Singapore Industry Focus Telecom sector
Refer to important disclosures at the end of this report
DBS Group Research. Equity 16 Oct 2017 M1 takes a cue from Circles.Life to STI : 3,288.95 stiffen competition Analyst • M1’s new mySIM plans to further dilute ARPU, thwarting Sachin MITTAL +65 6682 3699 [email protected] efforts by other players to stabilise ARPU. • Our top pick is Singtel as its core plus digital business is trading at an unsustainable 20-40% discount to M1- StarHub. Hard to see bottoming out of earnings for M1 STOCKS and StarHub. Maintain FULLY VALUED on StarHub and M1 12-mth with lower TP. Price Mkt Cap Target Price Performance (%) M1 is undercutting the efforts of its peers to stabilise S$ US$m S$ 3 mth 12 mth Rating ARPU, taking a cue from Circles.Life. Singtel and StarHub SingTel 3.70 44,784 4.30 (5.4) (3.4) BUY tried to stablise the postpaid ARPU in Aug-Sep 2017 by offering StarHub 2.67 3,422 2.20 (2.6) (20.8) FULLY VALUED more bundled data with upward revison in package pricing. M1 1.82 1,245 1.49 (11.5) (20.0) FULLY VALUED However, M1’s handset-based MySIM* plans launched in October offer more bundled data at a lower package price. This Source: DBS Bank, Bloomberg Finance L.P. effectively reduces package pricing by 16%-22% versus its Closing price as of 13 Oct 2017 older plans in our estimates and would lead to a dilution of the postpaid ARPU. This could help M1 to garner higher revenue Chart 1 - Singtel’s EBITDA is growing on an annual basis share, if Singtel and StarHub do not react. We believe that M1, versus decline at peers, not reflected in its valuation yet being the network provider of Circles.Life, is painfully aware of the ~1% market share gained by Circles.Life by virtue of its EBITDA growth over Jan-June 2017 low-touch business model and cheaper data pricing. While the 4% 3% market is concerned about TPG’s entry in late 2018, Circles.Life 2% Singtel is quietly chipping away market share under the radar. 0% StarHub M1 -2%
Market is valuing Singtel’s core + digital at 5.6x -4% EV/EBITDA versus 7x for M1 and 9x for StarHub. With -6% Singtel’s digital advertising business achieving EBITDA -8% breakeven in 1Q18, the market is likely to appreciate its resilient -8% business (see side chart) and its early lead in the digital -10% -9% transformation. Potential catalyst could be special dividends of S$600m-1.5bn in the upcoming results, taking total dividend Source: Companies, DBS Bank yield to 6.0%-7.5%. Chart 2 - M1 has reversed the trend of revenue share loss, Cost escalations to weigh on M1 while StarHub continues possibly on the back of Circles.Life since 3Q16 to lose its pay TV and broadband subscribers. Despite revenue share gains since 3Q16 (see side chart), we expect M1’s earnings to trend downwards due to adverse impact of fair Mobile revenue market share value accounting (FVA) for iPhone (iPhone 8 take-up is rather 60.0% slow) and higher staff costs to grow its enterprise business. 52.2% 52.1% 52.6% 52.0% 52.2% 51.5%
Even in the unlikely scenario of M1 stabilising its EBITDA over 50.0% FY18F/19F, its earnings will still decline due to high network 40.0% and spectrum investments leading to higher depreciation, 29.9% 30.3% 30.3% 30.8% 30.3% 30.8% impacting dividends adversely. StarHub, on the other hand, is 30.0% also under pressure in the pay TV and broadband business, which are critical factors for the stock performance. StarHub 20.0% needs to lever up to sustain its annual 16-Sct DPS in our view. 18.0% 17.7% 17.2% 17.2% 17.5% 17.7% 10.0%
0.0% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Singtel Starhub M1 Source: Companies, DBS Bank
ed: TH / sa:YM, PY Page 1 Industry Focus Telecom Sector
Revenue share gain by M1 since 3Q16 M1’s new plans intended to take further revenue share M1 has started to gain market share since 3Q16. M1'srevenue market share has been trending upwards since 3Q16 partly Telcos have started to introduce unlimited data plans. In late due to market share gain of Circles.Life, Singapore’s first full- August 2017, Singapore’s incumbent telcos started offering service mobile virtual network operator (MVNO) which unlimited data plans to re-contracting/new users. StarHub’s launched operations in mid-2016. Circles.Life utilises M1’s new plans confine unlimited data to weekends and increase network, while M1’s mobile segment includes the former's package prices by S$2-6. Singtel offers unlimited data plans revenue and subscribers. M1 steadily lost revenue market for its higher-end postpaid packages (starting from share, mainly to Singtel between 2014 and mid-2016, S$68.90/month) as an add-on for S$39.90. M1 is now dropping to 17.2% in 2Q16 from 18.8% in 1Q14. However, offering the mySIMe plans at a S$20-40 premium to SIM-only we believe with the successful launch of Circles.Life, M1 has plans to factor in the cost of the handsets over the contract started to attract more market share in the most recent period. There is no handset subsidy versus SIM-only plans with quarters. the only exception being unlimited data plans.
