection Reporting Standards (IFRS) from the 1st of January 2018. As charge applicable for non-building address points and slashed such, telcos would be required to adopt a standard similar to the monthly recurring charge by 60% from S$185 to S$73.8. IFRS 15 – “Revenues from Contracts with customers” which TPG is likely to use the trust’s non-building address points to recommends the use of fair value accounting for handset support its backhaul transmission network in the initial years. contracts. Adoption of fair value accounting would smoothen out the impact of handset subsidies on the telcos’ bottomline Lower data yields would be the new reality for telcos. In late during quarters with heavy handset contract sales and would August 2017, Singapore’s incumbent telcos started offering require the telcos to recognise a portion of the monthly unlimited data plans to re-contracting/new users. StarHub’s contract price as revenues from handset sales. plans confined unlimited data to weekends and increased package prices by S$2-6. Singtel offered unlimited data plans Net impact of Fair value accounting for its higher-end postpaid packages (starting from S$68.90/month) as an add-on for S$39.90. M1 introduced Service Revenues mySIM plans which offered much better data allowances at ~20% discount to subscribers. As a result, data yields in Handset Revenues Singapore dropped by nearly 17% y-o-y in 3Q17, falling from ~US$ 5.7/Gb to ~US$ 4.8/Gb. Despite the declines, Singapore ARPU remains one of the most expensive data markets in the region. Earnings Regional data pricing trends

Source: DBS Bank Data pricing trends in Asia 5.72 5.79 4.78 3.77 3.46 3.33 3.01 2.55 1.91 2.15 1.74 1.17 0.96 1.23 0.42

Singapore* Malaysia India Indonesia Thailand** *M1,***AIS 3Q15 3Q16 3Q17 All figures are in USD. Denotes the cost per GB Source: Companies, DBS Bank

Page 4 Industry Focus Singapore Telecom Sector

Fair value accounting in practice We believe StarHub will benefit the most from the adoption of FV accounting as M1 already uses this treatment to account for Eg: A telco sells a handset that usually carries a price tag of S$ iPhone sales. Impact on Singtel’s bottomline is likely to be 400 for S$ 100 to a customer that enters in to a two-year limited given the telco’s limited exposure to mobile revenues. contract with a monthly payment of S$25.

Revenue recognition under the Pay TV Segment Current Method (S$)

At the point Over the life of Pay TV subscriber losses to continue through 2018. With the of sale the contract emergence of OTT TV services and entry of Netflix in 2016, Handset sales 100 100 nearly 89,000 subscribers have withdrawn from Pay TV services in Singapore. Most hit was StarHub, which has Service revenues 25 600 recorded nearly 69,000 subscription cancellations since the 700 start of 2016. As a result, StarHub’s Pay TV revenues have continued to contract on a y-o-y basis since the start of 2016. We believe subscriber losses would continue in 2018, as Revenue recognition under FV higher end subscribers who may have been using OTT and Pay accounting (S$) TV services simultaneously start exiting Pay TV services due to the lack of perceived benefits. We project StarHub’s Pay TV At the point Over the life of revenues to contract 6%/4% in FY 18/19 as a result. of sale the contract Handset sales 280 280 Pay TV revenue growth in negative territory Service revenues 17.5 420 Pay TV Revenue Growth (y-o-y)- StarHub 700 0% -1% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Current Service revenues 600 -2% -2% -1% Service revenues under FV 420 -3% -4% Reallocation to handset sales 180 -4% -5% -6% The accounting change would also impact the earnings of -6% -7% operators. -7% -8% Earnings under the current -8% method (at the point of sale) -8% (S$) -9%

Total Revenues 125 Cost of equipment (400) Standalone Assigned Allocated FV Accounting Consideration Selling price Weightag revenues (275) workings (S$) (a) (b) e © (a*c) Handset sale 100 400 40% 280 Earnings under FV accounting Service revenues 600 600 60% 420 (at the point of sale) S$ 700 1,000 700

Total Revenues 297.50 Source: Company, DBS Bank Cost of equipment (400) (102.50)

Source: DBS Bank

Page 5 Industry Focus Singapore Telecom Sector

Enteprise segment Digital Transformation

Sole bright light. StarHub recorded an 11% y-o-y growth in Focus in 2018 is on digital transformation. With legacy and revenues from enterprise business in 3Q17, largely driven by data revenues increasingly coming under pressure, telcos the acquisition of Accel Systems, which broadened the telco’s would need to speed up their digital transformation efforts to cybersecurity portfolio. The telco has witnessed steady growth remain competitive. Based on our estimates, by 2020, a telco in enterprise revenues over the last four quarters supported by that executes a well-defined digital strategy and fully a growing Data and Internet business, offsetting losses integrates digitisation with its operations (digital leader) will stemming from voice services. Enterprise service revenues now see a 40% rise in its enterprise value versus a 40% drop for a account for 19% of StarHub’s topline vs. 17% in 2014. With digital laggard. A digital navigator, defined as a telco in the the acquisition of cyber-security capabilities and expansion early-to-mid stages of its digital transformation process, into growth segments such as the provision of data analytics should be able to preserve its enterprise value. as a service through SmartHub, we expect steady growth in StarHub’s enterprise revenues. Digital Strategy. We believe that telcos should reduce reliance on communication revenues by extending their reach across However, the market seems to be overly optimistic about the telecom value chain. Telcos could make an effort to StarHub’s enterprise business, currently valuing StarHub on expand into fast growing segments such as digital advertising, the assumption of ~20% growth in the enterprise business online marketplaces, provision of data analytics solutions and over FY18-21 vs our base case projections of high single digit cybersecurity, where telcos possess a natural advantage due growth. We remain skeptical of StarHub expanding its to their enterprise client base. enterprise business in the double-digits as i) market leader Singtel has only recorded 5%-6% growth in its enterprise Digial Execution. On the operational front, digitising customer business historically, ii) voice business presently accounts for care through virtual agents backed by artificial intelligence ~10% of StarHub’s enterprise revenues, and decline in this and providing tools such as smartphone apps that allow segment is accelerating, iii) increasing competition from M1 customers to instantly fulfill their needs should lead to and the entry of specialised solution providers in the material cost savings while improving customer satisfaction. enterprise space. These factors could impede StarHub’s efforts Operators should also strive to get a greater proportion of to expand its enterprise business in our view. their subscriber base to use digital platforms, as these subscribers are likely to yield higher ARPUs by transacting Furthermore, we believe that growth in StarHub’s enterprise more with the telco in our view. business primarily stems from its ICT portfolio, a segment that inherently fetches lower margins than traditional enterprise services. Hence, despite the robust growth in enterprise revenues, EBITDA margins in the enterprise segment are likely to edge lower with increasing contribution from ICT services. This could result in StarHub’s earnings growth falling short of market expectations.

Page 6 Industry Focus Singapore Telecom Sector

Digital leaders to trade at over 100% premium to digital laggards by 2020

2020

Digital Leader Digital Navigator Digital Laggard

+20% growth in topline +5% growth in topline 9% contraction in topline • Gains market share from • Market share loss (2-3% laggards (+2-3% annually) • Stable market share loss annually) • Higher ARPU for digital • Higher ARPU for digital • Contraction of legacy channels (60% digital) channels (40% digital) revenue (20% digital) • ~15% revenue from non- • ~8% revenues from • Negligible revenue from traditional services non- traditional services non-traditional services

Stable EBITDA margins supported Stable EBITDA margins from 2% drop in EBITDA by efficiency gains efficiency gains margins

+40% rise in +5% rise in Enterprise 39% drop in in Enterprise value value over 2017-2020 Enterprise value over over 2017-2020 2017-2020

Source: DBS Bank

Page 7 Industry Focus Singapore Telecom Sector

Digital Transformation matrix for telcos

Source: DBS Bank

We have used our proprietary Digital Prism framework to transformation coupled with the telco’s lower exposure to identify digital leaders and laggards among telcos in the Asian legacy voice, SMS and Pay TV revenues which is below 30% region. Based on our framework, we have identified Singtel to and lowest in Singapore should lead to superior growth be the digital leader among Asian telcos as it has set itself a prospects vis-à-vis StarHub and M1 in our view. well-defined digital strategy and strives for operational excellence through digitisation New entrants in 2018 will heavily leverage on digital sources to capture market share. The incumbents’ complacency in Singtel leads the Asian region in digital transformation. embracing digitisation and failure to invest in digital channels Singtel appears to be well ahead of StarHub and M1 in its to improve distributions, customer interactions and customer digital transformation efforts. The telco already generates care could heavily weigh on future growth and subscriber ~10% of revenues from digital segments such as digital additions. The new entrants, who are not burdened by legacy advertising, data analytics and cybersecurity and has spent systems like the incumbents, would likely optimise the use of over 10% of its capital expenditure during FY14-17 on digital sources to acquire and retain subscribers. For example, developing a digital business portfolio. Singtel has also not Circle.Life, the first MVNO to enter Singapore, leveraged on hesitated to introduce services such as HOOQ, an OTT video the use of digital sources to capture ~1% revenue share in service that directly competes with Singtel’s Pay TV business. the mobile market within a span of just one year, without operating a single physical outlet. The telco also appealed to a Singtel has also fared well in digitising its operations. The data-heavy young subscriber base through discounted prices, telco has introduced self-care options such as virtual agent greater flexibility in customising mobile plans and eliminating 24-month contracts while still allowing subscribers to “Shirley”, and the MySingtel app, helping the telco reduce purchase a handset with no upfront payments. Impact of operational expenses on customer care while ensuring greater new entrants would be mostly felt by M1, which lags the customer satisfaction. Singtel already has over 70% of its other two operators in the use of digital tools to acquire and subscriber base on digital platforms and uses data analytics retain subscribers. extensively to optimise network deployments and to acquire and retain subscribers. Singtel’s early lead in digital

Page 8 Industry Focus Singapore Telecom Sector

Stock Selection Singtel’s EBITDA has grown on an annual basis versus a Singtel’s Forward EV/EBITDA is at near the historic low ~6% decline at peers

(x) 11.0

10.5 EBITDA Growth - 9M17 4% 10.0 +2sd: 9.98x

9.5 +1sd: 9.51x

9.0 Avg: 9.04x

-1sd: 8.57x 8.5 Singtel Starhub M1 8.0 -2sd: 8.09x

7.5

7.0 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 -5% Source: DBS Bank -7%

StarHub’s Forward EV/EBITDA is above its long-term average Source: Companies, DBS Bank

(x) 12.5 Singtel’s stock price has not kept pace with rise in the value of 12.0 its associates 11.5 +2sd: 11.52x 20 11.0 +1sd: 10.88x Singtel - EV/EBITDA changes 2017-18 10.5 Avg: 10.24x 15 10.0

9.5 -1sd: 9.59x 10 8.1 8.2 9.0 -2sd: 8.95x 8.5 5 8.0 6.4 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 5.5 0 Source: DBS Bank Core (FY18F) Associates Core (FY19F) Associates M1 Forward EV/EBITDA is quite low (FY18F) (FY19F) Source: DBS Bank (x) 13.0

12.0 +2sd: 12.09x Singtel’s Singapore operations remain superior to peers. Singtel’s Singapore operations generate over 50% of revenues 11.0 +1sd: 10.7x from enterprise which should enable it to fare better in the 10.0 near term compared to its peers M1 and StarHub. EBITDA Avg: 9.31x 9.0 from Singtel’s Singapore operations has shown much better resilience in 9M17, declining only 2% compared to its peers 8.0 -1sd: 7.92x M1 and StarHub which posted declines of 5% and 7%

7.0 respectively. Singtel’s early investments in high growth -2sd: 6.52x segments are also bearing fruit with Amobee, the group’s 6.0 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 digital advertising arm contributing S$ 11m positive EBITDA in Source: DBS Bank 2Q18.

Singtel’s growth segments, which comprise ICT services, Cybersecurity, and Digital Life (comprising adtech, OTT video, and data analytics) contributed ~25% of Singtel’s revenues in 2QFY18, up from 19% in 3QFY16. We expect revenues from these segments to grow ~100% over the next five years, contributing over 35% to Singtel’s topline by FY22, well compensating for potential declines in legacy services from Singapore and Australia.

Page 9 Industry Focus Singapore Telecom Sector

StarHub’s Hubbing strategy under pressure. StarHub’s go-to With rising competition in the mobile segment, M1 is looking market strategy of bundling mobile, broadband and Pay-TV to expand its headcount in the enterprise segment to services is under pressure from the proliferation of over-the- generate new revenue streams. Along with higher project- top (OTT) TV services. Nearly 21,000 customers with related expenses, M1's operating expenses has increased. The subscriptions to three or more services have downgraded higher headcount and push towards capturing enterprise since 2Q16, representing ~6% of subscriptions with three or revenues come amid stagnating revenues, which has pushed more services. Majority of these customers are moving away down M1's EBITDA in recent quarters. Pressure on M1’s from Pay-TV to cheaper alternatives such as Netflix, despite earnings would likely be further exacerbated by a rise in losing the discount available on bundled services in the depreciation and amortisation costs as M1 invests in network process. We believe downgrades of hubbing subscriptions assets and spectrum. M1 would likely start amortising the would accelerate amid the increasing appeal of OTT TV 700MHz spectrum acquired in 2017, in FY18 or FY19, which services among high-end Pay TV customers and rising pressure could lead to a higher amortisation expense of ~S$12-13m, on the broadband segment from M1 and MyRepublic. As this further depressing earnings. is a critical success factor for StarHub, there could be near- term impact on the company's share price as the structural Factoring all this, we project that M1’s EBITDA will continue to decline is unlikely to reverse. contract at an annual rate of 3.0% in FY18-20F with earnings declining at an annual rate of 12%. This should negatively Hubbing households on a downward trend impact M1’s dividend payment, which is set at 80% of earnings. Hubbing Households with three services Handset subsidies and dividend payments, being critical factors 000's for M1, should therefore have a negative impact on its share 355 350 price. 347 350 345 Negligible legacy exposure of NetLink NBN Trust (NLT) to 345 342 338 support stability with some growth. NLT is the sole nationwide 340 333 provider of residential fibre network in Singapore and has 335 329 negligible legacy revenue. We argue that it should trade at 330 FY19F yield of 4.9% (versus 5.6% now), reflecting lower 325 earnings volatility, a longer asset life, and ample debt headroom for future growth. NLT’s assets are mainly underground passive 320 infrastructure (ducts, manholes, and fibre) with long asset life, 315 while the business environment is also less volatile as 92% of 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 the business is regulated. The projected FY19F total debt-to- EBITDA ratio of 3.2x is much lower than the 5.3x average for Source: Company, DBS Bank business trusts in Singapore/Hong Kong, implying room for higher growth through optimising its capital structure. Despite market share gains, M1's earnings are set to decline. We expect M1’s local peers to react to the cheaper plans in We believe the market is concerned that rising interest rates may 1Q18 or risk losing market share to M1. Circles.Life’s success lead to a search for higher yields in the long term. NLT has hedged as an MVNO (Mobile Virtual Network Operator) and the entry its interest rates till March 2021 and growth in distributions (4.6% of MyRepublic in early 2018 would further elevate CAGR over FY18-20F) should translate into higher distribution competition in the low-end segment where M1 is dominant, yields. One unique advantage of NLT over real estate investment causing disruption to mobile revenues, the impact of which trusts and business trusts is that any potential rise in the cost of would be partially offset by greater contributions from debt would possibly lead to higher regulated returns (from 2022 Circles.Life. onwards), translating into higher distributions.

