Singapore Industry Focus

Telecom Sector

Refer to important disclosures at the end of this report

DBS Group Research . Equity 26 Jun 2018

STI : 3,260.84 Few years of pain to turn TPG Analyst unviable Sachin MITTAL +65 66823699 [email protected]  TPG’s business case rendered unviable by aggressive mobile virtual network operators (MVNOs)

 After 44% correction YTD, StarHub is still not attractive at 12-month forward EV/EBITDA of 6.8x versus M1’s 6.4x and Singtel’s core 5.4x. Too early to buy StarHub for potential sector consolidation a few years later STOCKS 12-mth Prefer Singtel > M1 > StarHub. Singtel continues to be Price Mkt Cap Target Price Performance (%)  S$ US$m S$ 3 mth 12 mth Rating our preferred stock for its stable core EBITDA prospects vs potential decline at M1 & StarHub. Singtel is expected Singtel 3.11 37,283 3.70 (7.4) (17.9) BUY to resume earnings growth in FY20F, led by Bharti StarHub 1.63 2,071 1.42 (30.6) (40.1) HOLD (upgrade Few years of pain ahead as telcos intend to minimize revenue from FV) share gains for TPG. MVNOs such as Circles.Life and M1 1.57 1,067 1.46 (11.3) (27.7) HOLD MyRepublic with their low-cost model and superior customer Source: DBS Bank, Bloomberg Finance L.P. service (100% app based), may garner a big portion of Closing price as of 25 Jun 2018 customers shifting to cheaper SIM-only plans (~10% gross revenue share in 2022). As the majority of MVNOs’ revenue Singtel’s valuation discount to M1 & StarHub has narrowed will flow back to their telco partners, telcos are better off and is likely to disappear in the future losing revenue share to MVNOs than TPG by offering flexible wholesale pricing to their MVNOs. TPG is likely to compete on cheaper pricing but will be challenged by MVNOs that offer superior network quality and differentiated services. We forecast 4% mobile industry revenue contraction over 2017- 22 vs 1% contraction earlier due to higher take-up of cheaper SIM-only plans. We project TPG to show EBITDA losses versus positive EBITDA in 2022 earlier with just 4% revenue share in 2022 (vs 5.5% earlier) forcing it to seek exit opportunities. Singtel’s core business is trading at 12-month forward EV/EBITDA of 5.4x versus 6.4x for M1 and 6.8x StarHub. We argue that Singtel’s core business should trade at the regional average of 7x EV/EBITDA given its ability to stabilise core- EBITDA via cost savings and revenue share gains in Australia. We peg M1 & StarHub to trade at 6x & 5.6x 12-month Source: DBS Bank forward EV/EBITDA respectively at 15% & 20% discounts to the regional average due to their declining EBITDA prospects. M1 is better placed than StarHub in our view, due to its non- reliance on Pay TV-mobile bundling (Pay TV expected to decline), and its proven MVNO partner Circles.Life. After recent correction, we upgrade StarHub to HOLD for potential returns of -3% including ~10% yield.

ed: CK / sa: YM, PY, CS Industry Focus

Telecom Sector

Telcos pro-actively closing the gaps in the SIM-only plans via mobile revenues, offsetting any potential revenue impact in MVNOs. TPG, the fourth Mobile Network Operator (MNO) set the low-end segments that is likely to be caused by TPG. to enter Singapore in 2H18, faces an uphill battle, amid the myriad of Mobile Virtual Network Operators (MVNO) the TPG has already announced plans to offer unlimited voice and incumbents have partnered with. Each incumbent has 3GB of data free of charge for 24 months to senior citizens in partnered with at least one MVNO, with the market leader Singapore. The telco is also offering free unlimited data for six Singtel joining hands with two, taking the total number of months (A$9.99 thereafter) in Australia, where TPG entered mobile service providers in the country to seven from just as a MNO. We believe that TPG will likely adopt a similar three players at the end of 2015. By partnering with MVNOs strategy of offering free services at the initial stages of its the incumbents are 1) making it difficult for TPG to succeed entry in Singapore as well, possibly leading to price wars by stirring up competition in the SIM-only segments, which between operators. TPG is likely to target first, and 2) generating wholesale

MVNOs in Singapore

Circles.Life Zero Mobile Zero1 MyRepublic Plans Base Flexi Zero X Zero XO Zero1 Uno Ultimate -Price S$28 S$0 S$69.95 S$39.95 S$29.99 S$8 S$80 -Data 6GB 1GB Unlimited 6GB 3GB* 1GB* 80GB* -Voice (mins) 100 30 Unlimited Unlimited 200 1000 1000

MNO Partner M1 Singtel Singtel StarHub Launch Date 2016 2017 2018 2H18 *Unlimited data at reduced speeds once the data quota is over Source: Companies, DBS Bank

We project annual industry contraction of 4% over 2018-22 from present levels vs our previous assumption of just 4% in the base case scenario. We have revised our assumptions of contraction of the industry topline over the same period. annual decline in the mobile industry through 2017A-2022F Annual industry contraction of 6% over 2018-22 if TPG is to 4% from 1% earlier on the back of 1) rising adoption of more successful than our projections under the bear-case SIM-only plans, and 2) escalation of price wars in the industry scenario. We project that almost a quarter of the industry as TPG battles it out with MVNOs. topline could be wiped out by 2022, if TPG, backed with a strong balance sheet, adopts heavily disruptive pricing policies, SIM-only plans (8-9% of postpaid plans currently) are seeing much like Reliance Jio in India, driving MVNOs out of the rising adoption amid lengthening smartphone replacement market and instigating severe downward adjustments to cycles and aggressive promotions by MVNOs. Judging from industry yields. Under this scenario, we expect the mobile Australia’ s experience, where SIM-only constitutes ~25% of industry to contract at an annual rate of 6% over 2018-2022. the total postpaid, Singapore is likely to see a big rise in these plans. Customer spend on SIM-only plans vis-à-vis handset Annual industry contraction of 2-3% over 2018-22 if TPG is plans tends to be substantially lower and growing uptake acquired in 2020-2021 under our bull-case scenario. Under would negatively impact mobile service revenues and dilute our bull case, we assume that TPG will exit the Singapore industry ARPU going forward. We also believe TPG would mobile market by 2021, after intense competition from need to adopt very aggressive pricing strategies during the MVNOs and the incumbents, via a sale of its operations to an first few years of entry to snatch revenue share in an incumbent operator. Under this scenario, we expect the overcrowded mobile space with seven service providers. This mobile industry to return to a growth trajectory by 2022 and would likely lead to steep contraction of voice and data yields, the 2017-2022 annual contraction of the mobile industry to further weighing down the industry topline. Factoring these, be limited to 2% vs our base-case projection of 4%. we project an 18% contraction in industry revenues by 2022

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Telecom Sector

3.5% and 4% revenue share grab by MVNOs and TPG, respectively, by 2022 under our base-case scenario

*We have assumed that 65% of MVNO revenue will flow back to their telco partners as MVNOs could occupy 10% gross revenue share Source: DBS Bank

With the revision of our base-case scenario for the Singapore Singapore, coupled with TPG’s on-going investments in mobile industry, we have revised down the potential revenue deploying a mobile network in Australia, could heavily weigh share grab of TPG by 2022 to just 4.0% from 5.5% before, on the telco’s balance sheet, making TPG a potential target after factoring in the MVNOs. Under our new base-case for acquisition. scenario, TPG could remain cash-flow negative till 2022, four years after its entry. Negative cash flow generation in

TPG may not reach EBITDA breakeven revenue of ~S$150m by FY22F (previous estimate of FY21F revenue of S$156m)

TPG- Base Case 2017 2018 2019 2020 2021 2022 Revenue market share 0.0% 0.4% 1.3% 2.2% 3.1% 4.0% TPG revenue 0 15 47 75 102 128 EBITDA margin -150% -50% -40% -30% -20% Cash flow (Assumptions) EBITDA (breakeven at S$150m 0 -23 -23 -30 -31 -26 revenue) Capex (10-20% of revenue) -175 -125 -23 -23 -20 -19 Spectrum price -129 Free Cash Flow -304 -148 -47 -53 -51 -45 Source: DBS Bank

Page 3 Page 3 Industry Focus

Telecom Sector

Emerging Industry trends – Mobile handset leasing plans, which could further incentivise subscribers to move away from bundled plans. Growing SIM-only plans gaining popularity. SIM-only subscribers adoption of SIM-only plans presents a challenge to operators, already account for ~12% of M1’s postpaid subscriber base with potential declines in mobile service revenues, dilution of (~83k subs) and a mid-single digit portion of Singtel’s ARPU and profitability, despite the elimination of handset subscriber base. SIM-only sales also contributed to ~18% of subsidies. Customer spend over the life of SIM-only contracts total plan sales of Singtel in 4Q18, up from 15% in the tends to be substantially lower than handset plans, and SIM- previous quarter. We believe SIM-only plans will rise in only plans remain less profitable vis-à-vis handset plans, even popularity over the medium term, with lengthening after taking handset subsidies into consideration. smartphone replacement cycles and the emergence of

SIM-Only plans on offer by three incumbents

Singtel SIM-only plans with contracts Price S$20 S$36.05 S$46.75 S$73.5 Data 5GB 10GB 30GB 55GB All SIM-Only plans come with 150 mins of Voice and 500 SMS

StarHub SIM-only plans with contracts Price S$24 S$34 S$44 S$54 S$119 Data* 6GB 8GB 10GB 16GB 30GB Voice 200 400 Unlimited All plans are entitled to unlimited data over weekends

M1 SIM-only plans with contracts Price S$20 S$40 S$50 S$98* Data 5GB 15GB 30GB Unlimited All SIM-Only plans come with 100 mins of Voice and SMS * - Unlimited data, SMS and Voice services Sources Companies, DBS Bank

SIM-only plans translate to lower net revenue for operators (for iPhone 8 plus devices)

Singtel StarHub M1 SIM-Only plan Combo -3 Handset XS SIM-Only 4Gb "S" mySIM(3) mySIM(e) with 5GB plan with 5GB plan plan 15GB 15GB

Monthly Contract Price 20.0 68.9 24.0 68.0 40.0 70.0 Upfront fee on handsets 572.0 418.0 565.0

Total customer spend over 24- months 480.0 2,225.6 576.0 2,050.0 960.0 2,245.0 Handset cost* (1,177.2) (1,177.2) (1,177.2)

Net revenue over 24-months 480.0 1,048.4 576.0 872.8 960.0 1,067.8 * - Assumed to be at a 10% discount to the listed price of an iPhone 8 Plus in Singapore Sources Companies, Apple Singapore, DBS Bank

Page 4 Page 4 Industry Focus

Telecom Sector

Singtel introduces handset leasing plans. Singtel has recently as the ability to lease handsets could lure subscribers on introduced handset leasing for SIM-only plans over a selected handset plans to SIM-only plans, given the zero upfront range of high-end iPhone and Samsung devices. The leasing payment and lower payments over the lifetime of the plans carry a 24-month contract term during which contract. Whilst we believe moving towards handset leasing subscribers make monthly payments to Singtel. At the end of could potentially lower mobile revenues, our estimates the 24-month period, users are expected to return the device indicate the impact on earnings from the adoption of handset to Singtel in “good working condition”. We believe handset leasing plans would be marginal. leasing plans would stimulate the adoption of SIM-only plans

Handset leasing plans have 10-20% adverse impact on net revenue, depending on the salvage value of the phone

iPhone 8 Plus (64GB) Singtel 5GB SIM-only plan Combo-3 plan with 5GB

Monthly contract value 62.0 68.9 -SIM-Only plan 20.0 -Leasing plan 42.0 Upfront Fee - 572.0

Total customer spend over the 24-month contract 1,488.0 2,225.6

Salvage Value after 2 years* 650.0 Total Revenue 2,138.0 2,225.6 Handset cost (1,177.2) (1,177.2) Net Earnings 960.8 1,048.4

* - Based on a salvage value of 50% of the listed price after two years. Used versions of the iPhone 7 Plus (32GB) model released in 2016 presently trades at a ~50% discount to the original listed price in 2016 Sources: Company, Apple Singapore, Carousell, Red While Mobile, DBS Bank

Circle.Life shakes up the marketplace with free mobile plans. Stock Profiles Circles.Life shook the Singapore mobile space with “Flexi”, a Singtel to better weather the storm. StarHub likely to be most free mobile offering loaded with 1GB of data, 30 mins talk affected over the medium term. We believe Singtel would be time and 10 SMS. The SIM-only service offered with no the least affected by the projected contraction of the industry, contracts, also allows subscribers to top up data capacity with Singapore mobile accounts for only 13% of the telco’s service S$8 for 1GB and S$12 for 2GB. With “Flexi” plans Circles.Life revenues vs. 84% for M1 and 54% for StarHub. Rising is expanding its targeted segments in the low-ARPU space. contributions from Optus, with a growing mobile business in The Flexi plans are targeted at low-data users, without a Australia, and the S$500m expected cost savings & avoidance possible cannibalisation of its existing subscriber base on the in FY19F through digitalisation and other initiatives should 6GB-S$28 base plan. Whilst, the “Flexi” plan is unlikely to help Singtel defend its core EBITDA vs. likely declines at M1 generate counter-offers from the major mobile operators, the and StarHub. MVNO is making life difficult for TPG in the battle for low- ARPU subscribers, which TPG is likely to target when it enters Mobile revenue support from Circles.Life, M1’s MVNO Singapore in the later part of 2018. partner, and a growing fixed and IoT business should help M1 partially offset declines in EBITDA in M1’s mobile segment.