M1 has been gaining mobile revenue share New M1’s mySIM plans versus older postpaid plans New Plans Price S$40 S$70 S$90 S$118 Voice mins 100 100 100 100 SMS 100 100 100 100 Data 5GB 15GB 30GB Unlimited
Old plans (still existing) Price S$28 S$42 S$62 S$82 S$102 S$228 Voice mins 100 200 300 400 800 Unlimited SMS 500 1000 1200 1500 2000 5000 Data 300MB 3GB 4GB 5GB 7GB 13GB Additional data Upsize Data +S$ 5.90 N/A 2GB 3GB 4GB 6GB 12GB Upsize Data Plus +S$ 11.80 N/A 4GB 6GB 8GB 12GB 24GB Upsize Data Super +S$ 17.70 N/A 6GB 9GB 12GB 18GB 36GB
New mySIM plans are 16-22% cheaper than postpaid plans New plan Cost S$40.00 S$70.00 Data 5GB 15GB Old plan Source: Singtel, StarHub, M1, DBS Bank Cost S$47.90 S$89.70 Data* 5GB 13GB StarHub's market share mostly driven by handset subsidies. Discount -16% -22% StarHub has also been seeing market share gains over the past *include data upsize plans few quarters. However, this was mostly due to higher handset subsidies in the latter part of 4Q16 and early FY17. We Source: M1, DBS bank estimate that StarHub has increased the subsidy for iPhones 8 StarHub, Singtel plans are ARPU accretive, to be undercut by for the lower-end postpaid subscribers compared to the e subsidies it provided for iPhone 7 by ~S$50. M1’s new mySIM plans. We believe StarHub’s new plans with higher rentals and weekend-only unlimited data would encourage users to re-contract at higher monthly rentals. Similarly, by eliminating Data X2 and Data X3 plans, Singtel is leaving subscribers to sign up for the more expensive Data X Infinity add-on. As a result, despite the lower per unit revenue for data, the new unlimited plans are likely to increase the postpaid ARPU of StarHub and Singtel, indicating that the incumbents are less concerned about potential competition from the TPG entrance.
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Industry Focus Telecom Sector
StarHub postpaid plans are ~S$5 more expensive than mySIMe plans offer comparable upfront phone prices with older discontinued plans better data allocations. The new mySIMe plans (with Old plan smartphone) offer a much better bargain, compared to the Price Plans XS SML XL older bundled plans at similar price points (even after Price S$ 42.90 S$ 62.90 S$ 82.90 S$ 102.90 S$ 220.00 considering data upsize packages) for data heavy users, with Sim only S$ 21.45 S$ 31.45 S$ 41.45 S$ 51.45 S$ 110.00 better data allocation and similar upfront price for Local Calls (mins) 150 350 450 700 Unlimited Local SMS/MMS 1000 1200 1300 1500 Unlimited smartphones. For example, a 64GB iPhone 8 would cost e Local Data Bundle 3GB 4GB 5GB 6GB 12GB S$680 upfront with the S$40 mySIM plans with 5GB of Additional data mobile data, while the same phone could cost S$665 upfront Price N/A S$ 10 S$ 10 S$ 10 S$ 10 with the S$42 Lite+ plans with only 3GB of mobile data. Data bundle (GB) N/A 5 10 15 20 Furthermore, the pricing structure results in minimal to no subsidies at the highest end of the plans which should reduce New plan the handset subsidy costs as users increase uptake of these Price Plans XS SML XL Price S$ 48 S$ 68 S$ 88 S$ 108 S$ 238 plans. Sim only S$ 24 S$ 34 S$ 44 S$ 54 S$ 119 Local Calls (mins) 200 400 Unlimited Unlimited Unlimited New plans offer similar upfront costs with better data Local SMS/MMS Pay per use at 5.35 cents/SMS Unlimited allocations 3GB 4GB 5GB 6GB 12GB Local Data Bundle Unlimited data during weekends mySIMe plan Traditional plans Additional data Data Upfront Data Upfront Price N/A S$ 10 S$ 10 S$ 10 S$ 10 Price Price Data bundle (GB) N/A 5 10 15 20 bundle price bundle price Source; Company, DBS Bank S$40 5GB S$680 S$42.00 3GB S$665 S$70 15GB S$390 S$67.90 7GB* S$465 Singtel raises Combo 3 pricing by S$6 per month and S$90 30GB S$245 S$87.90 9GB* S$275 offers unlimited data for an additional S$39.90 per month S$118 Unlimited S$88 S$119.70 25GB** S$140 *Including upsized data plans New Plan **Including upsized data super plans Combo 1 Combo 2 Combo 3 Combo 6 Combo 12 Based on iPhone 8 64GB Price $27.90 $42.90 $68.90 $95.90 $239.90 Source: M1, DBS Bank Data 100MB 2GB 3GB 6GB 12GB Voice mins 100 200 Unlimited M1 is adjusting to the new paradigm of lower data pricing in SMS 500 1000 Unlimited the long term. We believe Singtel and StarHub data plans are DATA X INFINTY N/A N/A Unlimited data, +$39.90 mostly focused on improving their revenues by pushing up Old Plan ARPUs. However, in contrast, the new M1 reflect M1’s long- Combo 1 Combo 2 Combo 3 Combo 6 Combo 12 term strategy of adjusting to the new paradigm of lower data Price $27.90 $42.90 $62.90 $102.90 $239.90 prices, higher transparency and subscriber choice, which will Data 100MB 2GB 3GB 6GB 12GB inevitably be introduced once the fourth player enters the Voice mins 100 200 300 700 Unlimited market. M1’s MySIMe plans offer much higher data SMS 500 1000 1200 1500 Unlimited allowances at comparable prices while also showing a clear Data X3 distinction between what the customers are paying for service Price N/A S$9.90 vs what they pay for their smartphones. Similarly, by having Additional data N/A 4GB 9GB 18GB 24GB Source; Company, DBS Bank comparable SIM-only plans as well as retaining their legacy heavy-bundled packages, M1 has left a choice for subscribers However, this may be undercut by the cheaper data plans unlike other telcos. introduced by M1 which could allow subscribers to switch to cheaper smartphone or SIM-only plans. The new SIM-only Though this is likely to cause near-term pain in the market plans are 20-70% cheaper compared to previous M1 SIM-only with potential ARPU dilution, M1 also could end up gaining plans while its new mySIMe plans allow re-contracting market share in the near term if Singtel and StarHub do not subscribers to switch down and enjoy the same data retaliate by introducing new plans of their own. allowances, albeit with lower voice and SMS allocation.
