May 24, 2012

Hong Kong: Telecom Services

Equity Research Pricing power returns to broadband; Raise ARPU estimates by 8%

Second price hike in fixed broadband and 4G network launch telcos witnessed two major changes in May with a second HONG KONG TELCOS COMPS TABLE price hike in fixed broadband, and the launch of three 4G networks. The Market 12-Mo. Up/Down Total Ticker Name Rating Price Tgt Px Side Return price hike by HKT this year reaffirms our view that pricing power has 0008.HK PCCW Neutral 2.84 2.92 3% 9% 6823.HK HKT Trust Buy 5.92 6.35 7% 14% returned to Hong Kong’s broadband industry. We note that it has also 0215.HK HTHK Neutral 3.62 2.70 -25% -21% 0315.HK SmarTone Neutral 14.32 13.50 -6% 1% come within a few days of the announcement by its principal competitor P/E EV/EBITDA City Telecom, the high speed broadband market leader, of the sale of its Ticker Name Rating 2012E 2013E 2012E 2013E 0008.HK PCCW Neutral 11.5x 9.6x 5.0x 4.8x 6823.HK HKT Trust Buy 23.4x 20.7x 7.7x 7.5x broadband business to a private equity group. We estimate the new tariffs 0215.HK HTHK Neutral 16.5x 14.9x 7.9x 7.6x will translate to c.HK$20 increase in broadband ARPU from 0315.HK SmarTone Neutral 15.6x 14.8x 5.4x 5.1x Div Yld ROE ROIC CROCI new/recontracting customers, and this follows the first price increase of Ticker Name Rating 2012E 2012E 2012E 2012E 0008.HK PCCW Neutral 5.7% 27.9% 16.0% 9.6% HK$25-30 in January. We believe the new tariffs capitalize on the 6823.HK HKT Trust Buy 7.2% 5.3% 31.1% 10.2% 0215.HK HTHK Neutral 4.6% 9.9% 18.8% 8.0% affordability of HKT’s more affluent broadband customer base. Meanwhile 0315.HK SmarTone Neutral 6.4% 32.6% 157.1% 20.4% in the mobile business, HKT, China Mobile Hong Kong and HTHK all Valuation methodology: SOTP for PCCW and HTHK, DCF for launched 4G services this year. Across both the fixed line and mobile HKT and SmarTone. Key risks: Upside – Better than expected smartphone pickup; segments, we believe HKT is the best positioned among its peers, given Downside – price war in fiber and mobiles, slowing local low fiber penetration and low market share in mobile. economy. Source: Bloomberg, Goldman Sachs Research estimates.

HK fiber looking like HK mobile with no regulatory risk HK 4G TARIFF PLANS, HKT PRICING ATTRACTIVE Hong Kong’s broadband industry has been evolving in a similar path as the (HK$) city’s mobile industry, for which revenues have grown 12% p.a. in the past 4G SIM H3 H3 HKT HKT CM CM CSL CSL Monthly Fee $228 $168 $190 $174 $218 $178 $267 $217 two years. We do not expect regulatory scrutiny on this second broadband Voice Call (min/month) 3,550 2,550 3,300 3,300 2,800 1,800 3,900 2,500 SMS per month 20 15 UL* UL UL UL price hike, given the Hong Kong regulator’s (Office of the Communications MMS per month 30 25 300 300 200 Data Usage (GB) per month UL 0.80 10.00 5.00 UL 1.00 UL 0.80 Authority’s, OFCA) market-based approach that focuses on ensuring the $/GB (ex‐$80 for voice) $110 $19 $98 $171 availability of options for customers. SIM H3 H3 HKT HKT CM CM CSL CSL Monthly Fee $198 $148 $190 $174 $218 $148 $267 $217 Voice Call (min/month) 1,650 1,650 3,300 3,300 2,000 1,600 3,900 2,500 Raising TP/EPS for HKT; PCCW’s TP also marginally higher SMS per month 15 15 UL UL UL UL MMS per month 25 25 300 300 200 HKT (6823.HK): On the back of the second price hike, we raise our 2012E- Data Usage (GB) per month UL 0.50 10.00 5.00 UL 0.40 UL 0.80 $/GB (ex‐$80 for voice) $136 $19 $170 $171 14E broadband ARPU by 8%. Accordingly, our revenue, EPS and Adjusted 4G vs. 3G 15% 14% 0% 0% 0% 20% 0% 0% Funds Flow (AFF) estimates are raised by up to 1%, 2% and 1%, respectively. We maintain our Buy rating and raise our 12m DCF-based UL = Unlimited Source: Company data, Goldman Sachs Research. target price by 5% to HK$6.35, for a total return of 14%. The implied dividend yield at TP is 6.7%. PCCW (0008.HK): The higher TP for HKT flows through to a 2% higher new 12m SOTP-based target price for PCCW (HKT’s principal shareholder) of HK$2.92. Still Neutral.