Page 5 Page 5 Industry Focus

Telecom Sector

StarHub, however, could likely record bigger contractions in We argue for 6x 12-month forward EV/EBITDA for and M1, EBITDA owing to a contracting Pay-TV business, heavy 5.6x for StarHub and 7x for Singtel’s core EBITDA. We argue competition from M1 in the broadband segment and the lack that Singtel’s core business should trade at the regional of support for mobile revenues from an MVNO. Whilst average 12-month EV/EBITDA of 7x vs. 5.5x currently, given StarHub has struck a MVNO partnership with MyRepublic, we the telco’s limited exposure to the declining mobile industry of believe it could take at least 1-2 years before StarHub records Singapore and its ability to stabilise core-EBITDA through cost any meaningful contributions from MyRepublic. It took M1 ~2 savings and support from Optus. We believe that M1 and years to generate meaningful revenue contributions from StarHub should trade at 6x and 5.6x forward EV/EBITDA Circles.Life. respectively, at ~15% and ~20% discounts to the regional average, given the weak EBITDA outlook of these players.

Page 6 Page 6 Singapore Company Guide Singtel

Version 4 | Bloomberg: ST SP| Reuters: STEL.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 18 Jun 2018

BUY Favorable risk-reward, -7% risk vs. Last Traded Price (14 Jun 2018): S$3.19 (STI : 3,356.73) + 21% reward Price Target 12-mth:S$3.70 (16% upside) (Prev S$3.85) Temporary earnings decline presents an opportunity to Analyst accumulate. We expect Singtel’s earnings to rebound by FY20F, Sachin MITTAL+65 66823699 [email protected] driven by the potential earnings recovery of Bharti (earnings What’s New recovery may delay to FY21F under our bear case scenario for Bharti). Excluding market cap of its associates, Singtel’s core • Earnings rebound likely in FY20F with the potential business is trading at only 5.5x FY19F EV/EBITDA, at ~15-20% recovery of Bharti; Singtel opens to partial exit discount to its local peers. With 5.4% yield, we see potential opportunities from digital businesses in 2-3 years risk of -7% vs potential reward of +21% • Potential risk of -7% under our bear-case scenario Where we differ: Digital businesses’ monetisation may lead to versus +21% reward under our base-case scenario value accretion of S$0.16 per share. We argue that Digital Life! • BUY with a lower TP of S$3.70 as we adjust our core and cyber security businesses are worth S$0.13 per share based EBITDA and market cap of associates on ~1x revenue multiple versus market ascribing them a value of -S$0.03 per share. Singtel is open to partial exit opportunities from its cyber-security and Digital Life! businesses over the next 2 years via a sale to a strategic investor or public listing. Price Relative Potential Catalyst: Final DPS of S$10.7 Scts going ex in late July, price hike by Telkomsel in 2H18F and Singtel raising stake in regional associates. Final DPS of S$10.7 Scts will go ex on 26 July. Telkomsel, who is the biggest earnings contributor to Singtel, may raise data pricing by 5-10% in 2H18F. Singtel may also look to raise its stake in AIS or Bharti, enhancing its FY19F/20F earnings. Forecasts and Valuation FY Mar (S$m) 2017A 2018A 2019F 2020F Valuation: Revenue 16,711 17,532 18,113 18,682 BUY with a revised TP of S$3.70. We lower our sum-of-the- EBITDA 7,961 7,572 7,438 7,874 parts (SOTP) valuation to S$3.70, mainly from (i) FY19F core Pre-tax Profit 5,353 6,772 4,534 4,832 EBITDA growth of +1% vs +4% earlier, and (ii) recent drop in Net Profit 3,853 5,451 3,331 3,500 the market capitalization of Bharti and AIS. Net Pft (Pre Ex.) 3,885 3,538 3,331 3,500 Net Pft Gth (Pre-ex) (%) 1.9 (8.9) (5.9) 5.1 EPS (S cts) 23.6 33.4 20.4 21.4 Key Risks to Our View: EPS Pre Ex. (S cts) 23.8 21.7 20.4 21.4 Bear-case valuation of S$2.79 suggests -7% risk. This assumes EPS Gth Pre Ex (%) (1) (9) (6) 5 (i) 23% drop in valuation of the core business due to EBITDA Diluted EPS (S cts) 23.6 33.4 20.4 21.4 decline versus stable EBITDA expectations; (ii) 20% drop in Net DPS (S cts) 17.5 20.5 17.5 17.5 Bharti’s & Telkomsel’s valuation and 10% drop in market cap BV Per Share (S cts) 173 182 182 186 PE (X) 13.5 9.6 15.6 14.9 of other associates; (iii) 15% holding company discount vs. 5% PE Pre Ex. (X) 13.4 14.7 15.6 14.9 base case P/Cash Flow (X) 14.2 12.1 10.8 12.9 EV/EBITDA (X) 7.9 8.2 8.3 7.8 At A Glance Net Div Yield (%) 5.5 6.4 5.5 5.5 Issued Capital (m shrs) 16,329 P/Book Value (X) 1.8 1.8 1.8 1.7 Mkt. Cap (S$m/US$m) 52,090 / 38,548 Net Debt/Equity (X) 0.4 0.3 0.3 0.3 Major Shareholders (%) ROAE (%) 14.5 18.8 11.2 11.7 Temasek Holdings 52.3 Earnings Rev (%): (5) (8) Free Float (%) 47.7 Consensus EPS (S cts): 23.9 24.4 26.2 Other Broker Recs: B: 15 S: 0 H: 7 3m Avg. Daily Val (US$m) 58.6 ICB Industry :Telecommunications / Fixed Line Telecommunications Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P

Page 7 ed: CK / sa:YM, PY, CS Company Guide Singtel

WHAT’S NEW Short-term pain before long-term gain

When will Singtel’s earnings return to a growth trajectory? in the mobile and enterprise services market in Singapore, that We project Singtel’s earnings would rebound in FY20F, after could weigh on core EBITDA. contracting in FY19F. Rebound in FY20F would be primarily Competitive pressures and the curtailment of inter-connection driven by the recovery of Bharti Airtel for two key reasons. charges by the regulator in India will continue to weigh on 1) Airtel is set to gain revenue market share from the contributions from Bharti Airtel for FY19F. Meanwhile, the ongoing Vodafone-Idea merger, which is fraught with prepaid SIM registration exercise in Indonesia, which complications caused by vendor and staff issues. concluded in May 2018, has also taken a toll on Indonesian Vodafone is also highly levered with a net debt-to- mobile operators and could likely weigh down contributions EBITDA of 6.5x, limiting its potential to counter from Telkomsel further in FY19F. aggressive pricing measures of Reliance Jio or expand However, Telkomsel who has been the aggressor so far, plans capacity, which the telco is seemingly having issues with. to raise data pricing by 5-10% post Lebaran holidays and Vodafone is also losing subscribers as it has not adopted hopes to sustain higher pricing if other players follow suit. cheaper bundled plans due to the lack of capacity. Armed with a stronger network coverage and capacity, Associate Pre-tax contribution base-case projections we project that Bharti Airtel will have the opportunity to increase its revenue share over the next 12-15 months Associate pre-tax on the back of Vodafone’s weakness. contribution S$m FY18A FY19F FY20F Telkomsel 1,372 1,262 1,260 2) The integration of Tata telecom’s spectrum and subscribers, expected to take place over FY19F, should Bharti Airtel 216 156 469 also help Bharti Airtel’s efforts to uplift its revenue share AIS 450 534 569 gains and earnings. Globe 266 255 287 NetLink 82 15 20 Hence, we expect to see a substantial improvement in Others 68 57 64 contributions from Bharti Airtel by FY20F, putting Singtel’s Overall 2,454 2,278 2,669 earnings back in positive territory.

What could potentially delay a rebound in Singtel’s earnings Y-o-y Growth FY18A FY19F FY20F by FY20F? We see the recovery of Bharti Airtel as the key Telkomsel -4% -8% 0% catalyst for a rebound in earnings by FY20F. However, if Bharti Airtel -63% -28% 200% competitive pressures in the Indian telecom market persist, AIS 7% 19% 7% with an aggressive Jio continuously driving tariffs lower in a Globe -8% -4% 13% bid to gain revenue share, a potential recovery of Bharti Airtel NetLink -48% -81% 31% and consequently a rebound in Singtel’s earnings could be Others -6% -17% 13% further delayed to FY21F. Jio continues to be aggressive in Overall -17% -7% 17% the market, maintaining ~20% lower tariffs vs. incumbents as Source: DBS Bank it continues to battle towards gaining further revenue market share by 2021 vs 25% presently. However, much of these We expect core EBITDA from Singapore and Australia to show market share gains will be at the expense of smaller operators 1% decline in FY19F and FY20F each due to tightening and Vodafone-Idea with minimal losses expected from Airtel. competitive pressures in the Singaporean mobile market and In our base case, we have assumed that Jio will adopt a more declining margins in the enterprise market with higher moderate competitive stance and move away from price Infocomm Technology (ICT) contribution. competition by 2020, once the consolidation of the industry is completed, with the hope of monetising Jio’s subscriber Core business trading at 15-20% valuation discount vs local base. However, if Jio continues to maintain competitive peers is hard to justify. The market is attaching a significant pressures at the present hyper-intensive levels, even after valuation discount to the core plus digital business of Singtel, industry consolidation, Airtel may fail to stage a recovery in possibly over concerns on the magnitude of losses in the digital earnings, prolonging a rebound in Singtel’s bottomline. segment in the past. This has resulted in Singtel’s core plus digital businesses trading at only 5.5x FY19F EV/EBITDA vs 6.8x We trim our FY19F earnings forecast by 5%. We forecast a for M1 and 7.5x for StarHub, despite having a much more 6% y-o-y decline in underlying earnings for FY19F on the back resilient business model. of (i) projected decline in contributions from associates driven by Bharti Airtel and Telkomsel, and (ii) intensifying competition

Page 8 Company Guide Singtel

Base-case valuation for Singtel

Singtel's Valuation Breakdown Value Per Valuation Basis (S$ m) share(S$) Singapore core business 12,942 7x FY 19F EV/EBITDA based on regional average Australia core business 16,910 7x FY 19F EV/EBITDA based on regional average ~1x EV/Revenue multiple: Cyber-security S$648m and Digital Life! - Digital Business 2,209 S$1.3bn Debt -10,278 1.62 Equity value of the core (Previously business 27,127 1.69) 2.07 Based on closing share prices and 15x PE for Telkomsel. Drop is due (Previously to lower market cap for Bharti Airtel and AIS. Regional investments 34,657 2.12) 3.70 (Previously Target Price 61,784 3.85)

Source: DBS Bank, Reuters, Company

We have valued Singtel’s Singapore and Australia operations at EV/Revenue multiple of ~1x. The valuations of regional FY19F EV/EBITDA valuations of 7x each. Digital Life! And Cyber- associates are based on current share prices, while the valuation security businesses (Digital businesses) were valued at an of Telkomsel is based on a FY19F PE (March YE) of 15x as we assume a 10% y-o-y drop in Telkomsel’s earnings

Associates' valuation contribution based on current market capitalisation except for Telkomsel Associates Total shares Share price Exchange rate Stake Value (S$ m) Per Share (local (S$) Currency?) Bharti Airtel 3,997 375.00 50.50 40% 11725 0.70 (Prev 0.73) AIS 2,973 187.00 23.80 32% 7428 0.44 (Prev 0.45) Globe* 132 1,680.00 38.90 47% 2690 0.16 SingPost 2273 1.34 1.00 22% 662 0.04 FY19F Profit FY19F PE Exchange rate Stake Value (S$ m) (Rpm) Telkomsel 27,963,400 15.00 10,505.00 35% 1,3975 0.84 (8% earnings decline in FY19F) Total 3,6481 Holdco discount (5%) -1824

Net investment holdings 3,4657 2.07

*Ownership stake of ordinary shares Source: DBS Bank, Reuters, Company

Page 9 Company Guide Singtel

Bear-case assumptions for the core business. We have assumed Bear-case assumptions for associates. We have assumed 20% FY19F core EBITDA to be 4% lower than the base-case scenario drop in Bharti’s stock price due to higher-than-expected with an EV to EBITDA multiple of 6x vs 7x in the base-case competition, 20% drop in valuation for Telkomsel due to 15% scenario. earnings decline vs 8% decline under the base case, a 10% decline in the stock price for other associates and a wider holding company discount of 15% vs 5% under the base case.