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Industry Focus Telecom Sector
StarHub is trying to grow its enterprise business to offset the Cord-cutting starting to eat into revenues. Pay TV in decline of other businesses. Since 2H16, StarHub has been Singapore has been losing subscribers as more and more showing signs of weaker revenue with mobile and pay TV subscribers have started to opt for OTT players such as Netflix. posting weaker figures. Though enterprise fixed revenues However, this did not have an impact till 1H17 as much of the showed bumper revenues in 4Q16, masking underlying subscriber losses were lower-ARPU subscribers which were weakness of the other segments, it has not been able to show largely offset by higher advertising revenue. However, we consistently high revenues to offset declining pay TV and believe StarHub’s cable segment has started to see the churn mobile. We believe StarHub’s hubbing strategy is starting to of higher-end subscribers which is beginning to weigh down weaken with a number of households downgrading from its cable revenue. double-play and triple-play services. As this is a critical success factor for StarHub, there could be near-term impact on the Pay TV subscriber decline company's share price as the structural decline is unlikely to Pay TV subs ('000) change. 550 528 518 507 StarHub’s hubbing households are declining 498 487 500 477
450 423 416 412 409 408 404 400
350
300 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Singtel Starhub
Source: Starhub, DBS Bank
Despite market share gain, M1's earnings are set to decline. With competition in the mobile segment, M1 is looking to expand its headcount in the enterprise segment in the hope of generating new revenue streams. Along with higher project- Source: StarHub, DBS Bank related expenses, these costs have resulted in an overall increase in M1's operating expenses. The higher headcount Fixed Broadband subscriber decline at StarHub and push towards capturing enterprise revenues come amid stagnating revenues which have pushed down M1's EBITDA in recent quarters. The enterprise revenues are yet to make any significant improvement and mobile revenues are likely to contract industry-wide due to the new MySIM plans which should contract M1 revenues going forward.
Furthermore, M1’s ongoing network investments and the expanded asset base are likely to expand the company's depreciation costs, which would reduce its earnings in the coming quarters. This should negatively impact M1’s dividend payment, which is set at 80% of earnings. Handset subsidies and dividend payments, being critical factors for M1, should therefore have a negative impact on its share price.
Source: StarHub, Singtel DBS Bank
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Industry Focus Telecom Sector
M1's EBITDA is trending down Singapore operations - EBITDA growth y-o-y 1H17
Source: DBS Bank, Companies
Source: M1, DBS Bank Singtel’s EBITDA is growing on an annual basis versus
decline at peers Singtel’s Singapore operations remain superior to peers.
Singtel’s Singapore operations generate over 50% of revenues EBITDA growth over Jan-June 2017 from enterprise which should enable it to fare better in the 4% 3% near term compared to its peers M1 and StarHub. EBITDA 2% from Singtel’s Singapore operations has shown much better Singtel 0% StarHub M1 resilience in the first half of 2017, declining only 3% -2% compared to its peers M1 and StarHub which saw declines of -4%
8% and 9% respectively. With EBITDA in Australia growing, -6%
Singtel’s total EBITDA is actually up 3.1% over the same -8% -8% period. -10% -9%
Singapore operations – revenue breakdown Source: Companies, DBS Bank
Source: DBS Bank, Companies
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Industry Focus Telecom Sector
Circles.Life already making waves under the radar
Circles.Life's successful initial launch. Circles.Life, Singapore’s services over M1's mobile network as a digital SIM-only first full-service MVNO, launched its services in May 2016 and postpaid offering with no brick-and-mortar outlets. Though has so far been successful in addressing its target market of the company has not released any operational data, it claims young tech-savvy users who are concerned with mobile data to have hit 100% of its target market and plans to capture 4- over talk time and SMS. The company provides its mobile 6% of market share over the next few years.
No physical touch points
Source: DBS Bank
Bonus data and VAS. New customers are able to sign up for Customisable plans at Circles.Life the service using an online log-in based on their email for a registration fee of S$38 (which can be reduced by ~S$20 using a promo code). Customers are then allowed to customise their basic S$28/month plan with add on options such as 20GB for S$20, unlimited incoming calls (S$2/month) as well as additional data, voice and SMS quotas. Users can add data, voice and SMS for S$6/GB, S$4/100min and S$4/100SMS respectively. However, a 6GB allocation of data is only available for customers who are porting in the existing postpaid number, while those who are complete new sign-ups receive only 4GB of allocation.
