Deutsche Bank Markets Research
Asia Periodical Date Pan-Asia 21 November 2017 Telecommunications Asia-Pac Telecom
Tracker
Peter Milliken, CFA Research Analyst Relative valuation shines... investors (+852 ) 2203 6190 [email protected] shield their eyes
Many cheap telcos, and signs of discipline returning Srinivas Rao, CFA Price, marketing, spectrum and capital discipline were on show in the quarter, Research Analyst and Chinese telco revenues were strong, yet sector earnings were sluggish, as (+65 ) 6423 4114 some of these initiatives take time to fully flow through, and as a degree of [email protected] front-loading costs appeared to occur. Value is becoming clearer, with relative
P/Es at six-year lows, and relative EV/EBITDA 1 s.d. cheap, but investors need Raymond Kosasih, CFA catalysts to pay attention. The risk-on mode, however, is showing signs of tiredness. High yield bond spreads have bottomed, suggest risk appetite has PT Deutsche Verdhana Sekuritas Indonesia slowed - and generally this would have led to the telcos holding up against the Research Analyst market, not the substantial underperformance seen. (+62) 21 2964 4525 [email protected] No catalysts? Then why did low-growth Japan have another good quarter? In the last three months, Japan telcos gained 7% while APAC x JP telcos fell 5%. That has really been the story since the GFC. Over the last five years, Gio Dela-Rosa, CFA Japanese telecoms have tripled, while APAC x JP telcos have been stationary. Deutsche Regis Partners, Inc. The success of the Japanese telecoms is based on several factors, that the Research Analyst APAC x JP telcos now feature (albeit to a smaller degree): 1) Minimal investor (+63) 2 894 6642 belief, 2) Low valuations, 3) Improving earnings discipline, 4) Increased [email protected] shareholder friendliness, and 5) Growth beyond traditional services. The question is does the APAC x JP telco disinterest continue downwards until James Wang telecoms trade at deep value, like the Japanese did, or will there be catalysts Research Analyst to excite the market in 2018? We believe investors are set to see better (+852 ) 2203 6145 returns, as we see emerging catalysts, such as: 1) Capex down-cycle driving a [email protected] FCF boom, 2) Pricing, marketing and spectrum discipline returning to varying degrees in PH, TH, TW, HK, SG and likely CH, 3) M&A driving synergies and consolidation, 4) IoT, cloud, content, etc as growth engines, 5) Chinese Craig Wong-Pan telecoms becoming more commercially driven, and 6) Potential inflows on any Research Analyst tech or inflation scare from tech equities and bonds respectively. The sector is (+61) 2 8258-2848 being priced as though the bull market will pass it by. If so, that will be the first [email protected] miss since the telecom index was born in 1994, and the first time a FCF up- cycle has not been rewarded by the market. As such we believe investors Top picks should lift exposure to value names. TLS, CT, SKT, KT, LGU, and ISAT, are all trading 1+ s.d. cheap vs. 10-year valuation ranges – which is remarkable given China Mobile (0941.HK),HKD78.15 Buy what the market has done in that period. Telstra Corporation (TLS.AX),AUD3.45 Buy SK Telecom (017670.KS),KRW254,500.00 Buy Valuation and risks We value the telecoms on DCF, and the holdcos on SOTP. Our WACCs are Idea Cellular Limited (IDEA.BO),INR95.00 Buy Source: Deutsche Bank typically based on local 10-year bonds, with risk premiums of 4.5-5.5%, and terminal growth rates of 0-2%. Key downside risks include: 1) Interest rates rebounding, cutting sector value, 2) Competition deteriorating, and 3) Risk of spectrum pricing rising on competitive or regulatory change. Key upside risks include: 1) Hype on IoT, e-commerce, and data monetization driving earnings estimates and multiples, and 2) Low, and even negative, interest rates leading to an upward squeeze in valuations.
______Deutsche Bank AG/Hong Kong This research has been prepared in association with PT Deutsche Verdhana Sekuritas Indonesia. The opinions contained in this report are those of PT Deutsche Verdhana Sekuritas Indonesia. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Distributed DISCLOSURES on: 20/11/2017 AND 16:36:31 ANALYST GMT CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. THE CONTENT MAY NOT BE DISTRIBUTED IN THE PEOPLE’S REPUBLIC OF CHINA (“THE PRC”) (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OF PRC), EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAU. 0bed7b6cf11c 21 November 2017
Telecommunications Asia-Pac Telecom Tracker
Model portfolio
Figure 1: DB’s APAC telecom portfolio
17-Nov-17 Return since Weighted Last rebal Sep 11 DB model Prior Price last rebal return Idea Cellular is our regional top pick, weight weight Local Last Q Local USD USD and we see a path to it doubling, so Australia TLS.AX AUD Telstra 20% 20% 3.47 3.72 -7% -12% -2.5% China 0941.HK HKD China Mobile 25% 25% 78.15 82.35 -5% -5% -1.3% we lift it to 20%. We have added China 0728.HK HKD China Telecom 10% 0% 3.85 4.02 -4% -4% 0.0% India IDEA.BO INR Idea 20% 15% 95.00 80.60 18% 16% 2.4% names with high upside to DB TPs, Indonesia ISAT.JK IDR Indosat 5% 0% 5,525 6,500 -15% -16% 0.0% Japan 9433.T JPY KDDI 5% 0% 2,977 2,936 1% -2% 0.0% but also add Hold rated KT Corp, due Korea 030200.KS KRW KT Corp 5% 0% 29,150 30,250 -4% -1% 0.0% Korea 017670.KS KRW SK Telecom 10% 10% 250,500 251,500 0% 3% 0.3% to a P/B and EV/EBITDA at levels in Cash 0% 0% line with typical sector troughs. We Deletions Hong Kong 1883.HK HKD CITIC Telecom 0% 10% 2.23 2.30 -3% -3% -0.3% cut SoftBank, as we are restricted. Japan 9984.T JPY Softbank 0% 10% 9,469 8,520 11% 7% 0.7% Hong Kong 6823.HK HKD HK Telecom 0% 10% 9.60 9.84 -2% -2% -0.2% Total 100% 100% DB model portfolio since rebal on 42985 -0.9% APAC telco index performance (MXAP0TC) 107.5 104.9 2.5% DB model portfolio since inception 24.4% APAC telco index (16 Oct 2015) 100.8 6.7% DB outperformance since inception (16 Oct 2015) 17.7%
We select stocks based on: 1) Upside to target price, 2) Stock recommendation, 3) USD return potential, 4) Free float, 5) Relative value vs. regional telcos, 6) Short-term catalysts, 7) Sector thematics. We target holding period of 1 year - but can go higher to achieve our key goal of the best portfolio possible at each quarterly rebalance Red numbers are weight reductions Blue numbers are weight increases Source: Deutsche Bank, Bloomberg Finance LP; Past performance may not be a reliable guide to future performance
This quarter has been the most difficult for arranging the model portfolio – as we can’t decide what to leave out. We are attracted to high earnings growth coming through in PH and TH to dividend yields 4%+ above 10-year bonds across DM leaders, to seemingly oversold operators in KR, AU and CH, actual and possible M&A stories, and to combinations of all of these. As such, the intriguing stories like DTAC, LGU, PLDT, Globe and China Telecom, failed to make our final list. The only ones eliminated were TPG, and Malaysian telcos, and we felt it easy to ignore NTT, StarHub, and Taiwanese operators. Everything else though had a case for inclusion.
Korean operators are facing negative headwinds, but their share prices have suffered significantly, and we suspect IoT can be a strong theme for them in 2018 – that should offset some political fears. While Dan Kong has a Buy on SKT and Hold on KT, we cannot ignore 2.5x EBITDA and 0.65x. Other top picks are selected based on implied upside to our TPs, plus potential catalysts.
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21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Key issues by market
The year of discipline?
Earnings have been held back by: 1) OTT cannibalizing voice and SMS, 2) Network roll-out lifting opex, and 3) Operators cutting price to drive migration to new networks. We believe the worst is over in all three cases, and sense management teams are under pressure to deliver. In 2017 we have seen marketing expense sharply reduced in the Philippines, Thailand and cut in Taiwan, and price rises in HK wireline, and some mobile price rises in IN, SG and TW. As such, we believe earnings growth is building, while capex is coming down. With FCF rising, rising payouts or investment in new growth areas, can drive a more exciting story for the sector. The exceptions seem to be Korea and Japan, but we believe the worst is over even in these markets.