Bear-case scenario valuation

Singtel's Valuation Breakdown Valuation Basis Value (S$ m) Per share(S$) 12,942 4% lower EBITDA than base case and 6x FY 19F EV/EBITDA Singapore core business versus 7x in the base case 16,910 3% lower EBITDA than the base case and 6x FY19F Australia core business EV/EBITDA versus 7x in the base case ~1x EV/Revenue multiple: Cyber-security S$648m and Digital Digital Business 2,209 Life! - S$1.3bn Debt -10,278 Equity value of the core 27,127 1.25 business 20% share price drop for Bharti, 20% drop in valuation for Telkomsel, 10% drop for AIS, Globe, others and 15% Regional investments 1.54 holdco discount vs 5% in the base case

Bear-case Target Price 2.79

Source: DBS Bank, Reuters, Company

Page 10 Company Guide Singtel

Bear case scenario associates' valuation contribution Associates Total shares Share price Exchange rate Stake Value (S$ m) Per Share (S$) Airtel 3,997 300.00 50.50 40% 9.380 0.56 AIS 2,973 168.30 23.80 32% 6,686 0.40 Globe* 132 1,512.00 38.90 47% 2,421 0.14 SingPost 2,273 1.18 1.00 22% 583 0.03 FY19F Profit FY19F PE Exchange rate Stake Value (S$ m) (Rpm) Telkomsel 0.67 25,835,750 (Assuming 15% earnings decline 13 10,505 35% 11,190 Total 36481 Holdco discount (15%) -4539 -0.27

Net investment holdings 34657 1.54

*Ownership stake of ordinary shares Source: DBS Bank, Reuters, Company

Singtel’s core business is trading at a significant discount to regional peers

Source: Reuters, DBS Bank

Page 11 Company Guide Singtel

SINGTEL INVESTOR DAY 2018 – Q&A Singtel – Enterprise Business Q&A

Singtel – Singapore Consumer Q&A What’s Singtel’s strategy for the Singapore enterprise business going forward? ~75% of EBITDA still comes from its traditional How does Singtel differentiate its MVNO strategy? Smaller core businesses which account for ~54% of revenue. Moving operators are shoring up customers before the entry of TPG, forward, Singtel will focus on growing ICT revenues and primarily in the SIM only space. A few more MVNOs have undertake significant cost transformation programmes to expressed interest in partnering with Singtel and the addition of improve EBITDA generation in the enterprise segment. A large more MVNO players will dilute the revenue pie up for grab for chunk of the projected S$500m cost savings planned for FY19 TPG, as MVNOs would have much better network quality. will be derived through the enterprise segment.

What is Singtel’s strategy in the SIM Only space? Singtel sees a What’s Singtel’s monetisation strategy for Trustwave? The US$ rising trend for SIM only plans in Singapore, which accounts for 85b cybersecurity market is growing at 8% and is a very a single-digit proportion of the subscriber base in Singapore vs. fragmented marketplace with the top players controlling only 5- 25% in Australia. Allowing subscribers to lease handsets over 6% market share. Trustwave has been consistently ranked 12 months is the key differentiator of Singtel’s SIM only plans as among the top 5 players by Gartner. The cybersecurity arm now opposed to offering cheaper data, which the other players have has 10 security operation centres around the world to monitor resorted to. cyber-attacks. Trustwave is now a US$500m business vs. US$200m in 2015 as Singtel has integrated a number of Any regulatory support for TPG’s ramp-up? Nothing much businesses under Trustwave. As the business is valued on a except Singtel sharing some MRT tunnel infrastructure for the revenue multiple basis, exit opportunities through a public first 72 months of operation as access often takes a lot of time. listing or through a sale to a strategic investor would be possible when the scale is big enough. What’s Singtel’s view on topline growth in Singapore? Mobile revenues are likely to decline over the course of FY19, with the entry of TPG. Over the medium term, Singtel believes that 4- players cannot survive independently and there will be room for consolidation in the market. Singtel’s IoT strategy is primarily focused on the enterprise segment, which is expected to account for ~75-80% IoT revenues of Singtel.

Page 12 Company Guide Singtel

Singtel – Digital Life ! Q&A areas but may take part for coverage in regional areas. The auction is likely to see more interest from Telstra and TPG. Future plans of the Digital advertising business? Amobee and Turn are in a strong position, capitalising on the access to data What is Optus’ 5G rollout strategy? Optus has acquired provided by telecom operators, easy access to customers significant 3.4-3.6GHz bandwidth in Australia and hence is through the telcos and a strong network of advertising deploying FWA as a replacement for fixed bandwidth. FWA agencies. Amobee is expected to be EBIT positive over the next offers speeds of up to 100Mbps vs only 20Mbps in certain areas 5-6 quarters. Its strategy is to capture market share from smaller via NBN. operators and focus on growing video advertising, which expanded 40% y-o-y in FY18. Singtel may look to exit Amobee Regional Associates over the next 2-3 years if Amobee can move towards a self- managed revenue strategy and demonstrate its leadership as a Bharti Airtel Q&A leading independent ad-tech player. How has Bharti Airtel’s revenue share changed following the How is the OTT video service, HOOQ, progressing? HOOQ is recent mergers? The Indian telco industry is effectively a three- likely to break even at US$100m revenue. Content spending last player market following the Bharti Airtel-Telenor India year largely revolved around Hollywood content but this year integration and Bharti Airtel-Tata India telecoms and Vodafone- ~50% of content expenses will be directed towards local Idea mergers. Following the mergers, market share based on content. Some of the major Indonesian channels have signed up revenue, places Vodafone-Idea at 38%, Bharti Airtel at 32% with HOOQ to add it as a Linear TV channel (a channel that and Reliance Jio at 20%. broadcasts scheduled programmes in real time). Is the Indian telco sector facing revenue share stabilisation? The What’s going on with the data analytics business? DataSpark is Vodafone-Idea merger is expected to be fraught with primarily involved in ingesting data to identify potential use complications due to contracts with multiple vendors and staff cases and deploying these applications. Advertising, financial issues. Vodafone is currently facing net debt to EBITDA of 6.5x services, transportation and telecom are some of the key while also losing customers since the telco has not adopted verticals the company is looking into. cheaper bundled plans due to the lack of capacity. Vodafone is also losing subscribers although it has not been evident in the Optus – Australia Consumer Q&A revenue share as they have not lowered their pricing to the same level as Bharti’s bundled plans. The Rs49 VoLTE feature Is there a risk of TPG adopting a similar strategy to Jio? TPG has phone plan is driving Reliance Jio further towards a lower announced a free mobile plan with unlimited data for the first quality customer base. Taking all these into consideration, we six months, with a monthly charge of A$10 thereafter in foresee that Bharti Airtel will have the opportunity to increase Australia. TPG is unlikely to have good network coverage as its its revenue share over the next 12-15 months. planned capex spend of A$600m in Australia is just half of the annual capex spend of Optus (~A$1.5bn). Jio in India on the Has ARPU bottomed out in India? During the last six months other hand spent nearly US$10bn and had a network similar to prices have been relatively stable. ARPU is unlikely to drop over those of the leading players which allowed it to disrupt the the next 12-15 months after bottoming out at INR135 with market. TPG also has very few (less than 200) macro cells, which subscribers moving from feature phones to smart phones. Bharti cover a radius of 5KM along with a number of small cells, which Airtel is opting to place products such as device insurance and provide coverage to much smaller areas. free Netflix access in the post paid category rather than lowering prices to defend the telco’s revenue. Bharti Airtel is the The entry of TPG is likely to have an impact on the price- clear leader in the over INR20,000 per device segment while it is sensitive 25% of the market, which is not targeted by Optus. neck-to-neck with the competition in the INR7,000-15,000 Optus does see some adverse revenue impact on wholesale segment. (MVNO) and low ARPU segments. However, Optus’s strategy of What’s Bharti Airtel’s forecasted capex spend? Bharti Airtel acquiring high value subscribers in the SME and regional spaces plans to invest US$4bn as capex to drive down customer will continue to drive market share gains and Optus’s topline, complaints. offsetting any potential declines from the entry of TPG. Optus has also differentiated itself with content, with exclusive rights Any proposed new business ventures? Plans are underway to to broadcast National Geography and the English Premier launch music and TV business separately under Wink. Also, the League. launch of micro enterprises with fibre is expected to be a big step-up in the home fibre broadband market. Possibility of a reduction of capex spend in Australia? Densifying metro areas and regional area network expansions will continue Strategy for operations in Africa? Bharti Airtel’s African with Fixed Wireless Access (FWA). Optus has already recorded a operations are likely to see a 30-40% revenue growth in FY19, reduction in capex from A$1.6 to A$1.4 in FY18. and a planned public listing commanding 8-12x EV/EBITDA in early 2019 is underway. Strategy for the upcoming 3.6GHz spectrum auction? Optus does not intend to take part for spectrum covering metropolitan

Page 13 Company Guide Singtel

Telkomsel Q&A Globe’s favour. Even employees prefer to work at Globe compared to PLDT. Price hike potential in the post-prepaid SIM registration era? After Lebaran, Telkomsel plans to increase pricing by 5-10% to Key regulatory concerns? The government is trying to bring in a prevent further declines in data tariffs. Already there are one or 3rd player but things are not clear at this point as any new two instances of competitors reducing data allowances in player, if any, may not be allowed to sell its spectrum and existing packages. More incentives are being handed out via resources to the existing players. renewal packages now as the SIM starter pack sales have slowed down due to the slow process of validation. Subscribers Several bills related to the telecom industry are also in the are only allowed to hold a maximum of three SIM cards per works. operator. A). Bill to declassify the telecom industry as a utility – AIS Q&A Amendments to the Public Service Act or Commonwealth Act have been proposed to remove “telecommunication services” Is the current spectrum and network capacity sufficient? AIS from the definition of “public utility” finds the existing spectrum sufficient to operate efficiently over the next two years using newer technologies with higher B). Ownership Bill – The government is contemplating a efficiency. readjustment of the 40% cap on foreign ownership in the telecom sector. According to reports, the cap could be Efficiency of contiguous vs. non-contiguous spectrum? The increased up to 70%. telecom regulator has stated that the winner of the1,800MHz spectrum auction will be able to freely reshuffle the spectrum C). Removal of the franchise tax exemption – The government is with other operators’ 1,800MHz slots. Reshuffling will be also contemplating the re-imposition of a 3-8% franchise tax, carried out if AIS feels that this will lead to gain more efficiency that the telecom industry is currently exempted from. in frequency management.

Is there evidence of rising marketing cost after the auctions? During the last two years, competition was intense since True was competing to grab the #2 spot. However, at the moment the level of competition is back to normal and benign compared to last year.

What’s AIS’s plan to counteract True’s market share gains? AIS does not intend to lose out on revenue share. The telco plans to cut back on unlimited data plans.