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Industry Focus Singapore Telecom Sector

Peers Valuation

Mkt Price 12-mth CAGR Company Cap S$ Target Price % 17-19 PE (x) Div idend Yield (%) P/BV EV /EBITDA (US$m) 24-J an LCL Upside Rcmd (%) 17F 18F 19F 17F 18F 17F 18F 17F 18F 19F

China / Hong Kong SHCOMP Index 3,559 China Mobile 218,064 82.80 104.00 26% BUY 6 12.2 11.5 10.9 7.8% 4.0% 1.4x 1.3x 3.3x 2.9x 2.5x China Telecom 6,926 3.88 5.20 34% BUY 9 12.9 11.7 10.8 3.2% 3.6% 0.8x 0.8x 3.5x 3.2x 2.9x China Unicom 34,929 11.34 15.60 38% BUY 49 44.9 23.4 20.3 0.8% 1.5% 1.0x 0.9x 3.8x 3.4x 3.2x Smartone Telecom 1,291 9.13 7.50 -18% FV -3 14.8 14.5 15.7 6.5% 5.1% 2.2x 2.2x 5.0x 4.8x 4.8x Hutchison Telecom 1,942 3.15 3.10 -2% HOLD -27 27.6 44.8 51.7 2.7% 1.7% 0.9x 0.9x 3.7x 4.5x 4.3x HKT Trust 9,423 9.73 12.80 32% BUY 3 15.5 15.1 14.5 6.5% 6.7% 1.9x 1.9x 8.6x 8.5x 8.3x

Malaysia KLCI Index 1,837 Digi.Com 9,799 4.91 4.20 -14% FV 1 25.9 25.4 25.3 3.8% 3.9% 73.6x 73.6x 14.0x 13.8x 13.6x Maxis Bhd 12,129 6.05 5.35 -12% HOLD 6 22.6 21.8 20.2 3.6% 4.0% 7.0x 6.7x 11.9x 11.9x 11.7x Telekom 5,797 6.01 7.10 18% BUY 18 26.2 22.6 18.8 3.4% 4.0% 2.9x 2.9x 7.1x 6.7x 6.3x Axiata Group 12,913 5.56 5.00 -10% HOLD 11 38.8 34.4 31.4 1.3% 2.5% 2.1x 2.0x 7.9x 7.4x 7.0x

Singapore STI Index 3,609 M1 1,323 1.870 1.49 -20% FV -14 13.1 15.4 17.5 6.1% 5.2% 4.0x 4.0x 7.1x 7.7x 7.9x NetLink NBN Trust 2,474 0.830 0.95 14% BUY -9 40.4 48.9 48.3 0.0% 3.5% 1.0x 1.0x 16.5x 15.9x 15.6x SingTel 45,466 3.640 4.30 18% BUY 2 15.5 15.1 15.1 6.8% 5.0% 1.9x 1.9x 8.4x 8.3x nm Starhub 3,955 2.990 2.20 -26% FV -7 19.4 20.5 22.4 5.4% 5.4% 30.9x 36.1x 9.9x 10.5x 10.5x

Thailand SET Index 1,839 Advanced Info Service 18,664 198.00 192.00 -3% HOLD na 19.6 17.2 na 3.6% 4.1% 11.9x 9.6x 10.1x 9.2x na Total Access Comm. 3,979 53.00 41.00 -23% HOLD 21 72.4 -49.6 49.2 0.7% 0.0% 4.3x 4.7x 4.9x 7.5x 7.3x

Indonesia J CI Index 6,615 Indosat 2,370 5,800 6,800 17% HOLD -13 24.1 27.7 31.9 0.0% 0.0% 2.2x 2.0x 3.8x 3.6x 3.4x PT Link Net Tbk 1,344 5,875 6,000 2% BUY 15 17.8 15.3 13.4 2.8% 3.3% 3.7x 3.3x 8.4x 7.3x 6.5x PT Telekom 30,166 3,980 4,200 6% HOLD 6 16.8 15.5 14.9 4.2% 4.5% 4.5x 4.3x 6.5x 6.3x 6.0x XL Axiata 2,483 3,090 3,900 26% BUY nm nm 70.1 37.3 0.0% 0.0% 1.6x 1.5x 5.5x 4.8x 4.2x PT Sarana Menara 3,023 3,940 5,100 29% BUY 10 17.4 15.9 14.3 0.0% 1.7% 3.3x 2.8x 9.5x 8.7x 7.8x Tower Bersama 2,172 6,375 6,900 8% BUY 29 32.6 24.6 19.7 3.4% 3.4% 20.0x 17.8x 14.0x 12.9x 11.9x

Average 21.3 24.1 7.7 7.3

Singapore Telecom 18 & 19 forecast respectively

Source: DBS Bank; DBS Vickers; AllianceDBS

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Industry Focus Singapore Telecom Sector

Company Guide

Page 12

Singapore Company Guide NetLink NBN Trust

Version 1 | Bloomberg: NETLINK SP | Reuters: NETL.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 10 Nov 2017

BUY Business Trust with ample debt headroom Sole nationwide provider of residential fibre network in Last Traded Price ( 9 Nov 2017): S$0.825 (STI : 3,423.91) Singapore. We argue that NetLink NBN Trust (NLT) should trade Price Target 12-mth: S$0.95 (15% upside) at FY19F yield of 4.9% (versus 5.6% now) reflecting lower earnings volatility, longer asset life and ample debt-headroom Potential Catalyst: TPG newsflow; Smart Nation initiatives for future growth. NLT’s assets are mainly underground passive infrastructure (ducts, manholes and fibre) with long asset life Analyst while business environment is also less volatile as 92% of the Sachin MITTAL +65 6682 3699 [email protected] business is regulated in nature. Projected FY19F total debt-to- Singapore Research Team [email protected] EBITDA ratio of 3.2x is much lower than 5.3x average for Business Trusts in Singapore/Hong Kong, implying room for What’s New higher growth by optimising its capital structure. 2Q18 results largely in line with expectations  Where we differ: We believe the market is concerned that  End-user connections ahead of targets, on track to achieve targeted end-user connections by year-end rising interest rates may lead to a search for higher yields in the long term. NLT has hedged its interest rates till March 2021 and  Look forward to supporting fourth mobile telco for mobile network backhaul growth in distributions (4.6% CAGR over FY18-20F) should translate into higher distribution yields. One unique advantage Current yield 5.6% (FY19F); Maintain BUY, TP S$0.95  of NLT over REITs and Business Trusts is that any potential rise in the cost of capital would possibly lead to higher regulated returns (versus Regulated Asset Base (RAB) pre-tax WACC of Price Relative 7% now) from 2022 onwards, translating into higher distributions. Potential catalysts: (i) Newsflow on TPG Telecom’s backhaul rollout leveraging on NLT’s infrastructure in early 2018, and (ii) Widened scope of Smart Nation initiatives as NLT could use its debt headroom to invest in those initiatives, leading to a healthy growth in distributions in the long term.

Valuation: Forecasts and Valuation FY Mar (S$ m) 2017A 2018F 2019F 2020F Maintain BUY, TP of S$0.95. We arrive at our target price of Revenue 299 325 342 366 S$0.95, representing a ~15% upside from current prices, using EBITDA 224 229 240 266 WACC of 5.7% (Rf 2.5%, Beta 0.55, Cost of equity 6.4%, Pre-tax Profit 70.8 55.6 56.2 76.5 Cost of debt 4.0%) and terminal growth of 1.2% to reflect the Net Profit 79.4 65.6 66.4 83.1 long-term household formation rate. Net Pft (Pre Ex.) 79.4 65.6 66.4 83.1 Key Risks to Our View: Net Pft Gth (Pre-ex) (%) 97.2 (17.4) 1.2 25.2 Key risks to our view will be regulatory changes. As ~80% of EPS (S cts) 2.06 1.70 1.72 2.15 EPS Pre Ex. (S cts) 2.06 1.70 1.72 2.15 the revenue is regulated under the RAB model, any changes in EPS Gth Pre Ex (%) 97 (17) 1 25 nominal pre-tax WACC from 2022 onwards may lead to Diluted EPS (S cts) 2.06 1.70 1.72 2.15 changes in Interconnection Offer (ICO) pricing. Net DPS (S cts) 0.0 2.93 4.66 4.79 At A Glance BV Per Share (S cts) 79.5 81.2 77.6 75.1 Issued Capital (m shrs) 3,897 PE (X) 40.1 48.6 48.0 38.4 Mkt. Cap (S$m/US$m) 3,215 / 2,366 PE Pre Ex. (X) 40.1 48.6 48.0 38.4 Major Shareholders (%) P/Cash Flow (X) 16.3 14.3 14.4 12.9 Singtel 24.8 EV/EBITDA (X) 16.4 15.9 15.5 13.9 UBS AG/ Singapore 5.6 Net Div Yield (%) 0.0 3.6 5.6 5.8 Lazard Ltd 5.0 P/Book Value (X) 1.0 1.0 1.1 1.1 Free Float (%) 64.6 Net Debt/Equity (X) 0.2 0.1 0.2 0.2 3m Avg. Daily Val (US$m) 5.2 ICB Industry : Technology / Software & Computer Services ROAE (%) 2.6 2.1 2.2 2.8 Earnings Rev (%): 0 0 0 Consensus EPS (S cts): 1.4 1.8 2.0 Other Broker Recs: B: 9 S: 0 H: 1 Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P

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WHAT’S NEW 2Q18 results largely in line with expectations (Note: For the period 19 Jun 2017 to 30 Sep 2017)

2Q18 results largely in line with expectations: NLT’s results for On track to achieve target end-user connections: While the the period was largely in line with our expectations, with residential migration rate was slower than expected for the slight variation from NLT’s forecasts disclosed in the period, we note that Retail Service Providers (RSPs) are actively Prospectus. Revenue at S$64.8m was 1.2% lower than NLT’s promoting the bundling of their suite of services, including forecast due to lower installation revenue for fibre fibre connections, to their customers. Our cross-checks with termination points in residential homes as rate of migration Telcos have also indicated that Telcos are actively promoting by non-fibre subscribers to fibre was slower than expected for migration to fibre connections. NLT’s latest Central Office at the period. For the period, EBITDA, PBT, NPAT were higher Hougang is poised to provide residential fibre connections to than forecast due to lower operation and maintenance costs, new housing estates in Sengkang and Punggol. We believe which arose from timing as well as lower-than-expected costs NLT is on track to achieve its target end-user connections for for outsourced contractors, as well as staff costs. EBITDA FY18. margin came in at 72.2% for the period, compared to our assumptions of 70.3% for the full year and we believe costs will normalise over the next 2 quarters. Outlook and recommendation Higher monthly recurring connection revenues. We note that Look forward to supporting fourth telco, TPG: As TPG ramps installation revenue is one-off and this was offset partially by up on its operations locally in 2018, we expect NLT to benefit higher monthly recurring Residential and Non-Residential from supporting TPG in its mobile network backhaul connection revenue than forecast due to subscription deployment. According to NLT, they have received NBAP numbers tracking ahead of NLT’s forecasts as of 30 Sep 2017. connection orders from TPG and is also leasing space to TPG As of 30 Sep 2017, NLT has 1.14m residential connections in the central office. and 42,028 non-residential connections, compared with its Smart Nation initiatives: NLT is seeing more activities in this target and our assumptions of 1.18m and 42.8m non- space and is actively talking to various government agencies, residential connections. as GovTech embarks on a Digital Government 2Q18 revenue breakdown Transformation. Planning for the future: New homes add to NLT’s pipeline for Co-location new residential fibre connections. NLT has begun to plan the 5% Ducts and manhole expansion of its network under the universal service Others 10% 4% obligation to serve upcoming new townships, for instance,

Central office the Tengah estate, which could comprise up to 42,000 new 4% homes over the next two decades. Installation revenue Maintain BUY, TP of S$0.95. We continue to like NLT as a 4% defensive yield counter, offering 5.6% yield (FY19F) at Residential NBAP and connections current prices. We arrive at our TP of S$0.54 using WACC of segment 63% 5.7% (Rf 2.5%, Beta 0.55, Cost of equity 6.4%, Cost of debt connections 2% 4.0%) and terminal growth of 1.2% to reflect the long-term Non- household formation rate. residential connection s 8%

Source: Company, DBS Bank

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NetLink NBN Trust

Quarterly / Interim Income Statement (S$m)

FY Mar 2Q2018 NLT’s Forecast Change

Revenue 64.8 65,511 -1.2% Cost of Goods Sold 0.0 Gross Profit 64.8 Other Oper. (Exp)/Inc (50.4) Operating Profit 14.3 Other Non Opg (Exp)/Inc 0.0 Associates & JV Inc 0.0 Net Interest (Exp)/Inc (3.4) (3.4) 1.1% Exceptional Gain/(Loss) 0.0 Pre-tax Profit 10.9 10.3 +6.4% Tax 2.07 Minority Interest 0.0 Net Profit 13.0 12.4 +4.9% Net profit bef Except. 13.0 EBITDA 46.8 45.8 +2.1%

Margins (%) Gross Margins 100.0 Opg Profit Margins 22.1 Net Profit Margins 20.1 18.9 +1.2%

Source of all data: Company, DBS Bank

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Residential end user connections CRITICAL DATA POINTS TO WATCH

Critical Factors Higher fibre broadband penetration. As of 31 March 2017, NLT’s network had passed substantially all of the 1.4m estimated residential homes in Singapore, and reached 1.3m residential homes. There were approx. 1.1m residential end-user connections supported by the Trust Group’s network as of 31 March 2017, representing ~76.3 % of all residential homes passed. Continued migration of end users from older technologies like Asymmetric Digital Subscriber Line (ADSL) and Hybrid Fiber-Coaxial (HFC) to fibre will continue to lead the growth in residential end user connections. Growth in Non residential end user connections residential premises, with fibre-ready new units will also add on to increasing connections. In the meantime, NLT’s continued investments in network to support growth in residential broadband include increasing the spare fibre capacity to all residential households to enable end-users to switch between RSPs without any capacity related delays, as well as support the overall growth in the residential segment.