Figure 2: Key issues and top picks (of local analyst)
Market Key issue Our take Market viewValuationTop pick 。TPG mobile build 。TPG unlikely to build a competitive network Challenged Good TLS Australia 。NBN impact 。TLS holding share, but margin steps down A UD0.22+ DPS chunky, with room for FCF 。Improving alignment 。Incentivization should mean less mobile discounting Improving Good CM China 。Declining capex 。Networks larely built out, capex should follow CU Rising sector FCF & shareholder friendliness. 。Spot pricing rising 。HKBN fiercely aggressive / but targetting higher spend Steady Good CITIC HK 。Mobile deflation 。Prior price cuts a headwind as users roll HKT Value and above average potential for corp action 。Sector consolidation 。Heading for three large players, plus weak govt operator Improving Good Idea India 。Data and spend growth 。Jio pricing normalizing, while spending power rising Idea/Vodafone combined market cap looks too low 。Legacy contraction 。Voice and SMS revenue now negative at Tsel Steady High ISAT Indonesia 。Consolidation 。Minister pushing for M&A. Would help ISAT & XL Sector rebalance potential driver 。Competition intensifies 。Price gap to MVNOs and sub-brands seems too wide Challenged Good KDDI Japan 。Bond to equity switch 。Docomo DY 4% > 10YR bond, 7%> including buy-back Flat cash earnings, but in a NIRP world, could be 。Govt. price setting 。Govt price cuts each create 10%-like earnings impact Challenged Good SKT Korea 。Content / IoT / profit focu。Data growth and new services may offset if disciplined Risky, but low market caps seem to reflect 。Rising competition 。#4 becoming credible threat Challenged Fair N/A Malaysia 。Local market tough 。High starting profitability a risk Hard to see upside given rising competition 。Spectrum acquisiton 。Network quality set to pick up helped by low-band Improving Good PLDT Phils 。PLDT digital pivot 。Marketing discipline is encouraging PLDT's approx US$0.4bn 2017 NPA T too low vs. 。New entrant 。Pricing already down 3x since license issued. Priced in Steady Good Singtel Singapore 。Possible TPG-failure 。Inferior network/ low big-3 prices hurt TPG's chances Singtel stub unusually low. Associates 。Sluggishness 。Price rises, too little, too late Steady Fair FET Taiwan 。Consolidation 。A PT and Taiwan Star consistent losses. Will one give Rising rates killing yield compression trade; 。DTA C wins spectrum 。Now has spectrum advantage. Will push for share Challenged Fair DTAC Thailand 。True's aggression ends?。True's price aggression has failed. Better mkt. coming? Worst seems over, but V shaped recovery unlikely Source: Deutsche Bank
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Telecommunications Asia-Pac Telecom Tracker
Top picks
Idea Cellular
Jio continues driving the sector towards an oligopoly from the near perfect competition that previously existed – setting the market up for record margins in the medium-term potentially. Should Idea and Vodafone return to prior combined EBITDA of USD4bn, and synergies lift that to USD5bn, then the share will double if prior 7x EBITDA multiples return. Our top pick.
China Mobile
China Mobile is one of the few telcos trading below its 10-year EV/EBITDA average. We believe it has an unspoken rising pay policy, as demonstrated by 2016’s payout lift, and the 1H special dividend of HK$3.20. On page two of its 2016 results announcement it wrote: “Exceeding investor expectations is our overriding priority. We hope to create better returns for shareholders and share with them the fruits of our success.” Enough said…
SK Telecom
Strong SOTP story, which we believe has a chance of being partly unlocked in 2018, plus a 4% DY. Korean telcos look oversold, for example KT Corp is on 0.65x book, and 2.5x EBITDA, levels last seen before strong rallies at NTT and Unicom.
CITIC Telecom
On 9x 2017e P/E, with a 6% DY, we think investors are being well rewarded for taking on some long-term regulatory and competition risks in Macau. Also, we believe it may be a target for Unicom in 2018, as it considers rolling up CBN and CITIC group telecom assets, to get access to low-band spectrum in particular, while satisfying the government’s SOE reform and Three Network Convergence goals.
Telstra
6.5% DY, with DPS more than covered by EPS through our forecast period. Rare combination for a large cap telco. Rerating can come through 1) Yield compression, 2) Increased belief in new areas of telco growth, 3) Cost outs and other Telstra initiatives surprising, or 4) TPG becoming over-stretched.
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Macro drivers
Figure 3: Telco relative performance vs. risk-on trade Figure 4: APAC telecom revenue growth
25 14% 1.9 1.7 There has been a phase shift from risk on 20 12% 1.5 to neutral – but someone forgot to tell 10% telco investors 15 1.3 8% 1.1 10 6% 0.9 5 0.7 4% 0.5 0 2%
Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Indian contraction 0% 2013 2014 2015 2016
Asia Pac Telco ex JPN rel to mkt US HY credit Spread 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Source: Deutsche Bank Source: Deutsche Bank Bloomberg Finance LP
Figure 5: 10 Yr local bond yield change and telco Figure 6: Telco index vs. telco performance YTD performance YTD 2.0% 80% Leaders Globe Bharti A 1.5% PLDT 60%
1.0% 40% Ch Mob Ch Tel Ch Uni Idea Telstra KTCorp SKT Ch Uni LGU 20% AIS XL PLDT 0.5% CITIC HKT Twn Mob DTAC NTT GlobeSK TelLG UPlus Tel Mal Chunghwa Chunghwa FET Twn Mob Starhub Axiata DiGi Maxis 0% DocomoStarhubKTCorp HK Trust Ch Tel M1 SingTel Tel Mal AxiataMaxisSingTel KDDI Citic Ch Mob 0.0% TRUE KDDI Docomo NTTAIS FarIndosat ET M1
Stock Perf Ytd -20% IndosatTLKM XL -0.5% Telstra Local 10 Year Bond Idea Bharti -40% Laggards
-1.0% -60% RCom -40% -20% 0% 20% 40% 0% 10% 20% 30% 40% 50% 60% Stock perf ytd Index Perf Ytd
Source: Bloomberg Finance LP Source: Bloomberg Finance LP
Figure 7: 10 year bond yield local market (weighted) Figure 8: CPI and GDP 2017e 7% 5% 6% Malaysia 4% 5% Indonesia Phillipines 4% 3% India 3% 2% 2% South Korea China Hong Kong 1% 1% CPI Growth Thailand 0% Japan Bharti A Idea RCom XL Indosat Telkom Axiata Globe PLDT DiGi Maxis Mal Tel Ch Mob Ch Tel Ch Uni SingTel Spark CITIC KT Corp UPlus LG SK Tel Telstra TPM Vocus AIS DTAC True M1 Starhub Trust HK Chunghwa ET Far Mob Twn Softbank NTT Docomo KDDI Singapore 0% Taiwan -1% 0% 2% 4% 6% 8% GDP Growth Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank
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Telecommunications Asia-Pac Telecom Tracker
Street positioning
One-third of the sector still has more Sell recommendations than Buys, suggesting a lack of conviction on most names. An interesting point is that HKT and Korean telcos are almost universally liked, despite significant headwinds, yet there’s little love for many operators in MY, TH, TW and AU. This suggests the market is factoring in mean reversion in EBIT margins ahead. While we have similar thinking, the herding does make us wonder if there may be surprises ahead. Perhaps the second to bottom quartile is worth spending some time on, not too troubled, but out of favour.
The second quartile worth some Figure 9: Street recommendations focus. We love IDEA, and like TLS; 100% 90% Hold DTAC has a nice chart, and PH 80% 70% telcos have the best earnings 60% 50% momentum 40% 30% 20% 10% 0% HK Tel HK SoftBank Ch Mob Ch tel CITIC KT Corp Indosat SK Tel Ch Uni TLKM Uplus LG NTT Bharti A SingTel AIS XL Docomo KDDI mal Tel Globe Spark ET Far Axiata Telstra PLDT Idea DTAC True Mob Twn TPG M1 RCOM Chunghwa StarHub Vocus Maxis DiGi
Buy Hold Sell
Source: Bloomberg Finance LP
Figure 10: Upside to consensus target price
50% 40% Indosat, CITIC Tel, LGU, CM and HKT all 30% feature 25%+ upside to Street targets. 20% Majority of stocks have 10%+ upside to 10% street targets 0% -10% -20% Indosat CITIC Softbank Uplus LG Ch Mob Trust HK Ch Uni KT Corp XL Tel CH SK Tel Telkom DTAC KDDI Mal Tel Bharti A Singtel True AIS Globe Telstra Docomo ET Far NTT PLDT NZ Spark Idea Mob Twn Rcom Axiata TPG Chunghwa DiGi M1 Maxis Starhub Vocus
Source:, Bloomberg Finance LP
Figure 11: Points change in Bloomberg consensus recommendation last 3M
0.4 0.3 Improving sector discipline and relative 0.2 value leading to more upgrades than 0.1 0.0 downgrades (17 up, 12 down) -0.1 -0.2 -0.3 -0.4 Globe Bharti A ET Far DTAC RCOM AIS Axiata Uplus LG StarHub M1 Ch tel Mob Twn Chunghwa mal Tel NTT True Docomo Telstra Ch Mob Ch Uni Tel HK CITIC SK Tel #N/A PLDT Spark Idea KDDI SoftBank Maxis XL DiGi TLKM SingTel Vocus KT Corp Indosat TPG
Source: Bloomberg Finance LP
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21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Sector price performance
The narrow range-trade continues
Market heavyweights, the Japanese had a good quarter, with slight earnings beats and Docomo’s capital return, while the playing out of our Jiological Shift theme in India drove Bharti strongly upwards, due to Jio’s 20% price lift.