Circles.Life also offers unlimited WhatsApp use (excluding video calls, 10,000 minutes of voice calls) without impacting data bundle, while also includes free caller ID. Furthermore, Circles.Life has been regularly offering additional data quotas for customers through various programmes as loyalty rewards, which can be substantial.
Source: Circles.Life
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Industry Focus Telecom Sector
The service also allows new users (those not porting in) to Completely online customer engagement. Following the sign- select their telephone numbers (known as golden numbers) up process, Circles.Life customers receive their SIM cards over for a fee of S$388 each. In addition, Circles.Life also allows mail, fulfilled by SingPost. The user gets to choose the time of users to buy smartphones with no upfront costs and claims to delivery, but there is a S$6 surcharge if the delivery is provide ~S$500 savings in the long term compared to 2-year scheduled over the weekend. Circles.Life also allows users to contracts from incumbents. manage their subscriptions freely by using a smartphone app. This gives users extra visibility and control compared to Circles.Life claims S$500 savings for its subscribers for traditional postpaid services where users only see their bills at iPhone 8 - 64GB without having to sign any 24-month the end of the month and need to visit outlets to manage contract their subscriptions.
In addition, to reduce overheads, Circles.Life relies on chat or voice mail for customer care instead of a 24/7 call centre and is only active from 9am to 10pm. This, we believe would be a major concern for heavy users who rely heavily on their mobile devices for daily activities.
^Telco X does not include GST in this comparison Source: Circles.Life website
Circle Life comparison to incumbents Circle Life Other telcos Data bundle 4GB + additional 2GB per month if porting 2-3GB for contract less plans at comparable existing number price levels Caller ID Free S$5/month WhatsApp usage Free Regular data usage applies Customer touch points No physical touch points Traditional channels Source: DBS Bank
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Industry Focus Telecom Sector
Critical Success Factors for share price performance
Hubbing households and changes in postpaid ARPU are key Dividends per share and handset subsidies are critical factors determinants of StarHub’s share price. In our critical factor for M1. Changes in M1’s dividends exhibit a strong analysis conducted to understand the share price drivers of correlation of 0.7 with the stock’s past price movements. Singapore telcos over the past ten years, we have identified M1’s dividend policy to pay out 80% of net profits has made StarHub’s hubbing subscriber base to be a precursor of the interim and final dividend payouts strong proxies for expected company's share price performance. Hubbing, or the offering changes in the operator’s earnings. For example, the of Mobile, Broadband and Pay TV services bundled together, downward adjustment of interim dividends from 7.0 Scts to was StarHub's go-to-market strategy and allowed the 5.2 Scts in 2Q17 helps explain M1's recent share price company to develop a loyal subscriber base. Hence, changes declines as investors readjust their expectations for lower in hubbing subscribers with subscriptions to all three services, earnings in FY18. Changes in handset subsidies (defined as which exhibits a correlation of 0.7 with StarHub’s share price, the cost of equipment less revenues from handset sales) also provides valuable cues on the execution effectiveness of help explain M1's share price movements. Increasing handset StarHub’s strategy to investors. Changes in postpaid ARPU, an subsidies for example, often heralds intense competition and indicator of top-line and subscriber growth, also exhibits a squashed margins, leading investors to readjust their correlation of 0.5 with StarHub’s share price. expectations.
StarHub’s share price has high correlation with the M1’s share price has high correlation with annual number of hubbing households dividend per share
StarHub’s share price has decent correlation with the M1’s share price has high negative correlation with mobile postpaid ARPU handset subsidies
Source: StarHub, DBS Bank Source: M1, DBS Bank