Backhaul of fourth mobile network operator. TPG Telecom is estimated to require approx. 3,000 base stations by end of 2020 and could use NLT’s fibre network to connect to its base stations. Requirements of HetNet base stations could also be a NBAP connections growth area for NLT.

Growing market share in non-residential fibre business. It is estimated that NLT currently has ~30% market share, having grown from zero in 2012. Growth in market share will be driven by the growing SME market, which are mainly located outside of the Central Business District (CBD) and business parks where NLT has lesser competition from other fibre network providers due to its extensive nationwide network coverage compared to the networks of its competitors. Key strategies include (1) deploying fibre within selected non-residential buildings, and (2) extending network footprint into new major developments such as the Greater Southern Waterfront project. Revenue breakdown (FY17)

Opportunities in Non-Building Access Points (NBAP) segment. RAB revenue = ~80% Growth opportunities could arise from the Smart Nation Co-location Programme, which will require the deployment of a network of 4.8% Ducts and sensors and monitoring equipment across Singapore to support manhole applications such as autonomous vehicles, high-definition Others 9.9% 3.3% surveillance cameras, parking space management and weather data collection. As at March 2017, NLT had over 300 NBAP connections, of which 49 were used for the purpose of Central office supporting Phase 1 of the Smart Nation Platform. NLT continues 5.1% to work with the successful bidder of Phase 1 to provide, in Installation related total, 100 NBAP connections.. 6.4% Residential connections Segment 61.3% fibre 2.0% Balance Sheet: NBAP Prudent capital structure. NLT has in place a prudent capital 0.2% structure, with a S$510m term loan plus two revolving credit Non-residential connections facilities totalling S$300m (S$90m + S$210m). Net debt to 7.0% equity ratio for the Trust will be low, at around 0.15x. More importantly, the total debt/ EBITDA ratio of the Trust is expected Source: Company, DBS Bank

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to hover around 3.0x at the end of FY20 according to our Leverage & Asset Turnover (x) forecasts, which is quite conservative compared to other listed utility/infrastructure companies and Business Trusts.

Low gearing allows for opportunistic acquisitions, developments. Current gearing is low, with net debt-to-equity ratio at ~0.15x. The Manager has ample headroom for opportunistic acquisitions and developments.

Share Price Drivers: We identify several catalysts for NLT’s share price: (i) Newsflow on TPG Telecom’s backhaul roll-out leveraging on NLT’s Capital Expenditure infrastructure in early 2018, and (ii) Widened scope of Smart Nation initiatives as NLT could use its debt headroom to invest in those initiatives, leading to a healthy growth in distributions in the long term.

Key Risks: Regulatory changes. As ~80% of the revenue is regulated under the RAB model, any changes in nominal pre-tax WACC from 2022 onwards may lead to changes in Interconnection Offer (ICO) pricing. The pre-tax WACC for the current review period is currently set at 7%.

ROE (%) Rising interest rates. Any increase in interest rates will result in higher interest payments that the Trust has to make annually to service its loans. This reduces the income available for distribution, which will result in lower distribution per unit (DPU) for unitholders. However, NLT has minimised this risk as 100% of NLT’s S$510m bank loan has been hedged with all-in blended fixed interest rate of 2.91% per annum till March 2021.

Technology risk. We note that NLT’s unique “ring” and “star” topology schemes are considered a highly future-proof passive infrastructure. While wired fibre broadband remains as the most efficient and effective technology today for the Forward PE Band (x) transmission of large amounts of data at high bandwidth with low latency from point-to-point directly and is often thought to be future-proof with limited substitution risk, there is risk of technology obsolescence with new technologies.

Company Background NLT designs, builds, owns and operates the fibre network infrastructure which is the foundation of Singapore’s Next Generation Nationwide Broadband Network.

PB Band (x)

1.10 (x)

1.05 +2sd: 1.05x +1sd: 1.04x Avg: 1.03x ‐1sd: 1.01x

1.00 ‐2sd: 1x Jul-17 Oct-17 Source: Company, DBS Bank

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Key Assumptions FY Mar 2016A 2017A 2018F 2019F 2020F

Residential end user 938,005 1,094,756 1,183,400 1,278,260 1,380,000 Expect NBAP connections Non residential end user 31,536 38,457 42,821 47,299 52,000 to increase over time NBAP connections 142 357 1,069 1,592 3,155

Segmental Breakdown FY Mar 2016A 2017A 2018F 2019F 2020F

Revenues (S$m) Residential connections 149 184 196 204 220 Non-residential & NBAP 15.2 21.4 26.3 30.9 34.9 Ducts, manholes and CO 43.5 45.1 47.3 47.7 48.5 Others 49.8 48.6 56.0 59.4 62.8

Total 257 299 325 342 366

Income Statement (S$m) FY Mar 2016A 2017A 2018F 2019F 2020F Revenue 257 299 325 342 366 Cost of Goods Sold 0.0 0.0 0.0 0.0 0.0 Gross Profit 257 299 325 342 366 Other Opng (Exp)/Inc (218) (218) (251) (264) (268) Operating Profit 38.6 80.9 73.9 77.3 98.6 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (12.9) (10.1) (18.3) (21.1) (22.2) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Interest cost expected to Pre-tax Profit 25.7 70.8 55.6 56.2 76.5 increase in near term. This is Tax 14.6 8.64 9.97 10.2 6.63 due to the drawdown of the Minority Interest 0.0 0.0 0.0 0.0 0.0 two RCFs totalling up to Preference Dividend 0.0 0.0 0.0 0.0 0.0 S$300m over FY18-19 to fund Net Profit 40.3 79.4 65.6 66.4 83.1 high non-recurring capex over Net Profit before Except. 40.3 79.4 65.6 66.4 83.1 the next two years. EBITDA 187 224 229 240 266 Growth Revenue Gth (%) N/A 16.4 8.8 5.0 7.2 EBITDA Gth (%) nm 19.8 2.0 5.0 10.9 Opg Profit Gth (%) nm 109.7 (8.6) 4.6 27.6 Net Profit Gth (Pre-ex) (%) nm 97.2 (17.4) 1.2 25.2 Margins & Ratio Gross Margins (%) 100.0 100.0 100.0 100.0 100.0 Opg Profit Margin (%) 15.0 27.0 22.7 22.6 26.9 Net Profit Margin (%) 15.7 26.6 20.2 19.4 22.7 ROAE (%) 2.6 2.6 2.1 2.2 2.8 ROA (%) 1.9 1.9 1.5 1.5 1.9 ROCE (%) 1.9 2.0 1.7 1.8 2.3 Div Payout Ratio (%) 149.0 100.7 172.6 271.3 222.8 Net Interest Cover (x) 3.0 8.0 4.0 3.7 4.5 Source: Company, DBS Bank

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NetLink NBN Trust

Quarterly / Interim Income Statement (S$m) FY Mar 2Q2018

Revenue 64.8 Other Oper. (Exp)/Inc (50.4) Operating Profit 14.3 Other Non Opg (Exp)/Inc 0.0 Associates & JV Inc 0.0 Net Interest (Exp)/Inc (3.4) Exceptional Gain/(Loss) 0.0 Pre-tax Profit 10.9 Tax 2.07 Minority Interest 0.0 Net Profit 13.0 Net profit bef Except. 13.0 EBITDA 46.8

Growth Revenue Gth (%) - EBITDA Gth (%) - Opg Profit Gth (%) - Net Profit Gth (Pre-ex) (%) - Margins Opg Profit Margins (%) 22.1 Net Profit Margins (%) 20.1

Balance Sheet (S$m) FY Mar 2016A 2017A 2018F 2019F 2020F

Net Fixed Assets 2,995 3,060 3,085 3,044 2,943 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 1,117 1,098 1,088 1,078 1,068 Cash & ST Invts 48.4 15.9 244 224 232 Inventory 4.51 5.50 5.71 5.99 6.43 Debtors 48.6 55.5 61.5 64.6 69.3 Other Current Assets 1.95 3.12 3.12 3.12 3.12 Total Assets 4,216 4,238 4,487 4,420 4,322

ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 83.6 87.2 106 111 119 Other Current Liab 6.49 15.6 15.6 15.6 15.6 LT Debt 507 508 683 758 758 Other LT Liabilities 548 556 546 536 530 Shareholder’s Equity 3,071 3,071 3,136 3,000 2,900 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 4,216 4,238 4,487 4,420 4,322

Non-Cash Wkg. Capital (35.0) (38.6) (51.0) (53.0) (55.9) Net Cash/(Debt) (459) (492) (439) (533) (526) Debtors Turn (avg days) 34.5 63.5 65.7 67.4 66.7 Creditors Turn (avg days) (102.7) (217.5) (227.7) (243.2) (250.7) Inventory Turn (avg days) (5.5) (12.7) (13.2) (13.1) (13.5) Asset Turnover (x) 0.1 0.1 0.1 0.1 0.1 Prudent capital structure, Current Ratio (x) 1.1 0.8 2.6 2.4 2.3 low net debt/equity Quick Ratio (x) 1.1 0.7 2.5 2.3 2.2 Net Debt/Equity (X) 0.1 0.2 0.1 0.2 0.2 Net Debt/Equity ex MI (X) 0.1 0.2 0.1 0.2 0.2 Capex to Debt (%) 30.5 23.1 24.9 14.8 7.5 Source: Company, DBS Bank

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Cash Flow Statement (S$m) With an EBITDA margin of FY Mar 2016A 2017A 2018F 2019F 2020F close to 70%, and limited working capital drain, the Pre-Tax Profit 25.7 70.8 55.6 56.2 76.5 Trust’s operating cash flow Dep. & Amort. 149 143 155 163 168 is expected to remain very Tax Paid 0.0 (5.1) 0.0 0.0 0.0 stable, in the range of Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 S$220-245m p.a. in our Chg in Wkg.Cap. (22.7) (13.8) 12.4 1.95 2.92 forecast period. Other Operating CF (18.8) 0.33 0.0 0.0 0.0 Net Operating CF 133 196 223 221 247 Capital Exp.(net) (155) (117) (170) (112) (57.0) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 In FY18/19, the Trust is projected to incur Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 significant non-recurring capex beyond the Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 usual range of S$40-60m recurring capex guidance, due to the laying of additional Other Investing CF (1,867) 0.0 0.0 0.0 0.0 fibre cable to increase the spare capacity of Net Investing CF (2,021) (117) (170) (112) (57.0) the network to at least 50%, expansion of Div Paid (76.0) (80.0) 0.0 (203) (183) new co-location rooms, enhancements of Chg in Gross Debt (1,103) 0.0 175 75.0 0.0 security measures at Central Offices and the Capital Issues 3,071 0.0 0.0 0.0 0.0 implementation of the IT project mentioned Other Financing CF 45.6 (30.8) 0.0 0.0 0.0 earlier. This will be fully funded by draw Net Financing CF 1,937 (111) 175 (128) (183) down of the revolving credit facilities, so as Currency Adjustments 0.0 0.0 0.0 0.0 0.0 not to impact cash available for distributions. Chg in Cash 48.4 (32.5) 228 (19.3) 7.48 Beyond FY19, only free cash flows Opg CFPS (S cts) 4.02 5.42 5.44 5.67 6.32 (operating cash flow minus recurring capex) Free CFPS (S cts) (0.6) 2.03 1.37 2.82 4.92 is projected to be used for distributions. Source: Company, DBS Bank

Target Price & Ratings History

Source: DBS Bank Analyst: Sachin MITTAL Singapore Research Team

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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: 10 Nov 2017 15:25:41 (SGT) Dissemination Date: 10 Nov 2017 15:31:57 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

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DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates have a proprietary position in NetLink NBN Trust recommended in this report as of 29 Sep 2017. 2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. 3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in NetLink NBN Trust recommended in this report as of 29 Sep 2017. 4. DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA, DBSV HK or their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of NetLink NBN Trust as of 29 Sep 2017.

Compensation for investment banking services: 5. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from NetLink NBN Trust as of 29 Sep 2017. 6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for NetLink NBN Trust in the past 12 months, as of 29 Sep 2017. 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. Disclosure of previous investment recommendation produced: 8. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

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

Page 22 Sin gapore Company Guide SingTel

Version 2 | Bloomberg: ST SP | Reuters: STEL.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 2 Oct 2017 BUY Unsustainable discount for the core and the Last Traded Price ( 29 Sep 2017): S$3.68 (STI : 3,219.91) digital business Price Target 12-mth: S$4.30 (17% upside) 20-40% valuation discount versus peers is an opportunity to Analyst accumulate. Singtel’s core plus digital business is trading at only Sachin MITTAL +65 6682 3699 [email protected] 5.6x FY18F EV/EBITDA versus 7x for M1, 9x for StarHub and What’s New 7.5x regional telco average. Despite the ~38% rise in the valuation of regional associates over the last three years, the  Market valuing Singtel core + digital segments at 5.6x stock has been flattish, due to mounting losses in the digital EV/EBITDA versus 7x for M1 & 9x for StarHub businesses perhaps. However, with digital advertising arm  With Amobee achieving EBITDA breakeven, market is Amobee achieving an earlier-than-expected EBITDA breakeven likely to appreciate core business (more resilient than in 1Q18, and official guidance for narrower digital losses in peers) and improving digital business. FY18F, we expect the valuation discount to disappear.  Singtel could potentially pay S$600mn-1.5bn in special Where we differ. Investors ought to value core and digital dividends with 1H18 results business separately with Singtel improving its execution of  Resume coverage with BUY at S$4.30 TP digital businesses. Currently, investors bundle the core and digital businesses together whereby digital losses dilute the total EBITDA, leading to a lower EV/EBITDA multiple. In our view, Price Relative robust digital offerings on top of network access will be a major competitive advantage in the Internet of Things (IoT) era. We argue that investors ought to value the core business at 7x and value the digital business separately based on revenue multiple even though it is not profitable yet.