Figure 12: Last 3M index drivers Japanese heavyweights have 5% driven the sector, helped by
4% increased shareholder
3% friendliness. Bharti has been a leader, as Jio fears have 2% eased. At the other end, 1% Telstra, Telkom and KR telcos 0% have offset the positive gains -1% Softbank Docomo NTT Bharti A KDDI Ch Uni Idea SingTel Axiata Maxis Starhub PLDT Citic RCom Indosat M1 DTAC Globe DiGi Mob Twn ET Far Mal Tel Ch Tel Trust HK XL Chunghwa AIS KT Corp Ch Mob Telstra TLKM UPlus LG SK Tel elsewhere
Source: Bloomberg Finance LP
Figure 13: 3M Price performance Telcos considered troubled, 30% led the charge. NTT’s 20% buyback also helped, but 10% generally it was a bad Q for 0% wireline leaders, Telkom, -10% Telstra, KT, and HKT on -20% competition & pricing fear -30% -40% Bharti A True Idea Starhub NTT SoftBank Axiata Docomo Ch Tel Maxis TPM Chunghwa AIS KDDI Mob Twn SingTel M1 DiGI Ch Uni CITIC ET Far SK Tel PLDT Mal Tel Vocus Ch Mob Globe XL Trust HK Spark KTCorp Telstra TLKM DTAC Indosat UPlus LG RCom
Source: Bloomberg Finance LP
Figure 14: 12M Price performance Complicated companies with 80% solid franchises have performed 60% well, helped by market 40% 20% normalization in India, improved 0% profit discipline in PH, and fibre- -20% resale led earnings growth and -40% buy-backs at NTT -60%
-80% Bharti A SoftBank Globe Idea XL NTT DTAC Ch Uni AIS PLDT SK Tel Axiata Docomo UPlus LG Spark KDDI TLKM Ch Tel Maxis Mob Twn ET Far SingTel Starhub Chunghwa Trust HK Ch Mob DiGI Mal Tel KTCorp M1 CITIC Indosat TPM True Telstra Vocus RCom
Source: Bloomberg Finance LP
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Telecommunications Asia-Pac Telecom Tracker
Figure 15: Short-term price momentum
25% Strong Bharti perhaps too hot, and DTAC Slowing Bharti A and ISAT look oversold. Idea 15% True NTT Idea gaining momentum, and True AxiataStarhub Docomo losing it 5% AIS Ch Tel ChunghwaMaxisTPM KDDI M1 Twn Mob 3M CITICSingTel Ch Uni -5% SKPLDT FarTel ET XL Tel MalHK Trust GlobeSparkCh Mob KTCorp DTAC TelstraTLKM -15% Indosat Weak LG UPlus Picking up -25% -25% -15% -5% 5% 15% 25% 1M Source: Bloomberg Finance LP
Figure 16: Medium-term price momentum
50% Slowing Overbought? Bharti is off the chart, but we still like 40% SoftBank it, but it may need a breather. Telstra Globe XL Idea 30% a massive outlier – looks oversold. DTAC Ch UniAIS NTT 20%PLDT Bharti off the charts, but we like it. SK Tel DocomoAxiata NTT looks overbought, helped by LG UPlus Spark10% TLKM KDDI Ch Tel Twn Mob buy-back. 0% SingTel Maxis Starhub HKChTel Trust Mob Mal Chunghwa -20% -10%KTCorp Far0%M1 ET 10% 20% 30% Indosat -10% CITIC
!2 M -20% -30% Telstra -40% Oversold? Picking up -50% 3M
Source: Bloomberg Finance LP
Figure 17: Index performance long-term
300 250 AxJ telcos are a laggard over the last 10 years. 200 Japan – coming off ultra-deep value 150 and with a strong improvement in 100 earnings and payout is a different case, 50 but AxJ telcos seem to be learning lessons from Japan and we expect will 0 Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov outperform ahead ------07 08 09 10 11 12 13 14 15 16 17
APAC x JP Telcos APAC x JP Mkt JP Telcos Global Telecos
Source: Deutsche Bank, Bloomberg Finance LP
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21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Financial performance last quarter
Figure 18: Service revenue YoY Ex M&A, Singtel would have risen a 15% still solid 4% - still a DM leader. China
10% continued its return to growth. India saw revenues smashed as telcos 5% priced to hold subs vs. Jio. 0%
-5%
-10%
-15% SingTel Optus Globe Ch Mob Ch Tel Ch Uni True Uplus LG KDDI M1 NTT Docomo AIS Telkom SK Tel Maxis Mob Twn KT Corp Starhub SoftBank Indosat PLDT DTAC ET Far Chunghwa DiGi Bharti A Idea
Source: Deutsche Bank, Company data
Figure 19: EBITDA YoY
50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% True SK Tel PLDT Globe AIS Ch Mob Ch Uni DTAC Maxis SoftBank SingTel Optus Ch tel CHT Uplus LG Telkom NTT KDDI M1 Docomo KT Corp Starhub far ET Mob Twn Indosat DiGi Bharti A Idea
Source: Deutsche Bank, Company data
Key features: 1) Unicom Figure 20: Net Profit YoY driving earnings at the cost of 200% a rapidly filling network, 2) Jio 150% pain, 3). Marketing cost being 100% 50% cut to record-low levels in the 0% PH and TH helped -50% -100% -150% -200% Globe PLDT Optus M1 Indosat AIS Ch Uni tel SK True NTT Maxis Ch Mob Uplus LG CHT Telkom Ch Tel KDDI SingTel Mob Twn Docomo DTAC ET Far Starhub DiGi KT Corp SoftBank Bharti A Idea
Source: Deutsche Bank, Company data
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Telecommunications Asia-Pac Telecom Tracker
4Q Street beats and misses
Figure 21: Prior quarter EBITDA vs. consensus Figure 22: Prior quarter revenue vs. consensus 10% 5% 5%
0%
-5% 0%
-10%
-15%
-20% -5% XL Axiata Corp KT SingTel Uplus LG Tel SK Far ET Maxis KDDI Softbank Telkom DiGi Tel Ch Twm Mob StarHub Chunghwa AIS Docomo NTT Mob Ch M1 Idea Rcom DTAC A Bharti Ch Uni Indosat True Docomo Telkom DiGi True Far ET Softbank XL Axiata StarHub Maxis M1 Corp KT Twm Mob Chunghwa DTAC Uplus LG AIS Ch Uni Tel Ch PLDT A Bharti Tel SK KDDI Indosat NTT Idea Rcom
Source: Deutsche Bank , Bloomberg Finance LP Source: Deutsche Bank , Bloomberg Finance LP
Solid revenue surprises starting to occur: Among larger caps, Docomo and Telkom surprised nicely. Docomo was up against a tough comp, and held up. However Telkom’s KPIs concerned despite good results. NTT beat our estimates, and rose post results, so we do not quite trust its “miss”.Indosat’s loss of market position was a concern. Unicom had a strong quarter, but the Street seemed to have got a little ahead of itself.
Jio’s second round of prices and promos hurt earnings, but operators held subs and prices are now moving up
Figure 23: Share price vs. consensus EPS Figure 24: Share price vs. recommendation change
25% 0.6 Globe Bharti
0.4 JAS 15% FET DTAC AIS Axiata LGU 0.2 LGU Tel Mal CITIC MI Starhub 5% TWMCT NTT KT CorpHKT CHT Maxis Docomo TRUE Indosat SparkCM NTTSoftbank TLS CITIC JAS VocusSingTelDiGiKDDIAIS Docomo 0.0 0.00HKTCMPLDT SKTCU TelkomGlobe CT Idea -5% FETTWMMI Softbank TelstraPLDTTel Mal CHT XL KDDIDiGi Maxis -0.2 TLKM SingTel Bharti KT CorpVocus 3M change in change FY17EPS3M -15% CU Starhub Indosat Axiata -0.4 3M change in Analyst Rec Points Rec in Analyst change 3M
-25% -0.6 -25% -15% -5% 5% 15% 25% -25% -15% -5% 5% 15% 25% 3M change in share price 3M change in share price Source: Bloomberg Finance LP Source: Bloomberg Finance LP
Bharti and LGU have Globe, FET, DTAC share price vs. EPS and LGU have not change divergences, reacted to increased suggesting buy side sell-side bullishness. pricing in a change of prospects ahead
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Operating trends
EBITDA margin
Figure 25: Australia Figure 26: China Figure 27: Hong Kong 70% 70% 70% 60% 60% Picking up 60% 50% 50% 50% 40% 40% 40% 30% 30% 20% 30% 20% Picking up 10% 20% 10% 0% 10% 0% 0% 1Q15 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 3Q15 1Q16 3Q16 1Q17 3Q17 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q15 China Mobile China Telecom 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 3Q15 1Q16 3Q16 1Q17 3Q17 Telstra China Unicom HKT Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 28: India Figure 29: Indonesia Figure 30: Japan 70% 70% 70% 60% No sign of bottom 60% 60% 50% 50% 50% 40% 40% 40% 30% 30% 30% 20% 20% 20% 10% 10% 10% Downturn 0% 0% 0% 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 SoftBank NTT (fixed) 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Bharti Airtel Idea Cellular XL Axiata Telkom Indosat NTT DoCoMo KDDI Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 31: Korea Figure 32: Malaysia Figure 33: Philippines 70% 70% 70% 60% 60% 60% 50% 50% 50% 40% 40% 40% 30% 30% 30% 20% 20% 20% 10% 10% 10% 0% 0% 0% 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q11 1Q12 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q12 1Q13 3Q13 1Q14 DiGi.Com Maxis KT Corporation LG Uplus SK Telecom Telekom Malaysia Celcom Globe Telecom PLDT Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 34: Singapore Figure 35: Taiwan Figure 36: Thailand 70% 70% 70% 60% 60% 60% 50% 50% 50% 40% 40% 40% 30% 30% 30% 20% 20% 20% 10% 10% 10% 0% Picking up 0% 0% 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 M1 Singtel Domestic Starhub CHT Far EasTone TWM AIS DTAC True Corp Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
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Telecommunications Asia-Pac Telecom Tracker
EBITDA (in local currency billions)
EBITDA growth is generally deteriorating, but picked up in ID, KR, and TH. Cost growth hurt China in 1Q, but margins are guided flat to up in 2017, so we expect better growth ahead. We think enough is being done with pricing and costs to drive a margin pickup ahead in most markets. Based on our on-the- ground analysis, we believe that operators would like to reduce competition, which has been painful for all involved, without noticeable benefits to operators in recent quarters. The exceptions may be India, due to Jio competition, Japan, where MIC pressure should keep a lid on growth, and HK, where mobile price competition should hurt. However, even in those markets we see value.