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Industry Focus Telecom Sector
Associate profits and Singapore business are critical factors for share price also closely follows top-line contributions from its SingTel. Singtel’s share price closely follows pre-tax Singapore businesses. This is likely because Singapore contributions from associates, which account for over 50% of operations, of which enterprise business accounts for the the company's pre-tax profits. Pre-tax associate profits and lion’s share, carry higher EBITDA margins, thereby boosting contributions from Singapore businesses exhibit a strong Singtel’s earnings. correlation of 0.8 with past share price movements. Singtel’s
Singtel’s share price has high correlation with Singapore’s Singtel’s share price has high correlation with associates’ revenue profits
Source: Singtel, DBS Bank
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Industry Focus Telecom Sector
Peer valuation
Mkt Price 12-mth CA GR Company FYE Cap S$ Target Price % 16-18 PE (x) Div idend Yield (%) P/BV EV /EBITDA (US$m) 13-Oct L CL Upside Rcmd (%) 17F 18F 16A 17F 16A 17F 17F 18F
China / Hong Kong SHCOMP Index 3,391 China Mobile Dec 205,612 78.40 114.00 45% BUY 4 12.0 11.5 3.6% 8.0% 1.4x 1.4x 3.1x 2.8x China Telecom Dec 7,377 4.15 5.10 23% BUY 8 14.2 13.4 2.7% 3.0% 0.9x 0.9x 3.7x 3.6x China Unicom Dec 34,353 11.20 11.30 1% HOLD 289 45.8 23.9 0.0% 0.8% 1.0x 1.0x 3.9x 3.4x Smartone Tele J un 1,367 9.65 7.50 -22% V ALUED -8 15.6 15.4 6.2% 6.2% 2.4x 2.3x 5.3x 5.1x Hutchison Tel Dec 1,771 2.87 3.30 15% HOLD -1 20.4 20.0 3.8% 3.7% 1.2x 1.2x 7.1x 6.8x HKT Trust Dec 9,242 9.53 12.80 34% BUY 0 15.2 14.8 6.5% 6.6% 1.8x 1.8x 8.5x 8.4x
Malay sia KLCI Index 1755.32 Digi.Com Dec 9,001 4.88 4.20 -14% V ALUED -4 25.7 25.3 4.3% 3.9% 73.1x 73.1x 13.9x 13.7x Maxis Bhd Dec 10,895 5.88 5.15 -12% HOLD 0 23.2 22.4 3.4% 3.7% 9.4x 6.9x 12.1x 12.1x Telekom Dec 5,527 6.20 7.10 15% BUY 9 27.0 23.3 3.5% 3.3% 3.0x 3.0x 7.3x 6.9x Axiata Group Dec 11,249 5.27 4.75 -10% HOLD 1 36.9 32.7 1.5% 1.4% 2.0x 2.0x 8.3x 7.9x
Singapore STI Index 3319.11 Singtel Mar 44,784 3.70 4.30 16% BUY 0 15.8 15.3 4.7% 6.7% 2.1x 1.9x 8.5x 8.5x M1 Dec 1,251 1.82 1.78 -2% V ALUED -12 13.2 14.6 7.1% 6.0% 4.2x 4.1x 6.9x 7.6x SingTel Mar 44,784 3.70 4.30 16% BUY 0 15.8 15.3 4.7% 6.7% 2.1x 1.9x 8.5x nm Starhub Dec 3,422 2.67 2.33 -13% V ALUED -12 17.4 18.0 7.5% 6.0% 23.7x 27.7x 9.0x 9.5x
Thailand SET Index 1712.48 Adv anced Inf Dec 17,536 195.00 162.00 -17% HOLD 6 19.6 17.1 5.2% 3.6% 13.6x 11.8x 10.0x 9.1x Total Access C Dec 4,154 58.00 37.90 -35% SELL 19 80.8 37.8 0.7% 0.3% 5.2x 4.9x 5.9x 5.7x
Indonesia J CI Index 5924.124 Indosat Dec 2,507 6,200 6,800 10% HOLD nm 25.8 nm 0.0% 0.0% 2.5x 2.3x 4.0x 3.8x PT Telekom Dec 33,223 4,430 4,800 8% HOLD 18 18.7 16.5 3.1% 3.7% 5.2x 5.0x 7.2x 6.7x XL Axiata Dec 2,807 3,530 3,900 10% HOLD nm -1375.7 80.1 0.6% 0.0% 1.8x 1.8x 6.0x 5.3x PT Sarana Men Dec 3,249 4,280 5,100 19% BUY nm 18.9 17.2 0.0% 1.6% 4.1x 3.5x 10.2x 9.4x Tower Bersam Dec 2,141 6,350 6,200 -2% HOLD -2 32.2 24.5 0.9% 3.5% 18.5x 19.8x 13.9x 12.8x
Av erage -52.1 23.4 7.7 7.4
Singapore Telecom 17 & 18 earnings respectively Source: DBS Bank; DBS Vickers
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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 11 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 12 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 13 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 14 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).
Page 15 Company Guide SingTel
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 16 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 17 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 18 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 19 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$m) 28/9/2017 LCL Upside Rcmd (%) 17F 18F 16A 17F 16A 17F 17F 18F
China / Hong Kong SHCOMP Index 3,340 China Mobile 208,235 79.45 114.00 43% BUY 4 12.3 11.8 3.5% 7.8% 1.4x 1.4x 3.2x 2.9x China Telecom 7,106 4.00 5.10 28% BUY 8 13.8 13.0 2.7% 3.0% 0.9x 0.8x 3.7x 3.5x China Unicom 33,474 10.92 11.30 3% HOLD 289 45.1 23.6 0.0% 0.8% 1.0x 1.0x 3.8x 3.4x Smartone Telecom 1,309 9.25 7.50 -19% FV -8 15.0 14.7 6.4% 6.4% 2.3x 2.3x 5.1x 4.9x Hutchison Telecom 1,739 2.82 3.30 17% HOLD -1 20.0 19.7 3.9% 3.7% 1.2x 1.2x 7.1x 6.8x HKT Trust 9,275 9.57 12.80 34% BUY 0 15.2 14.9 6.5% 6.6% 1.8x 1.8x 8.5x 8.3x
