HONG KONG SmarTone 315 HK Outperform
Price (at 07:59, 01 Sep 2015 GMT) HK$13.90 Telecommunications
Valuation HK$ 16.00 - DCF Making a strong comeback 12-month target HK$ 16.00 Upside/Downside % +15.1 Event 12-month TSR % +18.9 Volatility Index Medium . SmarTone reported 74% y-y earnings growth for FY15 (FY14: -36.3%). With GICS sector earnings 17% above consensus, we believe the latest set of financial results Telecommunication Services should restore investor confidence. Market cap HK$m 14,539 Market cap US$m 1,927 Impact 30-day avg turnover US$m 2.3 . Financial highlights. For FY15 (year ends on June 30), SmarTone reported Number shares on issue m 1,046 total revenue of HK$18.7bn (+41% y-y), EBITDA of HK$2.9bn (+14% y-y) and Investment fundamentals net profit of HK$935m (+74% y-y). The company declared a final DPS of 33 Year end 30 Jun 2014A 2015E 2016E 2017E HK cents (FY14: 13 HK cents), that represents a 75% payout for 2HFY15. Revenue m 13,244 16,689 17,343 18,018 EBIT m 807 1,146 1,161 1,191 . Positive: Service revenue experienced stabilisation. The company’s EBIT growth % -28.9 41.9 1.3 2.6 Reported profit m 537 855 906 937 service revenue was +2.6% y-y. In particular, for the period of Jan-Jun, Adjusted profit m 537 855 906 937 SmarTone achieved 7.0% y-y revenue growth. Recall, Hutchison Telecom’s EPS rep HK$ 0.52 0.82 0.87 0.90 EPS rep growth % -36.4 58.1 5.9 3.4 mobile service revenue fell 10.9% y-y during the same period. SmarTone EPS adj HK$ 0.52 0.82 0.87 0.90 proved it is quite effective in driving for service revenue growth. EPS adj growth % -36.4 58.1 5.9 3.4 PER rep x 26.9 17.0 16.1 15.5 . Positive: Revision of payout ratio from 60% to 75% will be welcomed by PER adj x 26.9 17.0 16.1 15.5 Total DPS HK$ 0.31 0.49 0.52 0.54 the market. Recall, the company cut its payout ratio from 100% to 60% upon Total div yield % 2.2 3.5 3.7 3.9 announcement of its FY13 results in September 2013. With the payout ratio ROA % 8.3 12.0 12.1 11.9 ROE % 17.4 24.7 23.1 21.7 revised up to 75%, we believe the market should welcome such shareholder EV/EBITDA x 5.3 4.8 4.4 4.2 friendly policy. Net debt/equity % -10.0 -25.5 -31.7 -37.5 P/BV x 4.6 3.9 3.5 3.2 . Mixed: Permanent CEO’s seat not yet filled. Currently, SmarTone’s CTO is 315 HK rel HSI performance, & rec serving as interim CEO for a period of 12 months. We believe the market history would like to see the appointment of a permanent CEO as soon as possible. Until then, we believe a minor degree of overhang has been created. Earnings and target price revision
. We roll forward our 10-year DCF model. Our 12-month DCF-based price target is HK$16 (formerly HK$15). Price catalyst
. 12-month price target: HK$16.00 based on a DCF methodology. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, September 2015 . Catalyst: 1HFY16 to be released in February 2016. (all figures in HKD unless noted)
Action and recommendation
. We maintain our Outperform rating, given: (1) the higher percentage of subs taking tiered data pricing plans; (2) SIM-only subs moving back to contract plans; (3) its ability to maintain a churn rate at a relatively low level; Analyst(s) Macquarie Capital Securities Limited (4) maintaining a lean and mean cost structure; (5) keeping capex under Danny Chu, CFA control post the 4G rollout; (6) its ability to fend off competition despite a lower +852 3922 4762 [email protected] subscriber base than others. Macquarie Capital Securities (Japan) Limited Nathan Ramler, CFA +81 3 3512 7875 [email protected]
1 September 2015
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Macquarie Research SmarTone Telecommunications
For FY15 (year ends on June 30), SmarTone reported total revenue of HK$18.7bn (+41% y-y), EBITDA of HK$2.9bn (+14% y-y) and net profit of HK$935m (+74% y-y). SmarTone raised its payout ratio from 60% to 75%, the company declared a final DPS of 33 HK cents (FY14: 13 HK cents). We note FY15’s net profit is ~17% higher than consensus. While the company’s EBITDA is ~3% above consensus, we believe depreciation expense, finance costs and effective tax rate (FY15: 17.3%; FY14: 19.7%) all come in lower than expectation.