Piyush Mubayi +852-2978-1677 [email protected] Goldman Sachs (Asia) L.L.C. Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making

their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non- US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc. Global Investment Research May 24, 2012 Hong Kong: Telecom Services

Broadband sector regains pricing power

HKT announces second price hike in 2012

The second increase in tariff this year by HKT, in our view, indicates that pricing power has returned to the broadband industry in Hong Kong. We estimate the net impact of the May 16th price increase will raise HKT’s ARPU by c.HK$20 per month, following its c.HK$28 per month increase in January. The increases implemented on May 16th are effectively higher at the premium-end of the market, where affordability is relatively less likely to be an issue for consumers. Exhibit 1 illustrates the price increase at the upper end.

Exhibit 1: Hong Kong’s effective rates for broadband Effective HK$63 price increase at 300 MB (HK$)

HKBN (100 MB) HKT (300 MB) Hong Kong Kowloon/ Region Old Revised % change Island NT Basic monthly fee $169 $169 $273 $268 2% Contract duration 24 24 24 24 Monthly fee waived 6 4 6 ‐ Other promotions ‐‐ ‐ Equivalent monthly fee $127 $141 $205 $268 31%

Upfront payment $600 $600 $800 $800

Source: Company data.

Despite this price increase, broadband rates in Hong Kong are still affordable in our view and fiber pricing in the city is attractive by international standards (see Exhibit 2). While Hong Kong Broadband Network (HKBN) - the wholly owned subsidiary of City Telecom - remains dominant in densely packed public housing neighborhoods, we expect HKT’s focus to remain on the relatively more affluent communities. As a result, we do not foresee a slowdown in subscriber growth rates for HKT in the near term.

Goldman Sachs Global Investment Research 2 May 24, 2012 Hong Kong: Telecom Services

Exhibit 2: Broadband rates vs. GDP per capita Hong Kong’s GDP/cap of US$34k is at a level which we believe affordability is less of a challenge

80 y = 0.0009x + 3.24 R² = 0.6797 70 NTT

60 (US$) 50 SingTel ARPU 40 Verizon

30 HKT Broadband 20 CHT KT 10 China Telecom

0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 US$ per capita, nominal

Source: Goldman Sachs Research, IMF

City Telecom sells broadband asset to private equity firm

In April, HKT’s principal competitor City Telecom (CTI, 1137.HK, Not Covered), the market leader in high speed broadband, announced the sale of its fixed line business Hong Kong Broadband Network (HKBN) to a private equity group (Metropolitan Light) for HK$5,012mn. CTI retained the rights to use HKBN to deliver free-to-air TV.

HKBN has 619k broadband subs, 495k local telephony and 195k pay TV customers. As execution will be left to the old management team led by William Leung CEO, we believe the new owners are unlikely to disturb the positive momentum in the segment.

In CTI’s last published Management Discussion and Analysis (MD&A), the company acknowledged that its “growth prospect will be dependent on raising ARPU” and reported exit ARPU rising to HK$146 in February 2012 from HK$139 six months ago.