Projections for the fixed broadband segment? Fixed broadband ARPU has been stable at Bt600 for several years and is unlikely to change during this year. The telco is targeting a 20% share in the fixed broadband segment.

Future capex spend? AIS has already passed the time period of peak capex spend. Capex on 5G technology is expected only around FY22.

Globe Telecom Q&A

Current state of the telecom market in the Philippines? Capex is likely to remain high going forward. Population coverage at the moment hovers around 97%. Competition is rather intense in the mobile segment with PLDT leading the pricing revisions while it is more sustainable on the fixed broadband segment.

What is the key differentiator of Globe vs. PLDT? Globe’s branding strategy appeals to the millennial population, which forms a substantial segment of the market, and has been a key strength for Globe. Globe has seen many parties interested in forming partnerships because of the positioning of the Globe brand. While PLDT has closed much of its network coverage gap with Globe, the perception in the market is that Globe still possesses superior network quality, which is working well in

Page 14 Company Guide Singtel

Singapore Revenue (S$m) CRITICAL DATA POINTS TO WATCH Associate pre-tax contribution to decline 7% in FY19F before rising 17% in FY20F. Going forward, we expect AIS and SingPost to drive growth in FY19F, partially offsetting weakness from Telkomsel and Bharti. AIS benefits from benign competition in Thailand while SingPost is likely to benefit from rising volume of e-commerce international mail and parcels. Meanwhile, Telkomsel and Bharti are facing earnings headwinds due to competitive pressures and voice/SMS cannibalisation. Bharti is likely to see some decline in FY19F earnings due to an aggressive Jio in India before recovering on the back of revenue Singapore EBITDA Margin (%) share gains from Vodafone and Idea in FY20F. The prepaid SIM registration exercise and accelerating declines in voice and SMS services should weigh on contributions from Telkomsel for FY19F before stabilising in FY20F.

Associate contributions to return to growth in FY20F Associate Pre-tax contributions (S$m) FY17A FY18A FY19F FY20F Telkomsel 1,422 1,372 1,262 1,260 Bharti Airtel 580 216 156 469 AIS 420 450 534 569 Optus Revenue (A$m) Globe 288 266 255 287 NetLink 159 82 15 20 Others including SingPost 72 68 57 64 Total 2,941 2,454 2,278 2,669

YoY Growth FY18A FY19F FY20F Telkomsel -4% -8% 0% Bharti Airtel -63% -28% 200% AIS 7% 19% 7% Globe -8% -4% 13% NetLink -48% -81% 31% Optus EBITDA Margin (%) Others including SingPost -6% -17% 13% Overall -17% -7% 17% Source: DBS Bank

Low single-digit EBITDA growth due to growth in Australia and lower losses in Digital Life. We expect the core business of Singtel (Singapore + Optus) to see low single-digit EBITDA growth in FY19F, similar to what we have seen in FY18. We expect growing contributions from Optus and narrowing losses in the digital segment to offset any potential declines in Singapore consumer and enterprise segments. Singtel could also Associate pre-tax earnings (S$m) benefit from the resumption of quarterly NBN migration fees of ~A$60-70m from 2Q19F in Australia which were halted by the regulator in November 2017 due to technical issues. Narrowing losses on the digital life segment, supported by growth of Amobee, should further support EBITDA of the core business in FY19F.

Source: Company, DBS Bank

Page 15 Company Guide Singtel

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

EBITDA is the most critical factor followed by the Associate profits. In the critical factor analysis, we conducted over the past ~10 years, Singtel’s share price seems to follow associate profits and EBITDA. Singtel’s share price movements had a positive correlation of 0.7 with the associate profit and a positive correlation of 0.6 with EBITDA. The two factors are directly indicative of the profitability and cash flow generation of Singtel and are very importance factors in understanding the overall health of the firm.

Share price vs. associate profits

5.00 3,500 4.50 3,000 4.00 3.50 2,500

3.00 2,000

S$ 2.50

2.00 1,500 MnS$ 1.50 1,000 1.00 500 0.50 0.00 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Share price (LHS) Associate profits (RHS)

Share price vs EBITDA 5.00 9,000 4.50 8,000 4.00 7,000 3.50 6,000 3.00 5,000

S$ 2.50

4,000 MnS$ 2.00 3,000 1.50 1.00 2,000 0.50 1,000 0.00 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Share price (LHS) EBITDA (RHS)

Sources: Reuters, Companies, DBS Bank

Page 16 Company Guide Singtel

Peers Valuation

12-mth CA GR Company Target Price % 17-19 PE (x) Dividend Yield (%) P/BV EV/EBITDA LCL Upside Rcmd (%) 17A 18F 19F 17A 18F 17A 18F 17A 18F 19F

China / Hong Kong China Mobile 104.00 48% BUY 6 10.5 9.9 9.3 9.2% 4.7% 1.2x 1.1x 2.5x 2.2x 1.8x China Telecom 5.00 37% BUY 12 13.0 11.6 10.4 3.1% 3.6% 0.7x 0.7x 3.2x 2.8x 2.4x China Unicom 15.60 54% BUY 60 46.4 29.5 18.2 0.8% 1.2% 0.9x 0.8x 3.6x 2.8x 2.2x Smartone Telecom 7.80 -9% HOLD -8 13.9 15.7 16.6 6.9% 4.7% 2.0x 2.0x 4.7x 4.6x 4.7x Hutchison Telecom 3.10 6% HOLD -73 3.0 37.2 39.4 25.4% 2.0% 0.9x 0.9x 0.6x 3.0x 2.9x HKT Trust 12.80 28% BUY 4 14.9 13.9 13.8 6.5% 6.6% 2.0x 1.9x 8.7x 8.3x 8.3x

Malay sia Digi.Com 4.20 -6% FV 1 23.6 23.2 23.0 4.2% 4.3% 67.2x 67.2x 12.8x 12.6x 12.4x Maxis Bhd 5.35 -7% HOLD 3 21.6 21.8 20.4 3.5% 3.5% 6.4x 6.0x 11.4x 11.4x 11.4x Telekom 4.65 21% HOLD -11 16.8 24.5 21.0 5.6% 4.8% 1.8x 1.9x 5.9x 5.9x 5.6x Axiata Group 5.00 5% HOLD 11 35.5 35.1 28.8 1.8% 1.9% 1.7x 1.7x 6.8x 6.7x 6.1x

Singapore M1 1.76 7% HOLD -7 11.5 12.0 13.2 7.0% 6.7% 3.5x 3.4x 6.4x 6.3x 6.7x NetLink NBN Trust 0.97 28% BUY -4 37.1 59.3 40.1 0.0% 4.3% 1.0x 0.9x 15.4x 20.2x 13.8x SingTel 3.85 21% BUY 0 14.7 15.6 14.8 6.4% 5.5% 1.8x 1.7x 8.2x 8.3x 7.8x Starhub 2.05 13% FV -9 12.6 13.8 15.1 8.8% 8.8% 22.4x 33.9x 6.5x 6.8x 7.5x

T hailand Advanced Info Service 232.00 23% BUY na 18.8 16.6 na 3.7% 4.2% 11.3x 9.2x 9.3x 8.6x 7.7x Total Access Comm. 58.30 18% BUY 84 57.9 44.2 17.1 0.5% 1.3% 3.7x 3.5x 4.4x 4.9x 5.9x

Indonesia Indosat 5,200 59% HOLD 18 15.7 11.6 11.4 0.0% 0.0% 1.3x 1.1x 3.1x 2.8x 2.6x PT Link Net Tbk 6,200 36% BUY 14 13.4 11.8 10.2 3.7% 4.2% 3.0x 2.6x 6.4x 5.6x 4.8x PT Telekom 3,600 0% HOLD -6 16.1 17.6 18.5 4.3% 4.0% 3.9x 3.9x 6.0x 6.4x 6.4x XL Axiata 3,500 33% BUY nm nm 29.3 24.2 0.8% 2.1% 1.3x 1.2x 5.5x 5.0x 4.5x PT Sarana Menara 4,500 50% BUY 10 12.8 12.1 10.6 2.3% 5.0% 4.3x 3.8x 8.1x 7.7x 6.6x Tower Bersama 6,900 41% BUY -33 8.5 23.3 18.7 4.5% 3.4% 7.2x 6.8x 12.1x 11.2x 10.3x

A v erage 22.7 19.6 7.0 6.5

Singapore Telecom 19 & 20 forecast respectively Source: DBS Bank; DBS Vickers; AllianceDBS

Page 17 Company Guide Singtel

Leverage & Asset Turnover (x) Balance Sheet: Strong balance sheet. This is reflected in FY18 net debt-to- EBITDA (after pre-tax profit contributions of associates) of only ~1.3x giving ample room to Singtel to invest in new business opportunities and/or raise its earnings payout ratio from 70- 75% now. If Singtel were to leverage to 2x net debt-to-EBITDA, it implies the company could borrow another S$5bn if it wants to. In our view, Singtel should be able to sustain its dividends at the current level even if earnings were to decline due to any reason. Capital Expenditure

Share Price Drivers: Long-term earnings growth at a bargain. The market is seemingly worried over staggering growth in Singtel’s earnings caused by the weakness of its regional associates, particularly Bharti Airtel and Telkomsel. As a result, the stock is trading cheap at 5.8x EV/EBITDA, at 15-20% discount to Singtel’s local peers. We believe this offers an attractive opportunity for investors to accumulate Singtel and gain exposure to its long term potential for growth. We expect the telco’s earnings to return to a growth trajectory in FY20F, supported by the ROE (%) recovery of Bharti Airtel, which should uplift the telco’s valuations. The counter also offers a decent yield of 5%.

Key Risks: Bear-case valuation of S$2.79 if core, Bharti and Telkomsel disappoint. We have assumed FY19F core EBITDA to be 4% lower than the base-case scenario with an EV to EBITDA multiple of 6x vs 7x in the base-case scenario. We have assumed 20% drop in Bharti’s stock price due to higher-than- expected competition, 20% drop in valuation for Telkomsel due to 15% earnings decline vs 8% decline under the base Forward PE Band (x) case, a 10% decline in the stock price for other associates and a wider holding company discount of 15% vs 5% under the base case.

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

Source: Company, DBS Bank

Page 18 Company Guide Singtel

Key Assumptions FY Mar 2016A 2017A 2018A 2019F 2020F Singapore Revenue (S$m) 7,663 7,927 8,396 8,704 9,084 Singapore EBITDA Margin 28.5 27.9 26.0 24.9 23.7 Optus(%) Revenue (A$m) 9,106 8,425 8,710 8,971 9,151 Optus EBITDA Margin (%) 30.4 31.7 31.9 31.8 31.8 Associate pre-tax earnings 2,788 2,886 2,454 2,278 2,669 (S$m) Income Statement (S$m) FY Mar 2016A 2017A 2018A 2019F 2020F Revenue 16,961 16,711 17,532 18,113 18,682 Cost of Goods Sold (12,097) (11,929) (12,702) (13,213) (13,736) Gross Profit 4,864 4,782 4,830 4,901 4,946 Other Opng (Exp)/Inc (2,001) (2,024) (2,081) (2,287) (2,407) Operating Profit 2,864 2,759 2,749 2,614 2,539 Other Non Opg (Exp)/Inc 44.0 77.4 29.0 0.0 0.0 Associates & JV Inc 2,788 2,886 2,454 2,278 2,669 Net Interest (Exp)/Inc (309) (337) (374) (358) (376) Exceptional Gain/(Loss) 56.9 (31.9) 1,914 0.0 0.0 Pre-tax Profit 5,444 5,353 6,772 4,534 4,832 Tax (1,586) (1,522) (1,341) (1,224) (1,353) Minority Interest 12.5 21.7 21.1 21.1 21.1 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 3,871 3,853 5,451 3,331 3,500 Associate contributions to Net Profit before Except. 3,814 3,885 3,538 3,331 3,500 dip in FY19F before EBITDA 7,845 7,961 7,572 7,438 7,874 bouncing back Growth Revenue Gth (%) (1.5) (1.5) 4.9 3.3 3.1 EBITDA Gth (%) 1.2 1.5 (4.9) (1.8) 5.9 Opg Profit Gth (%) (2.2) (3.7) (0.4) (4.9) (2.9) Net Profit Gth (Pre-ex) (%) (0.6) 1.9 (8.9) (5.9) 5.1 Margins & Ratio Gross Margins (%) 28.7 28.6 27.6 27.1 26.5 Opg Profit Margin (%) 16.9 16.5 15.7 14.4 13.6 Net Profit Margin (%) 22.8 23.1 31.1 18.4 18.7 ROAE (%) 15.6 14.5 18.8 11.2 11.7 ROA (%) 9.0 8.4 11.3 6.8 6.8 ROCE (%) 5.5 4.9 5.3 4.5 4.2 Div Payout Ratio (%) 72.1 74.2 61.4 85.8 81.6 Net Interest Cover (x) 9.3 8.2 7.4 7.3 6.7 Source: Company, DBS Bank