Malay sia KLCI Index 1758.06 Digi.Com 9,001 4.90 4.20 -14% FV -4 25.8 25.4 4.3% 3.9% 73.4x 73.4x 14.0x 13.7x Maxis Bhd 10,685 5.79 5.15 -11% HOLD 0 22.9 22.1 3.5% 3.8% 9.2x 6.8x 11.9x 11.9x Telekom 5,629 6.34 7.10 12% BUY 9 27.6 23.8 3.4% 3.3% 3.1x 3.1x 7.4x 7.0x Axiata Group 11,076 5.21 4.75 -9% HOLD 1 36.5 32.3 1.5% 1.4% 2.0x 1.9x 8.2x 7.8x
Singapore ST I Index 3227.14 M1 1,223 1.79 1.78 0% FV -12 13.0 14.3 7.2% 6.1% 4.1x 4.0x 6.8x 7.5x SingTel 44,133 3.67 4.30 17% BUY 0 16.3 15.2 4.8% 7.0% 2.1x 1.9x 8.5x 8.5x Starhub 3,323 2.61 2.33 -11% FV -12 17.0 17.6 7.7% 6.1% 23.0x 27.0x 8.8x 9.3x
T hailand SET Index 1666.36 Advanced Info Service 17,232 193.50 162.00 -16% HOLD 6 19.4 17.0 5.2% 3.6% 13.5x 11.7x 10.0x 9.1x Total Access Comm. 3,989 56.25 37.90 -33% SELL 19 78.4 36.7 0.7% 0.3% 5.0x 4.8x 5.7x 5.6x
Indonesia J CI Index 5841.047 Indosat 2,543 6,300 6,800 8% HOLD nm 26.2 nm 0.0% 0.0% 2.6x 2.3x 4.0x 3.9x PT Telekom 35,270 4,710 4,800 2% HOLD 18 19.9 17.5 2.9% 3.5% 5.6x 5.3x 7.6x 7.1x XL Axiata 2,938 3,700 3,900 5% HOLD nm -1441.9 84.0 0.6% 0.0% 1.9x 1.9x 6.2x 5.5x
Singapore Telecom 18 & 19 forecast respectively Source: DBS Bank; DBS Vickers
Page 20 Company Guide SingTel
Singapore Revenue (S$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 21 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 22 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$4.60. In our bull-case, we have assumed core EBITDA to grow 3% each over FY19-24 despite new mobile entrants in Singapre and Australia versus our base case projection of stable EBITDA.
Company Background Singtel is the largest telecom operator in Singapore and its Australian subsidiary Optus is the second largest operator in PB Band (x) Australia. Besides, SingTel has substantial stakes in telcos in the region - Telkomsel in Indonesia, Bharti in India, AIS in Thailand and Globe in Philippines.
Source: Company, DBS Bank
Page 23 Company Guide SingTel
Key Assumptions FY Mar 2015A 2016A 2017A 2018F 2019F
Singapore Revenue (S$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$m) FY Mar 2015A 2016A 2017A 2018F 2019F Revenue 17,223 16,961 16,711 17,521 17,713 Cost of Goods Sold (12,284) (12,097) (11,929) (12,590) (12,734) Gross Profit 4,939 4,864 4,782 4,932 4,979 Other Opng (Exp)/Inc (2,010) (2,001) (2,024) (2,186) (2,320) Operating Profit 2,929 2,864 2,759 2,745 2,658 Other Non Opg (Exp)/Inc 47.0 44.0 77.4 0.0 0.0 Associates & JV Inc 2,616 2,788 2,942 2,971 3,209 Net Interest (Exp)/Inc (263) (309) (337) (348) (331) Exceptional Gain/(Loss) (54.3) 56.9 (76.6) 1,960 0.0 Pre-tax Profit 5,275 5,444 5,364 7,328 5,536 Link net divestment Tax (1,490) (1,586) (1,533) (1,532) (1,583) gains Minority Interest (3.0) 12.5 21.7 (10.0) (10.0) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 3,782 3,871 3,853 5,787 3,943 Net Profit before Except. 3,836 3,814 3,929 3,827 3,943 EBITDA 7,754 7,845 8,017 8,118 8,403 Growth Revenue Gth (%) 2.2 (1.5) (1.5) 4.8 1.1 EBITDA Gth (%) 5.3 1.2 2.2 1.3 3.5 Opg Profit Gth (%) (3.1) (2.2) (3.7) (0.5) (3.2) Net Profit Gth (Pre-ex) (%) 6.3 (0.6) 3.0 (2.6) 3.0 Margins & Ratio Gross Margins (%) 28.7 28.7 28.6 28.1 28.1 Opg Profit Margin (%) 17.0 16.9 16.5 15.7 15.0 Net Profit Margin (%) 22.0 22.8 23.1 33.0 22.3 ROAE (%) 15.6 15.6 14.5 19.5 12.7 ROA (%) 9.3 9.0 8.4 11.5 7.4 ROCE (%) 5.9 5.5 4.9 5.0 4.2 Div Payout Ratio (%) 73.7 72.1 74.2 70.0 75.0 Net Interest Cover (x) 11.1 9.3 8.2 7.9 8.0 Source: Company, DBS Bank
Page 24 Company Guide SingTel
Quarterly / Interim Income Statement (S$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$m) FY Mar 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 10,683 11,154 11,893 12,283 12,654 Invts in Associates & JVs 10,846 11,086 14,235 15,534 17,223 Other LT Assets 15,770 16,160 16,249 16,991 16,584 Cash & ST Invts 563 462 534 2,260 1,556 Inventory 290 320 352 369 373 Debtors 3,885 4,366 4,924 5,163 5,219 Other Current Assets 29.8 17.5 107 107 107 Total Assets 42,067 43,566 48,294 52,707 53,717
ST Debt 174 686 3,134 2,134 2,134 Creditor 4,464 4,597 4,922 5,161 5,217 Other Current Liab 1,118 1,257 1,216 2,452 2,503 LT Debt 8,804 9,255 8,052 9,052 10,052 Other LT Liabilities 2,738 2,768 2,756 2,756 2,756 Shareholder’s Equity 24,733 24,967 28,191 31,120 31,013 Minority Interests 34.6 35.7 22.4 32.4 42.4 Total Cap. & Liab. 42,067 43,566 48,294 52,707 53,717