Exhibit 3: Hong Kong’s telecom landscape HKT’s opportunity is to convert a large chunk of its broadband customers to FTTH

in 000s Fixed Fixed broadband FTTH Pay TV Mobile 2011 Lines % of Subs % of Subs % of Subs % of Subs % of HKT/PCCW 2,636 62% 1,518 58% 143 19% 1,140 47% 1,535 12% Hutch Tel HK nd 250 10% nd 3,505 27% CSL/Telstra 2,995 23% Smartone nd nd nd 1,620 13% CM/Peoples 3,198 25% CTI/HKBN 495 12% 617 24% 617 81% 195 8% iCable 149 4% 218 8% 1,106 45% TOTAL 4,252 2,603 760 2,441 12,853 Note: nd = not determinable

Source: OFCA, Company data, Goldman Sachs Research.

Goldman Sachs Global Investment Research 3 May 24, 2012 Hong Kong: Telecom Services

HTHK, the dark horse in HK’s broadband industry The dark horse in the broadband industry in Hong Kong, in our view, is Hutchison Telecom Hong Kong (HTHK, 0215.HK), which we estimate has c.10% share of Hong Kong’s broadband with its c.250k subscribers and 15% penetration rate of the 1.6 mn Fibre-to-the- Building (FTTB) users in the market. However, for HTHK, the residential segment accounts for 17% of its fixed line revenue or 7% of total services revenue. HTHK’s focus has traditionally been its carrier segment which accounted for 52% of its fixed line revenue in 2H11, and enterprise segment which generated 25% of fixed line revenue. HTHK too has benefited in a small way from the recent sector-wide price increases. We think it should continue to benefit from a benign competitive environment, leading to stabilization of its residential fixed line revenues (vs. the 9% yoy decline in FY11). On May 11th, HTHK launched the Android TV Box, which allows customers to enjoy multimedia content and apps from 3 Hong Kong and Google Play on their home TVs.

Four 4G mobile networks switch on in HK; Smartone not far away

The transformation of Hong Kong’s mobile industry continued in May with four out of five cellular operators becoming 4G ready, with HKT, China Mobile Hong Kong and HTHK joining CSL (Telstra’s 100%-owned subsidiary). In our view, the difference from now on could be potentially larger presence of both China Mobile Hong Kong and HKT at the higher-end of the market. Mobile devices being offered across the four service providers are unlikely to be materially different from one another until the launch of the iPhone 5, in our view. Currently available models include the Samsung Galaxy SII LTE, Samsung Galaxy Tab 8.9 LTE, E398, Huawei E589, HTC One XL and LG Optimus True HD LTE. 4G not positioned as a premium product in Hong Kong

4G tariffs are not set at a substantial premium to 3G in our view, which suggests that its growth should continue along with rising smartphone penetration. Among the four 4G service providers, we believe China Mobile Hong Kong has the most competitive unlimited data plan (see Exhibit 4).

Goldman Sachs Global Investment Research 4 May 24, 2012 Hong Kong: Telecom Services

Exhibit 4: Comparing tariffs for 4G SIMs across the four HKT’s initial pricing – attractive (HK$)

4G SIM 3 HK 3 HK HKT HKT CM CM CSL CSL Monthly Fee $228 $168 $190 $174 $218 $178 $267 $217 Voice Call (min/month) 3,550 2,550 3,300 3,300 2,800 1,800 3,900 2,500 SMS per month 20 15 Unlimited Unlimited Unlimited Unlimited MMS per month 30 25 300 300 200 Data Usage (GB) per month Unlimited 0.80 10.00 5.00 Unlimited 1.00 Unlimited 0.80 $/GB (ex‐$80 for voice) $110 $19 $98 $171

3G SIM 3 HK 3 HK HKT HKT CM CM CSL CSL Monthly Fee $198 $148 $190 $174 $218 $148 $267 $217 Voice Call (min/month) 1,650 1,650 3,300 3,300 2,000 1,600 3,900 2,500 SMS per month 15 15 Unlimited Unlimited Unlimited Unlimited MMS per month 25 25 300 300 200 Data Usage (GB) per month Unlimited 0.50 10.00 5.00 Unlimited 0.40 Unlimited 0.80 $/GB (ex‐$80 for voice) $136 $19 $170 $171

4G vs. 3G 15% 14% 0% 0% 0% 20% 0% 0%

Source: Company data, Goldman Sachs Research.