Figure 37: China Figure 38: India Figure 39: Indonesia 140 40% 120 40% 25,000 25% CT 120 30% 30% XL 100 IDEA 20,000 20% 100 20% 20% 80 15% 10% CU 10% 80 15,000 ISAT 0% 60 0% BHRT 10% 60 -10% -10% 10,000 CM 40 5% TLKM 40 -20% -20% 5,000 0% 20 -30% 20 -30% Total Total 0 -40% Total 0 -40% 0 -5% 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Weak Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 40: Japan Figure 41: Korea Figure 42: Malaysia 2,500 35% 3,500 80% 4 8% KDDI LGU 6% DIGI 30% 3,000 60% 2,000 3 4% 25% DOC 2,500 40% KT 2% CEL 1,500 20% 2,000 NTT 20% 2 0% 15% TM (fixed) 1,500 SKT -2% 1,000 10% SB 0% 1,000 5% 1 -4% MAX 500 500 -20% -6% 0% Total Total -40% 0 -8% Total 0 -5% 0 -500 -60% 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Bottoming? Weak Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 43: Philippines Figure 44: Taiwan Figure 45: Thailand 35 15% 40 15% 40 25% 30 GLO 35 TWM 35 20% TRUE 10% 10% 30 30 15% 25 5% 25 FET 25 10% DTAC 20 5% 5% 0% PLDT 20 20 15 0% 15 0% CHT 15 AIS 10 -5% -5% 10 10 5 -10% -5% -10% Total 5 Total 5 -15% Total 0 -15% 0 -10% 0 -20% 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Strong Strong Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Bottoming Source: Deutsche Bank, Company releases
Page 12 Deutsche Bank AG/Hong Kong
21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Service Revenue trends
Figure 46: Australia Figure 47: China Figure 48: Hong Kong
15% 15% 15%
10% 10% 10%
5% 5% 5%
0% 0% 0% 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 2Q16 3Q16 4Q16 1Q17 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q17 3Q17 2Q15 3Q15 4Q15 1Q16 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 -5% -5% -5%
Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 49: India Figure 50: Indonesia Figure 51: Japan
20% 15% 15%
15% 10% 10%
10% 5% 5% 5%
0% 0% 0% 2013 2014 2015 2016 2013 2014 2015 2016 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 2013 2014 2015 2016 -5% 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 -5% -5%
Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 52: Korea Figure 53: Malaysia Figure 54: Philippines
15% 15% 15%
10% 10% 10%
5% 5% 5%
0% 0% 0% 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 3Q13 4Q13 1Q14 3Q17 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 -5% -5% -5%
Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 55: Singapore Figure 56: Taiwan Figure 57: Thailand
15% 15% 15%
10% 10% 10%
5% 5% 5%
0% 0% 0% 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 3Q13 2Q15 3Q15 4Q15 1Q16 3Q17 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q16 3Q16 4Q16 1Q17 2Q17 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 -5% -5% -5%
Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Deutsche Bank AG/Hong Kong Page 13
21 November 2017
Telecommunications Asia-Pac Telecom Tracker
Revenue efficiency
Figure 58: EBITDA margin Figure 59: Capex/ revenue
50% 30%
40% 25% 20% 30% 15% 20% 10% 10% 5% 0% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2017E 2018E 2019E
APAC Ex Jpn Telco APAC Ex Jpn Mkt APAC Ex Jpn Telco APAC Ex Jpn Mkt
Source: Deutsche Bank, companies Source: Deutsche Bank, companies
Figure 60: FCF as % of revenue Figure 61: Telco EBITDA and FCF growth (2016-’19)
14% 12% 12% 10% FCF forecast to outgrow 10% 8% broad market 6% 8% 4% 6% 2% 4% 0% 2% -2% 0% -4% Revenue EBITDA Capex FCF 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E
APAC x Jpn JPN APAC Ex Jpn Telco APAC Ex Jpn Mkt
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, companies
Figure 62: Telco EBITDA, Capex and FCF margins (last FY)
60%
50%
40%
30%
20%
10%
0% XL M1 AIS NTT TPG Idea DiGi True KDDI CITIC PLDT DTAC Rcom Globe Maxis Axiata
-10% Vocus SK Tel Ch Tel Far ET Telstra Ch Uni Ch Telkom SingTel Tel Mal Indosat Bharti A Bharti KT Corp Ch Mob StarHub HK Trust Docomo SoftBank Spark NZ LG Uplus LG Chughwa -20% Twn mob
EBITDA % CAPEX % FCF %
Source: Deutsche Bank, companies
Page 14 Deutsche Bank AG/Hong Kong
21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Last quarter’s KPIs
Figure 63: Mobile ARPU (US$/month) Figure 64: Data as % of mobile service revenue
60 80% Docomo US$ 70% 50 SmarTone US$ SingTel US$ 60% 40 SKT US$ 50% FET US$ 40% 30 AIS US$ 30% 20 China Mobile US$ 20% Telkomsel US$ 10% 10 PLDT US$ 0% Docomo XL SingTel AIS DIGI Ch Tel DTAC Indosat Bharti US$ 0 Celcom US$ Jan-14 Jan-15 Jan-16 Jan-17 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17
May-14 May-15 May-16 May-17
Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases and management guidance
Figure 65: Mobile net adds YoY (last reported quarter) Figure 66: Mobile net add breakdown (last quarter)
20% 100% TLS CU SB SKT 15% 80% 60% CT TLKM LGU OP Jio KDDI 10% 40% TRUE 20% CM KT IDEA ISAT DOC 5% 0% BSNLBRTI XL AX DTAC Others DIGI AIS -20% GLO M1 0% CHT -40% ST -5% -60% MAXISSMART -80% FET -10% STH -100% AUS CHN INDI IDN JPN KOR MLY PHP SGP TWMTWN THL IDN IND THL JPN SGP PHP AUS KOR MLY CHN TWN
Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases, India numbers are of May 2017
Figure 67: Mobile ARPU YoY 15% 10% 5% 0% -5% -10% -15% -20% -25% Globe Maxis Ch Uni Docomo PLDT KDDI Uplus LG DIGI Ch Mob M1 SK Tel AIS DTAC Chunghwa StarHub Ch Tel Softbank True ET Far SingTel Mob Twn SmarTOne KT Corp Telkom Indosat Bharti A Idea
Source: Source: Deutsche Bank, Company releases
Deutsche Bank AG/Hong Kong Page 15
21 November 2017
Telecommunications Asia-Pac Telecom Tracker
Sector valuation
Figure 68: MSCI Asia Pac ex Jp Telecom rolling 4Q P/E Figure 69: MSCI Japan Telecom rolling 4Q P/E 25 25
20 20
15 15
10 10
5 5
0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Depreciation Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP change/ exceptionals Japanese telcos are back near their relative P/E peaks so need to be approached more cautiously. However, the APAC x JP sector P/E relative is back at a six year low (Fig 69). There’s clear sector value, but investors complain of a lack of catalysts. We noted five major catalysts in our Five Paths Lead Up report Note here. We remind investors that 2G, ADSL, and 3G/iPhone excitement led to much higher index levels in prior cycles that we expect IoT, digital content, e-commerce and 4G data monetization will drive the next move up in telcos.
Telco dividend yields are looking attractive vs. other sectors, and while that is partly based on CM’s special, we expect another such special next year, and improved policy ahead. We believe the Chinese telcos could also get a benefit from SOE reform, as per our June 2, Shake Up? report. Against REITs, the sector is back to its normal spread.
Figure 70: Fwd DY of Asian telcos vs. utilities and REITs Figure 71: Telecom prices of Asia vs. EU vs. US vs. JPN 6% 180
5% 160 REITS JPN 4% 140 Asia Telcos 3% 120 EU 2% Utilities 100 US 1% 80
0% 60 Nov-14 Nov-15 Nov-16 Nov-17 May-15 May-16 May-17 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
May-14 May-15 May-16 May-17
Source: Deutsche Bank, Bloomberg Finance LP,MSCI Asia Pac .Tel. Services Index, MSCI Asia Utilities Source: Deutsche Bank, Bloomberg Finance LP, MSCI Asia Telecom Services Index, MSCI European Index, S&P Asia Pacific Select REIT 40 Telecom Services Index, MSCI US telecom Index, MSCI Japan Telecom Services Index
Helped by CM special & NTT/DCM 25% lifts, DY now at new high spread to utilities, and rarely narrower vs. REITS
Page 16 Deutsche Bank AG/Hong Kong
21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Figure 72: Telco and market index - Asia-Pac ex Japan Figure 73: Telco and market index Japan 600 2,500 500 2,000 400 1,500 300 1,000 200 500 100 0 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 0 Nov-17 Nov-08 Nov-09 Nov-10 Nov-14 Nov-15 Nov-16 Nov-17 Nov-11 Nov-12 Nov-13
Asia Pac ex Japan Market Asia Pac ex Japan Telcos Japan Market (Topix) Japan Telcos
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 74: P/E relative (rolling 4Q) Figure 75: EV/ EBITDA (rolling 4Q) 8 1.6 1.4 7 1.2 6 1.0 5 0.8 4 0.6 3 0.4 0.2 2 0.0 1 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 0 Nov-10 Nov-11 Nov-12 Nov-08 Nov-09 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
APAC Telco ex JPN PE Relative Japan Telco PE Relative APAC ex JP Telcos JPN Telco
Coincidence? Prior two relative P/E Source: Deutsche Bank, Source: Deutsche Bank, Bloomberg Finance LP Bloomberg Finance LP convergences led to APxJ telcos starting to beat market and Japan telcos to UP
Figure 76: FCF yield Asia-Pac ex Japan Figure 77: FCF yield Japan 12 25 10 20 8 15 6 10 4 5 2 0 0 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-08 Nov-09 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-10 -5
-10
APAC Ex JP Telcos APAC Ex JP Mkt JP Telcos Jp Mkt
Source: Deutsche Bank, We forecast 12% FCF CAGR for APAC telcos Source: Deutsche Bank, Bloomberg Finance LP Bloomberg Finance LP in 2016-’19 – historically a key sector driver. China estimated to grow fastest
Deutsche Bank AG/Hong Kong Page 17
21 November 2017
Telecommunications Asia-Pac Telecom Tracker
Sector relative valuation
Figure 78: P/E point premium to MSCI Asia-Pac Telco Index (5-years)
50 Leaders punished – many are 40 trading cheaply vs. 5-year 30 20 relative levels – investors 10 putting much more faith in 0 alternative operators than -10 True Idea DTAC Bharti A Axiata XL RCom Axiata Ch Uni Mal Tel DiGi Maxis Mob Twn Starhub Chunghwa Softbank AIS Globe PLDT Spark Telkom ET Far TPG Singtel Docomo M1 Tel HK Vocus Indosat NTT KDDI Ch Tel Ch Mob Telstra UPlus LG KT Corp CITIC SK Tel earlier in the decade. Why go past cheap market leaders?