Page 19 Company Guide Singtel

Quarterly / Interim Income Statement (S$m) FY Mar 4Q2017 1Q2018 2Q2018 3Q2018 4Q2018

Revenue 4,308 4,232 4,370 4,603 4,326 Cost of Goods Sold (3,061) (3,036) (3,125) (3,391) (3,150) Gross Profit 1,247 1,197 1,245 1,212 1,176 Other Oper. (Exp)/Inc (524) (499) (552) (505) (526) Operating Profit 723 698 693 707 650 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 720 734 659 553 519 Net Interest (Exp)/Inc (82.0) (87.8) (91.0) (81.0) (85.0) Exceptional Gain/(Loss) (25.0) (28.5) 1,960 (8.0) (26.0) Pre-tax Profit 1,336 1,315 3,221 1,171 1,058 Tax (381) (429) (338) (290) (280) Minority Interest 8.00 5.50 6.00 8.00 2.00 Net Profit 963 892 2,889 890 781 Net profit bef Except. 988 920 929 898 807 EBITDA 1,443 1,431 1,352 1,260 1,169

Growth Revenue Gth (%) (2.3) (1.8) 3.3 5.3 (6.0) EBITDA Gth (%) 6.7 (0.8) (5.5) (6.8) (7.2) Opg Profit Gth (%) 9.7 (3.5) (0.7) 2.0 (8.1) Net Profit Gth (Pre-ex) (%) 1.2 (6.9) 1.0 (3.3) (10.1) Margins Gross Margins (%) 28.9 28.3 28.5 26.3 27.2 Opg Profit Margins (%) 16.8 16.5 15.9 15.4 15.0 Net Profit Margins (%) 22.4 21.1 66.1 19.3 18.1

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

Net Fixed Assets 11,154 11,893 11,801 12,079 12,301 Invts in Associates & JVs 11,086 14,235 14,788 15,536 16,413 Other LT Assets 16,160 16,249 15,684 15,281 14,885 Cash & ST Invts 462 534 525 1,731 2,776 Inventory 320 352 397 411 423 Debtors 4,366 4,924 5,035 5,202 5,366 Other Current Assets 17.5 107 23.2 23.2 23.2 Total Assets 43,566 48,294 48,254 50,264 52,186

ST Debt 686 3,134 1,824 1,824 1,824 Creditor 4,597 4,922 5,234 5,408 5,577 Other Current Liab 1,257 1,216 1,236 2,108 2,237 LT Debt 9,255 8,052 8,607 9,607 10,607 Other LT Liabilities 2,768 2,756 1,701 1,701 1,701 Shareholder’s Equity 24,967 28,191 29,657 29,641 30,285 Minority Interests 35.7 22.4 (3.2) (24.3) (45.4) Total Cap. & Liab. 43,566 48,294 48,254 50,264 52,184 Ample room to raise debt to fund acquisitions/dividends Non-Cash Wkg. Capital (1,151) (755) (1,013) (1,880) (2,002) Net Cash/(Debt) (9,479) (10,652) (9,905) (9,700) (9,655) Debtors Turn (avg days) 88.8 101.5 103.7 103.2 103.2 Creditors Turn (avg days) 166.2 179.3 178.9 182.1 181.1 Inventory Turn (avg days) 11.2 12.7 13.2 13.8 13.8 Asset Turnover (x) 0.4 0.4 0.4 0.4 0.4 Current Ratio (x) 0.8 0.6 0.7 0.8 0.9 Quick Ratio (x) 0.7 0.6 0.7 0.7 0.8 Net Debt/Equity (X) 0.4 0.4 0.3 0.3 0.3 Net Debt/Equity ex MI (X) 0.4 0.4 0.3 0.3 0.3 Capex to Debt (%) 31.8 22.2 35.2 21.2 20.0 Z-Score (X) 3.3 3.0 2.9 2.8 2.8

Source: Company, DBS Bank

Page 20 Company Guide Singtel

Cash Flow Statement (S$m) FY Mar 2016A 2017A 2018A 2019F 2020F

Pre-Tax Profit 5,444 5,353 6,772 4,534 4,832 Dep. & Amort. 2,149 2,239 2,340 2,546 2,667 Tax Paid (658) (834) (608) (351) (1,224) Assoc. & JV Inc/(loss) (2,788) (2,886) (2,454) (2,278) (2,669) Chg in Wkg.Cap. (1,031) (492) (178) (6.6) (6.5) Other Operating CF 182 279 (1,565) 395 431 Net Operating CF 3,297 3,659 4,308 4,838 4,030 Capital Exp.(net) (3,157) (2,488) (3,667) (2,421) (2,489) Other Invts.(net) 42.7 40.4 18.1 0.0 0.0 Moderate capex spend Invts in Assoc. & JV (200) (2,410) 606 0.0 0.0 Div from Assoc & JV 1,351 1,656 1,648 1,530 1,792 Other Investing CF 574 26.1 1,093 0.0 0.0 Net Investing CF (1,389) (3,177) (303) (891) (697) Div Paid (2,794) (2,821) (2,862) (3,346) (2,856) Chg in Gross Debt 1,129 1,158 (312) 1,000 1,000 Capital Issues 0.0 1,602 0.0 0.0 0.0 Other Financing CF (378) (362) (835) (395) (431) Net Financing CF (2,044) (422) (4,009) (2,741) (2,287) Currency Adjustments 34.8 11.9 (4.2) 0.0 0.0 Chg in Cash (101) 72.0 (8.9) 1,206 1,046 Opg CFPS (S cts) 27.2 25.4 27.5 29.7 24.7 Free CFPS (S cts) 0.88 7.17 3.92 14.8 9.44 Source: Company, DBS Bank

Target Price & Ratings History

Source: DBS Bank Analyst: Sachin MITTAL

Page 21 Company Guide Singtel

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends

Completed Date: 19 Jun 2018 15:20:55 (SGT) Dissemination Date: 19 Jun 201808:20:59 (SGT)

Sources for all charts and tables are DBS Bankunless otherwise specified.

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

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

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

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

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

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

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

Page 22 Company Guide Singtel

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

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

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates have a proprietary position in China Mobile, China Telecom, China Unicom, SmarTone, Hutchison Telecom, HKT Trust, M1, NetLink NBN Trust, Singtel, StarHub, Advanced Info Service, Total Access Communication recommended in this report as of 31 May 2018. 2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. 3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in M1, NetLink NBN Trust, StarHub recommended in this report as of 31 May 2018. 4. DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA, DBSV HK or their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of NetLink NBN Trust as of 31 May 2018. Compensation for investment banking services: 5. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from NetLink NBN Trust, StarHub, Indosat, Tower Bersama Infrastructure as of 31 May 2018.

6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for NetLink NBN Trust, StarHub, Indosat, Tower Bersama Infrastructure in the past 12 months, as of 31 May 2018. 7. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. Directorship/trustee interests: 8. Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Director / Chairman of M1 as of 31 Mar 2018. 9. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 31 Mar 2018 Disclosure of previous investment recommendation produced: 10. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

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

Page 23 Singapore Company Guide M1

Version 16 | Bloomberg: M1 SP | Reuters: MONE.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 26 Jun 2018

HOLD Steady revenue share loss is priced in Last Traded Price ( 25 Jun 2018): S$1.57(STI : 3,260.84) Price Target 12-mth:S$1.46 (-7% downside) (Prev S$1.76) Better equipped than StarHub to weather the storm. We now project 4% annual decline in the mobile sector over 2018-2022 Analyst Sachin MITTAL+65 66823699 [email protected] vs. 1% earlier to reflect growing adoption of cheaper SIM-only plans and aggressive mobile virtual network operators (MVNOs) & TPG potentially. M1 is likely to see an annual EBITDA What’s New contraction of 3% over FY17A-20F vs. 4% for StarHub due to  Better placed than StarHub due to its non-reliance on its non-reliance on bundling with Pay TV service and a proven Pay TV, cheaper mobile pricing and a proven MVNO MVNO partner. We argue that M1 should trade at 12-month partner forward EV/EBITDA of 6x, at a 15% discount to the regional average of 7x M1 should be valued at 12-month forward EV/EBITDA  of 6x vs 7x regional average Where we differ: Consensus is overestimating revenue share declines over the long run. Consensus expects M1 to lose more  Maintain HOLD with a lower TP of S$1.46 revenue share than its peers to TPG, which we think is unlikely

due to its M1’s partnership with Circles.Life and its more competitive SIM-only plans. We also don’t think 700MHz spectrum will be available before 2H19 as Malaysia & Indonesia Price Relative use this spectrum for Analogue TV, thus causing interference. S$ Relative Index As such, we don’t project any amortisation of the S$180m 4.4 219 199 3.9 spectrum price over the next 12 months at least. 179 3.4 159 139 2.9 119 Potential catalyst: 2Q18 and 3Q18 results. Growth in the fixed 2.4 99 79 1.9 services segment and signs of a stabilising mobile segment, 59 1.4 39 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 buttressed by contributions from Circles.Life.

M1 (LHS) Relative STI (RHS)

Valuation: Maintain HOLD with a revised TP of S$1.46. Due to lack of Forecasts and Valuation FY Dec (S$ m) 2017A 2018F 2019F 2020F clarity on future free cash flows, we switch to peer multiple- Revenue 1,071 1,072 1,072 1,075 based valuation. We value M1 at 12-month forward EBITDA 302 296 283 277 EV/EBITDA of 6x, at ~15% discount to the 7x regional average.

Pre-tax Profit 163 152 132 119 Net Profit 133 125 109 98.5 Key Risks to Our View: Net Pft (Pre Ex.) 133 125 109 98.5 Bear-case TP is S$1.20 if TPG causes severe disruption. M1 Net Pft Gth (Pre-ex) (%) (11.5) (5.6) (12.7) (9.8) could see a 10% drop in FY19F EBITDA this scenario vs our base EPS (S cts) 14.3 13.5 11.8 10.6 case of 4% drop. We use 5.4x 12-month EV/EBITDA to derive EPS Pre Ex. (S cts) 14.3 13.5 11.8 10.6 our bear-case TP. EPS Gth Pre Ex (%) (11) (6) (13) (10)

Diluted EPS (S cts) 14.3 13.5 11.8 10.6 Operational challenges at TPG forcing it to delay the launch by Net DPS (S cts) 11.4 10.8 9.41 8.49 12-months or more may lead to bull-case TP of S$1.89. M1 BV Per Share (S cts) 46.2 48.3 49.2 50.4 PE (X) 11.0 11.6 13.3 14.8 could see 2% drop in FY19F EBITDA under this scenario vs our PE Pre Ex. (X) 11.0 11.6 13.3 14.8 base case of 4% drop. We use 6.6x 12-month EV/EBITDA to P/Cash Flow (X) 5.6 5.7 6.0 6.1 derive our bull-case TP. EV/EBITDA (X) 6.2 6.2 6.7 7.1

Net Div Yield (%) 7.3 6.9 6.0 5.4 At A Glance P/Book Value (X) 3.4 3.3 3.2 3.1 Issued Capital (m shrs) 926 Net Debt/Equity (X) 0.9 0.8 1.0 1.1 Mkt. Cap (S$m/US$m) 1,453 / 1,067 ROAE (%) 31.8 28.5 24.1 21.3 Major Shareholders (%) Earnings Rev (%): (2) (5) (12) Axiata Investments 28.7 Consensus EPS (S cts): 13.6 11.9 10.5 Keppel Corp Ltd 19.3 Other Broker Recs: B: 4 S: 6 H: 12 Singapore Press 13.5 Free Float (%) 38.6 Source of all data on this page: Company, DBS Bank, 3m Avg. Daily Val (US$m) 1.6 Bloomberg Finance L.P ICB Industry :Telecommunications / Mobile Telecommunications