Non-Cash Wkg. Capital (1,378) (1,151) (755) (1,973) (2,021) Net Cash/(Debt) (8,416) (9,479) (10,652) (8,926) (10,630) Debtors Turn (avg days) 78.8 88.8 101.5 105.1 107.0 Creditors Turn (avg days) 149.0 166.2 179.3 180.6 185.7 Inventory Turn (avg days) 8.3 11.2 12.7 12.9 13.3 Asset Turnover (x) 0.4 0.4 0.4 0.3 0.3 Current Ratio (x) 0.8 0.8 0.6 0.8 0.7 Quick Ratio (x) 0.8 0.7 0.6 0.8 0.7 Net Debt/Equity (X) 0.3 0.4 0.4 0.3 0.3 Net Debt/Equity ex MI (X) 0.3 0.4 0.4 0.3 0.3 Capex to Debt (%) 40.5 31.8 22.2 31.1 20.5 Z-Score (X) 3.6 3.4 3.2 3.0 2.9
Source: Company, DBS Bank
Page 25 Company Guide SingTel
Cash Flow Statement (S$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 26 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 27 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 28 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 29 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 30 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$m) FY Dec 2015A 2016A 2017F 2018F 2019F Revenue 2,444 2,397 2,385 2,353 2,327 Cost of Goods Sold (2,049) (2,004) (2,037) (2,015) (2,011) Gross Profit 396 393 348 338 315 Other Opng (Exp)/Inc 45.6 32.2 0.30 0.0 0.0 Operating Profit 441 425 348 338 315 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (0.3) (1.6) (1.6) (1.6) (1.6) Net Interest (Exp)/Inc (15.8) (22.7) (26.6) (33.2) (36.6) Exceptional Gain/(Loss) 15.0 9.50 0.0 0.0 0.0 Pre-tax Profit 440 410 320 303 277 Tax (67.9) (68.9) (53.8) (50.9) (46.5) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 372 341 266 252 230 Net Profit before Except. 357 332 266 252 230 EBITDA 712 689 611 607 603 Growth Revenue Gth (%) 2.4 (1.9) (0.5) (1.4) (1.1) EBITDA Gth (%) (4.7) (3.4) (11.3) (0.6) (0.6) Opg Profit Gth (%) (7.4) (3.7) (18.1) (3.0) (6.8) Net Profit Gth (Pre-ex) (%) (3.6) (7.1) (19.7) (5.3) (8.7) Margins & Ratio Gross Margins (%) 16.2 16.4 14.6 14.4 13.5 Opg Profit Margin (%) 18.1 17.7 14.6 14.4 13.5 Net Profit Margin (%) 15.2 14.2 11.2 10.7 9.9 ROAE (%) 221.2 178.5 147.0 162.4 167.6 ROA (%) 19.1 16.6 12.3 11.3 9.9 ROCE (%) 37.1 29.9 21.8 19.8 17.2 Div Payout Ratio (%) 92.4 101.4 103.8 109.6 105.0 Net Interest Cover (x) 27.9 18.7 13.1 10.2 8.6 Source: Company, DBS Bank
Page 31 Company Guide StarHub
Quarterly / Interim Income Statement (S$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$m) FY Dec 2015A 2016A 2017F 2018F 2019F
Net Fixed Assets 890 918 995 1,026 1,051 Invts in Associates & JVs 27.5 25.9 24.3 22.7 21.1 Other LT Assets 388 511 546 791 738 Cash & ST Invts 173 285 109 51.8 60.4 Inventory 54.3 49.6 49.4 48.7 48.2 Debtors 153 172 171 169 167 Other Current Assets 223 234 234 234 234 Total Assets 1,909 2,196 2,130 2,344 2,320
ST Debt 138 10.0 10.0 10.0 10.0 Creditor 687 708 704 695 687 Other Current Liab 203 138 121 118 114 LT Debt 550 978 978 1,228 1,228 Other LT Liabilities 144 168 150 150 150 Shareholder’s Equity 188 195 167 143 132 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 1,909 2,196 2,130 2,344 2,320
Non-Cash Wkg. Capital (460) (390) (371) (361) (351) Net Cash/(Debt) (514) (702) (878) (1,186) (1,177) Debtors Turn (avg days) 23.5 24.8 26.3 26.4 26.4 Creditors Turn (avg days) 152.3 146.4 145.4 146.4 146.5 Inventory Turn (avg days) 9.9 10.9 10.2 10.3 10.3 Asset Turnover (x) 1.3 1.2 1.1 1.1 1.0 Current Ratio (x) 0.6 0.9 0.7 0.6 0.6 Quick Ratio (x) 0.3 0.5 0.3 0.3 0.3 Net Debt/Equity (X) 2.7 3.6 5.2 8.3 8.9 Net Debt/Equity ex MI (X) 2.7 3.6 5.2 8.3 8.9 Capex to Debt (%) 47.6 37.1 38.1 44.1 21.1 Z-Score (X) 3.2 2.9 2.8 2.4 2.4
Source: Company, DBS Bank
Page 32 Company Guide StarHub
Cash Flow Statement (S$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 33 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 34 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 35 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 36 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$1.66. In our bull case, we have 2015A 2016A 2017F 2018F 2019F assumed a late entry of TPG to the Singapore market which will Forward PE Band (x) reduce market competition and allow M1 to increase its market share additions over the next 12 months. This would have a positive impact on M1’s medium-term performance, which would result in us revising M1's share price upwards.