Current Spread Average
Source: Bloomberg Finance LP
Telstra, China Mobile, China Tel, KT, Singtel, SK Tel, Indosat, M1, and CITIC Tel are trading at relative P/Es at the low end of their five-year P/E ranges. We believe it is time to tilt back in their direction. The wide spreads to 10-year bonds offer comfort to us, and we see strong DPS sustainability or growth at such names.
We believe telcos should trade at a premium to their local markets, given their FCF generation, shareholder friendliness and earnings stability. We find current valuations fair to attractive, and believe the switch to cyclicals ignores a strong FCF upcycle underway in the sector.
Figure 79: P/E point premium to local market (5 years)
50 40 We prefer telcos near the low end 30 20 of five-year P/E premiums to local 10 markets – CM, CT, ST, TLS, ISAT 0 M1 and CITIC Tel appear -10 -20 attractive Idea DTAC Bharti A Axiata XL Starhub Tel HK ET Far AIS Ch Tel SK Tel PLDT Ch Mob True RCom Axiata Ch Uni Mal Tel DiGi Maxis Mob Twn Chunghwa Singtel Telkom UPlus LG M1 Softbank TPG KT Corp Globe Vocus Indosat Spark Docomo CITIC NTT KDDI Telstra
Current Spread Average
Source: Bloomberg Finance LP
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21 November 2017 Telecommunications Asia-Pac Telecom Tracker
PE Relative to local country
Figure 80: Australia Figure 81: China Figure 82: Hong Kong
3.0 Only cheaper when commodity prices 3.0 CM & CT strong relative value 3.0 Strong relative value 2.5 soaring – boosting mining optimism 2.5 2.5 2.0 2.0 2.0 1.5 1.5 1.5 1.0 1.0 1.0 0.5 0.5 0.5 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Telstra TPG Vocus Ch Mob Ch Tel Ch Uni HKT CITIC Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 83: India Figure 84: Indonesia Figure 85: Japan
3.0 3.0 Strong ISAT relative value 3.0 2.5 2.5 2.5 2.0 2.0 2.0 1.5 1.5 1.5 1.0 1.0 1.0 0.5 0.5 0.5 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Bharti Idea Rcom XL Indosat TLKM Softbank NTT Docomo KDDI Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 86: Korea Figure 87: Malaysia Figure 88: Philippines
3.0 3.0 Elevated 3.0 2.5 2.5 2.5 2.0 2.0 2.0 1.5 1.5 1.5 1.0 1.0 1.0 0.5 0.5 0.5 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
KT Corp LGU SKT DiGi Maxis Tel Mal Axiata Globe PLDT Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 89: Singapore Figure 90: Taiwan Figure 91: Thailand
3.0 3.0 3.0 2.5 2.5 2.5 2.0 2.0 2.0 1.5 1.5 1.5 1.0 1.0 1.0 0.5 0.5 0.5 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
M1 SingTel Starhub CHT FET TWM AIS JAS DTAC TRUE Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Deutsche Bank AG/Hong Kong Page 19
21 November 2017
Telecommunications Asia-Pac Telecom Tracker
Five-year valuation range
The telecoms are typically trading below five-year valuation averages. This to us represents an opportunity as: 1) The APAC market is up in the last five years by approximately 64%; 2) Interest rates remain low, even by recent standards, providing a strong real DY; 3) Global economic growth appears to be returning, which should drive telco spending; and 4) IoT, cloud, digital content, payments, etc. is a strong emerging growth story.
We prefer stocks trading near the low end of their five-year ranges, such as: China Mobile, China Telecom Telstra, Singtel, Idea (P/B, P/S), CITIC Tel, KT, LGU, Globe, and M1.
Figure 92: 5Y High, Low, Current – P/Sales Figure 93: 5Y High, Low, Current – EV/ EBITDA 6 14 5 12 10 4 8 3 6 2 4 1 2 HKT SPK TM Axiata DOC CITIC GLO PLDT TPG M1 TLKM XL TLS KDDI NTT SKT 0 DiGi MAXIS TWM VOC IDEA BRTI ST CHT RCOM FET AIS TRUE STH Softbank DTAC CU LGU ISAT CM CT KT CT LGU KT RCOM 0 DiGi MAXIS CHT ST AIS TLKM FET TWM DOC PLDT BRTI HKT TPG Axiata STH GLO CM TM SPK XL TLS M1 KDDI TRUE DTAC Softbank CITIC IDEA SKT ISAT NTT VOC CU
Current Average Current Average
Source: Bloomberg Finance LP Source: Bloomberg Finance LP
Figure 94: 5Y High, Low, Current – P/E Figure 95: 5Y High, Low, Current – P/B 40 10
8 30 6 20 4
10 2
0 DiGi STH AIS MAXIS TWM TLKM M1 GLO SPK DTAC FET BRTI TM PLDT TLS Softbank TPG ISAT CHT ST KDDI HKT Axiata DOC XL IDEA TRUE CM LGU NTT SKT CU CITIC CT VOC KT RCOM DTAC TM DiGi MAXIS VOC M1 CM NTT TPG LGU 0 TRUE BRTI IDEA XL Axiata CU FET ISAT CHT TWM AIS TLKM STH DOC GLO SPK RCOM CT HKT PLDT Softbank KDDI ST TLS KT SKT CITIC
Current Average Current Average
Source: Bloomberg Finance LP Source: Bloomberg Finance LP
Page 20 Deutsche Bank AG/Hong Kong
21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Dividends
Real yield vs. payout – some very wide spreads to 10-year
Figure 96: DY (bubble) vs. Real Yld (X) vs. Payout (Y) -DM Figure 97: DY (bubble) vs. Real Yld (X) vs. Payout (Y) -EM 1.5 CM 1.5 TLS AIS HKT 1.3 PLDT 1.3 SPK GLO FET TWM 1.0 DiGi 1.0 M1 Tel Mal STH Maxis CHT 0.8 CT
CITIC Ratio Payout Payout Payout ratio 0.8 DOC DTAC KDDI 0.5 TLKM 0.5 ST CU NTT SKT 0.3 TRUE 0.3 Attractive SoftBank Axiata LGU 0.0 XL vs. bonds VOC -8% -6% -4% -2% 0% 2% 4% 6% 8% ISAT 0.0 KT TPM IDEA -2% -1% 0% 1% 2% 3% 4% 5% 6% Premium over local 10Y RCOM Premium over local 10Y BRTI Source: Bloomberg Finance LP Source: Bloomberg Finance LP
Telstra, StarHub, Spark, HKT, M1 and now China Mobile, look particularly good on their real DY, but questions over DPS sustainability are valid in each case. Our preference among the yield names is CM, Telstra, SK Tel, CITIC, HKT, Singtel, and Docomo, in that order. Generally, we believe it is now worth being overweight the quality income telcos despite the risks, as generating yields 4% north of the local 10-year bond, seems a very fat cushion, at a time when risk, while not feeling extreme, has risen. There is a case for consolidation happening in AU, SG, HK, IN, ID and MY, we believe, so today’s value play can be tomorrow’s growth story.
We also note that growth tends to be picking up, after a significant period of weakness. We believe telcos have been caught out by OTT, and have been hurt by network build-out costs. We believe that capex is now cycling down – and that 5G will be a positive surprise.