Fig 1 SmarTone – comparison of actual versus consensus estimates Macquarie Actual vs. Consensus Consensus (HK$ m) FY15E FY15 (%) FY15E
Revenue 16,689 18,659 15.3 16,179 EBITDA 2,835 2,932 2.7 2,855 EBITDA margin (%) 17.0 15.7 17.6 Net profit 855 935 17.0 799 Source: Company data, Bloomberg, Macquarie Research, September 2015
We roll forward our 10-year DCF model. As a result, our 12-month DCF-based price target is HK$16 (formerly HK$15). Key takeaways from results and analyst briefing We see three major takeaways from the results and analyst briefing: Service revenue experienced stabilisation. The company’s service revenue was +2.6% y-y. In particular, for the period of Jan-Jun, SmarTone achieved 7.0% y-y revenue growth. Recall, Hutchison Telecom’s mobile service revenue fell 10.9% y-y during the same period. SmarTone proved it is quite effective in driving for service revenue growth. Hardware sales benefitted from sales of iPhone 6 and 6 Plus. The company reported hardware sales of HK$13.1bn (+67.4% y-y). We note this is a sharp jump from hardware sales of HK$7.8bn achieved one year ago. We believe the key contributor to such strong growth of hardware sales should be launch of iPhone 6 and 6 Plus in Hong Kong (19 September 2014). Revision of payout ratio from 60% to 75% will be welcomed by the market. Recall, the company cut its payout ratio from 100% to 60% upon announcement of its FY13 results in September 2013. With the payout ratio revised up to 75%, we believe the market should welcome such shareholder friendly policy.
Fig 2 SmarTone – half-yearly financial results 1H13 2H13 1H14 2H14 1H15 2H15 FY14 FY15
Revenue (HK$ m) 5,888 6,179 6,531 6,713 8,673 9,986 13,244 18,659 h-h change (%) 20.4 4.9 5.7 2.8 29.2 15.1 y-y change (%) 16.4 26.3 10.9 8.6 32.8 48.8 40.9
EBITDA (HK$ m) 1,537 1,452 1,348 1,215 1,469 1,463 2,563 2,932 h-h change (%) (3.1) (5.5) (7.2) (9.9) 20.9 (0.4) y-y change (%) 9.3 (8.4) (12.3) (16.3) 9.0 20.4 14.4
EBITDA margin (%) 26.1 23.5 20.6 18.1 16.9 14.7 19.4 15.7
Net profit (HK$ m) 459 384 311 226 466 469 537 935 h-h change (%) (16.2) (16.3) (19.0) (27.3) 106.2 0.6 y-y change (%) (3.4) (29.9) (32.2) (41.1) 49.8 107.5 74.1 Source: Company data, Macquarie Research, September 2015
1 September 2015 2 Macquarie Research SmarTone Telecommunications
3G speed-capped plan’s impact upon blended ARPU has diminished. Even though SmarTone has been gaining subscribers with a 3G speed-capped plan (HK$88 monthly fee), the company’s blended ARPU did not fall much over the past 12 months. Over the past 12 months, we estimate the company has gained 20-30k subscribers via its 3G speed-capped plan (HK$88 monthly fee). However, we note the company’s blended ARPU did not fall as steeply as before. We believe one explanation could be the incremental ARPU extracted from existing subscribers has partially offset the lower ARPU (HK$88) of 3G speed-capped plan.
Fig 3 SmarTone – blended ARPU Fig 4 SmarTone – subscriber base in Hong Kong
(HK$) (000) (%)
300 2,500 13
250 2,000 12
200 1,500 11 150 277 278 272 262 243 234 229 230 1,000 10 100
500 9 50
0 0 8 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15
Blended ARPU Subs (000) Mkt share (RHS)
Source: Company data, Macquarie Research, September 2015 Source: Company data, Macquarie Research, September 2015
EBITDA margin dragged by heavy handset sales. The company reported 15.7% EBITDA margin (FY14: 19.4%). Based on our past experience, the bigger the composition of SmarTone’s revenue from handset sales, the lower the EBITDA margin.
Fig 5 SmarTone – breakdown of revenue into handset sales and service revenue (HK$ m) 1H13 2H13 1H14 2H14 1H15 2H15 FY14 FY15
Service rev 2,869 2,788 2,789 2,634 2,745 2,819 5,423 5,564 Handset sales 3,019 3,391 3,742 4,080 5,927 7,168 7,822 13,095 Composition (%) Service rev 49 45 43 39 32 28 41 30 Handset sales 51 55 57 61 68 72 59 70 Source: Company data, Macquarie Research, September 2015
Capex on a declining trend = good news for free cash flow. For FY15, SmarTone incurred capex of HK$680m (-27.3% y-y). The company spent most of the capex on expansion of network capacity and quality enhancement. We note the actual capex is 15% lower than the company’s previous guidance of HK$800m. Heading into FY16, SmarTone indicated that it would spend capex of HK$650-700m. With SmarTone’s capex clearly on a declining trend, we expect the company’s free cash flow to improve further. Investors should welcome a strengthening of free cash flow at SmarTone.
1 September 2015 3 Macquarie Research SmarTone Telecommunications
Fig 6 SmarTone – capex and capex-to-sales ratio
(HK$ m) (%) 1,400 25
1,200 20 1,000
800 15
600 10 400 5 200
0 0 2011 2012 2013 2014 2015
Capex Capex/sales (RHS)
Source: Company data, Macquarie Research, September 2015
Catalysts In the short term (<12 months), we believe the catalysts that could drive the share price include: . Percentage of mobile subscribers taking up tiered data pricing plans; . SIM-only subscribers moving back to contract subscription plans; . Ability to retain the existing subscriber base despite competition from the other three operators. In the long term (>12 months), we believe the catalysts are: . Ability to lower capex spend post rollout of the 4G network; . Regulatory roadmap to be drawn out by the Office of Communications Authority (telecom regulatory body).