Potential for special dividends with 1H18F results. According to our analysis, Singtel could pay special dividends of S$600mn- Forecasts and Valuation 1.5bn (1.0-2.5% yield) taking total FY18F yield to 6.0-7.5% FY Mar (S$ m) 2016A 2017A 2018F 2019F without exceeding 2x net debt-to-EBITDA. Revenue 16,961 16,711 17,521 17,713 EBITDA 7,845 8,017 8,118 8,403 Pre-tax Profit 5,444 5,364 7,328 5,536 Valuation: Net Profit 3,871 3,853 5,787 3,943 We use a sum-of-the-parts (SOTP) valuation for Singtel to Net Pft (Pre Ex.) 3,814 3,929 3,827 3,943 derive a target price of S$4.30. The stock offers ~17% upside Net Pft Gth (Pre-ex) (%) (0.6) 3.0 (2.6) 3.0 potential in addition to 6.0-7.5% yield. EPS (S cts) 24.3 23.6 35.4 24.1 EPS Pre Ex. (S cts) 23.9 24.1 23.4 24.1 EPS Gth Pre Ex (%) (1) 1 (3) 3 Key Risks to Our View: Diluted EPS (S cts) 24.3 23.6 35.4 24.1 Core business EBITDA from FY19F onwards. If core EBITDA Net DPS (S cts) 17.5 17.5 24.8 18.1 were to decline 4% each over FY19-24 due to the new mobile BV Per Share (S cts) 157 173 191 190 PE (X) 15.2 15.6 10.4 15.2 entrants in Singapore and Australia versus our base case PE Pre Ex. (X) 15.4 15.3 15.7 15.2 projection of stable EBITDA, our TP will be lowered to S$3.40. P/Cash Flow (X) 17.8 16.4 12.3 16.1 EV/EBITDA (X) 8.7 8.8 8.5 8.4 At A Glance Net Div Yield (%) 4.8 4.8 6.7 4.9 Issued Capital (m shrs) 16,329 P/Book Value (X) 2.3 2.1 1.9 1.9 Net Debt/Equity (X) 0.4 0.4 0.3 0.3 Mkt. Cap (S$m/US$m) 60,091 / 44,263 ROAE (%) 15.6 14.5 19.5 12.7 Major Shareholders (%) Temasek Holdings 52.3 Consensus EPS (S cts): 24.2 25.8 Other Broker Recs: B: 16 S: 1 H: 6 Free Float (%) 47.7 3m Avg. Daily Val (US$m) 51.9 Source of all data on this page: Company, DBS Bank, ICB Industry : Telecommunications / Telecommunications Bloomberg Finance L.P

Page 1123 ed: TH / sa:YM , PY Company Guide SingTel

WHAT’S NEW Special dividends and improving digital businesses

Potential special dividend post Net Link Trust IPO could be a Group Digital Life EBITDA loss (S$) is narrowing catalyst for share price: Singtel successfully divested 75% 0 stake in Netlink NBN Trust through an IPO in July 2017. The FY13 FY14 FY15 FY16 FY17 FY18F divestment is expected to result in a cash inflow of S$2.2bn in -20 FY18 for Singtel. -40 -60 Singtel has committed to make ~S$1bn in spectrum -80 payments on top of S$2.4bn capex in FY18. Singtel has also -100 guided for 60-75% dividend payouts on underlying profits in the near term for its investors. Given the reduction in capex in -120 FY19 due to Optus’s 3-year investment drive winding down -140 and the inflows from the Net Link Trust IPO, we believe -160 Singtel has the ability to issue ~S$600m-1.5bn in special -180 dividends (on top of 75% payout) without hurting its credit metrics. Singtel’s net debt-to-EBITDA should remain ~2.0x, -200 even after the special dividends, according to our calculations. Source: Company data If Singtel does not plan to acquire more digital businesses, it could pay S$1.5bn in special dividends. If it plans to invest another S$1bn in digital businesses, it could pay S$500m in Amobee achieved EBITDA breakeven in 1Q18 special dividends. 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 With Amobee achieving breakeven, Singtel is ramping up 0 HOOQ and DataSpark. Amobee, Digital Life’s largest contributor, achieved EBITDA breakeven in 1Q18 ahead of its -1 full year target of EBITDA breakeven. With Singtel guiding for narrower EBITDA losses for S$100m, most of the losses are -5 expected to come from HOOQ- over-the-top (OTT) video -7 offering and DataSpark – Advanced analytics offering. HOOQ -9 and DataSpark contributed only S$3mn in revenue in 1Q18 versus S$290mn by Amobee, however these offerings could -12 really differentiate Singtel’s consumer and enterprise telco -13 offerings as well. -16 -16 Digital business should be awarded a positive valuation. Source: Company data, DBS Bank Digital business should be valued over S$2bn based on EV to revenue multiple of recent acquisitions. Currently, market is valuing them negatively due to EBITDA losses of S$120m in FY17 and giving lower EV/EBITDA multiple to core plus digital business due to stagnant EBITDA.

Sum-of-the parts valuation for Singtel

Source: Reuters, DBS Bank

Page 24 Company Guide SingTel

Digital Businesses Digital Advertising

Group Digital Life, coupled with Cyber Security, contributed Amobee has moved away from competitive supply side 9% of Singtel’s revenue in 1Q18. Group Digital Life, coupled platform business: In October 2016, Amobee shut down its with Cyber Security, is already contributing over 9% to supply side platform business (except for video) to focus on its Singtel’s top line. Singtel has guided for Digital Life segment core ad-network related functions such as ad monitoring and to more than double its revenues to S$1.2-1.3bn with the cross platform targeting tools which can be utilised to acquisition of Turn. The company has guided for Cyber improve the effectiveness of advertising campaigns. Its Brand Security division to generate revenues of ~S$550-650m in Intelligence tool, which analyses digital content engagement FY18 versus S$473m in FY17, implying 16-37% growth. trends, is already used by major bands such as IKEA and Lexus to shape their marketing strategies.

Digital Advertising Ecosystem

Source: DBS Bank

Page 25 Company Guide SingTel

In addition, Amobee INK, Amobee’s cross device audience Optus, launched “Optus Xtra” an app that provides free data targeting tool is being used in their media activation quotas and credit to users in return for allowing ads to be strategies. We believe these businesses could be more displayed on their phones. Securing this level of collaboration lucrative for Amobee in the medium to long term as these with regional telcos remains a challenge even for the biggest segments face less direct competition form large tech players names in digital advertising. such as Google and Facebook.

Amobee achieved EBITDA breakeven following Turn Other digital business ex Amobee acquisition. Following the acquisition of Turn in February 2017, Amobee is able to perform programmatic buying Subscription Video on Demand (SVOD) OTT market hot in the without relying on third parties which has resulted in APAC region. According to Research and Markets, SVOD improvement of gross margins. Turn operates a demand side revenue in APAC region is expected to reach US$18bn by platform (DSP) and data management platform. The DSP adds 2021 with a CAGR of 22% over 2015-2021. Though the bulk programmatic buying capabilities to Amobee which will of the revenue will be generated by markets such as China automate the process of buying digital ads in real time across and Japan, India and Indonesia are expected to see some of multiple platforms. Furthermore, the scale benefits stemming the fastest growth. According to Digital TV research forecasts, from the acquisition has allowed Amobee to manage costs Indonesia and India are expected to see SVOD subscriber better, resulting in EBITDA breakeven in 1Q18. With these CAGRs of 87% and 31% respectively from 2016-2021, well savings and Amobee focusing on niche areas where it does above the regional average. not face direct competition from large tech players such as Google and Facebook, we should see Amobee improving its HOOQ expanding its operations: HOOQ, Singtel’s OTT video financial performance post FY18. In addition to acquisition- platform targeting emerging markets, has already started led growth, the rising global digital ad spending is expected operating in the fast-growing markets of India, Indonesia, to drive Amobee’s growth in the near to medium term. Thailand and Philippines, in addition to Singtel’s home market Global digital ad spend is expected to grow by 13.5% in Singapore. The management considers HOOQ’s operations to 2017 according to MAGNA, IPG Mediabrands' research arm. be still at a startup level and is investing on ramping it up. Similar to its peer iflix, HOOQ is looking to partner with Turn remains a market leader in multi-channel DSP. Turn was potential telcos in its markets to increase subscriber recognised as a leader in the 2017 Omnichannel demand-side penetration with HOOQ provided by Singtel (Singapore), platform evaluation for 2Q17 by market research firm, Globe (Phillipines) and Vodafone (India). Further, HOOQ has Forrester, primarily for the platform’s ability to provide been able to capture exclusive content from media producers extensive analytics both at a granular and a modular level. such as Disney while it has already started to invest in its own Technology research firm, Gartner also upgraded Turn from content, albeit at a relatively small scale. been a “Visionary” to a “Challenger” in an evaluation of digital marketing hubs, signifying that the platform’s DataSpark growth driven by unique data repository of capabilities are becoming more in line with customer needs. Singtel. DataSpark is Singtel’s data analytics business created Gartner also recognised the strong eco-system of over 200 to provide business and government agencies insights partners and customised advisory services provided by the leveraging SingTel's anonymised geolocation data. Given firm to be some of the key strengths of the company. Singtel’s unique ability to capture location data from its subscribers, the company is able to provide insights that are Amobee is gaining traction in leveraging Singtel’s presence in difficult to be matched by external players. In addition, with Asia. Amobee faces direct competition from a range of ad- Singapore government’s investment in smart nation tech companies such as AppNexus, Sizmek and market initiatives, Singtel may see opportunities to use its knowledge leaders like Google and Facebook. However, Amobee’s key in more varied contexts. strength lies in its ability to leverage Singtel’s regional presence to gain traction in Asia, where SMEs remain hesitant Digital Life initiatives (ex Amobee) still in early days. Given the on partnering with big names in digital advertising due to relative immature nature of its operations, we believe that it is hefty fee structures and the lack of an understanding of the too early to comment on HOOQ and DataSpark’s profitability. regional market. Amobee, on the other hand, is capable of However, the segment could yield significant growth in the utilising Singtel’s regional networks, reputation and clientele medium to long term for Singtel and remain strategic to offer more attractive and customised solutions to local investments for the firm. firms. For example, last year Amobee, in partnership with

Page 26 Company Guide SingTel

Ongoing investments resulting in losses Recent ad tech acquisition multiples

EBITDA of Digital Life businesses ex. EV/revenue Amobee 2.5 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18

2.0

1.5

-15 1.0 -18 -20 -21 -22 -24 0.5 -27 -28 -29 0.0 Postmedia Adelphic YuMe Rocket fuel Source: Company data Average Digital Life is worth S$1.1bn. We have valued Singtel’s Digital Life business at S$1.1bn using a mix of Singtel’s ad- Source: Reuters, DBS Bank tech acquisition prices and EV/Revenue multiples of recent industry acquisitions. To be conservative, we have used a 25% discount to account for any valuation premium for Cyber Security Business Singtel’s ad tech acquisition prices. Similarly, we apply 25% discount to EV/revenue multiple of 1.31x for recent industry Managed security services providers (MSSPs) are on an acquisitions in order to be conservative. Using the average upward growth trajectory: Singtel strengthened its managed value of the two methods, we have arrived at an enterprise security services with the acquisition of Trustwave in 2Q16, a value of S$1.1bn for Singtel’s Digital Life business. leading MSSP based in the US. The global demand for MSSPs is expected to grow robustly at a CAGR of 13% from Digital Life valuation 2014-2018, according to research firm Frost & Sullivan, Method - 1 (based on Ad-tech acquisition price) backed by the increasing complexities of cyber-attacks, Amobee acquisition price (USD Mn) 321 shortage of cyber-security professionals and rising demand from Small and Medium Enterprises. Demand from the Adconion acquisition price (USD Mn) 235 APAC region is set to outpace global growth with a CAGR Kontera acquisition price (USD Mn) 150 of 15% reaching US$ 3.77bn by 2018. Singtel would be Turn acquisition price (USD Mn) 310 able to capitalise on this trend by combining its position as a Acquisition price (USD Mn) 1,016 leading network service provider in the region with the Exchange rate 1.4 capabilities of Trustwave. As a likely provider of network Acquisition price (SGD Mn) 1,422 infrastructure facilitating the Smart Nation programme, Acquisition discount 25% which is expected to be data intensive, Singtel would Valuation (SGD Mn) 1,067 naturally be among the favorite candidates for monitoring and managing the cyber-security assets of the Smart Nation Method - 2 (based on recent industry acquisitions) programme, further boosting growth prospects for the Revenue (SGD Mn, FY18F) 1,130 telco’s cyber-security division. Sector EV/EBITDA 1.31 Valuation (SGD Mn) 1,480 Singtel is expanding cybersecurity operations: Singtel and Trustwave are expanding their cybersecurity operations with Acquisition discount 25% new Security Operations Centres in selected countries. Valuation (SGD Mn) 1,110 Trustwave announced an Advanced Security Operations Centre in Japan and Australia in late 2016 and expanded its Method - 1 1,067 facilities in Chicago in 2017. In addition, the company Method - 2 1,110 started operations of a new Security Operations Centre with Valuation (Average, SGD Mn) 1,088 Globe telecom in Philippines in 2017. The expansions offer Source: DBS Bank Singtel the ability to drive cybersecurity revenues, supported by regional partners such as Globe (Philippines) and TIS (Japan).

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However, the increased headcount from the expansions have Peer trajectory suggests Cyber Security could achieve ~10% also resulted in higher costs and EBITDA losses, especially in EBITDA margin in the medium term. Trustwave’s slightly seasonally low revenue quarters such as 1Q18. To minimise larger peer in the MSSP space, SecureWorks has been less the losses, Singtel is looking to improve cost savings by successful in achieving positive EBITDAs. We believe this is shifting work offshore to its low-cost bases in Manila and mostly due to the higher sales and marketing expenses the Warsaw where possible, and by increasing automation, company incurs (25-35% of revenue). However, Singtel (& thereby saving on manpower costs. Further, the management Trustwave) is unlikely to maintain such high marketing costs expects better costing for third-party solutions to be achieved in the near to medium term due to its higher reliance on the as the cybersecurity business scales up. As a result, as these upcoming Smart Nation projects and regional partners such investments mature and cybersecurity revenues expand, we as Globe and TIS. As a result, Singtel’s Cyber Security business are likely to see these investments turning EBITDA positive. is likely to achieve a similar growth trend with much lower sales and marketing costs, in our view. Cybersecurity revenues tend to be cyclical Adjusting for a more reasonable sales and marketing costs 135 (~5-10% of revenue), SecureWorks’s trends indicate MSSP operations could reach a 10% EBITDA margin as investments 130 mature. 125 120 Adjusted EBITDA for SecureWorks 115 110 $ '000 S$ mn S$ 12,000 12% 105 10,000 10% 100 8,000 8% 95 6,000 6% 4,000 4% 90 2,000 2% 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 0 0% Cybersecurity revenue Cybersecurity costs -2,000 -2% -4,000 -4% -6,000 -6% Source: Companies, DBS Bank EBITDA (LHS) EBITDA margins (RHS) Cybersecurity EBITDA has been volatile too Source: Company data, DBS Bank Cybersecurity EBITDA Singtel cybersecurity business is worth S$1.1bn. We have 3 3 valued Singtel’s cybersecurity business at S$1.1bn using a mix 2 of Trustwave acquisition price and Industry EV/Revenue multiples. To be conservative, we have used a 25% discount to account for any valuation premium for Trustwave’s 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 acquisition price. Similarly, we have used a 10% liquidity discount on the industry EV/revenue multiple of 2.51x to be conservative. Using the average value of the two methods, -4 we have arrived at an enterprise value of S$1.1bn for Singtel’s -5 cybersecurity business.