Page 24 ed: CK / sa:YM, PY Company Guide

M1

Post paid ARPU CRITICAL DATA POINTS TO WATCH 50.3 M1’s revenue share to decline amidst competition from TPG 50.8 48.7 and MVNOs. We expect the Singapore mobile industry to 43.5 40.4 39 37.4 decline ~18% from the current levels by 2022, recording an 36.3 annual decline of 4% from FY17-22F, on the back of rising 29.0 adoption of SIM-only plans and an aggressive TPG. After 21.8 factoring in the impact of SIM-only plans and potential 14.5 subscriber poaching from MVNOs and TPG, we believe that M1 7.3 will record revenue share losses of ~1.3% over 2017-2022 vs. 0.0 2.5% for StarHub., Growing contributions from Circles.Life, 2016A 2017A 2018F 2019F 2020F M1’s MVNO partner, and M1’s cheaper mobile SIM only plans with equipment should allow M1 to minimise revenue share Net Handset Subsidy losses over the period in our view. With the potential ARPU 260.5 255 dilution from SIM-only plans and subscriber losses, we project 208.4 for a 4% annual decline in M1’s mobile revenues over 2018- 181 186 178 2022, in line with our industry base case, vs. 3% earlier. 156.3 111 104.2 Fixed line services and IoT revenue to offset declines in the mobile segment. We expect growing contributions from M1’s 52.1 fixed and IoT segments to offset declines in the mobile 0.0 segment, allowing M1 to expand its overall topline despite the 2016A 2017A 2018F 2019F 2020F 4% projected annual decline in the mobile segment. We expect Postpaid subscribers (K) fixed and IoT revenues to double their contribution from 12% 1292 1286 currently to 24% by FY20F, much of it derived from the fast- 1317.84 1247 1273 1235 growing IoT segment. The success of M1’s partnerships with 1054.27 digital solution companies to capture opportunities in the Smart Nation project powered by IoT should allow M1 to expand its 790.70 topline further going forward. We project that IoT will 527.14 contribute to ~10% of total revenue and generate ~10-15% operating margins in FY21. However, given the low EBITDA 263.57 margins of these services, we do not expect the incremental 0.00 EBITDA contributions from these segments to be substantial 2016A 2017A 2018F 2019F 2020F enough to offset the potential impact of declines in the mobile Source: Company, DBS Bank segment on M1’s EBITDA. As such, we expect a 2.7% annual decline in M1 EBITDA over FY18-20F.

Dividends impacted if IoT and fixed services fail to meet expectations coupled with cost escalations. Even though M1 has maintained its dividend payout ratio at ~80% over the last three years, the absolute dividend per share has declined due to the fall in earnings of the carrier. NB-IoT initiatives and fixed services revenue failing to meet revenue expectations due to competition and low enterprise customer net additions, coupled with potential cost escalations (staff- and project-related costs to grow enterprise business) causing earnings to decline further, which could result in lower dividends.

Page 2 Page 25 Company Guide

M1

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

Mobile revenue share and Dividends per share are critical payouts strong proxies for expected changes in the operator’s factors for M1. M1’s mobile revenue market share has a earnings. For example, the downward adjustment of interim positive correlation of 0.5 with the stock price movements. dividends from 7.0 Scts to 5.2 Scts in 2Q17 helps explain the Changes in M1’s dividends exhibit a strong correlation of 0.7 recent price declines of M1, as investors readjust their with the stock’s past price movements. M1’s dividend policy to expectations for lower earnings for FY18. pay out 80% of net profits has made interim and final dividend

M1 stock price movement with changes in mobile revenue share

Source: Company, DBS Bank

M1 stock price movement with changes in dividend per share

Source: Company, DBS Bank

Page 3 Page 26 Company Guide M1

Leverage & Asset Turnover (x) 1.0 Balance Sheet: 1.20 Capex spend to stabilise. M1’s balance sheet has remained strong 1.0 1.00 with its relatively consistent capital expenditure and dividend 0.9 0.80 payments. We are of the opinion that from FY18 onwards M1 could 0.9 see ~20% capex savings from the MoU with StarHub to share mobile 0.60 0.8 infrastructure. The company expects to incur S$120m in capex in 0.40 FY18. M1 will also incur another S$ 188m in FY19/20 for spectrum 0.20 0.8 acquired in the 2017 General Spectrum Auction. We believe M1’s 0.00 0.7 cash generation and flexibility to further lever its balance sheet and 2016A 2017A 2018F 2019F 2020F Gross Debt to Equity (LHS) Asset Turnover (RHS) that the company will be able to easily support current and future spectrum needs and network expansion plans. Capital Expenditure S$m 250.0

Share Price Drivers: 200.0 Better equipped to weather in the storm. We project a 4% annual decline in the Singapore mobile industry from 2017-2022 vs. 0.6% 150.0 earlier, to reflect growing adoption of SIM-only plans and an 100.0 aggressive TPG. We believe M1 is better equipped to weather in the 50.0 impending storm vs. StarHub as 1) strong mobile support from Circles.Life minimising revenue share losses, and 2) a growing fixed 0.0 2016A 2017A 2018F 2019F 2020F services and a new IoT segment partially offsetting the impact of Capital Expenditure (-) mobile declines on EBITDA. We argue that M1 should be valued at 12-month EV/EBITDA of 6x at 15% disocunt to the 7x regional ROE (%) average. 35.0% 30.0% Key Risks: 25.0% Bear-case TP is S$1.20 if TPG causes severe disruption. In case, TPG 20.0% causes server disruption with its free mobile plans, M1 could see a 15.0%

10% drop in FY19F EBITDA under this scenario vs our base case of 10.0% 4% drop. We use 5.4x 12-month EV/EBITDA to derive our bear-case 5.0% TP. 0.0% 2016A 2017A 2018F 2019F 2020F Operational challenges at TPG forcing it to delay the launch by 12- Forward PE Band (x) months may lead to bull-case TP of S$1.89. M1 could see 2% drop (x) in FY19F EBITDA under this scenario vs our base case of 4% drop. 22.3 We use 6.6x 12-month EV/EBITDA to derive our bull-case TP. +2sd: 21.1x 20.3 18.3 +1sd: 18.7x Company Background M1 is the smallest of the three telecom operators in Singapore. M1 16.3 Avg: 16.3x provides mobile services and has also started to provide fixed 14.3 ‐1sd: 13.9x broadband services by riding on the National Broadband Network. 12.3 ‐2sd: 11.5x 10.3 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

PB Band (x) (x) 10.1 +2sd: 9.47x 9.1

8.1 +1sd: 7.71x 7.1

6.1 Avg: 5.95x 5.1

4.1 ‐1sd: 4.19x

3.1 ‐2sd: 2.43x 2.1 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

Source: Company, DBS Bank

Page 4

Page 27 Company Guide

M1

Key Assumptions FY Dec 2016A 2017A 2018F 2019F 2020F Post paid ARPU 50.3 48.7 40.4 39.0 37.4 Net Handset Subsidy 255 111 181 186 178 Postpaid subscribers (K) 1,247 1,292 1,286 1,273 1,235

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

Revenues (S$m) Post Paid Cellular 570 582 491 459 432 Pre Paid Cellular 70.3 60.2 58.6 58.2 55.9 IDD Revenue 61.3 55.9 51.4 47.8 44.9 Fixed network services 104 130 148 163 175 Others 255 243 306 296 276 Total 1,061 1,071 1,072 1,072 1,075

Income Statement (S$m) FY Dec 2016A 2017A 2018F 2019F 2020F Revenue 1,061 1,071 1,072 1,072 1,075 Cost of Goods Sold (754) (770) (778) (790) (800) Gross Profit 307 301 294 282 275 Other Opng (Exp)/Inc (122) (128) (132) (137) (142) Operating Profit 185 173 162 145 133 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 (0.3) 0.0 0.0 0.0 Net Interest (Exp)/Inc (6.7) (9.9) (10.4) (12.2) (14.1) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 179 163 152 132 119 Tax (28.9) (30.1) (26.5) (23.2) (20.9) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 150 133 125 109 98.5 Net Profit before Except. 150 133 125 109 98.5 EBITDA 312 302 296 283 277 Growth Revenue Gth (%) (8.3) 1.0 0.0 0.0 0.3 EBITDA Gth (%) (8.7) (3.1) (2.2) (4.2) (2.2) Opg Profit Gth (%) (17.0) (6.7) (6.3) (10.8) (7.7) Net Profit Gth (Pre-ex) (%) (16.1) (11.5) (5.6) (12.7) (9.8) Margins & Ratio Gross Margins (%) 28.9 28.1 27.4 26.3 25.6 Opg Profit Margin (%) 17.5 16.1 15.1 13.5 12.4 Net Profit Margin (%) 14.1 12.4 11.7 10.2 9.2 ROAE (%) 36.7 31.8 28.5 24.1 21.3 ROA (%) 13.4 11.0 9.8 8.2 7.0 ROCE (%) 17.3 14.7 13.2 11.2 9.6 Div Payout Ratio (%) 80.0 80.0 80.0 80.0 80.0 Net Interest Cover (x) 27.7 17.5 15.7 11.9 9.5 Source: Company, DBS Bank

Page 5 Page 28 Company Guide

M1

Quarterly / Interim Income Statement (S$m) FY Dec 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018

Revenue 253 252 252 307 254 Cost of Goods Sold (176) (179) (176) (233) (179) Gross Profit 76.4 73.1 75.2 74.5 75.2 Other Oper. (Exp)/Inc (30.9) (31.2) (32.3) (34.0) (30.1) Operating Profit 45.5 41.9 42.9 40.5 45.1 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 (0.1) 0.0 (0.1) 0.0 Net Interest (Exp)/Inc (2.0) (2.1) (2.9) (2.9) (2.8) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 43.5 39.7 40.0 37.5 42.3 Tax (8.7) (7.3) (7.2) (6.6) (7.4) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 34.8 32.5 32.7 31.0 34.8 Net profit bef Except. 34.8 32.5 32.7 31.0 34.8 EBITDA 77.2 73.4 75.6 74.4 75.5

Growth Revenue Gth (%) (19.5) (0.5) 0.0 22.1 (17.3) EBITDA Gth (%) 7.1 (4.9) 3.0 (1.6) 1.5 Opg Profit Gth (%) 17.6 (7.9) 2.4 (5.6) 11.4 Net Profit Gth (Pre-ex) (%) 9.4 (6.6) 0.6 (5.2) 12.3 Margins Gross Margins (%) 30.2 29.1 29.9 24.3 29.6 Opg Profit Margins (%) 18.0 16.7 17.1 13.2 17.7 Net Profit Margins (%) 13.8 12.9 13.0 10.1 13.7

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

Net Fixed Assets 742 762 764 765 764 Invts in Associates & JVs 2.95 2.70 2.70 2.70 2.70 Other LT Assets 174 191 175 248 313 Cash & ST Invts 11.0 46.5 77.4 85.5 104 Inventory 23.0 49.8 49.8 49.8 50.0 Debtors 166 163 163 163 164 Other Current Assets 27.8 53.4 53.4 53.4 53.4 Total Assets 1,147 1,269 1,286 1,367 1,452

ST Debt 151 0.0 0.0 0.0 0.0 Creditor 165 209 209 210 210 Other Current Liab 58.7 60.1 58.1 54.8 52.5 LT Debt 250 450 450 525 600 Other LT Liabilities 118 121 121 121 121 Shareholder’s Equity 403 429 448 457 468 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 1,147 1,269 1,286 1,367 1,452

Non-Cash Wkg. Capital (7.8) (3.0) (1.0) 2.34 4.62 Net Cash/(Debt) (390) (404) (373) (440) (496) Debtors Turn (avg days) 57.0 56.0 55.6 55.6 55.6 Creditors Turn (avg days) 90.5 106.9 118.7 117.4 116.7 Inventory Turn (avg days) 21.7 20.7 28.2 27.9 27.8 Asset Turnover (x) 1.0 0.9 0.8 0.8 0.8 Current Ratio (x) 0.6 1.2 1.3 1.3 1.4 Quick Ratio (x) 0.5 0.8 0.9 0.9 1.0 Net Debt/Equity (X) 1.0 0.9 0.8 1.0 1.1 Net Debt/Equity ex MI (X) 1.0 0.9 0.8 1.0 1.1 Capex to Debt (%) 51.2 38.2 26.7 40.3 34.8 Z-Score (X) 2.8 2.7 2.7 2.5 2.4 Source: Company, DBS Bank