1 September 2015 4 Macquarie Research SmarTone Telecommunications
Macquarie Quant View
The quant model currently holds a strong positive view on SmarTone Attractive Displays where the Telecommunications. The strongest style exposure is Price Momentum, company’s ranked based on
indicating this stock has had strong medium to long term returns which s
l the fundamental consensus a often persist into the future. The weakest style exposure is Valuations, t
n Price Target and indicating this stock is over-priced in the market relative to its peers. e
Macquarie’s Quantitative m
a Alpha model.
15/171 d n
u Two rankings: Local market Global rank in F (Hong Kong) and Global Telecommunication Services sector (Telecommunication Quant % of BUY recommendations 100% (9/9) Services) Local market rank Global sector rank Number of Price Target downgrades 0 Number of Price Target upgrades 0
Macquarie Alpha Model ranking Factors driving the Alpha Model A list of comparable companies and their Macquarie Alpha model score For the comparable firms this chart shows the key underlying styles and their (higher is better). contribution to the current overall Alpha score.
SmarTone Telecommunicatio… 1.5 SmarTone Telecommunicatio…
China Mobile 1.4 China Mobile
Hutchison Telecommunicati… 1.1 Hutchison Telecommunicati…
China Communications Serv… 1.0 China Communications Serv…
China Unicom 0.8 China Unicom
HKT Trust 0.5 HKT Trust
China Telecom 0.5 China Telecom
-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 Valuations Growth Profitability Earnings Price Quality Momentum Momentum
Macquarie Earnings Sentiment Indicator Drivers of Stock Return The Macquarie Sentiment Indicator is an enhanced earnings revisions Breakdown of 1 year total return (local currency) into returns from dividends, changes signal that favours analysts who have more timely and higher conviction in forward earnings estimates and the resulting change in earnings multiple. revisions. Current score shown below.
SmarTone Telecommunicatio… SmarTone Telecommunicatio… 1.3 China Mobile China Mobile 0.9 Hutchison Telecommunicati… Hutchison Telecommunicati… 1.4 China Communications Serv… China Communications Serv… -0.4 China Unicom China Unicom -0.1
HKT Trust 0.2 HKT Trust
China Telecom 0.4 China Telecom
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 -30% -20% -10% 0% 10% 20% 30% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return
What drove this Company in the last 5 years How it looks on the Alpha model Which factor score has had the greatest correlation with the company’s A more granular view of the underlying style scores that drive the alpha (higher is returns over the last 5 years. better) and the percentile rank relative to the sector and market. ⇐ Negatives Positives ⇒ Normalized Percentile relative Percentile relative Price to Book FY0 34% Score to sector(/171) to market(/449) Alpha Model Score 1.45 Price to Book FY1 31% Valuation -0.11 Price to Book NTM 31% Growth 0.21 Price to Book LTM 30% Profitability 0.67 Earnings Momentum 0.13 Return on Assets FY0 -39% Price Momentum 0.67 Return on Equity FY0 -40% Quality 0.23 Capital & Funding 0.20 CFROI -47% Liquidity -1.56 RNOA -47% Risk 0.27 Technicals & Trading -0.60 -60% -40% -20% 0% 20% 40% 60% 0 50 100 0 50 100 0 0 1 1
Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group ([email protected])
1 September 2015 5 Macquarie Research SmarTone Telecommunications
SmarTone Telecommunications (315 HK, Outperform, Target Price: HK$16.00) Interim Results 1H/15A 2H/15E 1H/16E 2H/16E Profit & Loss 2014A 2015E 2016E 2017E
Revenue m 8,344 8,344 8,671 8,671 Revenue m 13,244 16,689 17,343 18,018 Gross Profit m 8,344 8,344 8,671 8,671 Gross Profit m 13,244 16,689 17,343 18,018 Cost of Goods Sold m 0 0 0 0 Cost of Goods Sold m 0 0 0 0 EBITDA m 1,418 1,418 1,529 1,529 EBITDA m 2,563 2,835 3,059 3,224 Depreciation m 845 845 949 949 Depreciation m 1,755 1,690 1,898 2,034 Amortisation of Goodwill m 0 0 0 0 Amortisation of Goodwill m 0 0 0 0 Other Amortisation m 0 0 0 0 Other Amortisation m 0 0 0 0 EBIT m 573 573 580 580 EBIT m 807 1,146 1,161 1,191 Net Interest Income m -61 -61 -38 -38 Net Interest Income m -145 -122 -76 -69 Associates m 0 0 0 0 Associates m 0 0 0 0 Exceptionals m 0 0 0 0 Exceptionals m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Other Pre-Tax Income m 0 0 0 0 Other Pre-Tax Income m 0 0 0 0 Pre-Tax Profit m 512 512 542 542 Pre-Tax Profit m 663 1,024 1,084 1,122 Tax Expense m -84 -84 -89 -89 Tax Expense m -131 -169 -179 -185 Net Profit m 427 427 453 453 Net Profit m 532 855 906 937 Minority Interests m 0 0 0 0 Minority Interests m 5 0 0 0
Reported Earnings m 427 427 453 453 Reported Earnings m 537 855 906 937 Adjusted Earnings m 427 427 453 453 Adjusted Earnings m 537 855 906 937
EPS (rep) 0.41 0.41 0.43 0.43 EPS (rep) 0.52 0.82 0.87 0.90 EPS (adj) 0.41 0.41 0.43 0.43 EPS (adj) 0.52 0.82 0.87 0.90 EPS Growth yoy (adj) % 58.1 58.1 5.9 5.9 EPS Growth (adj) % -36.4 58.1 5.9 3.4 PE (rep) x 26.9 17.0 16.1 15.5 PE (adj) x 26.9 17.0 16.1 15.5
EBITDA Margin % 17.0 17.0 17.6 17.6 Total DPS 0.31 0.49 0.52 0.54 EBIT Margin % 6.9 6.9 6.7 6.7 Total Div Yield % 2.2 3.5 3.7 3.9 Earnings Split % 50.0 50.0 50.0 50.0 Basic Shares Outstanding m 1,046 1,046 1,046 1,046 Revenue Growth % 26.0 26.0 3.9 3.9 Diluted Shares Outstanding m 1,039 1,046 1,046 1,046 EBIT Growth % 41.9 41.9 1.3 1.3
Profit and Loss Ratios 2014A 2015E 2016E 2017E Cashflow Analysis 2014A 2015E 2016E 2017E