-11

-13 Source: DBS Bank, Companies

Page 28 Company Guide SingTel

CyberCyber security security valuation valuation Core Business in Singapore and Australia Method - 1 (based on Trustwave acquisition price) Trustwave acquisition price (USD Mn) 810 Singapore core business is more resilient than peers, which Exchange rate 1.4 should be reflected in its valuations. Singapore’s mobile sector Trustwave acquisition price (SGD Mn) 1,134 is expected to face headwinds in 2018 with the entry of TPG. Acquisition discount 25% Hence, telcos have already increased data prices to reduce Valuation (SGD Mn) 851 customer churn and maintain market share. However, Singtel’s Method - 2 (based on industry multiples) Singapore operations generate over 50% of revenues from the Revenue (SGD Mn, FY18F) 600 enterprise segment which should enable it to fair better in the Sector EV/EBITDA 2.51 near term compared to its peers M1 and StarHub. Even with Valuation (SGD Mn) 1,506 the competition heating up in the recent quarters, EBITDA Liquidity discount 10% from Singtel’s Singapore operations had shown much better Valuation (SGD Mn) 1,355 resilience in the first half of 2017, declining only 3% compared Method - 1 851 to its peers M1 and StarHub which saw declines of 8% and Method - 2 1,355 9% respectively. Singapore telcos M1 and StarHub are Valuation (Average, SGD Mn) 1,103 currently trading at FY18F EV/EBITDA of 7x and 9x respectively, Source: DBS Bank despite their higher exposure to the declining mobile markets. However, considering this, we have conservatively valued EV to sales of Cyber Security peers Singtel’s Singapore operations at FY18F EV/EBITDA of 7.5x.

Singapore operations – revenue breakdown

6% 6% 19% 17% 18% 57% 24%

8% 63% 52% 29%

Singtel StarHub M1 Mobile Fixed BB and PayTV Enterprise Other Source: Reuters, DBS Bank *Enterprise revenue excluding mobile **does not disclose enterprise revenue separately

Source: DBS Bank, Companies

Page 29 Company Guide SingTel

Singapore operations - EBITDA growth y-o-y 1H17 In the mobile space, Optus has been investing in networks to narrow its gap with Telstra who charges a premium price which we estimate is 10-30% premium for SIM only plans. Optus has poured over A$3.7bn in network infrastructure since 2015 increasing 4G coverage from 75% of metro Singtel StarHub M1 population to 96% total population coverage by 2017 versus 98% for Telstra. Optus also plans to invest A$1bn on rural coverage to improve its market share outside metro areas over the next 12 months in reducing coverage gaps and -3% upgrading existing 3G sites to 4G. While TPG’s entry in the mobile space in mid-2019 is a concern for the sector, Optus’s redced coverage gap with Telstra places it in a positon to gain market share.

-8% Consensus expects Telstra to see ~10% EBITDA drop in FY20 -9% and gradual EBITDA decline thereafter once NBN rollout is completed in 2020. Recently after cutting it payout ratio to 75% from 100%, Telstra’s stock price took a hit and is Source: DBS Bank, Companies trading at only 5.4x FY18F EV/EBITDA. On the other hand, we expect Optus to register stable to low-single digit growth in Optus is on a much better footing than Telstra which should EBITDA over the next couple of years, which justifies at least be reflected in at least 20% premium versus Telstra. Telstra is 20% premium versus Telstra, leading to 6.5x FY18F facing headwinds due to the implementation of National EV/EBITDA. Broadband Network (NBN) as the market expects NBN to change the way broadband is delivered and priced. Telstra faces pressure from lost wholesale revenue, access fees it will have to pay NBN, and competition pressures that will reduce the premium it can charge for retail mobile services. Optus, on the other hand, is able to gain access to more homes via NBN as it did not have the required infrastructure to compete with Telstra previously.

Page 30 Company Guide SingTel

Valuations Sum-of-the parts valuation for Singtel based on market price of associates

Source: Reuters, DBS Bank

Valuation of regional associates

Source: Reuters, DBS Bank Singtel’s core plus digital EV/EBITDA is far below regional Singtel’s core + digital business as a superior FCF yield to its peers peers

FCF Yield 13.7 10.0% 11.8 9.0% 8.0% 8.8 9.1 7.0% 7.6 6.9 7.1 7.0 6.0% 5.6 5.7 5.7 5.0% 3.2 4.0% 3.0% 2.0% 1.0%

XL 0.0% AIS TM M1 Digi Star… Telk… Indo… DTAC Maxis

Axiata Singtel*StarHub M1 TM Axiata TLKM Singtel *Core + Digital operations

Source: Reuters, DBS Bank Source: Reuters, DBS Bank

Page 31 Company Guide SingTel

Peers Valuation Mk t Price 12-mth CA GR Company Cap S$ Target Price % 16-18 PE (x) Dividend Yield (%) P/BV EV/EBITDA (US$m) 28/9/2017 LCL Upside Rcmd (%) 17F 18F 16A 17F 16A 17F 17F 18F

China / Hong Kong SHCOMP Index 3,340 China Mobile 208,235 79.45 114.00 43% BUY 4 12.3 11.8 3.5% 7.8% 1.4x 1.4x 3.2x 2.9x China Telecom 7,106 4.00 5.10 28% BUY 8 13.8 13.0 2.7% 3.0% 0.9x 0.8x 3.7x 3.5x China Unicom 33,474 10.92 11.30 3% HOLD 289 45.1 23.6 0.0% 0.8% 1.0x 1.0x 3.8x 3.4x Smartone Telecom 1,309 9.25 7.50 -19% FV -8 15.0 14.7 6.4% 6.4% 2.3x 2.3x 5.1x 4.9x Hutchison Telecom 1,739 2.82 3.30 17% HOLD -1 20.0 19.7 3.9% 3.7% 1.2x 1.2x 7.1x 6.8x HKT Trust 9,275 9.57 12.80 34% BUY 0 15.2 14.9 6.5% 6.6% 1.8x 1.8x 8.5x 8.3x

Malay sia KLCI Index 1758.06 Digi.Com 9,001 4.90 4.20 -14% FV -4 25.8 25.4 4.3% 3.9% 73.4x 73.4x 14.0x 13.7x Maxis Bhd 10,685 5.79 5.15 -11% HOLD 0 22.9 22.1 3.5% 3.8% 9.2x 6.8x 11.9x 11.9x Telekom 5,629 6.34 7.10 12% BUY 9 27.6 23.8 3.4% 3.3% 3.1x 3.1x 7.4x 7.0x Axiata Group 11,076 5.21 4.75 -9% HOLD 1 36.5 32.3 1.5% 1.4% 2.0x 1.9x 8.2x 7.8x

Singapore ST I Index 3227.14 M1 1,223 1.79 1.78 0% FV -12 13.0 14.3 7.2% 6.1% 4.1x 4.0x 6.8x 7.5x SingTel 44,133 3.67 4.30 17% BUY 0 16.3 15.2 4.8% 7.0% 2.1x 1.9x 8.5x 8.5x Starhub 3,323 2.61 2.33 -11% FV -12 17.0 17.6 7.7% 6.1% 23.0x 27.0x 8.8x 9.3x

T hailand SET Index 1666.36 Advanced Info Service 17,232 193.50 162.00 -16% HOLD 6 19.4 17.0 5.2% 3.6% 13.5x 11.7x 10.0x 9.1x Total Access Comm. 3,989 56.25 37.90 -33% SELL 19 78.4 36.7 0.7% 0.3% 5.0x 4.8x 5.7x 5.6x

Indonesia J CI Index 5841.047 Indosat 2,543 6,300 6,800 8% HOLD nm 26.2 nm 0.0% 0.0% 2.6x 2.3x 4.0x 3.9x PT Telekom 35,270 4,710 4,800 2% HOLD 18 19.9 17.5 2.9% 3.5% 5.6x 5.3x 7.6x 7.1x XL Axiata 2,938 3,700 3,900 5% HOLD nm -1441.9 84.0 0.6% 0.0% 1.9x 1.9x 6.2x 5.5x

Singapore Telecom 18 & 19 forecast respectively Source: DBS Bank; DBS Vickers

Page 32 Company Guide SingTel

Singapore Revenue (S$m) CRITICAL DATA POINTS TO WATCH

Critical Factors

Associate profits expected to grow despite weakness in Bharti and AIS. We have revised down our expectations for Bharti and AIS as both the companies are facing earnings headwinds due to competitive pressures and industry trends. We expect Bharti’s profitability to decline in FY18F due to Reliance Jio-led competition. Further deterioration of profits can be expected with the reduction in interconnection usage charges, which Singapore EBITDA Margin (%) favours the new entrant. Similarly, AIS is expected to see reductions in profit generation due to cost pressures stemming from network expansion and network sharing agreement with TOT.

However, we do expect this to be offset by the growth in Telkomsel. Despite increasing competition outside Java, Telkomsel has market leadership and is enjoying robust profit growth from the fast-growing usage seen in Indonesia. As a result, we expect associate profits to improve in FY18/FY19 by 1%/7.0%. Optus Revenue (A$m)

Low single-digit EBITDA growth due to Australia growth and lower losses on Digital Life. Singtel has guided for its core business (Singapore + Optus) to see low single-digit EBITDA growth in FY18. The mild decline in Singapore operations due to the challenging mobile business is expected to be offset by the growth in Optus which is seeing healthy growth fueled by mobile subscriber additions. In addition, Digital Life segment is expected to make significant reductions on their EBITDA losses, which should boost Singtel’s overall EBITDA. Optus EBITDA Margin (%)

Associate pre-tax earnings (S$m)

Source: Company, DBS Bank

Page 33 Company Guide SingTel

Appendix 1: A look at Company's listed history – what drives its share price?

Associate profits were quite critical in the past but not over the last three years. In the critical factor analysis, we conducted over the past ~10 years, Singtel’s share price seems to follow Associate profits and EBITDA. Singtel’s share price change had a positive correlation of 0.65 with the associates’ profit, and a positive correlation of 0.59 with EBITDA. However, the correlation with associates’ profit has been weaker in the last three years possibly due to investors worrying about digital losses.

Share price vs associate profits

Share price vs EBITDA

Source: Bloomberg Finance L.P., DBS Bank

Page 34 Company Guide SingTel

Leverage & Asset Turnover (x) Balance Sheet: Proceeds from Net Link Trust further strengthen the balance sheet. Singtel’s spectrum payout for Singapore and Australia is expected to be S$1bn for FY18, higher than our initial estimate of ~S$350-400m. This is in addition to the relatively high levels of capex (A$~2.4bn in FY18) the company expects to maintain in Singapore and Australia in FY18. However, with its strong cash generation and proceeds from Link Net IPO being realised in 2Q18, we believe Singtel should have no problems in making the investments.

Capital Expenditure Share Price Drivers: Net Link trust IPO bumps FY18 earnings up. We expect ~S$2bn one-off gains to be recorded in FY18 which should bump up earnings for FY18. However, when excluding one-off gains, erosion of earnings in Bharti and AIS has resulted in pre-tax earings contribution increasing by only 1% in FY18F.

Investors will also be monitoring core EBITDA especially in Singapore as Singapore’s mobile segment is seeing declining revenues due to lower roaming revenues and heightened competition. Roaming revenues accounted for 16% of Singtel’s ROE (%) Singapore mobile revenues in 1Q18 (down from 18% in 4Q17) which has been steadily declining due to data substitution. Singtel has guided for low-mid single digit growth in core EBITDA without specifying the breakdown in Singapore and Australia.

Key Risks:

Bear-case valuation for Singtel is S$3.40. In our bear case, we have assumed core EBITDA to decline 4% each over FY19-24 due to the new mobile entrants in Singapre and Australia Forward PE Band (x) versus our base case projection of stable EBITDA.

Bull-case valuation for Singtel is S$4.60. In our bull-case, we have assumed core EBITDA to grow 3% each over FY19-24 despite new mobile entrants in Singapre and Australia versus our base case projection of stable EBITDA.

Company Background Singtel is the largest telecom operator in Singapore and its Australian subsidiary Optus is the second largest operator in PB Band (x) Australia. Besides, SingTel has substantial stakes in telcos in the region - Telkomsel in Indonesia, Bharti in India, AIS in Thailand and Globe in Philippines.

Source: Company, DBS Bank

Page 35 Company Guide SingTel

Key Assumptions FY Mar 2015A 2016A 2017A 2018F 2019F

Singapore Revenue (S$m) 7,348 7,663 7,927 8,497 8,597 Growth due to mobile Singapore EBITDA Margin 29.2 28.5 27.9 26.8 26.7 sub additions (%) Optus Revenue (A$m) 8,790 9,106 8,425 8,678 8,765 Optus EBITDA Margin (%) 29.9 30.4 0.0 0.0 0.0 Associate pre-tax earnings 2,616 2,788 2,942 2,971 3,209 (S$m) Income Statement (S$m) FY Mar 2015A 2016A 2017A 2018F 2019F Revenue 17,223 16,961 16,711 17,521 17,713 Cost of Goods Sold (12,284) (12,097) (11,929) (12,590) (12,734) Gross Profit 4,939 4,864 4,782 4,932 4,979 Other Opng (Exp)/Inc (2,010) (2,001) (2,024) (2,186) (2,320) Operating Profit 2,929 2,864 2,759 2,745 2,658 Other Non Opg (Exp)/Inc 47.0 44.0 77.4 0.0 0.0 Associates & JV Inc 2,616 2,788 2,942 2,971 3,209 Net Interest (Exp)/Inc (263) (309) (337) (348) (331) Exceptional Gain/(Loss) (54.3) 56.9 (76.6) 1,960 0.0 Pre-tax Profit 5,275 5,444 5,364 7,328 5,536 Link net divestment Tax (1,490) (1,586) (1,533) (1,532) (1,583) gains Minority Interest (3.0) 12.5 21.7 (10.0) (10.0) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 3,782 3,871 3,853 5,787 3,943 Net Profit before Except. 3,836 3,814 3,929 3,827 3,943 EBITDA 7,754 7,845 8,017 8,118 8,403 Growth Revenue Gth (%) 2.2 (1.5) (1.5) 4.8 1.1 EBITDA Gth (%) 5.3 1.2 2.2 1.3 3.5 Opg Profit Gth (%) (3.1) (2.2) (3.7) (0.5) (3.2) Net Profit Gth (Pre-ex) (%) 6.3 (0.6) 3.0 (2.6) 3.0 Margins & Ratio Gross Margins (%) 28.7 28.7 28.6 28.1 28.1 Opg Profit Margin (%) 17.0 16.9 16.5 15.7 15.0 Net Profit Margin (%) 22.0 22.8 23.1 33.0 22.3 ROAE (%) 15.6 15.6 14.5 19.5 12.7 ROA (%) 9.3 9.0 8.4 11.5 7.4 ROCE (%) 5.9 5.5 4.9 5.0 4.2 Div Payout Ratio (%) 73.7 72.1 74.2 70.0 75.0 Net Interest Cover (x) 11.1 9.3 8.2 7.9 8.0 Source: Company, DBS Bank