 CSL launched the world’s first 4G dual channel HSPA plus service in 4Q2010 and operates under two brand names. Consistent with its 3G offering, CSL’s 4G tariffs positions Telstra’s 100%-owned subsidiary at the upper-end of Hong Kong’s wireless market. However, CSL has not put 4G at a premium to its 3G-based services.

 China Mobile Hong Kong Company Limited The established mobile companies in Hong Kong were reminded of the threat from China Mobile when it launched its 4G/FD-LTE network in Hong Kong in the past month, with it also likely to launch a TD-LTE network by year-end having acquired TD-LTE spectrum in 1Q2012. CM is also the cheapest provider of unlimited plans on a 4G network in HK. CM has overcome the obstacle of not owning a 3G network in HK by signing as a MVNO on CSL’s 3G network. In our view, other HK telcos (such as HKT) may not be able to offer similar services as CM’s free data usage across Hong Kong and China. Even though HKT’s strategic shareholder is , we do not see any signs of China’s second largest mobile company working closely with HKT to offer a more compelling roaming product between HK and the mainland.  HTHK (0215.HK, Neutral) mobile arm, 3 HK launched 4G in early May with initial coverage of c.90% of all major areas in Hong Kong. HTHK expects to match its 3G networks coverage by September 2012. 3 HK and HKT share the 4G spectrum. Pricing is a slight premium to the rest of the 4G market, as well as to its own 3G service.  HKT (6823.HK, Buy) launched three 4G handsets in May at a price point that, in our view, leverages the available network capacity and is also attractively priced relative to competition. We expect HKT to upgrade its distribution network for mobiles as it seeks to improve the quality of its customers.

Smartone (0315.HK, Neutral) remains the only telco in Hong Kong that has not yet launched 4G service. However, we expect the company to launch a 4G network on its 1800 band by year-end.

Goldman Sachs Global Investment Research 5 May 24, 2012 Hong Kong: Telecom Services

HKT, the incumbent with the lowest mobile market share

In the mobile market, HKT’s competitive advantage remains its fixed line customer base, which tailors to the more affluent segment of the Hong Kong population. Over the next two years, we expect HKT to leverage its ability to up-sell its mobile offering, as at present HKT is the telco with the lowest mobile market share among incumbents in our Asia Pacific coverage universe (ex India). HKT has c.9% revenue market share of Hong Kong’s mobile market vs. NTT’s 45% (via DoCoMo), SingTel’s 52%, KT’s 32%, TLKM’s 56%, TM (pre-split of Celcom) 32%, Telstra’s 50%, and China Tel/China Unicom’s combined 28%.

We believe HKT’s aggressive push into the mobile market in 2012 should translate into faster mobile growth rates than the industry for the next three years, and forecast HKT’s market share to improve by 5% by 2015.

To see a meaningful improvement in its market positioning, we believe HKT will have to revamp its distribution network, increase its customer touch points and improve its mobile brand, such that customer acquisition costs will likely not decline in the next two years. Data usage trends in HK accelerating

Mobile data usage in HK grew 122% yoy in the first two months of 2012 and an average 575 MByte per 3G customer, with the growth rate inching up from 107% in November 2011 to 127% in February 2012. SMS trends, however, are looking considerably weaker for the three months ending February, at -15% yoy vs. -6% yoy in Sep-Nov 2011 and 0% yoy in Jun-Aug 2011.

Exhibit 5: Hong Kong wireless data usage Exhibit 6: Hong Kong’s SMS trend Data usage has accelerated in Jan/Feb 2012 SMS received per customer

5,000 700 SMS/sub/mo (LHS) yoy (RHS) Mobile data usage (MByte mn) (LHS) 55 15% 4,500 Usage (MByte) per 3G sub (RHS) 600 4,000 10% 50 500 3,500 5% 3,000 400 45 0% 2,500 300 -5% 2,000 40 1,500 200 -10% 1,000 35 100 -15% 500

0 0 30 -20% Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11

Source: OFCA Source: OFCA Mobile roaming: Less of an issue for HKT

The European Parliament’s decision to lower roaming rates on May 9 will drive down mobile data roaming, inbound and outbound voice roaming rates within Europe by 71%, 45% and 54%,respectively, by July 2014. Mobile internet roaming will fall from current level of EUR0.70/MB to EUR0.45/MB on July 1, 2013 and EUR0.20/MB on July 1, 2014. The cap for making a call will drop from EUR0.35/min currently to EUR0.29/min, EUR0.19/min by July 2013 and July 2014 respectively, and the rates for receiving a call will fall from EUR0.11/min to EUR0.08/min, EUR0.05/min.