Revenue Growth % 9.8 26.0 3.9 3.9 EBITDA m 1,755 1,690 1,898 2,034 EBITDA Growth % -14.3 10.6 7.9 5.4 Tax Paid m -181 -131 -169 -179 EBIT Growth % -28.9 41.9 1.3 2.6 Chgs in Working Cap m 141 181 34 36 Gross Profit Margin % 100.0 100.0 100.0 100.0 Net Interest Paid m -28 -122 -76 -69 EBITDA Margin % 19.4 17.0 17.6 17.9 Other m 0 0 0 0 EBIT Margin % 6.1 6.9 6.7 6.6 Operating Cashflow m 1,688 1,619 1,687 1,822 Net Profit Margin % 4.1 5.1 5.2 5.2 Acquisitions m 0 0 0 0 Payout Ratio % 59.7 60.0 60.0 60.0 Capex m -824 -800 -780 -760 EV/EBITDA x 5.3 4.8 4.4 4.2 Asset Sales m 0 0 0 0 EV/EBIT x 16.8 11.8 11.7 11.4 Other m 0 0 0 0 Investing Cashflow m -824 -800 -780 -760 Balance Sheet Ratios Dividend (Ordinary) m -285 -323 -513 -543 ROE % 17.4 24.7 23.1 21.7 Equity Raised m 2 0 0 0 ROA % 8.3 12.0 12.1 11.9 Debt Movements m 0 0 0 0 ROIC % 20.7 32.7 34.4 34.9 Other m -172 144 -36 -130 Net Debt/Equity % -10.0 -25.5 -31.7 -37.5 Financing Cashflow m -455 -178 -549 -673 Interest Cover x 5.6 9.4 15.2 17.3 Price/Book x 4.6 3.9 3.5 3.2 Net Chg in Cash/Debt m 409 641 358 389 Book Value per Share 3.1 3.6 3.9 4.3 Free Cashflow m 864 819 907 1,062
Balance Sheet 2014A 2015E 2016E 2017E
Cash m 3,165 2,616 2,974 3,363 Receivables m 436 436 436 436 Inventories m 80 101 105 109 Investments m 5 5 5 5 Fixed Assets m 3,396 3,507 3,586 3,633 Intangibles m 0 0 0 0 Other Assets m 2,710 2,710 2,710 2,710 Total Assets m 9,792 9,376 9,817 10,256 Payables m 778 980 1,019 1,059 Short Term Debt m 101 101 101 101 Long Term Debt m 2,739 1,550 1,550 1,550 Provisions m 343 381 391 398 Other Liabilities m 2,581 2,581 2,581 2,581 Total Liabilities m 6,542 5,594 5,642 5,688 Shareholders' Funds m 3,193 3,725 4,117 4,511 Minority Interests m 57 57 57 57 Other m 0 0 0 0 Total S/H Equity m 3,250 3,782 4,174 4,568 Total Liab & S/H Funds m 9,792 9,376 9,817 10,256
All figures in HKD unless noted. Source: Company data, Macquarie Research, September 2015
1 September 2015 6 Macquarie Research SmarTone Telecommunications Important disclosures: Recommendation definitions Volatility index definition* Financial definitions Macquarie - Australia/New Zealand This is calculated from the volatility of historical All "Adjusted" data items have had the following Outperform – return >3% in excess of benchmark return price movements. adjustments made: Neutral – return within 3% of benchmark return Added back: goodwill amortisation, provision for Underperform – return >3% below benchmark return Very high–highest risk – Stock should be catastrophe reserves, IFRS derivatives & hedging, expected to move up or down 60–100% in a year IFRS impairments & IFRS interest expense Benchmark return is determined by long term nominal – investors should be aware this stock is highly Excluded: non recurring items, asset revals, property GDP growth plus 12 month forward market dividend speculative. revals, appraisal value uplift, preference dividends & yield minority interests Macquarie – Asia/Europe High – stock should be expected to move up or Outperform – expected return >+10% down at least 40–60% in a year – investors should EPS = adjusted net profit / efpowa* Neutral – expected return from -10% to +10% be aware this stock could be speculative. ROA = adjusted ebit / average total assets Underperform – expected return <-10% ROA Banks/Insurance = adjusted net profit /average Medium – stock should be expected to move up total assets Macquarie First South - South Africa or down at least 30–40% in a year. ROE = adjusted net profit / average shareholders funds Outperform – expected return >+10% Gross cashflow = adjusted net profit + depreciation Neutral – expected return from -10% to +10% Low–medium – stock should be expected to *equivalent fully paid ordinary weighted average Underperform – expected return <-10% move up or down at least 25–30% in a year. number of shares Macquarie - Canada Outperform – return >5% in excess of benchmark return Low – stock should be expected to move up or All Reported numbers for Australian/NZ listed stocks Neutral – return within 5% of benchmark return down at least 15–25% in a year. are modelled under IFRS (International Financial Underperform – return >5% below benchmark return * Applicable to Asia/Australian/NZ/Canada stocks Reporting Standards). only Macquarie - USA Outperform (Buy) – return >5% in excess of Russell Recommendations – 12 months 3000 index return Note: Quant recommendations may differ from Neutral (Hold) – return within 5% of Russell 3000 index Fundamental Analyst recommendations return Underperform (Sell)– return >5% below Russell 3000 index return
Recommendation proportions – For quarter ending 30 June 2015 AU/NZ Asia RSA USA CA EUR Outperform 46.23% 58.36% 47.27% 44.20% 60.65% 43.01% (for US coverage by MCUSA, 9.68% of stocks followed are investment banking clients) Neutral 37.67% 25.65% 29.09% 49.29% 34.19% 40.93% (for US coverage by MCUSA, 5.53% of stocks followed are investment banking clients) Underperform 16.10% 15.99% 23.64% 6.52% 5.16% 16.06% (for US coverage by MCUSA, 1.38% of stocks followed are investment banking clients)
315 HK vs HSI, & rec history
(all figures in HKD currency unless noted)
Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, September 2015
12-month target price methodology 315 HK: HK$16.00 based on a DCF methodology
Company-specific disclosures:
Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.