Page 36 Company Guide SingTel

Quarterly / Interim Income Statement (S$m) FY Mar 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017

Revenue 4,094 3,908 4,086 4,410 4,308 Cost of Goods Sold (2,865) (2,732) (2,901) (3,236) (3,061) Gross Profit 1,229 1,176 1,186 1,174 1,247 Other Oper. (Exp)/Inc (513) (483) (502) (515) (524) Operating Profit 717 692 684 659 723 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 721 767 737 718 720 Net Interest (Exp)/Inc (91.2) (65.1) (71.2) (41.0) (82.0) Exceptional Gain/(Loss) (34.7) (19.0) (6.3) (22.0) (25.0) Pre-tax Profit 1,312 1,375 1,344 1,314 1,336 Tax (371) (435) (376) (347) (381) Minority Interest 5.00 3.80 4.20 6.00 8.00 Net Profit 946 944 972 973 963 Net profit bef Except. 980 963 979 995 988 EBITDA 1,438 1,460 1,421 1,377 1,443

Growth Revenue Gth (%) (8.5) (4.5) 4.6 7.9 (2.3) EBITDA Gth (%) 4.1 1.5 (2.6) (3.1) 4.8 Opg Profit Gth (%) 4.9 (3.4) (1.2) (3.7) 9.7 Net Profit Gth (Pre-ex) (%) 2.8 (1.7) 1.6 1.7 (0.7) Margins Gross Margins (%) 30.0 30.1 29.0 26.6 28.9 Opg Profit Margins (%) 17.5 17.7 16.7 14.9 16.8 Net Profit Margins (%) 23.1 24.2 23.8 22.1 22.4

Balance Sheet (S$m) FY Mar 2015A 2016A 2017A 2018F 2019F

Net Fixed Assets 10,683 11,154 11,893 12,283 12,654 Invts in Associates & JVs 10,846 11,086 14,235 15,534 17,223 Other LT Assets 15,770 16,160 16,249 16,991 16,584 Cash & ST Invts 563 462 534 2,260 1,556 Inventory 290 320 352 369 373 Debtors 3,885 4,366 4,924 5,163 5,219 Other Current Assets 29.8 17.5 107 107 107 Total Assets 42,067 43,566 48,294 52,707 53,717

ST Debt 174 686 3,134 2,134 2,134 Creditor 4,464 4,597 4,922 5,161 5,217 Other Current Liab 1,118 1,257 1,216 2,452 2,503 LT Debt 8,804 9,255 8,052 9,052 10,052 Other LT Liabilities 2,738 2,768 2,756 2,756 2,756 Shareholder’s Equity 24,733 24,967 28,191 31,120 31,013 Minority Interests 34.6 35.7 22.4 32.4 42.4 Total Cap. & Liab. 42,067 43,566 48,294 52,707 53,717

Non-Cash Wkg. Capital (1,378) (1,151) (755) (1,973) (2,021) Net Cash/(Debt) (8,416) (9,479) (10,652) (8,926) (10,630) Debtors Turn (avg days) 78.8 88.8 101.5 105.1 107.0 Creditors Turn (avg days) 149.0 166.2 179.3 180.6 185.7 Inventory Turn (avg days) 8.3 11.2 12.7 12.9 13.3 Asset Turnover (x) 0.4 0.4 0.4 0.3 0.3 Current Ratio (x) 0.8 0.8 0.6 0.8 0.7 Quick Ratio (x) 0.8 0.7 0.6 0.8 0.7 Net Debt/Equity (X) 0.3 0.4 0.4 0.3 0.3 Net Debt/Equity ex MI (X) 0.3 0.4 0.4 0.3 0.3 Capex to Debt (%) 40.5 31.8 22.2 31.1 20.5 Z-Score (X) 3.6 3.4 3.2 3.0 2.9

Source: Company, DBS Bank

Page 2537 Company Guide SingTel

Cash Flow Statement (S$m) FY Mar 2015A 2016A 2017A 2018F 2019F

Pre-Tax Profit 5,275 5,444 5,364 7,328 5,536 Dep. & Amort. 2,161 2,149 2,239 2,402 2,536 Tax Paid (598) (658) (834) (296) (1,532) Assoc. & JV Inc/(loss) (2,616) (2,788) (2,942) (2,971) (3,209) Chg in Wkg.Cap. 69.3 (1,031) (492) (17.2) (4.1) Other Operating CF 280 182 323 (1,564) 414 Net Operating CF 4,571 3,297 3,659 4,882 3,741 Capital Exp.(net) (3,638) (3,157) (2,488) (3,474) (2,500) Other Invts.(net) 51.9 42.7 40.4 0.0 0.0 Invts in Assoc. & JV 4.60 (200) (2,410) 0.0 0.0 Div from Assoc & JV 1,215 1,351 1,656 1,407 1,520 Higher capex due to Other Investing CF 24.2 574 26.1 2,165 0.0 spectrum payments Net Investing CF (2,342) (1,389) (3,177) 98.0 (981) Div Paid (2,683) (2,794) (2,821) (2,857) (4,051) Chg in Gross Debt 737 1,129 1,158 0.0 1,000 Capital Issues 0.0 0.0 1,602 0.0 0.0 Other Financing CF (365) (378) (362) (396) (414) Net Financing CF (2,311) (2,044) (422) (3,254) (3,465) Currency Adjustments 21.2 34.8 11.9 0.0 0.0 Chg in Cash (59.7) (101) 72.0 1,726 (704) Opg CFPS (S cts) 28.3 27.2 25.4 30.0 22.9 Free CFPS (S cts) 5.86 0.88 7.17 8.62 7.60 Source: Company, DBS Bank

Target Price & Ratings History

Source: DBS Bank Analyst: Sachin MITTAL

Page 38 Company Guide SingTel

Completed Date: 2 Oct 2017 08:16:14 (SGT) Dissemination Date: 2 Oct 2017 10:46:48 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

Page 39 Company Guide SingTel

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

3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, 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 31 Aug 2017.

Compensation for investment banking services: 4. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from SingTel, StarHub, Singapore Post, Indosat, XL Axiata as of 31 Aug 2017.

5. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for SingTel, StarHub, Singapore Post, Indosat, XL Axiata in the past 12 months, as of 31 Aug 2017.

6. 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: 7. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 30 Jun 2017.

Disclosure of previous investment recommendation produced: 8. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 40 Singapore Company Guide StarHub

Version 10 | Bloomberg: STH SP | Reuters: STAR.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 16 Oct 2017

FULLY VALUED Trading at a premium Last Traded Price ( 13 Oct 2017): S$2.67 (STI : 3,319.11) The counter is expensive despite a decent dividend yield. The Price Target 12-mth: S$2.20 (-18% downside) (Prev S$2.33) number of households subscribing to all three services – pay TV, Analyst fixed broadband and mobile – has been declining which has Sachin MITTAL +65 6682 3699 [email protected] been a critical factor in dictating the stock’s performance. On valuation, Starhub is expensive at a forward PE of 17.5x (versus sector average of 15x) and 9x EV/EBITDA (versus sector average What’s New of 7.5x) as investors tend to value the company in terms of • Market is not paying enough attention to Circles.Life dividend yield. While StarHub will maintain an annual DPS of 16 • StarHub might need to cut annual DPS to 14 Scts in Scts in 2017 (6% yield), StarHub’s annual DPS could be cut to FY19F to stay below 2.0x net debt to EBITDA 14 Scts in FY19F to stay below 2.0x net debt to EBITDA.

• Maintain FULLY VALUED with a lower TP of S$ 2.20 Where we differ: Market is not paying enough attention to Circles.Life and the big divergence between EBITDA and earnings. Circles.Life in its short history of less than 12-months Price Relative of operations seems to be doing well, supported by its service delivery model and cheaper data pricing. Morever, even under the bull-case scenario of StarHub sustaining EBITDA in FY18F/19F, its earnings are set to decline sharply due to sharp rise in amortisation costs as StarHub is set to pay S$350m in total for spectrum acquired in 2017’s general spectrum auction.

Potential Catalyst – decline in hubbing households in 2H17F Forecasts and Valuation and possible changes to Starhub’s mobile plans. Continued FY Dec (S$ m) 2016A 2017F 2018F 2019F downgrade of all-three services by higher-end hubbing Revenue 2,397 2,385 2,353 2,327 EBITDA 689 611 607 603 households and possible dilution of ARPUs, due to M1’s mySIM Pre-tax Profit 410 320 303 277 plans, could lead to investors readjusting their expectations. Net Profit 341 266 252 230 Net Pft (Pre Ex.) 332 266 252 230 Valuation: Net Pft Gth (Pre-ex) (%) (7.1) (19.7) (5.3) (8.7) EPS (S cts) 19.8 15.4 14.6 13.3 Maintain FULLY VALUED with lower TP of S$2.20. We raise EPS Pre Ex. (S cts) 19.2 15.4 14.6 13.3 WACC to 6.0% from 5.7% previously as we expect higher EPS Gth Pre Ex (%) (7) (20) (5) (9) volatility in the stock to raise the cost of equity. We roll Diluted EPS (S cts) 19.7 15.4 14.5 13.3 forward our DCF valuation base to FY18F, and assume 0% Net DPS (S cts) 20.0 16.0 16.0 14.0 BV Per Share (S cts) 11.3 9.69 8.29 7.62 terminal growth. PE (X) 13.5 17.3 18.3 20.0 PE Pre Ex. (X) 13.9 17.3 18.3 20.0 Key Risks to Our View: P/Cash Flow (X) 8.4 9.5 9.1 9.2 Limited uptake of TPG and Circles.Life. Under our bull case EV/EBITDA (X) 7.7 9.0 9.6 9.6 scenario for StarHub, we project Circles.Life and TPG to secure Net Div Yield (%) 7.5 6.0 6.0 5.2 mobile revenue share of only 3.5% in 2022 versus our base case P/Book Value (X) 23.7 27.6 32.2 35.0 Net Debt/Equity (X) 3.6 5.2 8.3 8.9 projection of 5.5%, leading to a TP of S$2.57 for StarHub. ROAE (%) 178.5 147.0 162.4 167.6 At A Glance Earnings Rev (%): 0 (1) 3 Consensus EPS (S cts): 15.8 14.5 13.8 Issued Capital (m shrs) 1,729 Other Broker Recs: B: 2 S: 12 H: 8 Mkt. Cap (S$m/US$m) 4,617 / 3,422 Major Shareholders (%) Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P Temasek Holdings Private Ltd 55.9 NTT 9.9 Blackrock 5.0 Free Float (%) 29.2 3m Avg. Daily Val (US$m) 5.1 ICB Industry : Telecommunications / Mobile Telecommunications

Page 41 ed: JS / sa: YM, PY Company Guide StarHub

Mobile EBITDA Margins

CRITICAL DATA POINTS TO WATCH

Critical Factors:

Hubbing strategy under pressure. Starhub’s go-to market strategy of bundling mobile, broadband and pay-TV services has come under pressure from the proliferation of OTT TV services. Nearly 14,000 customers with subscriptions to three or more services have downgraded since 2Q16, representing ~4% of subscriptions with three or more services. Majority of these customers are moving away CATV & Broadband EBITDA Margins from Pay-TV to cheaper alternatives such as Netflix, despite losing the discount available on bundled services in the process. We believe downgrades of hubbing subscriptions would accelerate amid the increasing appeal of OTT TV services among high-end Pay TV customers and rising pressure on the broadband segment from M1 and MyRepublic.

Hubbing households on a downward trend

000's Hubbing households with Three 355 350 Services Fixed Network EBITDA Margins 350 347

345 342 338 340 333 335

330

325 320 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

Source: Starhub, DBS Bank Source: Company, DBS Bank

Pressure from M1 could lead to possible decline in ARPUs. Starhub managed to reverse declines in ARPU, witnessed over the past three quarters, in 2Q17. Postpaid ARPUs improved 4% q-o-q in 2Q17 despite declining 1% on a y-o-y basis. We believe that recent unlimited data plans introduced by Starhub at higher rentals would further buttress ARPU growth over the near term. However, Starhub’s efforts to lift ARPUs may be undercut by M1’s recently introduced mySIM plans, which offer similar data quotas and lower legacy bundles at over 50% discount to similar SIM-only plans by Starhub. If Starhub decides to match M1’s latest mySIM plans in a bid to prevent M1 poaching Starhub’s subscribers, Starhub could witness potential dilution of ARPUs in the near term.

Page 42 Company Guide StarHub

Appendix 1: A look at Company's listed history – what drives its share price?

Hubbing households and changes in postpaid ARPU are key company to develop subscriber base loyal to the Starhub determinants of Starhub’s share price. In our critical factor brand. Hence, changes in Hubbing subscribers (with analysis conducted to understand the share price drivers of subscriptions to all three services), which exhibits a correlation Singaporean telcos over the past 10 years, we have identified of 0.7 with Starhub’s share price, provides valuable cues on that Starhub’s hubbing subscriber base to be an indicator of the effectiveness of Starhub’s strategy to investors. Changes Starhub’s share price performance. Hubbing, or the offering in postpaid ARPU, an indicator of topline and subscriber of Mobile, Broadband and Pay TV services bundled together, growth, exhibits a correlation of 0.5 with Starhub’s share was the go-to-market strategy of Starhub and allowed the price.