Page 6 Page 29 Company Guide

M1

Cash Flow Statement (S$m) FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Profit 179 163 152 132 119 Dep. & Amort. 127 130 134 139 144 Tax Paid (33.2) (24.4) (28.5) (26.5) (23.2) Assoc. & JV Inc/(loss) 0.0 0.30 0.0 0.0 0.0 Chg in Wkg.Cap. 62.7 (9.4) 0.0 0.0 0.0 Other Operating CF 0.0 0.0 0.0 0.0 0.0 Net Operating CF 335 259 257 245 240 Capital Exp.(net) (205) (172) (120) (211) (209) Other Invts.(net) (11.9) (7.3) 0.0 0.0 0.0 Invts in Assoc. & JV (3.0) 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 18.8 0.0 0.0 0.0 Net Investing CF (220) (161) (120) (211) (209) Div Paid (142) (103) (106) (100) (87.4) Chg in Gross Debt 47.2 49.0 0.0 75.0 75.0 Capital Issues (18.6) (8.7) 0.0 0.0 0.0 Other Financing CF 0.0 (0.1) 0.0 0.0 0.0 Net Financing CF (114) (63.0) (106) (25.1) (12.4) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 1.04 35.5 30.9 8.13 18.4 Opg CFPS (S cts) 29.2 28.9 27.7 26.3 25.8 Free CFPS (S cts) 13.9 9.37 14.7 3.58 3.31 Source: Company, DBS Bank

Target Price & Ratings History

S$ 2.27 12-mth Date of Closing S.No. Target Rating Report Price 2.17 Price 1: 19 J ul 17 1.94 1.78 FULLY VALUED 2.07 2: 16 Oct 17 1.81 1.49 FULLY VALUED 1.97 3: 24 J an 18 1.87 1.49 FULLY VALUED 4 4: 25 J an 18 1.89 1.49 FULLY VALUED 1.87 5: 10 Apr 18 1.72 1.76 HOLD 1 2 6 6: 17 Apr 18 1.82 1.76 HOLD 1.77 3

1.67 5 1.57

1.47 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18

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

Source: DBS Bank Analyst: Sachin MITTAL

Page 7 Page 30 Singapore Company Guide StarHub

Version 12 | Bloomberg: STH SP | Reuters: STAR.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 26 Jun 2018

HOLD (Upgrade from Fully Valued) Not attractive yet despite big correction Last Traded Price ( 25 Jun 2018): S$1.63 (STI : 3,260.84) Price Target 12-mth: S$1.42 (-13% downside) (Prev S$2.05) Upgrade to HOLD as StarHub is not trading at a premium anymore. With ~44% correction in StarHub’s price YTD, the valuation premium has disappeared. StarHub is likely to see an Analyst Sachin MITTAL +65 66823699 [email protected] annual EBITDA contraction of 4% over FY17A-20F vs 3% for M1 as Pay TV-mobile unbundling will hurt StarHub more. We argue that StarHub should trade at 12-month forward EV/EBITDA of What’s New 5.6x, at a 20% discount to the regional average of 7x to reflect its weak prospects.  Valuation premium disappears with 44% contraction in stock price YTD Where we differ: Expect sharp cut in dividends in FY19F. StarHub  StarHub should trade at 12-month forward EV/EBITDA has committed to payout S$277m in annual dividends in FY18. of 5.6x vs 7x regional average, reflecting its declining However, we estimate that StarHub’s shareholder equity value EBITDA prospects will be wiped out in 2020 if it continues with similar magnitude of dividends. As such, we project, StarHub to bring its dividends Upgrade to HOLD with a revised TP of S$1.42  to match the net profit level. While, we have assumed 100% payout ratio from FY19F onwards, StarHub should, ideally, retain Price Relative some earnings to invest in new business opportuities in our view. S$ Relative Index 4.9 214 4.4 194

3.9 174 Potential Catalyst – Commercial success of MyRepublic and/or 154 3.4 134 news on TPG’s launch. Execution effectiveness of MyRepublic’s 2.9 114 94 2.4 partnership with StarHub and any delay in TPG’s commercial 74 1.9 54 1.4 34 launch, which is slated for late 2018, could benefit the stock. Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

StarHub (LHS) Relative STI (RHS) Valuation: Upgrade to HOLD with a lower TP of S$1.42. Due to a lack of Forecasts and Valuation FY Dec (S$m) 2017A 2018F 2019F 2020F clarity on future free cash flows, we switch to peer multiple- Revenue 2,401 2,322 2,278 2,246 based valuation. We value StarHub at 12-month forward EBITDA 612 585 544 535 EV/EBITDA of 5.6x at ~20% discount to the 7x regional average. Pre-tax Profit 304 270 237 201 Net Profit 250 221 194 165 Net Pft (Pre Ex.) 250 221 194 165 Key Risks to Our View: Net Pft Gth (Pre-ex) (%) (24.6) (11.7) (12.1) (15.3) Bear-case valuation is S$1.17 if TPG causes severe disruption. EPS (S cts) 14.4 12.8 11.2 9.52 StarHub could see a 10% drop in FY19F EBITDA under this EPS Pre Ex. (S cts) 14.5 12.8 11.2 9.52 scenario vs our base case of 7% drop. We use 5.0x 12-month EPS Gth Pre Ex (%) (25) (12) (12) (15) forward EV/EBITDA to derive our bear-case TP. Diluted EPS (S cts) 14.4 12.7 11.2 9.49 Net DPS (S cts) 16.0 16.0 11.2 9.52 TPG delaying the launch by 12 months or more may lead to bull- BV Per Share (S cts) 8.13 4.92 4.92 4.92 PE (X) 11.3 12.7 14.5 17.1 case valuation of S$1.72. StarHub could see a 2% drop in FY19F PE Pre Ex. (X) 11.3 12.7 14.5 17.1 EBITDA under this scenario vs our base case of 7% drop. We use P/Cash Flow (X) 5.4 6.2 6.4 6.4 6.2x 12-month EV/EBITDA to derive our bull-case TP. EV/EBITDA (X) 6.0 6.4 7.1 7.5 Net Div Yield (%) 9.8 9.8 6.9 5.8 P/Book Value (X) 20.0 33.1 33.1 33.1 At A Glance Net Debt/Equity (X) 1.8 2.4 3.0 3.4 Issued Capital (m shrs) 1,730 ROAE (%) 148.8 195.9 228.5 nm Mkt. Cap (S$m/US$m) 2,821 / 2,071 Major Shareholders (%) Earnings Rev (%): (3) (7) (14) Consensus EPS (S cts): 12.8 11.6 10.2 Temasek Holdings Private Ltd 55.8 Other Broker Recs: B: 2 S: 7 H: 13 NTT 9.9 Blackrock Source of all data on this page: Company, DBS Bank, Bloomberg 5.0 Finance L.P Free Float (%) 29.2 3m Avg. Daily Val (US$m) 9.8 ICB Industry : Telecommunications / Fixed Line Telecommunications

ed: CK / sa:YM, PY, CS Company Guide

StarHub

Mobile EBITDA Margins CRITICAL DATA POINTS TO WATCH 37.1 ARPU dilution likely with growing adoption of SIM-only plans. 37.4 33.2 32.7 31.6 We believe SIM-only plans will rise in popularity over the 32.1 28.9 medium term, with lengthening smartphone replacement 26.7 cycles and aggressive promotions by MVNOs. StarHub’s 1Q18 21.4 postpaid ARPU declined ~4% with the rising uptake of SIM- 16.0 only plans and higher uptake of unlimited weekend data 10.7 plans. We expect StarHub’s postpaid ARPU will contract 5.3 ~3.5% annually over FY18-20F, reflecting the growing uptake 0.0 of SIM-only plans and tightening price competition in the 2016A 2017A 2018F 2019F 2020F industry with the entry of TPG in 2H18. We have also assumed StarHub to record 5% annual contraction of mobile revenues CATV & Broadband EBITDA Margins over FY18-20F, in line with our industry base case, vs our 18.4 18 18 17.9 17.9 17.9 previous assumption of ~2% annual contraction of mobile 14.7 revenues. 11.0 Hubbing strategy under pressure. StarHub’s go-to market 7.3 strategy of bundling mobile, broadband and Pay-TV services is under pressure from the proliferation of over-the top (OTT) TV 3.7 services. As at the end of FY17, nearly 24,000 customers with 0.0 subscriptions to three or more services have downgraded since 2016A 2017A 2018F 2019F 2020F 1Q16, representing ~7% of subscriptions with three or more Fixed Network EBITDA Margins services. Majority of these customers are moving away from Pay-TV to cheaper alternatives such as Netflix, despite losing 37.33 36.6 36.6 36.5 36.5 36.5 the discount available on bundled services in the process. We 29.87 believe downgrades of hubbing subscriptions would accelerate amid the increasing appeal of OTT TV services among high- 22.40 end Pay TV customers and rising pressure on the broadband 14.93 segment from M1 and MyRepublic. As this is a critical success factor for StarHub, there could be near term impact on the 7.47 company's share price as the structural decline is unlikely to 0.00 reverse. 2016A 2017A 2018F 2019F 2020F

Strengthening enterprise business is a positive. StarHub Source: Company, DBS Bank managed to expand revenues from the enterprise segment 18% y-o-y in FY18, largely driven by the consolidation of Accel Systems and D’Crypt. The acquisitions made in the cyber- security and cryptographic technology space should further augment StarHub’s ICT service portfolio, which continues to drive the telco’s enterprise segment. The newly acquired capabilities would also pave way for StarHub to capitalise on major government and commercial cyber security tenders pertaining to the ongoing Smart City projects. Our channel checks also indicate that StarHub is competing aggressively on the ICT front with the market leader, and we expect some market share grab by StarHub through competitive pricing. As such, we believe the enterprise segment would remain a key driver of StarHub’s topline going forward. However, as ICT services carry lower margins, we do not expect the incremental EBITDA to be substantial enough to offset any potential EBITDA losses in the Pay-TV and mobile segments.

Page 2 Page 32 Company Guide

StarHub

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

Hubbing households and changes in postpaid ARPU are key company to develop subscriber base loyal to the StarHub determinants of StarHub’s share price. In our critical factor brand. Hence, changes in Hubbing subscribers (with analysis conducted to understand the share price drivers of subscriptions to all three services), which exhibit a correlation Singaporea telcos over the past 10 years, we have identified of 0.58 with StarHub’s share price, provide valuable cues on that StarHub’s hubbing subscriber base to be an indicator of the effectiveness of StarHub’s strategy to investors. Changes StarHub’s share price performance. Hubbing, or the offering in postpaid ARPU, an indicator of topline and subscriber of Mobile, Broadband and Pay TV services bundled together, growth, exhibits a correlation of 0.55 with StarHub’s share was the go-to-market strategy of StarHub and allowed the price.