Date Stock Code (BBG code) Recommendation Target Price 19-Feb-2015 315 HK Outperform HK$15.00 19-Jun-2013 315 HK Neutral HK$13.50 12-Mar-2013 315 HK Neutral HK$13.00 05-Sep-2012 315 HK Neutral HK$14.40
Target price risk disclosures: 315 HK: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures.
Analyst certification: The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94 122 169 279 (AFSL No. 318062) (MGL) and its related entities (the Macquarie Group) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General disclaimers: Macquarie Securities (Australia) Ltd; Macquarie Capital (Europe) Ltd; Macquarie Capital Markets Canada Ltd; Macquarie Capital Markets North America Ltd; Macquarie Capital (USA) Inc; Macquarie Capital Securities Ltd and its Taiwan branch; Macquarie Capital Securities (Singapore) Pte Ltd; Macquarie Securities (NZ) Ltd; Macquarie First South Securities (Pty) Limited; Macquarie Capital Securities (India) Pvt Ltd; Macquarie Capital Securities (Malaysia) Sdn Bhd; Macquarie Securities Korea Limited and Macquarie Securities (Thailand) Ltd are not authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia), and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL) or MGL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of any of the above 1 September 2015 7 Macquarie Research SmarTone Telecommunications mentioned entities. MGL provides a guarantee to the Monetary Authority of Singapore in respect of the obligations and liabilities of Macquarie Capital Securities (Singapore) Pte Ltd for up to SGD 35 million. This research has been prepared for the general use of the wholesale clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient you must not use or disclose the information in this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. MGL has established and implemented a conflicts policy at group level (which may be revised and updated from time to time) (the "Conflicts Policy") pursuant to regulatory requirements (including the FCA Rules) which sets out how we must seek to identify and manage all material conflicts of interest. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. In preparing this research, we did not take into account your investment objectives, financial situation or particular needs. Macquarie salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions which are contrary to the opinions expressed in this research. Macquarie Research produces a variety of research products including, but not limited to, fundamental analysis, macro-economic analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research, whether as a result of differing time horizons, methodologies, or otherwise. Before making an investment decision on the basis of this research, you need to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of your particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. This research is based on information obtained from sources believed to be reliable but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Clients should contact analysts at, and execute transactions through, a Macquarie Group entity in their home jurisdiction unless governing law permits otherwise. The date and timestamp for above share price and market cap is the closed price of the price date. #CLOSE is the final price at which the security is traded in the relevant exchange on the date indicated. Country-specific disclaimers: Australia: In Australia, research is issued and distributed by Macquarie Securities (Australia) Ltd (AFSL No. 238947), a participating organisation of the Australian Securities Exchange. New Zealand: In New Zealand, research is issued and distributed by Macquarie Securities (NZ) Ltd, a NZX Firm. Canada: In Canada, research is prepared, approved and distributed by Macquarie Capital Markets Canada Ltd, a participating organisation of the Toronto Stock Exchange, TSX Venture Exchange & Montréal Exchange. Macquarie Capital Markets North America Ltd., which is a registered broker- dealer and member of FINRA, accepts responsibility for the contents of reports issued by Macquarie Capital Markets Canada Ltd in the United States and sent to US persons. Any US person wishing to effect transactions in the securities described in the reports issued by Macquarie Capital Markets Canada Ltd should do so with Macquarie Capital Markets North America Ltd. The Research Distribution Policy of Macquarie Capital Markets Canada Ltd is to allow all clients that are entitled to have equal access to our research. United Kingdom: In the United Kingdom, research is issued and distributed by Macquarie Capital (Europe) Ltd, which is authorised and regulated by the Financial Conduct Authority (No. 193905). Germany: In Germany, this research is issued and/or distributed by Macquarie Capital (Europe) Limited, Niederlassung Deutschland, which is authorised and regulated by the UK Financial Conduct Authority (No. 193905). and in Germany by BaFin. France: In France, research is issued and distributed by Macquarie Capital (Europe) Ltd, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority (No. 193905). Hong Kong & Mainland China: In Hong Kong, research is issued and distributed by Macquarie Capital Securities Ltd, which is licensed and regulated by the Securities and Futures Commission. In Mainland China, Macquarie Securities (Australia) Limited Shanghai Representative Office only engages in non- business operational activities excluding issuing and distributing research. Only non-A share research is distributed into Mainland China by Macquarie Capital Securities Ltd. Japan: In Japan, research is Issued and distributed by Macquarie Capital Securities (Japan) Limited, a member