StarHub’s stock price shows high correlation with number of hubbing households with three services

210 300 190 250 170 200 150 130 150 110 100 90 50 70 50 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Starhub Hubbing subscriptions for 3 Services

Source: StarHub, DBS Bank

StarHub’s stock price shows decent correlation with mobile postpaid ARPU

210 80 190 75 70 170 65 150 60 130 55 110 50 45 90 40 70 35 50 30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Starhub Starhub Postpaid ARPU Source: Starhub, Reuters, DBS Bank

Page 43 Company Guide StarHub

Leverage & Asset Turnover (x) Balance Sheet: Balance sheet will need to be managed carefully. StarHub raised S$300m through medium-term notes in 2Q16. We assume another S$250m of borrowings by FY18 to fund spectrum acquisitions. While this will stretch its balance sheet in the near term, potential capex savings from network sharing agreement signed earlier with M1 will help to shore up cash flows in the medium term. While StarHub will maintain an annual DPS of 16 Scts in 2017 (6% yield), StarHub’s annual DPS could be cut to 14 Scts in FY19F to stay below 2.0x net debt to EBITDA

Capital Expenditure Share Price Drivers: Expensive at current price levels. We have revised down StarHub’s revenues due to the contraction seen in pay TV. In addition, though StarHub is pursuing investments in enterprise segment such as cyber security, we believe those investments are likely to take time to mature and grow top line in a material manner. Given the negative outlook on earnings, we believe Starhub is expensive at current price levels. The counter is currently trading at a forward PE of 17.5x and an EV/EBITDA multiple of 9x compared to the sector averages of 15.2x and 7.5x respectively. ROE (%)

Bull Case TP is S$2.57. In our bull case, we have assumed limited uptake of TPG’s services. We project, Circles.Life and TPG to secure mobile revenue share of 3.5% in 2022 versus our base case assumption of 5.5%

Bear Case TP is S$ 2.00. In our bull case we have assumed high uptake of TPG’s services. We project, Circles.Life and TPG to secure revenue share of 7.5% versus our base case assumption of 5.5% in the mobile sector. Forward PE Band (x) Key Risks: M1’s new plans failing to gain traction. If M1’s new mySIM plans fail to gain traction Starhub would be able to continue to raise ARPUs, enabling the carrier to record faster topline growth than our expectations.

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. PB Band (x)

Source: Company, DBS Bank

Page 44 Company Guide StarHub

Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F Mobile EBITDA Margins 33.8 33.2 29.1 28.8 28.8 CATV & Broadband 18.0 18.0 17.9 17.9 17.9 Fixed Network EBITDA 36.8 36.6 36.5 36.5 36.5

Segmental Breakdown FY Dec 2015A 2016A 2017F 2018F 2019F Revenues (S$m) Mobile 1,240 1,215 1,208 1,186 1,156 Cable TV & Broadband 591 595 573 546 531 Fixed Network 385 400 428 458 478 Equipment sale 228 188 176 163 161 Others Total 2,444 2,397 2,385 2,353 2,327 EBITDA (S$m) Mobile 419 403 352 342 333 Cable TV & Broadband 106 107 103 97.8 95.1 Fixed Network 142 146 156 167 174 Conservative estimate of slight EBITDA decline Equipment sale 45.6 32.2 0.30 0.0 0.0 Others Total 713 689 611 607 603 EBITDA Margins (%) Mobile 33.8 33.2 29.1 28.8 28.8 Cable TV & Broadband 18.0 18.0 17.9 17.9 17.9 Fixed Network 36.8 36.6 36.5 36.5 36.5 Equipment sale 20.0 17.2 0.2 0.0 0.0 Others N/A N/A N/A N/A N/A Total 29.2 28.7 25.6 25.8 25.9

Income Statement (S$m) FY Dec 2015A 2016A 2017F 2018F 2019F Revenue 2,444 2,397 2,385 2,353 2,327 Cost of Goods Sold (2,049) (2,004) (2,037) (2,015) (2,011) Gross Profit 396 393 348 338 315 Other Opng (Exp)/Inc 45.6 32.2 0.30 0.0 0.0 Operating Profit 441 425 348 338 315 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (0.3) (1.6) (1.6) (1.6) (1.6) Net Interest (Exp)/Inc (15.8) (22.7) (26.6) (33.2) (36.6) Exceptional Gain/(Loss) 15.0 9.50 0.0 0.0 0.0 Pre-tax Profit 440 410 320 303 277 Tax (67.9) (68.9) (53.8) (50.9) (46.5) 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 372 341 266 252 230 Net Profit before Except. 357 332 266 252 230 EBITDA 712 689 611 607 603 Growth Revenue Gth (%) 2.4 (1.9) (0.5) (1.4) (1.1) EBITDA Gth (%) (4.7) (3.4) (11.3) (0.6) (0.6) Opg Profit Gth (%) (7.4) (3.7) (18.1) (3.0) (6.8) Net Profit Gth (Pre-ex) (%) (3.6) (7.1) (19.7) (5.3) (8.7) Margins & Ratio Gross Margins (%) 16.2 16.4 14.6 14.4 13.5 Opg Profit Margin (%) 18.1 17.7 14.6 14.4 13.5 Net Profit Margin (%) 15.2 14.2 11.2 10.7 9.9 ROAE (%) 221.2 178.5 147.0 162.4 167.6 ROA (%) 19.1 16.6 12.3 11.3 9.9 ROCE (%) 37.1 29.9 21.8 19.8 17.2 Div Payout Ratio (%) 92.4 101.4 103.8 109.6 105.0 Net Interest Cover (x) 27.9 18.7 13.1 10.2 8.6 Source: Company, DBS Bank

Page 45 Company Guide StarHub

Quarterly / Interim Income Statement (S$m) FY Dec 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017

Revenue 586 585 635 592 579 Cost of Goods Sold (402) (413) (504) (432) (399) Gross Profit 184 172 131 160 180 Other Oper. (Exp)/Inc (58.0) (59.3) (62.4) (66.5) (67.6) Operating Profit 126 113 68.7 93.9 112 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (0.3) (0.9) (0.2) (0.2) (0.9) Net Interest (Exp)/Inc (5.1) (6.3) (6.6) (6.3) (7.4) Exceptional Gain/(Loss) 9.50 0.0 0.0 0.0 0.0 Pre-tax Profit 130 106 61.9 87.4 104 Tax (21.6) (19.5) (7.9) (14.3) (18.3) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 109 86.0 54.0 73.1 85.7 Net profit bef Except. 99.1 86.0 54.0 73.1 85.7 EBITDA 192 178 136 161 178 Contracting EBITDA on lower Growth adoption grants and cost Revenue Gth (%) (0.9) (0.1) 8.5 (6.7) (2.2) escalations EBITDA Gth (%) 4.7 (7.0) (24.0) 18.5 11.0 Opg Profit Gth (%) 7.2 (10.6) (39.0) 36.7 19.6 Net Profit Gth (Pre-ex) (%) 6.8 (13.2) (37.2) 35.4 17.2 Margins Gross Margins (%) 31.4 29.4 20.7 27.1 31.1 Opg Profit Margins (%) 21.5 19.3 10.8 15.9 19.4 Net Profit Margins (%) 18.5 14.7 8.5 12.3 14.8

Balance Sheet (S$m) FY Dec 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 890 918 995 1,026 1,051 Invts in Associates & JVs 27.5 25.9 24.3 22.7 21.1 Other LT Assets 388 511 546 791 738 Cash & ST Invts 173 285 109 51.8 60.4 Inventory 54.3 49.6 49.4 48.7 48.2 Debtors 153 172 171 169 167 Other Current Assets 223 234 234 234 234 Total Assets 1,909 2,196 2,130 2,344 2,320

ST Debt 138 10.0 10.0 10.0 10.0 Creditor 687 708 704 695 687 Other Current Liab 203 138 121 118 114 LT Debt 550 978 978 1,228 1,228 Other LT Liabilities 144 168 150 150 150 Shareholder’s Equity 188 195 167 143 132 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 1,909 2,196 2,130 2,344 2,320

Non-Cash Wkg. Capital (460) (390) (371) (361) (351) Net Cash/(Debt) (514) (702) (878) (1,186) (1,177) Debtors Turn (avg days) 23.5 24.8 26.3 26.4 26.4 Creditors Turn (avg days) 152.3 146.4 145.4 146.4 146.5 Inventory Turn (avg days) 9.9 10.9 10.2 10.3 10.3 Asset Turnover (x) 1.3 1.2 1.1 1.1 1.0 Current Ratio (x) 0.6 0.9 0.7 0.6 0.6 Quick Ratio (x) 0.3 0.5 0.3 0.3 0.3 Net Debt/Equity (X) 2.7 3.6 5.2 8.3 8.9 Net Debt/Equity ex MI (X) 2.7 3.6 5.2 8.3 8.9 Capex to Debt (%) 47.6 37.1 38.1 44.1 21.1 Z-Score (X) 3.2 2.9 2.8 2.4 2.4

Source: Company, DBS Bank

Page 46 Company Guide StarHub

Cash Flow Statement (S$m) FY Dec 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 440 410 320 303 277 Dep. & Amort. 271 265 264 271 289 Tax Paid (92.7) (53.7) (70.5) (53.8) (50.9) Assoc. & JV Inc/(loss) 0.30 1.60 1.60 1.60 1.60 Chg in Wkg.Cap. (108) (60.2) (2.3) (6.5) (5.4) Other Operating CF 33.5 (12.3) (28.4) (10.0) (10.0) Net Operating CF 545 551 485 505 502 Capital Exp.(net) (327) (366) (376) (546) (261) Other Invts.(net) 0.0 (18.0) 0.0 0.0 0.0 Assumed S$270m for Invts in Assoc. & JV (12.0) 0.0 0.0 0.0 0.0 spectrum payments Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 38.9 (5.4) 0.0 0.0 0.0 Net Investing CF (300) (389) (376) (546) (261) Div Paid (346) (346) (294) (276) (242) Chg in Gross Debt 0.0 300 0.0 250 0.0 Capital Issues 0.0 (12.3) 0.0 0.0 0.0 Other Financing CF 10.6 8.90 10.0 10.0 10.0 Net Financing CF (335) (49.6) (284) (16.4) (232) Currency Adjustments 0.30 0.0 0.0 0.0 0.0 Chg in Cash (90.8) 112 (176) (57.7) 8.63 Opg CFPS (S cts) 37.7 35.4 28.2 29.6 29.3 Free CFPS (S cts) 12.6 10.7 6.26 (2.4) 13.9 Source: Company, DBS Bank

Target Price & Ratings History

Source: DBS Bank Analyst: Sachin MITTAL

Page 47 Company Guide StarHub

Completed Date: 16 Oct 2017 10:41:23 (SGT) Dissemination Date: 16 Oct 2017 11:18:49 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

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

Page 48 Company Guide StarHub

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. Compensation for investment banking services: 3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from StarHub as of 29 Sep 2017.

4. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for StarHub in the past 12 months, as of 29 Sep 2017.

5. 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: 6. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 29 Sep 2017.

Disclosure of previous investment recommendation produced: 7. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

Page 49 Singapore Company Guide M1

Version 14 | Bloomberg: M1 SP | Reuters: MONE.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 16 Oct 2017

FULLY VALUED Earnings to diverge from EBITDA Last Traded Price ( 13 Oct 2017): S$1.815 (STI : 3,319.11) Thesis: Dividend yield is not appealing versus peers. Dividend Price Target 12-mth: S$1.49 (-18% downside) (Prev S$1.78) yield has been the most critical factor for the stock price in the Analyst past. M1’s FY18F dividend yield of 5.6%, coupled with potental Sachin MITTAL +65 6682 3699 [email protected] annual earnings decline of 12% over FY17F-19F, is not attractive versus Singtel’s ~5% yield with potential earnings What’s New CAGR of 3%. Circles.Life success as an MVNO (Mobile Virtual • Yield less attractive in the backdrop of falling earnings Network Operator), on top of TPG’s entry in late 2018, further adds to the sector’s woes. • Higher depreciation and amortisation to pressure earnings Where we differ: Market is not paying enough attention to • New mySIM plans could improve market share, but Circles.Life and the big divergence between M1’s EBITDA and ARPU dilution will hurt revenue earnings. Circles.Life in its short history of less than 12-months • Maintain FULLY VALUED with lower TP of S$1.49 of operations seems to be doing well by virue of its service delivery model and cheaper data pricing. Morever, even under the bull-case scenario of M1 sustaining EBITDA in FY18F/19F, its earnings and dividends (80% payout ratio in FY17) are set to Price Relative decline sharply due to rising depreciation of network assets and sharp rise in amortisation costs as M1 is set to pay S$188m for 700MHz spectrum when it is available.

Potential catalyst. Weak 2H17F results even before the actual launch of operations by TPG (expected in late 2018) could lead to further downward revision in consensus earnings and the Forecasts and Valuation valuation of M1, in our view. FY Dec (S$ m) 2016A 2017F 2018F 2019F Revenue 1,061 1,079 1,049 1,016 Valuation: EBITDA 312 302 293 293 Lowered TP to S$1.49. We raise WACC to 6.7% from 6.3% Pre-tax Profit 179 156 138 117 earlier as we expect higher volatility in the stock to raise the Net Profit 150 129 114 96.9 cost of equity. We roll forward our DCF valuation (terminal Net Pft (Pre Ex.) 150 129 114 96.9 Net Pft Gth (Pre-ex) (%) (16.1) (13.6) (11.6) (15.3) growth 0%) to FY18F. EPS (S cts) 16.1 13.9 12.3 10.4 EPS Pre Ex. (S cts) 16.1 13.9 12.3 10.4 Key Risks to Our View: EPS Gth Pre Ex (%) (16) (14) (12) (15) TPG struggling to roll out a network. Any potential delay in Diluted EPS (S cts) 16.1 13.9 12.3 10.4 Net DPS (S cts) 12.9 11.1 9.82 8.32 TPG’s rollout due to operational challenges could help M1 to BV Per Share (S cts) 43.3 44.3 45.5 46.1 sustain its revenue share. This could lift our TP to S$1.66. PE (X) 11.3 13.1 14.8 17.5 PE Pre Ex. (X) 11.3 13.1 14.8 17.5 At A Glance P/Cash Flow (X) 5.0 5.9 6.6 6.6 Issued Capital (m shrs) 925 EV/EBITDA (X) 6.7 6.9 7.6 7.5 Mkt. Cap (S$m/US$m) 1,679 / 1,245 Net Div Yield (%) 7.1 6.1 5.4 4.6 P/Book Value (X) 4.2 4.1 4.0 3.9 Major Shareholders (%) Net Debt/Equity (X) 1.0 1.0 1.3 1.2 Axiata Investments Ltd 28.7 ROAE (%) 36.7 31.7 27.3 22.7 Keppel Corp Ltd 19.2 Earnings Rev (%): 1 (1) (2) Singapore Press Holdings 13.5 Consensus EPS (S cts): 14.1 12.5 10.7 Free Float (%) 38.5 Other Broker Recs: B: 3 S: 9 H: 10 3m Avg. Daily Val (US$m) 3.2 Source of all data on this page: Company, DBS Bank, ICB Industry : Telecommunications / Mobile Telecommunications Bloomberg Finance L.P

Page 50 ed: TH / sa:YM, PY Company Guide M1

Post paid ARPU CRITICAL DATA POINTS TO WATCH Critical Factors:

Critical Factors New mySIM plans to weigh down revenues. The new SIM-only plans are 20-70% cheaper compared to M1's previous SIM-only plans while its new mySIMe plans allow re-contracting subscribers to switch down and enjoy the same data allowances, albeit with lower voice and SMS allocation. Similarly, new mySIMe plans (with smartphone) offer a much better bargain, compared to the older bundled plans at similar Net Handset Subsidy price points (even after considering data upsize packages) for heavy data users, with better data allocation and similar upfront price for smartphones. For example, a 64GB iPhone 8 would cost S$680 upfront with the S$40 mySIMe plans with 5GB of mobile data, while the same phone could cost S$665 upfront with the S$42 Lite+ plans with only 3GB of mobile data. mySIM plan more attractive than traditional plans

mySIMe plan Traditional plans Data Upfront Data Upfront Postpaid subscribers (K) Price Price bundle price bundle price S$40 5GB S$680 S$42.00 3GB S$665 S$70 15GB S$390 S$67.90 7GB* S$465 S$90 30GB S$245 S$87.90 9GB* S$275 S$118 Unlimited S$88 S$119.70 25GB** S$140 *Including upsized data plans **Including upsized data super plans Based on iPhone 8 64GB Source: M1

With the ability to choose between older legacy heavy plans and Source: Company, DBS Bank cheaper data plans, we are likely to see M1’s subscribers looking to minimise their monthly rentals as they see fit, resulting in at least a portion of the subscribers opting for lower-ARPU packages, leading to ARPU dilution. This will likely weigh on M1's revenues, which are ~70% made up of mobile.