Figure 98: Sectors DY spread to US 10-year Figure 99: APAC Telcos DY Spread The 64% rise in MSCI APAC in last five years, 12% 4% not reflected in telcos – 10% 3% which offer a fat yield 8% premium to bonds 2% 6% 1% 4% 2% 0% 0% -1% -2% -2% -4% Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-14 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-15 Nov-16 Nov-17 APAC Telcos Less US 10 Yr Bond REITS Telcos Utilities
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP, Bloomberg consensus estimates
Deutsche Bank AG/Hong Kong Page 21
21 November 2017
Telecommunications Asia-Pac Telecom Tracker
Dividend Yield premium to local 10-year bond
Figure 100: Australia Figure 101: China Figure 102: Hong Kong
10% 10% 10%
5% 5% 5% 0%
0% -5% 0% Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 -5% Nov-16 Nov-17 -5% Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 TLS TPG VOC CM CT CU CITIC HKT Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 103: India Figure 104: Indonesia Figure 105: Japan
10% 10% 10% 5% 5% 0% 5% 0% -5%
-10% -5% 0% Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 -5%
RCOM IDEA BRTI TLKM Xl ISAT KDDI NTT DOC SoftBank Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 106: Korea Figure 107: Malaysia Figure 108: Philippines
10% 10% 10%
5% 5% 5%
0% 0% 0% Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-16 Nov-17 Nov-12 Nov-13 Nov-14 Nov-15 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 -5% -5% Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 -5%
SKT KT LGU DiGi Maxis Tel Mal Axiata PLDT GLO Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Figure 109: Singapore Figure 110: Taiwan Figure 111: Thailand
10% 10% 10%
5% 5% 5%
0% 0% 0% Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 -5% Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 -5% -5%
ST STH M1 CHT FET TWM AIS DTAC TRUE Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases
Page 22 Deutsche Bank AG/Hong Kong
21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Holdcos
Per share value (local currency)
Figure 112: Axiata Figure 113: Intouch
7 80 6 60 5 4 40 3 20 2 Stub near low end of range 0 1 -20 0 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Mar-17 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 May-17 Jul-17 Sep-17 Nov-17
Axiata Axiata ex listcos Intouch Intouch ex AIS
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 114: NTT Figure 115: PCCW DPS lift and fibre resale has 7,000 allowed JPY1k breakout 7 6,000 6 5 5,000 4 4,000 3 3,000 2 1 2,000 0 1,000 -1 0 -2 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17
NTT NTT ex Docomo PCCW PCCW ex HKT
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 116: SingTel Figure 117: Softbank
5 15,000 Discount widened by JPY6k/share in last year 4 10,000
3 5,000
2 0
1 -5,000 SG/Oz off 1/3 from two-year high 0 -10,000 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17
Singtel Singtel ex listcos Softbank Softbank ex listcos
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
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21 November 2017 Telecommunications Asia-Pac Telecom Tracker
5 8 0 2 2 2 2 3 8 0 2 8 8 3 3 1 0 6 26 12 57 43 31 14 17 19 12 33 41 17 41 31 12 11 33 32 68 29 41 18 Low -3 -1 -9 -5 -1 -8 -8 -8 -8 -6 -7 -7 -9 -20 -13 -10 -23 -26 -17 -26 -35 -10 -47 -22 -20 -14 -14 -11 -22 -10 -14 -10 -11 -53 -14 -10 -15 -10 -21 -70 High % From 12M 9 8 2 4 -7 -8 -3 -2 17 14 11 18 27 10 -13 -10 -10 -26 -10 -24 -26 -17 -37 -11 -49 -29 -15 -23 -29 -17 -18 -19 -18 -31 -26 -26 -18 -32 -15 -75 12M 3 0 1 1 5 6 -9 -3 -9 -6 -6 -3 -5 -4 -6 -8 -6 -0 -3 -8 -1 12 21 -14 -11 -29 -17 -23 -25 -14 -11 -25 -21 -12 -18 -18 -14 -20 -12 -64 6M 1 5 6 6 -1 -9 -8 -0 -1 -9 -1 -3 -9 -8 -7 -6 -6 -4 -3 -5 -3 -7 -1 13 13 10 -14 -10 -17 -16 -22 -15 -21 -10 -16 -10 -14 -14 -10 -52 3M 3 4 6 7 5 0 4 1 1 2 0 2 -7 -4 -6 -4 -6 -1 -4 -8 -3 -1 -1 -6 -3 -2 -3 -4 -3 -7 -3 -2 -2 -2 -5 -6 12 -11 -15 -28 1M 1 1 2 1 0 0 0 0 3 2 0 1 0 1 0 0 0 0 1 1 -0 -9 -0 -0 -1 -3 -1 -1 -1 -4 -1 -2 -1 -1 -4 -0 -0 -3 -2 -1 1W Relative Performance(%) 7 1 6 9 4 0 3 -6 -9 -8 -9 -6 -4 -5 -1 -3 22 29 12 -13 -25 -20 -13 -19 -36 -26 -26 -23 -28 -14 -14 -19 -12 -27 -24 -24 -15 -28 -11 -71 YTD 5 5 5 3 0 8 4 4 2 4 4 3 8 -0 -4 -9 -7 -5 -5 22 36 31 13 38 15 25 40 35 17 27 69 38 39 -13 -15 -28 -42 -11 -12 -67 12M 5 3 9 2 7 1 1 7 2 7 8 -3 -2 -4 -9 -5 -1 -2 -1 -7 -5 -2 -9 -2 -5 -5 -7 -7 -5 13 17 18 12 27 31 -27 -21 -12 -20 -60 6M 7 6 6 2 1 6 4 1 1 2 4 -2 -8 -3 -6 -2 -5 -3 -2 -1 -9 -1 -2 -7 -7 -1 -2 12 16 11 23 15 -15 -16 -14 -13 -13 -13 -10 -50 3M 4 6 1 9 4 5 5 1 4 0 0 5 1 5 -1 -6 -9 -1 -3 -5 -4 -2 -4 -1 -3 -0 -4 -2 -1 -1 -2 -2 -4 -1 -2 -2 -5 10 -13 -26 1M 1 3 2 3 3 3 1 4 1 0 0 1 0 1 1 2 3 1 -0 -8 -0 -0 -2 -1 -0 -1 -2 -3 -4 -1 -0 -2 -2 -1 -1 -4 -0 -0 -3 -1 1W 5 9 8 4 5 6 7 7 7 7 7 9 2 0 0 5 -4 -6 -5 38 21 22 28 10 32 20 25 24 19 28 11 69 34 35 -15 -29 -18 -11 -11 -63 YTD Abs. Performance (%) terms) (US$ 7 8 6 6 2 1 5 1 -6 -5 -5 -9 -8 -1 -2 -2 -4 -4 -3 37 16 33 15 41 29 16 39 20 29 62 33 27 -12 -30 -43 -17 -18 -10 -12 -68 12M 5 1 3 4 3 2 5 8 2 -3 -7 -8 -0 -7 -2 -5 -5 -6 -9 -9 -2 -1 -5 -5 -7 -7 -5 10 14 12 17 13 13 22 32 -26 -22 -15 -21 -60 6M 1 9 9 9 3 3 3 0 0 5 1 -7 -6 -8 -6 -6 -2 -2 -2 -4 -2 -2 -2 -7 -7 -2 -3 10 15 11 22 17 -14 -12 -10 -14 -12 -16 -10 -49 3M 2 8 5 8 4 5 0 4 1 1 5 0 5 -2 -6 -9 -2 -2 -2 -4 -2 -4 -2 -2 -7 -4 -5 -2 -3 -1 -1 -2 -4 -1 -2 -2 -5 13 -14 -26 1M 2 1 2 2 0 1 4 0 0 0 1 0 2 3 0 -1 -8 -2 -2 -1 -1 -1 -0 -0 -2 -4 -2 -2 -0 -2 -0 -2 -2 -1 -0 -4 -0 -0 -3 -1
1W Abs. Performance (%) 1 1 5 6 6 9 1 1 8 1 1 1 1 3 -2 -0 -1 -5 -3 -4 -2 39 12 17 21 23 27 14 22 29 62 29 24 -14 -32 -22 -15 -18 -10 -64 YTD
formance : Stock per118: Stock Figure KDDI Corp KDDI Total Access Communicati Total Access Telekom Malaysia Telekom AXIATA Spark New Zealand Limited XL Axiata Indosat NTT NTT Docomo Company Telstra Corporation SoftBank DiGi KT Corp Vocus Communications Vocus Globe Telecom Telkom LG Uplus SK Telecom TPG Telecom Maxis China Mobile True Corporation Median PLDT, Inc. M1 Singapore Telecom China Telecom Corp Starhub Chunghwa Telecom Dr. Peng Group Dr. Peng China Unicom Wangsu Technology TrustHK Telecom Telecom CITIC Far EasTone Telecom Taiwan Mobile Bharti Airtel Limited Airtel Bharti Cellular Limited Idea AIS Reliance Communications 20-Nov-17
Source: Deutsche Bank, Reuters Financial LP Financial Bank,Deutsche Reuters Source:
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21 November 2017 Telecommunications Asia-Pac Telecom Tracker
0.2 0.0 3.5 3.5 3.4 3.5 0.5 3.9 3.7 6.9 4.5 3.3 4.6 8.8 0.4 1.2 6.6 5.2 5.3 4.0 2.6 3.4 3.3 5.8 5.8 5.7 0.6 0.3 1.7 4.9 3.6 1.2 0.9 6.7 6.7 3.9 0.2 2018 0.9 0.0 3.4 3.8 3.4 3.1 1.2 3.9 3.4 6.8 4.7 3.4 4.7 8.3 0.0 0.4 6.2 5.2 5.3 2.8 2.8 3.6 3.0 6.7 5.0 5.7 0.6 0.0 1.3 4.8 4.2 0.5 0.8 6.6 6.3 3.3 0.3 2017 1.6 0.0 3.1 4.3 3.3 3.2 1.2 4.6 3.2 7.0 6.4 2.6 4.7 3.2 1.2 0.0 5.8 5.2 5.1 2.9 2.5 2.9 2.6 5.3 4.5 5.8 1.2 0.2 0.4 4.5 5.9 0.0 0.8 5.7 4.6 3.0 0.3 Div. Yield (%) * 2016 1.1 6.0 3.5 6.4 1.2 5.4 5.9 5.4 5.1 5.3 9.2 9.9 6.5 7.9 7.9 6.1 6.4 8.1 6.3 8.0 3.9 5.2 8.0 1.4 5.1 7.4 2.7 -6.0 -0.4 -2.2 -3.2 16.7 13.5 12.0 13.6 10.0 11.0 2018 1.2 4.9 3.5 5.0 3.4 3.1 2.6 4.9 4.3 3.8 6.5 4.7 4.7 6.7 5.1 7.8 3.9 6.9 6.0 8.0 5.0 5.0 4.6 3.2 1.9 6.5 6.5 4.8 7.5 0.0 -4.3 -0.1 13.7 11.1 16.1 12.6 11.2 2017 2.4 4.3 2.0 3.6 3.9 4.5 4.3 5.4 4.9 4.2 8.0 4.7 6.1 9.7 2.3 2.8 7.4 3.3 6.4 8.9 4.5 3.1 7.5 2.1 2.1 4.1 7.6 FCF Yield (%) * -2.8 -1.7 -9.4 -6.4 -9.5 15.5 17.6 10.4 13.2 10.6 2016 7 9 9 15 27 25 22 19 15 16 11 21 11 24 11 15 20 20 12 28 14 14 12 14 13 15 16 17 24 32 35 14 17 -53 120 15.3 -192 2018 7 8 14 25 23 24 14 16 10 18 11 21 12 13 16 19 21 28 13 15 15 13 12 13 12 20 14 30 70 39 15 18 -47 -27 14.3 -255 2017 -6,791 P/E (x)* 25 23 23 31 10 22 17 10 15 11 21 14 16 17 19 21 13 16 16 18 