Key Risks: Strategic cost-cutting programme at M1 or TPG struggling to roll out a network. Any big cut in M1’s operating costs could result in better-than-expected earnings. Alternatively, a potential delay in TPG’s rollout due to operational challenges could also boost M1’s stock price. PB Band (x)
Company Background M1 is the smallest of the three telecom operators in Singapore. M1 provides mobile services and has also started to offer fixed broadband services by riding on the National Broadband Network.
Source: Company, DBS Bank
Page 37 Company Guide M1
Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F Post paid ARPU 54.2 50.3 47.3 45.4 44.5 Net Handset Subsidy 335 255 282 255 230 Postpaid subscribers (K) 1,195 1,247 1,291 1,278 1,259
Segmental Breakdown FY Dec 2015A 2016A 2017F 2018F 2019F Revenues (S$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$m) FY Dec 2015A 2016A 2017F 2018F 2019F Revenue 1,157 1,061 1,079 1,049 1,016 Cost of Goods Sold (822) (754) (782) (761) (729) Gross Profit 336 307 297 288 288 Other Opng (Exp)/Inc (112) (122) (133) (139) (157) Operating Profit 223 185 164 149 130 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (4.9) (6.7) (8.0) (11.0) (13.8) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 218 179 156 138 117 Tax (39.9) (28.9) (26.5) (23.4) (19.8) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 179 150 129 114 96.9 Net Profit before Except. 179 150 129 114 96.9 EBITDA 342 312 302 293 293 Growth Revenue Gth (%) 7.5 (8.3) 1.7 (2.8) (3.1) EBITDA Gth (%) 1.8 (8.7) (3.1) (3.1) 0.0 Opg Profit Gth (%) 1.0 (17.0) (11.6) (9.2) (12.3) Net Profit Gth (Pre-ex) (%) 1.5 (16.1) (13.6) (11.6) (15.3) Margins & Ratio Gross Margins (%) 29.0 28.9 27.5 27.4 28.3 Opg Profit Margin (%) 19.3 17.5 15.2 14.2 12.8 Net Profit Margin (%) 15.4 14.1 12.0 10.9 9.5 ROAE (%) 44.2 36.7 31.7 27.3 22.7 ROA (%) 16.9 13.4 11.2 9.2 7.4 ROCE (%) 21.7 17.3 14.7 12.2 9.9 Div Payout Ratio (%) 80.5 80.0 80.0 80.0 80.0 Net Interest Cover (x) 45.6 27.7 20.4 13.6 9.5 Source: Company, DBS Bank
Page 38 Company Guide M1
Quarterly / Interim Income Statement (S$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$m) FY Dec 2015A 2016A 2017F 2018F 2019F
Net Fixed Assets 714 742 794 980 970 Invts in Associates & JVs 0.0 2.95 2.95 2.95 2.95 Other LT Assets 112 174 155 134 98.0 Cash & ST Invts 9.97 11.0 8.54 2.31 50.3 Inventory 51.5 23.0 23.4 22.7 22.0 Debtors 166 166 168 164 159 Other Current Assets 33.1 27.8 7.83 7.83 7.83 Total Assets 1,086 1,147 1,160 1,313 1,310
ST Debt 354 151 151 151 151 Creditor 146 165 168 164 159 Other Current Liab 62.5 58.7 59.8 56.7 53.1 LT Debt 0.0 250 250 400 400 Other LT Liabilities 111 118 118 118 118 Shareholder’s Equity 413 403 413 424 429 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 1,086 1,147 1,160 1,313 1,310
Non-Cash Wkg. Capital 42.5 (7.8) (28.5) (26.1) (23.2) Net Cash/(Debt) (344) (390) (392) (549) (501) Debtors Turn (avg days) 49.8 57.0 56.5 57.8 57.9 Creditors Turn (avg days) 78.6 90.5 94.7 98.2 103.8 Inventory Turn (avg days) 21.2 21.7 13.1 13.6 14.4 Asset Turnover (x) 1.1 1.0 0.9 0.8 0.8 Debt at a comfortable Current Ratio (x) 0.5 0.6 0.5 0.5 0.7 level Quick Ratio (x) 0.3 0.5 0.5 0.4 0.6 Net Debt/Equity (X) 0.8 1.0 1.0 1.3 1.2 Net Debt/Equity ex MI (X) 0.8 1.0 1.0 1.3 1.2 Capex to Debt (%) 37.7 51.2 42.7 56.1 21.2 Z-Score (X) 3.2 2.9 2.8 2.4 2.4
Source: Company, DBS Bank
Page 39 Company Guide M1
Cash Flow Statement (S$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 40 Industry Focus Telecom Sector
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: 16 Oct 2017 09:17:06 (SGT) Dissemination Date: 16 Oct 2017 12:20:01 (SGT)
Sources for all charts and tables are DBS Bank unless otherwise specified.
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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.
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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
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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, SingTel, StarHub, Advanced Info Service, Total Access Communication, recommended in this report as of 29 Sep 2017.
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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.
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.
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