of the Tokyo Stock Exchange, Inc. and Osaka Exchange, Inc. (Financial Instruments Firm, Kanto Financial Bureau (kin-sho) No. 231, a member of Japan Securities Dealers Association). India: In India, research is issued and distributed by Macquarie Capital Securities (India) Pvt. Ltd. (CIN: U65920MH1995PTC090696), formerly known as Macquarie Capital (India) Pvt. Ltd., 92, Level 9, 2 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai – 400 051, India, which is a SEBI registered Research Analyst having registration no. INH000000545. Malaysia: In Malaysia, research is issued and distributed by Macquarie Capital Securities (Malaysia) Sdn. Bhd. (Company registration number: 463469-W) which is a Participating Organisation of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission. Taiwan: In Taiwan, research is issued and distributed by Macquarie Capital Securities Ltd, Taiwan Branch, which is licensed and regulated by the Financial Supervisory Commission. No portion of the report may be reproduced or quoted by the press or any other person without authorisation from Macquarie. Nothing in this research shall be construed as a solicitation to buy or sell any security or product. Research Associate(s) in this report who are registered as Clerks only assist in the preparation of research and are not engaged in writing the research. Thailand: In Thailand, research is produced, issued and distributed by Macquarie Securities (Thailand) Ltd. Macquarie Securities (Thailand) Ltd. is a licensed securities company that is authorized by the Ministry of Finance, regulated by the Securities and Exchange Commission of Thailand and is an exchange member of the Stock Exchange of Thailand. The Thai Institute of Directors Association has disclosed the Corporate Governance Report of Thai Listed Companies made pursuant to the policy of the Securities and Exchange Commission of Thailand. Macquarie Securities (Thailand) Ltd does not endorse the result of the Corporate Governance Report of Thai Listed Companies but this Report can be accessed at: http://www.thai-iod.com/en/publications.asp?type=4. South Korea: In South Korea, unless otherwise stated, research is prepared, issued and distributed by Macquarie Securities Korea Limited, which is regulated by the Financial Supervisory Services. Information on analysts in MSKL is disclosed at http://dis.kofia.or.kr/websquare/index.jsp?w2xPath=/wq/fundMgr/DISFundMgrAnalystStut.xml&divisionId=MDIS03002001000000&serviceId=SDIS03002 001000. South Africa: In South Africa, research is issued and distributed by Macquarie First South Securities (Pty) Limited, a member of the JSE Limited. Singapore: In Singapore, research is issued and distributed by Macquarie Capital Securities (Singapore) Pte Ltd (Company Registration Number: 198702912C), a Capital Markets Services license holder under the Securities and Futures Act to deal in securities and provide custodial services in Singapore. Pursuant to the Financial Advisers (Amendment) Regulations 2005, Macquarie Capital Securities (Singapore) Pte Ltd is exempt from complying with sections 25, 27 and 36 of the Financial Advisers Act. All Singapore-based recipients of research produced by Macquarie Capital (Europe) Limited, Macquarie Capital Markets Canada Ltd, Macquarie First South Securities (Pty) Limited and Macquarie Capital (USA) Inc. represent and warrant that they are institutional investors as defined in the Securities and Futures Act. United States: In the United States, research is issued and distributed by Macquarie Capital (USA) Inc., which is a registered broker-dealer and member of FINRA. Macquarie Capital (USA) Inc, accepts responsibility for the content of each research report prepared by one of its non-US affiliates when the research report is distributed in the United States by Macquarie Capital (USA) Inc. Macquarie Capital (USA) Inc.’s affiliate’s analysts are not registered as research analysts with FINRA, may not be associated persons of Macquarie Capital (USA) Inc., and therefore may not be subject to FINRA rule restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. Information regarding futures is provided for reference purposes only and is not a solicitation for purchases or sales of futures. Any persons receiving this report directly from Macquarie Capital (USA) Inc. and wishing to effect a transaction in any security described herein should do so with Macquarie Capital (USA) Inc. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures, or contact your registered representative at 1-888-MAC-STOCK, or write to the Supervisory Analysts, Research Department, Macquarie Securities, 125 W.55th Street, New York, NY 10019. © Macquarie Group
1 September 2015 8 Macquarie Research SmarTone Telecommunications
Auckland Bangkok Calgary Denver Frankfurt Geneva Hong Kong Tel: (649) 377 6433 Tel: (662) 694 7999 Tel: (1 403) 294 9541 Tel: (303) 952 2800 Tel: (069) 509 578 000 Tel: (41) 22 818 7777 Tel: (852) 2823 3588
Jakarta Johannesburg Kuala Lumpur London Manila Melbourne Mumbai Tel: (62 21) 515 1818 Tel: (2711) 583 2000 Tel: (60 3) 2059 8833 Tel: (44 20) 3037 2000 Tel: (63 2) 857 0888 Tel: (613) 9635 8139 Tel: (91 22) 6653 3000
Munich New York Paris Perth Seoul Shanghai Singapore Tel: (089) 2444 31800 Tel: (1 212) 231 2500 Tel: (33 1) 7842 3823 Tel: (618) 9224 0888 Tel: (82 2) 3705 8500 Tel: (86 21) 6841 3355 Tel: (65) 6601 1111
Sydney Taipei Tokyo Toronto Vancouver Tel: (612) 8232 9555 Tel: (886 2) 2734 7500 Tel: (81 3) 3512 7900 Tel: (1 416) 848 3500 Tel: (1 604) 605 3944 Available to clients on the world wide web at www.macquarieresearch.com and through Thomson Financial, FactSet, Reuters, Bloomberg, and CapitalIQ.