39 15 55 13 14 15 14 22 36 12 17 19 -87 -39 n.a. 292 16.2 2016 7.8 6.7 6.2 2.6 6.6 8.7 7.3 3.0 7.9 2.4 9.0 3.1 5.3 5.7 9.9 7.7 7.4 6.1 7.7 5.6 3.3 7.0 3.3 5.7 5.7 6.9 5.4 3.3 7.1 7.2 6.3 7.4 4.0 5.8 11.7 14.4 14.7 2018 9.2 6.7 6.5 3.2 5.8 8.6 7.5 3.3 8.9 2.5 9.8 3.3 6.0 6.0 9.2 7.5 6.8 8.1 4.9 3.6 8.6 3.6 5.6 5.9 6.3 5.8 3.9 7.8 8.2 6.5 7.5 4.6 6.2 11.7 13.6 10.3 19.4 2017 7.7 7.7 3.2 7.2 3.5 9.2 2.7 4.4 7.2 6.5 9.4 7.0 7.9 9.6 4.1 3.7 7.8 4.3 5.0 5.9 8.5 7.3 4.2 6.6 9.2 8.1 9.2 6.7 6.6 11.4 12.0 13.5 11.2 10.7 10.3 10.0 10.0 EV/EBITDA (x) * 2016 2,189 6,213 9,351 5,252 7,691 6,176 4,888 6,329 8,558 4,145 4,083 3,537 1,480 8,025 2,923 3,993 1,757 2,967 EV 12,915 14,325 19,119 11,124 26,057 42,887 11,255 24,598 54,167 12,547 79,921 49,021 45,400 12,443 30,836 136,375 102,615 160,785 USDm 974 1,427 5,149 8,856 4,522 4,986 6,989 4,380 4,052 4,996 9,637 7,683 3,587 3,296 5,257 2,219 1,169 7,056 3,407 4,577 7,885 2,019 10,687 18,773 16,435 26,572 31,002 43,299 39,885 71,613 45,764 30,346 30,634 MCap USDm 204,456 103,424 112,055 Hold Hold Buy Buy Sell Buy Hold Hold Hold Hold Hold Hold Buy Hold Hold Hold Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Rtng Hold Buy Sell Buy Buy Sell Hold Buy Buy Buy |||||||| |||||||||||| |||||||| ||||||| || |||| ||| ||||||||| ||||||||||| ||||||||||||||||| ||||||||||||||||| ||||||||||||||||| ||||||||||||||||| ||||||||||||||||| ||||||||||||||||| ||||||||||||||||| ||||||||||||||||| ||||||| ||||||||| |||||||||| |||||||||||||| ||| ||||||||||||| ||||||||| |||||||| ||| ||||||||||||| |||||||||||| |||||||||||||| || || |||||| |||||||||||||| 5.6 9.2 6.7 1.2 6.6 7.2 (%) -0.5 -5.4 -1.8 -4.3 TSR 51.6 16.1 25.7 17.1 15.1 43.1 19.7 23.6 14.4 35.5 18.1 21.9 29.3 62.4 36.6 27.5 18.0 37.0 18.1 49.8 26.4 25.0 28.3 51.6 -12.6 -28.8 5.70 6.75 2.62 4.30 4.00 5.40 7.00 5.80 4.05 4.30 3.50 2.30 8.90 3.20 2,100 62.00 80.00 8,900 14.80 3,200 4,000 11.50 4,000 5,250 1,700 15.00 6,000 112.00 14,000 184.00 100.00 31,000 105.00 580.00 144.00 310,000 Target
5.93 5.99 3.03 4.74 3.63 3.85 5.85 5.80 3.45 3.68 2.83 9.60 1.77 9.36 2.23 78.15 1,915 45.75 70.90 5,525 11.66 2,797 2,984 3,210 4,200 1,660 21.30 5,744 95.00 12,500 182.50 107.50 29,300 103.00 492.30 Price 254,500
20-Nov 119: Comps Figure China Mobile Sector median Maxis Malaysia Telekom SK Telecom Vocus Communications Vocus DiGi NZ Spark Globe Telecom TAC LG Uplus Far EasTone Telecom China Telecom True Corporation Indosat TPG Telecom Company Telstra Corporation AIS Taiwan Mobile China Unicom NTT Docomo Corp KDDI KT Corp Singapore Telecom Starhub Chunghwa Telecom HK Telecom TrustHK Telecom XL Axiata Telkom PLDT, Inc. M1 Dr. Peng Group Dr. Peng Wangsu Technology Telecom CITIC Limited Airtel Bharti NTT Idea CellularLimited Idea
Source: Deutsche Bank estimates, Bloomberg Finance LP Finance Bloomberg estimates, Bank Deutsche Source:
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21 November 2017 Telecommunications Asia-Pac Telecom Tracker Plan pricing compared
Figure 120: Mobile prices
Data Voice Cost / Cost / Note GB minutes month USD Australia Telstra 2.0 500 39 30 SIM only plan Optus 3.0 no limit 30 23 SIM only plan VHA 2.0 no limit 30 23 SIM only plan China China Mobile 1.0 300 88 13.3 China Unicom 1.0 100 25 3.8 Data within province only China Unicom 3.5 300 50 7.5 Data within province only + 2GB off-peak data China Telecom 2.0 300 50 7.5 Data within province only (Shanghai) HK HKT CSL 2.5 Unlimited 238 31 SunMobile 3.0 3000 178 23 SmarTone 2.5 3000 238 31 Hutchison 2.5 218 28 4.5G Data SIM Monthly Plan; 24 month contract India Bharti 1.5 0 146 2.2 28 days validity Bharti 28 (1GB/day) Unlimited 349 5.4 28 days validity Idea 28 (1GB/day) Unlimited 179 2.8 28 days validity Idea 45 (1.5GB/day) Unlimited 357 5.5 28 days validity Vodafone 2.0 0 175 2.7 28 days validity Vodafone 5.5 0 397 6.1 28 days validity Jio 4.2 (0.15GB day) Unlimited 149 2.3 28 days validity Jio 49 (1GB day limit) Unlimited 309 4.8 28 days validity Indonesia Telkomsel 5.0 n/a 25,000 1.85 1GB normal quota + 2GB FB and BBM +2GB Videomax Indosat 2.0 n/a 25,000 1.85 1.5GB normal quota + 0.5GB midnight XL 3.0 15 30,000 2.22 1GB normal quota + 1GB on 4G network + 1GB Youtube Hutch Tri 2.0 n/a 25,000 1.85 1GB normal quota + 1GB on 4G network Japan NTT Docomo 2.0 no limit 6,200 55 Includes handset discount KDDI 3.0 6,200 55 Includes handset discount Softbank 3.0 7,000 63 Includes handset discount Korea SK Telecom 2.2 Unlimited 42,000 38 KT Corp 2.0 Unlimited 39,900 36 LG Uplus 2.3 Unlimited 41,900 38 Malaysia Celcom 10.0 NA 50 12 Free 10GB of Facebook and instagram Maxis 8.0 Unlimited 60 14 30GB happy hour Digi 10.0 NA 48 12 30GB bonus data U-Mobile 12.0 Unlimited 50 12 Unlimited Waze, music onz, app onz, video onz Webe Unlimited Unlimited 79 19 Free 10GB LTE hotspot Singapore SingTel 2.5 800 27 20 Promotion StarHub 3.0 200 24 18 6GB for 12 month contract + unlimited weekend data M1 5.0 100 40 29 Taiwan Chunghwa 3.0 15 399 13 Far EasTone 3.0 20 399 13 Philippines Globe 1.5 50mins 600 12 Free Facebook, Free 10GB streaming (YouTube, Netflix, etc.) PLDT 3.0 20mins 400 8 Free Facebook, Whatsapp, Viber
Source: Deutsche Bank, company websites
Page 26 Deutsche Bank AG/Hong Kong 21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Figure 121: Broadband prices
Speed Tech Cost Cost Note Mbps local USD Australia Telstra 15 Fibre 70 53 24 month plan, pay as you go calls Optus 12 Fibre 60 45 24 month plan, pay as you go calls TPG 10 Fibre 60 45 18 month plan, pay as you go calls China China Mobile 50 Fibre 25 4 12 mth plan. Jiangsu province China Unicom 100 Fibre 99 15 Free IPTV and also RMB100 voucher China Telecom 50 Fibre 117 18 Shanghai HK HKT 300 Fibre 398 51 Can be HK$100, depending on location HKBN 100 Fibre 158 20 my TV SUPER + Home phone+ 100 mins IDD i-Cable 200 CATV 88 11 36 mth plan India Bharti 40 Fibre 2199 34 100GB data limit, unlimited calls MTNL 100 Fibre 4999 77 100 Mbps* Download Speed & 5 Mbps Upload Speed till 500GB Jio 100 Fibre 2000 31 30 days validity, 1000GB data limit Indonesia Telkom 10 Fibre 250000 18 no commitment, pays upfront installation fee Linknet 12 CATV 299000 22 no commitment, upfront installation fee Japan NTT Docomo 1,000 Fibre 3800 34 KDDI 1,000 Fibre 5100 46 Softbank 1,000 Fibre 3800 34 Korea SK Telecom 500 Fibre 30000 27 All three tend to add IPTV for 35k bundled contract KT Corp 500 Fibre 30000 27 LG Uplus 500 Fibre 28000 25 Malaysia Telekom 300 Fibre 199 48 Singapore SingTel 1,000 Fibre 50 37 StarHub 1,000 Fibre 40 29 M1 1,000 Fibre 39 29 Taiwan Chunghwa 100 675 22 Philippines Globe 10 DSL 1300 25 100 GB allowance/month PLDT 10 DSL 1300 25 100 GB allowance/month PLDT 20 Fibr 1900 37
Source: Deutsche Bank, company websites
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Telecommunications Asia-Pac Telecom Tracker
Sector balance
Figure 122: Market cap breakdown country-wise (last FY) Figure 123: Profit share breakdown country-wise (last FY) 100% 100% CU VOC OTH APT JAS SMT LGU M1 RC ISAT M1 CT ISAT SB TM
CU TM JAS 90% TPM SMT SB LGU HT FET TAC FET XL 80% TPM XL GLO STH AX TAC 80% HT OTH VOD CT KDDI KT STH
GLO OPT VOD TWM
KT 60% 70% OPT DIG TRU AX KDDI IDEA TWM DOC 60% 40%
50% TLKM 20% DOC
40% DIG NTT CHT MAX CM BHTI SKT HKT TLS STEL AIS PLDT 30% 0% IDEA OTH APT TRU 20% VOC RCOM -20% 10% NTT CHT MAX CM BHTI SKT TLKM HKT TLS STEL AIS PLDT 0% -40% AUS CHN HKG IND IDN JPN KOR PHP SGP TWN THL MLY AUS CHN HKG IND IDN JPN KOR PHP SGP TWN THL MLY Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
We believe risk is higher in the markets where profits are high, and skewed to a single operator. We therefore remain cautious on high-profit markets, particularly Malaysia, from a regional top-down level, while we see KR, IN, CH and ID as having more potential.