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

Source: StarHub, DBS Bank

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

Source: Starhub, Reuters, DBS Bank

Page 3 Page 33 Company Guide

StarHub

Leverage & Asset Turnover (x) Balance Sheet: 1.2 Balance sheet will need to be managed carefully. StarHub raised 5.00 1.2 S$300m through medium-term notes in 2Q16. We assume 4.00 another S$250m of borrowings during FY18/19 to fund 1.1 3.00 spectrum acquisitions. While this will stretch StarHub’s balance 1.1 sheet in the near term, potential capex savings from network 2.00 sharing agreement signed earlier with M1 will help to shore up 1.0 cash flows in the medium term. StarHub’s annual DPS also 1.00 1.0 could be cut to 14 Scts in FY19F to stay below 2.0x net debt to 0.00 0.9 EBITDA in the long term. 2016A 2017A 2018F 2019F 2020F Gross Debt to Equity (LHS) Asset Turnover (RHS)

Capital Expenditure Share Price Drivers: S$m Dim outlook warrants a valuation discount. StarHub is likely to 450.0 see an annual EBITDA contraction of 4.4% from FY17A-20F vs. 400.0 2.7% for M1, owing to a contracting Pay-TV business, heavy 350.0 300.0 competition from M1 in the broadband segment and a lack of 250.0 support for mobile revenues from an MVNO. Whilst StarHub 200.0 has struck a MVNO partnership with MyRepublic, which could 150.0 100.0 support the telco’s contracting mobile business, we believe it 50.0 could take at least 1-2 years before StarHub records any 0.0 2016A 2017A 2018F 2019F 2020F meaningful contributions from MyRepublic. We argue that Capital Expenditure (-) StarHub should trade at 12-month forward EV/EBITDA of 5.6x vs. its current valuation of 6.8x, reflecting StarHub’s weak ROE (%) business model and its likelihood of been the most affected 200.0% over the medium term from the impending contraction of the mobile industry. Whilst the counter offers an attractive FY18F 150.0% yield of ~10%, we believe StarHub would need to cut its DPS to S$14cts by FY19F from S$16cts currently to stay below a net 100.0% debt to EBITDA of 2x. 50.0%

Key Risks: 0.0% Bear-case valuation is S$1.17 if TPG causes severe disruption. In 2016A 2017A 2018F 2019F 2020F case, TPG causes server disruption with its free mobile plans, Forward PE Band (x) StarHub could see a 10% drop in FY19F EBITDA under this (x) scenario vs our base case of 7% drop. We use 5.0x 12-month 26.0

EV/EBITDA to derive our bear-case valuation. 24.0 +2sd: 23.1x 22.0 +1sd: 21.6x TPG delaying the launch by 12-months may lead to bull-case 20.0 Avg: 20x valuation to S$1.72. StarHub could see 2% drop in FY19F 18.0 ‐1sd: 18.5x ‐2sd: 16.9x EBITDA under this scenario vs our base case of 7% drop. We 16.0 use 6.2x 12-month forward EV/EBITDA to derive our bull-case 14.0 TP. 12.0 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

Company Background PB Band (x) StarHub is the second largest of the three telecom operators in (x) Singapore. The company provides mobile services, pay TV, 57.0 fixed broadband and fixed voice services, popularly known as 52.0 +2sd: 52.42x quadruple play services. 47.0 +1sd: 44.05x 42.0

37.0 Avg: 35.69x 32.0

27.0 ‐1sd: 27.32x

22.0 ‐2sd: 18.96x 17.0 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Source: Company, DBS Bank

Page 4 Page 34 Company Guide

StarHub

Key Assumptions FY Dec 2016A 2017A 2018F 2019F 2020F Mobile EBITDA Margins 33.2 28.9 37.1 32.7 31.6 CATV & Broadband 18.0 18.0 17.9 17.9 17.9 Fixed Network EBITDA 36.6 36.6 36.5 36.5 36.5

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

Revenues (S$m) Mobile 1,215 1,197 840 793 742 Cable TV & Broadband 595 563 538 521 517 Fixed Network 400 437 485 525 569 SFRS based accounting from 2018 Equipment sale 188 204 460 440 419 onwards leads to sharp drop in mobile revenue but raises Total 2,397 2,401 2,322 2,278 2,246 equipment revenue. We have not EBITDA (S$m) restated 2016 and 2017 numbers Mobile 403 346 311 259 235 Cable TV & Broadband 107 101 96.3 93.2 92.5 Fixed Network 146 160 177 192 208 Equipment sale 32.2 4.40 0.0 0.0 0.0

Total 689 612 585 544 535 EBITDA Margins (%) Mobile 33.2 28.9 37.1 32.7 31.6 Cable TV & Broadband 18.0 18.0 17.9 17.9 17.9 Fixed Network 36.6 36.6 36.5 36.5 36.5 Equipment sale 17.2 2.2 0.0 0.0 0.0

Total 28.7 25.5 25.2 23.9 23.8

Income Statement (S$m) FY Dec 2016A 2017A 2018F 2019F 2020F Revenue 2,397 2,401 2,322 2,278 2,246 Cost of Goods Sold (2,004) (2,072) (2,018) (1,998) (2,003) Gross Profit 393 329 304 280 243 Other Opng (Exp)/Inc 32.2 4.40 0.0 0.0 0.0 Operating Profit 425 334 304 280 243 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (1.6) (2.2) (2.2) (2.2) (2.2) Net Interest (Exp)/Inc (22.7) (26.2) (32.4) (40.7) (39.9) Exceptional Gain/(Loss) 9.50 (0.7) 0.0 0.0 0.0 Pre-tax Profit 410 304 270 237 201 Tax (68.9) (54.8) (48.5) (42.7) (36.1) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 341 250 221 194 165 Net Profit before Except. 332 250 221 194 165 EBITDA 689 612 585 544 535 Growth Revenue Gth (%) (1.9) 0.2 (3.3) (1.9) (1.4) EBITDA Gth (%) (3.4) (11.2) (4.4) (7.0) (1.7) Opg Profit Gth (%) (3.7) (21.5) (8.8) (8.0) (13.3) Net Profit Gth (Pre-ex) (%) (7.1) (24.6) (11.7) (12.1) (15.3) Margins & Ratio Gross Margins (%) 16.4 13.7 13.1 12.3 10.8 Opg Profit Margin (%) 17.7 13.9 13.1 12.3 10.8 Net Profit Margin (%) 14.2 10.4 9.5 8.5 7.3 ROAE (%) 178.5 148.8 195.9 228.5 nm ROA (%) 16.6 11.0 9.1 7.8 6.7 ROCE (%) 29.9 19.3 15.8 13.7 11.9 Div Payout Ratio (%) 101.4 110.8 125.1 100.0 100.0 Net Interest Cover (x) 18.7 12.7 9.4 6.9 6.1

Source: Company, DBS Bank

Page 5 Page 35 Company Guide

StarHub

Quarterly / Interim Income Statement (S$m) FY Dec 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018

Revenue 589 579 580 649 561 Cost of Goods Sold (429) (399) (407) (553) (409) Gross Profit 160 180 173 96.1 152 Other Oper. (Exp)/Inc (66.5) (67.6) (71.5) (70.4) (69.9) Operating Profit 93.1 112 102 25.8 81.9 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (0.2) (0.9) (1.5) (0.3) (0.2) Net Interest (Exp)/Inc (6.3) (7.4) (6.3) (6.2) (6.4) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 86.6 104 93.8 19.3 75.3 Tax (14.2) (18.3) (17.3) (4.9) (12.5) Minority Interest 0.0 0.0 0.0 (0.3) 0.0 Net Profit 72.3 85.7 76.5 14.1 62.8 Net profit bef Except. 72.3 85.7 76.5 14.1 62.8 EBITDA 160 178 175 96.6 152

Growth Revenue Gth (%) (7.3) (1.6) 0.2 11.8 (13.6) EBITDA Gth (%) 17.9 11.6 (2.0) (44.7) 57.3 Opg Profit Gth (%) 35.5 20.6 (9.5) (74.6) 217.4 Net Profit Gth (Pre-ex) (%) 33.9 18.5 (10.7) (81.6) 345.4 Margins Gross Margins (%) 27.1 31.1 29.8 14.8 27.1 Opg Profit Margins (%) 15.8 19.4 17.5 4.0 14.6 Net Profit Margins (%) 12.3 14.8 13.2 2.2 11.2

Balance Sheet (S$m) FY Dec 2016A 2017A 2018F 2019F 2020F Net Fixed Assets 918 870 906 970 1,011 Invts in Associates & JVs 25.9 23.7 21.5 19.3 17.1 Other LT Assets 511 626 562 647 723 Cash & ST Invts 285 345 531 370 244 Inventory 49.6 71.9 69.6 68.2 67.3 Debtors 172 202 195 191 189 Other Current Assets 234 214 214 214 214 Total Assets 2,196 2,352 2,499 2,480 2,464

ST Debt 10.0 120 120 120 120 Creditor 708 737 712 699 689 Other Current Liab 138 136 113 107 101 LT Debt 978 858 1,108 1,108 1,108 Other LT Liabilities 168 157 157 157 157 Shareholder’s Equity 195 341 285 285 285 Minority Interests 0.0 4.40 4.40 4.40 4.40 Total Cap. & Liab. 2,196 2,352 2,499 2,480 2,464

Non-Cash Wkg. Capital (390) (385) (347) (333) (320) Net Cash/(Debt) (702) (632) (697) (857) (984) Potential cut-back in dividends Debtors Turn (avg days) 24.8 28.4 31.2 30.9 30.9 owing to high leverage. Creditors Turn (avg days) 146.4 147.2 152.4 148.7 148.2 Inventory Turn (avg days) 10.9 12.4 14.9 14.5 14.5 Asset Turnover (x) 1.2 1.1 1.0 0.9 0.9 Current Ratio (x) 0.9 0.8 1.1 0.9 0.8 Quick Ratio (x) 0.5 0.6 0.8 0.6 0.5 Net Debt/Equity (X) 3.6 1.8 2.4 3.0 3.4 Net Debt/Equity ex MI (X) 3.6 1.9 2.4 3.0 3.5 Capex to Debt (%) 37.1 30.1 20.8 33.8 33.4 Z-Score (X) 2.5 2.2 2.1 2.0 1.8

Source: Company, DBS Bank

Page 6 Page 36 Company Guide

StarHub

Cash Flow Statement (S$m) FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Profit 410 304 270 237 201 Dep. & Amort. 265 280 283 266 294 Tax Paid (53.7) (65.3) (71.6) (48.5) (42.7) Assoc. & JV Inc/(loss) 1.60 2.20 2.20 2.20 2.20 Chg in Wkg.Cap. (60.2) (5.4) (15.1) (8.6) (6.1) Other Operating CF (12.3) 0.90 (10.0) (10.0) (10.0) Net Operating CF 551 517 458 438 438 Capital Exp.(net) (366) (294) (255) (414) (411) Other Invts.(net) (18.0) (15.0) 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Elevated capex due to spectrum Other Investing CF (5.4) (18.1) 0.0 0.0 0.0 outlays. Net Investing CF (389) (327) (255) (414) (411) Div Paid (346) (294) (277) (194) (165) Chg in Gross Debt 300 0.0 250 0.0 0.0 Capital Issues (12.3) 0.0 0.0 0.0 0.0 Other Financing CF 8.90 164 10.0 10.0 10.0 Net Financing CF (49.6) (130) (16.6) (184) (155) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 112 60.0 186 (160) (127) Opg CFPS (S cts) 35.4 30.2 27.3 25.8 25.7 Free CFPS (S cts) 10.7 12.9 11.7 1.38 1.61

Source: Company, DBS Bank

Target Price & Ratings History

3.12 S$ 4 12-mth Date of Closing 2.92 S.No. Target Rating Report Price Price 2 2.72 1: 03 Aug 17 2.67 2.33 FULLY VALUED 3 2: 16 Oct 17 2.69 2.20 FULLY VALUED 2.52 1 5 3: 03 Nov 17 2.72 2.20 FULLY VALUED 4: 25 J an 18 2.97 2.20 FULLY VALUED 2.32 6 5: 19 Feb 18 2.60 2.20 FULLY VALUED 2.12 6: 07 May 18 2.26 2.05 FULLY VALUED

1.92

1.72

1.52 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18

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

Source: DBS Bank Analyst: Sachin MITTAL

Page 7 Page 37 Industry Focus

Telecom Sector

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends

Completed Date: 26 Jun 2018 16:00:32 (SGT) Dissemination Date: 26 Jun 2018 16:31:53 (SGT)

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

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

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

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

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

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

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

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

Page 7 Page 38 Industry Focus

Telecom Sector

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

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

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)

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

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), DBSV HK or their subsidiaries and/or other affiliates have proprietary positions in Singtel, M1, StarHub, recommended in this report as of 31 May 2018. 2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. 3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in M1, StarHub, recommended in this report as of 31 May 2018. Compensation for investment banking services: 4. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from StarHub, as of 31 May 2018. 5. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for StarHub, in the past 12 months, as of 31 May 2018. 6. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. Directorship/trustee interests: 7. Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Director / Chairman of M1 as of 31 Mar 2018. 8. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 31 Mar 2018 Disclosure of previous investment recommendation produced: 9. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

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

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

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

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

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

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

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

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

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

Wong Ming Tek, Executive Director, ADBSR

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

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

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United This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

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

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

United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

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

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

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DBS Regional Research Offices

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

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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