1 September 2015 9
Asia Research Head of Equity Research Software and Internet Transport & Infrastructure Peter Redhead (Global – Head) (852) 3922 4836 David Gibson (Asia) (813) 3512 7880 Janet Lewis (Asia) (852) 3922 5417 Matt Nacard (Asia – Head) (852) 3922 1362 Wendy Huang (Hong Kong) (852) 3922 3378 Andrew Lee (Asia) (852) 3922 1167 Alice Yang (China, Hong Kong) (852) 3922 1266 Azita Nazrene (ASEAN) (603) 2059 8980 Automobiles/Auto Parts Hillman Chan (China, Hong Kong) (852) 3922 3716 Corinne Jian (Taiwan) (8862) 2734 7522 Nitin Mohta (India) (9122) 6720 4090 Janet Lewis (China) (852) 3922 5417 Utilities & Renewables Zhixuan Lin (China) (8621) 2412 9006 Nathan Ramler (Japan) (813) 3512 7875 Amit Mishra (India) (9122) 6720 4084 Prem Jearajasingam (Malaysia) (603) 2059 8989 Gary Chiu (Asia) (852) 3922 1435 Lyall Taylor (Indonesia) (6221) 2598 8489 Oil, Gas and Petrochemicals Alan Hon (Hong Kong) (852) 3922 3589 Takuo Katayama (Japan) (813) 3512 7856 Inderjeetsingh Bhatia (India) (9122) 6720 4087 James Hong (Korea) (822) 3705 8661 James Hubbard (Asia) (852) 3922 1226 Prem Jearajasingam (Malaysia) (603) 2059 8989 Aditya Suresh (Asia) (852) 3922 1265 Karisa Magpayo (Philippines) (632) 857 0899 Banks and Non-Bank Financials Abhishek Agarwal (India) (9122) 6720 4079 Commodities Ismael Pili (Asia, Hong Kong, China) (852) 3922 4774 Polina Diyachkina (Japan) (813) 3512 7886 Matthew Smith (China) (8621) 2412 9022 Anna Park (Korea) (822) 3705 8669 Colin Hamilton (Global) (4420) 3037 4061 Suresh Ganapathy (India) (9122) 6720 4078 Trevor Buchinski (Thailand) (662) 694 7829 Jim Lennon (4420) 3037 4271 Nicolaos Oentung (Indonesia) (6221) 2598 8366 Pharmaceuticals and Healthcare Matthew Turner (4420) 3037 4340 Alastair Macdonald (Japan) (813) 3512 7476 Rakesh Arora (9122) 6720 4093 Chan Hwang (Korea) (822) 3705 8643 John Yung (Hong Kong, China) (852) 3922 1132 Gilbert Lopez (Philippines) (632) 857 0892 Abhishek Singhal (India) (9122) 6720 4086 Economics Thomas Stoegner (Singapore) (65) 6601 0854 Property Peter Eadon-Clarke (Asia, Japan) (813) 3512 7850 Dexter Hsu (Taiwan) (8862) 2734 7530 PK Basu (ASEAN) (603) 2059 8993 Passakorn Linmaneechote (Thailand) (662) 694 7728 Tuck Yin Soong (Asia, Singapore) (65) 6601 0838 Larry Hu (China, Hong Kong) (852) 3922 3778 Conglomerates David Ng (China, Hong Kong) (852) 3922 1291 Tanvee Gupta Jain (India) (9122) 6720 4355 Raymond Liu (China, Hong Kong) (852) 3922 3629 Gilbert Lopez (Philippines) (632) 857 0892 Kai Tan (China) (852) 3922 3720 Quantitative / CPG Abhishek Bhandari (India) (9122) 6720 4088 Consumer and Gaming Gurvinder Brar (Global) (4420) 3037 4036 Andy Lesmana (Indonesia) (6221) 2598 8398 Woei Chan (Asia) (852) 3922 1421 Linda Huang (China, Hong Kong) (852) 3922 4068 William Montgomery (Japan) (813) 3512 7864 Anthony Ng (Asia) (852) 3922 1561 Kai Tan (China) (852) 3922 3720 Sam Chan (Singapore) (65) 6601 0835 Jason Zhang (Asia) (852) 3922 1168 Zibo Chen (Hong Kong) (852) 3922 1130 Corinne Jian (Taiwan) (8862) 2734 7522 Amit Mishra (India) (9122) 6720 4084 Patti Tomaitrichitr (Thailand) (662) 694 7727 Special Situations Fransisca Widjaja (Indonesia) (6221) 2598 8368 Resources / Metals and Mining Matthew Hook (Asia) (852) 3922 3743 Hendy Soegiarto (Indonesia) (6221) 2598 8369 Toby Williams (Japan) (813) 3512 7392 Rakesh Arora (India) (9122) 6720 4093 Strategy/Country HongSuk Na (Korea) (822) 3705 8678 Stanley Liong (Indonesia) (6221) 2598 8381 Viktor Shvets (Asia) (852) 3922 3883 Karisa Magpayo (Philippines) (632) 857 0899 Polina Diyachkina (Japan) (813) 3512 7886 Chetan Seth (Asia) (852) 3922 4769 Somesh Agarwal (Singapore) (65) 6601 0840 Anna Park (Korea) (822) 3705 8669 Joshua van Lin (Asia Micro) (852) 3922 1425 Best Waiyanont (Thailand) (662) 694 7993 Technology Peter Eadon-Clarke (Japan) (813) 3512 7850 Emerging Leaders David Ng (China, Hong Kong) (852) 3922 1291 Jeffrey Su (Asia, Taiwan) (8862) 2734 7512 Erwin Sanft (China, Hong Kong) (852) 3922 1516 Jake Lynch (China, Asia) (8621) 2412 9007 Damian Thong (Asia, Japan) (813) 3512 7877 Rakesh Arora (India) (9122) 6720 4093 Neel Sinha (ASEAN) (65) 6601 0562 Jason Sun (China, Hong Kong) (852) 3922 4674 Lyall Taylor (Indonesia) (6221) 2598 8489 Kwang Cho (Korea) (822) 3705 4953 Nitin Mohta (India) (9122) 6720 4090 Nicolaos Oentung (Indonesia) (6121) 2598 8366 David Gibson (Japan) (813) 3512 7880 Industrials Chan Hwang (Korea) (822) 3705 8643 George Chang (Japan) (813) 3512 7854 PK Basu (Malaysia) (603) 2059 8993 Janet Lewis (Asia) (852) 3922 5417 Daniel Kim (Korea) (822) 3705 8641 Gilbert Lopez (Philippines) (632) 857 0892 Patrick Dai (China) (8621) 2412 9082 Soyun Shin (Korea) (822) 3705 8659 Conrad Werner (Singapore) (65) 6601 0182 Inderjeetsingh Bhatia (India) (9122) 6720 4087 Ellen Tseng (Taiwan) (8862) 2734 7524 David Gambrill (Thailand) (662) 694 7753
Andy Lesmana (Indonesia) (6221) 2598 8398 Tammy Lai (Taiwan) (8862) 2734 7525 Find our research at Lyall Taylor (Indonesia) (6221) 2598 8489 Telecoms Kenjin Hotta (Japan) (813) 3512 7871 Macquarie: www.macquarie.com.au/research James Hong (Korea) (822) 3705 8661 Nathan Ramler (Asia, Japan) (813) 3512 7875 Thomson: www.thomson.com/financial Somesh Agarwal (Singapore) (65) 6601 0840 Danny Chu (852) 3922 4762 Reuters: www.knowledge.reuters.com David Gambrill (Thailand) (662) 694 7753 (China, Hong Kong, Taiwan) Bloomberg: MAC GO David Lee (Korea) (822) 3705 8686 Factset: http://www.factset.com/home.aspx CapitalIQ www.capitaliq.com Insurance Prem Jearajasingam Email [email protected] for access Scott Russell (Asia, Japan) (852) 3922 3567 (Malaysia, Singapore) (603) 2059 8989
Chan Hwang (Korea) (822) 3705 8643
Asia Sales Regional Heads of Sales Regional Heads of Sales cont’d Sales Trading cont’d Miki Edelman (Asia) (813) 3512 7857 Paul Colaco (San Francisco) (1 415) 762 5003 Suhaida Samsudin (Malaysia) (603) 2059 8888 Jeff Evans (Boston) (1 617) 598 2508 Ruben Boopalan (Singapore) (603) 2059 8888 Michael Santos (Philippines) (632) 857 0813 Jeffrey Shiu (China & Hong Kong) (852) 3922 2061 Erica Wang (Taiwan) (8862) 2734 7586 Kenneth Cheung (Singapore) (65) 6601 0288 Thomas Renz (Geneva) (41) 22 818 7712 Angus Kent (Thailand) (662) 694 7601 Chris Reale (New York) (1 212) 231 2555 Bharat Rawla (India) (9122) 6720 4100 Ben Musgrave (UK/Europe) (44) 20 3037 4882 Marc Rosa (New York) (1 212) 231 2555 Riaz Hyder (Indonesia) (6221) 2598 8486 Julien Roux (UK/Europe) (44) 20 3037 4867 Isaac Huang (Taiwan) (8862) 2734 7582 Dominic Shore (Thailand) (662) 694 7707 Mark Chadwick (Japan) (813) 3512 7827 Sales Trading John Jay Lee (Korea) (822) 3705 9988 Mike Keen (UK/Europe) (44) 20 3037 4905 Nik Hadi (Malaysia) (603) 2059 8888 Adam Zaki (Asia) (852) 3922 2002 Eric Roles (New York) (1 212) 231 2559 Stanley Dunda (Indonesia) (6221) 515 1555 Gino C Rojas (Philippines) (632) 857 0861