We view mobile operators in MY, TH, CH, JP and SG as over-earning, and Bharti, CT/CU, and Telekom Malaysia as under-earning. We see greater profit focus at operators in India, Korea, China and the Philippines, which we find encouraging, and hence our regional preference for such markets.
Figure 124: Listed telco net profit/GDP Figure 125: ROE (rolling four-quarters) 100 0.5% 80 0.4% 60 40 0.3% 20 0 0.2% -20 -40 0.1% -60 -80 0.0% DiGi StarHub AIS Maxis M1 TWM Globe Telkom Telstra SoftBank PLDT SingTel TPG Far ET KDDi Trust HK Tel SK CITIC Mob Ch Docomo Indosat UPlus LG Chunghwa TelMal NTT Corp KT DTAC Tel Ch Axiata Bharti A XL Aixata Uni Ch NZ Spark Rcom True Idea Vocus MLY JPN SGP HKG AUS THL PHP KOR CHN IDN INDI
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
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21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Rolling forward P/E
Figure 126: Australia: Telstra Figure 127: Australia: TPG Figure 128: Australia: Vocus 30 30 30 25 1 s.d cheap 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 129: China Mobile Figure 130: China Telecom Figure 131: China Unicom 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 Overbought? Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 132: Hong Kong Telecom Figure 133: HK: CITIC Figure 134: India: Bharti Airtel 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-13 Nov-14 Nov-15 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 135: India: Idea Figure 136: India: RCom Figure 137: Indonesia: Indosat 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 1 s.d cheap 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-10
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
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Figure 138: Indonesia: Telkom Figure 139: Indonesia: XL Axiata Figure 140: Japan: Docomo 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 141: Japan: KDDI Figure 142: Japan: NTT Figure 143: Japan: SoftBank 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 144: Korea: KT Corp Figure 145: Korea: LG UPlus Figure 146: Korea: SK Telecom 30 30 30 25 25 1 s.d. cheap 25 1 s.d. cheap 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 147: Malaysia: Axiata Figure 148: Malaysia: DiGi Figure 149: Malaysia: Maxis 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 Overbought? 5 Overbought? 5 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
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21 November 2017 Telecommunications Asia-Pac Telecom Tracker
Figure 150: Telekom Malaysia Figure 151: Spark New Zealand Figure 152: Philippines: Globe 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 153: Philippines: PLDT Figure 154: Singapore: M1 Figure 155: Singapore Telecom 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 156: Singapore: StarHub Figure 157: Taiwan: CHT Figure 158: Taiwan: FET 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-10
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 159: Taiwan Mobile Figure 160: Thailand: AIS Figure 161: Thailand: DTAC 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-14 Nov-15 Nov-16 Nov-17 Nov-13 Nov-14 Nov-13
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
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Telecommunications Asia-Pac Telecom Tracker
Rolling EV/EBITDA
Many sharp rerates and derates in last two years
Figure 162: Australia: Telstra Figure 163: Australia: TPG Figure 164: Australia: Vocus 14 14 14 12 12 12 10 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-14 Nov-15 Nov-16 Nov-17 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 165: China Mobile Figure 166: China Telecom Figure 167: China Unicom 14 14 14 12 12 12 10 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 168: Hong Kong Telecom Figure 169: HK: CITIC Figure 170: India: Bharti Airtel 14 14 14 12 12 12 10 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
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Figure 171: India: Idea Figure 172: India: RCom Figure 173: Indonesia: Indosat 14 14 14 12 12 12 10 Earnings crunch hurts 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 174: Indonesia: Telkom Figure 175: Indonesia: XL Axiata Figure 176: Japan: Docomo 14 14 14 12 12 12 10 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 177: Japan: KDDI Figure 178: Japan: NTT Figure 179: Japan: SoftBank
14 14 14 12 12 12 10 10 10 8 8 8 Overbought? 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-15 Nov-16 Nov-17 Nov-11 Nov-12 Nov-13 Nov-14 Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 180: Korea: KT Corp Figure 181: Korea: LG UPlus: Figure 182: Korea: SK Telecom: 14 14 14 12 12 12 10 10 10 8 Extreme low valuation 8 1 s.d. cheap 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
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Figure 183: Malaysia: Axiata Figure 184: Malaysia: DiGi Figure 185: Malaysia: Maxis 14 14 14 12 12 12 10 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 186: Telekom Malaysia Figure 187: Spark New Zealand Figure 188: Philippines: Globe
14 14 14 12 12 12 10 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-07 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 189: Philippines: PLDT Figure 190: Singapore: M1 Figure 191: Singapore Telecom 14 14 14 12 12 12 10 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 192:Singapore: StarHub Figure 193:Taiwan: CHT Figure 194: Taiwan: FET 14 14 14 12 12 12 10 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
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Figure 195:Taiwan Mobile Figure 196: Thailand: AIS Figure 197:Thailand: DTAC 14 14 14 12 12 12 10 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
Figure 198: Thailand: TRUE 14 12 10 8 6 4 2 0 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-07 Nov-08 Nov-09 Nov-10 Source: Deutsche Bank, Bloomberg Finance LP
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Other data
Figure 199: Ranking of telco GDP growth (2017E) Figure 200: Net Debt/EBITDA 14 10 12 8
10 6 8 4 6 2 4 0 2 0 -2
XL -4 M1 AIS NTT TPG Idea DiGi True KDDI CITIC PLDT XL DTAC Rcom Globe CT Maxis MI Axiata Vocus SK TelSK Ch Tel Far ET CU AIS Telstra Ch Uni CM TLS FET SKT JAS NTT Telkom SingTel Tel Mal TPG Indosat Idea DiGi CHT LGU HKT Bharti A Bharti KT Corp Ch Mob StarHub KDDI CITIC PLDT HK Trust Docomo TWM TRUE DTAC TLKM Rcom Globe Maxis SoftBank Spark NZ Axiata Vocus LG Uplus Bharti Chughwa SingTel Tel Mal Indosat Starhub Tawn Mob Tawn KT Corp Average Docomo Softbank Spark NZ GDP Growth Inflation
Source: Deutsche Bank Source: Deutsche Bank, Companies
Figure 201: Revenue Beats vs Misses Figure 202: EBITDA Beat vs ,Misses
4% 12% 10% 3% 8% 2% 6%
1% 4% 2% 0% 0% -1% -2% -4% -2% -6% -3% -8% 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP
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Acknowledgement:
We would like to thank Sravya Kuntamukkula, of CRISIL, for her substantial contribution to this report
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Appendix 1
Important Disclosures
*Other information available upon request
Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Peter Milliken
Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total 600 share-holder return (TSR = percentage change in 56 % share price from current price to projected target price 500 plus pro-jected dividend yield ) , we recommend that 400 investors buy the stock. 300 33 % 200 Sell: Based on a current 12-month view of total share- 17 % 11 % 100 17 % holder return, we recommend that investors sell the 11 % stock 0 Buy Hold Sell Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not Companies Covered Cos. w/ Banking Relationship recommend either a Buy or Sell. Asia-Pacific Universe Newly issued research recommendations and target prices supersede previously published research.
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