Dividends hurt as earning decline due to escalating costs. In addition to revenue pressure, M1 is seeing escalating costs as the company looks to expand its headcount. The carrier is also seeing higher project-related expenses. This has pushed down M1’s EBITDA in recent quarters. which would likely be further exacerbated by a sharp rise in depreciation and amortisation costs as M1 invests in network assets and spectrum. M1 is expected to pay S$188m for 700MHz spectrum when it is available which would push down earnings further, resulting in lower dividends.

Page 51 Company Guide M1

Appendix 1: A look at Company's listed history – what drives its share price?

Dividends per share and handset subsidies are critical factors 2Q17 helps explain M1's recent price declines as investors for M1. Changes in M1’s dividends exhibit a strong correlation readjust their expectations for lower earnings in FY18. of 0.7 with the stock’s past price movements. M1’s dividend Changes in handset subsidies (defined as the cost of policy to pay out 80% of net profits has made interim and equipment less revenues from handset sales) also help explain final dividend payouts strong proxies for expected changes in M1's share price movements. Increasing handset subsidies, for the operator’s earnings. For example, the downward example, often heralds intense competition and squashed adjustment of interim dividends from 7.0 Scts to 5.2 Scts in margins, leading investors to readjust their expectations.

M1’s share price has high correlation with annual dividend per share

230 14%

210 12% 190 10% 170

150 8%

130 6% 110 4% 90 2% 70

50 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

M1 M1 Handset subs as a % of Mobile rev.

Source: M1, DBS Bank

M1’s share price has high negative correlation with handset subsidies

230 0.20 210 0.18 190 0.16 0.14 170 0.12 150 0.10 130 0.08 110 0.06 90 0.04 70 0.02 50 - 2006 2007 2007 2008 2008 2009 2010 2010 2011 2011 2012 2013 2013 2014 2014 2015 2015 2016

M1 M1 DPS Source: M1, DBS Bank

Page 52 Company Guide M1

Leverage & Asset Turnover (x) Balance Sheet: Capex spend to remain high. M1’s balance sheet has remained strong with its relatively consistent capital expenditure and dividend payments. The company expects to incur S$150m in capex in FY17, excluding spectrum payments. M1 will also incur another S$208m for spectrum acquired in the 2017 General Spectrum Auction. Of this, we have factored in S$20m for the 900MHz spectrum to be paid in 2017. We assume S$188m for the 700MHz spectrum to be paid in 2018 although there is no fixed time frame yet. We believe M1’s cash generation and flexibility to further lever its balance sheet will be sufficient to Capital Expenditure support current and future spectrum needs and network expansion plans.

Share Price Drivers: Costs and higher risk profile reduce TP. With M1’s increased costs, we have revised its earnings downwards by 2%/1% for FY18/FY19. In addition, we have increased our WACC to 6.7% from 6.3% earlier as we expect higher volatility in the stock. Singapore is moving towards an era of price competition with the entry of new telcos and MVNOs which adds volatility to the market. About 70% of M1’s revenues come from mobile, ROE (%) putting it at risk of higher volatility in earnings over the next 3-5 years. 40.0% 35.0% Bear-case valuation for M1 is S$1.32. In our bear-case scenario, 30.0% 25.0% we have assumed an aggressive reaction by the other telcos to 20.0% M1’s new mySIM plans which could hurt our current subscriber 15.0% addition assumptions. This would result in lower medium-term 10.0% revenues and earnings for M1. 5.0%

0.0% Bull-case valuation for M1 is S$1.66. In our bull case, we have 2015A 2016A 2017F 2018F 2019F assumed a late entry of TPG to the Singapore market which will Forward PE Band (x) reduce market competition and allow M1 to increase its market share additions over the next 12 months. This would have a positive impact on M1’s medium-term performance, which would result in us revising M1's share price upwards.

Key Risks: Strategic cost-cutting programme at M1 or TPG struggling to roll out a network. Any big cut in M1’s operating costs could result in better-than-expected earnings. Alternatively, a potential delay in TPG’s rollout due to operational challenges could also boost M1’s stock price. PB Band (x)

Company Background M1 is the smallest of the three telecom operators in Singapore. M1 provides mobile services and has also started to offer fixed broadband services by riding on the National Broadband Network.

Source: Company, DBS Bank

Page 53 Company Guide M1

Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F Post paid ARPU 54.2 50.3 47.3 45.4 44.5 Net Handset Subsidy 335 255 282 255 230 Postpaid subscribers (K) 1,195 1,247 1,291 1,278 1,259

Segmental Breakdown FY Dec 2015A 2016A 2017F 2018F 2019F Revenues (S$m) Post Paid Cellular 591 570 556 541 523 Pre Paid Cellular 76.9 70.3 62.2 61.2 63.9 IDD Revenue 68.7 61.3 55.9 51.4 47.9 Fixed network services 85.9 104 123 140 152 ARPU decline hurts Others 335 255 282 255 230 earnings Total 1,157 1,061 1,079 1,049 1,016

Income Statement (S$m) FY Dec 2015A 2016A 2017F 2018F 2019F Revenue 1,157 1,061 1,079 1,049 1,016 Cost of Goods Sold (822) (754) (782) (761) (729) Gross Profit 336 307 297 288 288 Other Opng (Exp)/Inc (112) (122) (133) (139) (157) Operating Profit 223 185 164 149 130 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (4.9) (6.7) (8.0) (11.0) (13.8) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 218 179 156 138 117 Tax (39.9) (28.9) (26.5) (23.4) (19.8) 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 179 150 129 114 96.9 Net Profit before Except. 179 150 129 114 96.9 EBITDA 342 312 302 293 293 Growth Revenue Gth (%) 7.5 (8.3) 1.7 (2.8) (3.1) EBITDA Gth (%) 1.8 (8.7) (3.1) (3.1) 0.0 Opg Profit Gth (%) 1.0 (17.0) (11.6) (9.2) (12.3) Net Profit Gth (Pre-ex) (%) 1.5 (16.1) (13.6) (11.6) (15.3) Margins & Ratio Gross Margins (%) 29.0 28.9 27.5 27.4 28.3 Opg Profit Margin (%) 19.3 17.5 15.2 14.2 12.8 Net Profit Margin (%) 15.4 14.1 12.0 10.9 9.5 ROAE (%) 44.2 36.7 31.7 27.3 22.7 ROA (%) 16.9 13.4 11.2 9.2 7.4 ROCE (%) 21.7 17.3 14.7 12.2 9.9 Div Payout Ratio (%) 80.5 80.0 80.0 80.0 80.0 Net Interest Cover (x) 45.6 27.7 20.4 13.6 9.5 Source: Company, DBS Bank

Page 54 Company Guide M1

Quarterly / Interim Income Statement (S$m) FY Dec 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017

Revenue 240 249 314 261 252 Cost of Goods Sold (160) (176) (243) (182) (179) Gross Profit 80.4 73.2 70.6 78.3 73.1 Other Oper. (Exp)/Inc (29.2) (30.5) (31.9) (30.9) (31.2) Operating Profit 51.2 42.7 38.7 47.4 41.9 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 (0.1) Net Interest (Exp)/Inc (1.6) (1.9) (2.0) (2.0) (2.1) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 49.6 40.8 36.7 45.4 39.7 Tax (8.5) (6.4) (4.9) (9.1) (7.3) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 41.0 34.4 31.8 36.3 32.5 Net profit bef Except. 41.0 34.4 31.8 36.3 32.5 EBITDA 82.3 74.6 72.1 79.1 73.4

Growth Revenue Gth (%) (6.7) 3.6 26.0 (16.9) (3.5) EBITDA Gth (%) (1.1) (9.4) (3.4) 9.7 (7.2) Opg Profit Gth (%) (3.2) (16.6) (9.4) 22.5 (11.6) Net Profit Gth (Pre-ex) (%) (3.5) (16.1) (7.6) 14.2 (10.5) Declining margins due to Margins higher costs Gross Margins (%) 33.4 29.4 22.5 30.0 29.1 Opg Profit Margins (%) 21.3 17.1 12.3 18.2 16.7 Net Profit Margins (%) 17.1 13.8 10.1 13.9 12.9

Balance Sheet (S$m) FY Dec 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 714 742 794 980 970 Invts in Associates & JVs 0.0 2.95 2.95 2.95 2.95 Other LT Assets 112 174 155 134 98.0 Cash & ST Invts 9.97 11.0 8.54 2.31 50.3 Inventory 51.5 23.0 23.4 22.7 22.0 Debtors 166 166 168 164 159 Other Current Assets 33.1 27.8 7.83 7.83 7.83 Total Assets 1,086 1,147 1,160 1,313 1,310

ST Debt 354 151 151 151 151 Creditor 146 165 168 164 159 Other Current Liab 62.5 58.7 59.8 56.7 53.1 LT Debt 0.0 250 250 400 400 Other LT Liabilities 111 118 118 118 118 Shareholder’s Equity 413 403 413 424 429 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 1,086 1,147 1,160 1,313 1,310

Non-Cash Wkg. Capital 42.5 (7.8) (28.5) (26.1) (23.2) Net Cash/(Debt) (344) (390) (392) (549) (501) Debtors Turn (avg days) 49.8 57.0 56.5 57.8 57.9 Creditors Turn (avg days) 78.6 90.5 94.7 98.2 103.8 Inventory Turn (avg days) 21.2 21.7 13.1 13.6 14.4 Asset Turnover (x) 1.1 1.0 0.9 0.8 0.8 Debt at a comfortable Current Ratio (x) 0.5 0.6 0.5 0.5 0.7 level Quick Ratio (x) 0.3 0.5 0.5 0.4 0.6 Net Debt/Equity (X) 0.8 1.0 1.0 1.3 1.2 Net Debt/Equity ex MI (X) 0.8 1.0 1.0 1.3 1.2 Capex to Debt (%) 37.7 51.2 42.7 56.1 21.2 Z-Score (X) 3.2 2.9 2.8 2.4 2.4

Source: Company, DBS Bank

Page 55 Company Guide M1

Cash Flow Statement (S$m) FY Dec 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 218 179 156 138 117 Dep. & Amort. 118 127 139 144 162 Tax Paid 39.6 (33.2) (25.5) (26.5) (23.4) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (137) 62.7 19.6 0.66 0.71 Other Operating CF 0.0 0.0 0.0 0.0 0.0 Net Operating CF 239 335 289 256 256 Capital Exp.(net) (133) (205) (171) (309) (117) Other Invts.(net) (8.5) (11.9) 0.0 0.0 0.0 Expect a dividend cut Invts in Assoc. & JV 0.0 (3.0) 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 (142) (220) (171) (309) (117) Div Paid (177) (142) (120) (103) (91.5) Chg in Gross Debt 51.8 47.2 0.0 150 0.0 Capital Issues 0.0 (18.6) 0.0 0.0 0.0 Other Financing CF 15.1 0.0 0.0 0.0 0.0 Net Financing CF (110) (114) (120) 46.5 (91.5) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (12.8) 1.04 (2.5) (6.2) 48.0 Opg CFPS (S cts) 40.2 29.2 28.9 27.4 27.5 Free CFPS (S cts) 11.3 13.9 12.6 (5.7) 15.0 Source: Company, DBS Bank

Target Price & Ratings History

Source: DBS Bank Analyst: Sachin MITTAL

Page 56 Company Guide M1

Completed Date: 16 Oct 2017 10:19:13 (SGT) Dissemination Date: 16 Oct 2018 10:36:55 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

Page 57 Company Guide M1

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

Compensation for investment banking services: 3. 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.

Disclosure of previous investment recommendation produced: 4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

Page 58 Industry Focus Singapore Telecom Sector

Completed Date: 25 Jan 2018 16:14:21 (SGT) Dissemination Date: 25 Jan 2018 18:10:40 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

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

Page 59 Industry Focus Singapore Telecom Sector

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), DBSV HK or their subsidiaries and/or other affiliates have proprietary positions in China Mobile, China Telecom, China Unicom, SmarTone, Hutchison Telecom, HKT Trust, M1, NetLink NBN Trust, Singtel, StarHub, Advanced Info Service, Total Access Communication, recommended in this report as of 29 Dec 2017. 2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. 3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in M1, NetLink NBN Trust, recommended in this report as of 29 Dec 2017. 4. DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA, DBSV HK, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of NetLink NBN Trust, as of 29 Dec 2017.

Compensation for investment banking services: 5. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from NetLink NBN Trust, StarHub, Indosat, XL Axiata, PT Sarana Menara Nusantara, Tower Bersama Infrastructure, as of 29 Dec 2017. 6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for NetLink NBN Trust, StarHub, Indosat, XL Axiata, PT Sarana Menara Nusantara, Tower Bersama Infrastructure, in the past 12 months, as of 29 Dec 2017. 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.

Page 60 Industry Focus Singapore Telecom Sector

Directorship/trustee interests: 8. Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Director / Chairman of M1 as of 31 Dec 2017. 9. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 31 Dec 2017

Disclosure of previous investment recommendation produced: 10. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

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

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946.

DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. DBSVS is regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws.

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

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

For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

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

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.

Page 61 Industry Focus Singapore Telecom Sector

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HONG KONG MALAYSIA SINGAPORE DBS Vickers (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Paul Yong Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 65 6878 8888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 65 65353 418 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong e-mail: [email protected] Company Regn. No. 196800306E

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