The impact of the lowering of tariffs should not be a concern for Asian telcos at this point, in our view, unless these rates are extended to consumers outside Europe. Based on travel patterns, we estimate Europe’s roaming traffic to Asia is larger than inbound traffic, which we believe is one of the reasons that roaming rates should continue to decline. We estimate that voice revenue is gradually declining for Hong Kong telcos and accounted for

Goldman Sachs Global Investment Research 6 May 24, 2012 Hong Kong: Telecom Services

16% of HTHK service revenue in 2011, down from 19% in 2009. However, data roaming grew as a result and total roaming remains 23-24% of HTHK 2011 service revenue. For Smartone, roaming accounted for c.20% of 2011 revenue.

In contrast to the roaming exposure of the dominant mobile operators in Hong Kong, HKT’s dependence on roaming is very low. This explains HKT’s willingness to offer RoamSave, a roaming voice service based on Wi-Fi connectivity, at a cost of US$1/day. This allows the mobile customer to make, as well as receive, an unlimited number of calls in a Wi-Fi zone. HKT: Raising target price to HK$6.35

We raise our 12 month DCF-based target price for HKT by 5% to HK$6.35 for a total return of 14%, on our 8% higher ARPU assumptions for broadband. We maintain our Buy rating.

Our revised target price implies a 2012E dividend yield of 6.7%, vs. our prior assumption of 7%. The yield is still higher than the average of 5.6% for HK telcos (ex HKT and PCCW) and 5.7% for Singapore telcos, 5.3% for Taiwan telcos. If using the highest end of the price/yield range within the group (i.e. at HKHT’s yield) HKT would be valued at HK$9. Downside risks: Price war in broadband and mobiles, slowing local economy.

Exhibit 7: Dividend yield for telcos in Hong Kong, Singapore, Taiwan HKT yields the highest dividend among telcos in the 3 markets

Market 12-Mo. Div Yld Ticker Name Rating fx Price Tgt Px 2012E 0008.HK PCCW Limited Neutral HK$ 2.84 2.92 5.7% 6823.HK HKT Trust Buy HK$ 5.92 6.35 7.2% 0215.HK HTHKH Neutral HK$ 3.62 2.70 4.6% 0315.HK SmarTone Neutral HK$ 14.32 13.50 6.4% MONE.SI Ltd Neutral S$ 2.46 2.50 6.0% STEL.SI SingTel Buy S$ 3.13 3.38 4.8% STAR.SI StarHub Neutral S$ 3.23 2.76 6.2% 2412.TW Chunghwa Sell NT$ 91.40 80.00 5.3% 4904.TW Far EasTone Buy NT$ 67.70 68.00 5.5%

3045.TWTaiwan Sing Taiwan HK Mobile Neutral NT$ 97.00 83.80 5.1% Closing prices as of 23 May 2012 For important disclosures, please go to http://www.gs.com/research/hedge.html.

Source: Bloomberg, Goldman Sachs Research estimates.

PCCW: TP raised to HK$2.92 on higher HKT target price

The higher target price for HKT of HK$6.35 raises our 12-month SOTP-based target price for PCCW by 2% to HK$2.92. Our EPS estimates change 1% and our rating remains Neutral. Key risks: Upside – stronger than forecast IT solutions and pay TV business; Downside – reinvestment risk.

Goldman Sachs Global Investment Research 7 May 24, 2012 Hong Kong: Telecom Services

Exhibit 8: HKT’s key drivers include broadband tariffs, mobile business, margins, and AFF

in HK$ mn 2009 2010 2011 2012E 2013E 2014E 1H10 2H10 1H11 2H11 1. Local telephony Lines in services (000s) 2,588 2,590 2,636 2,639 2,642 2,658 2,587 2,590 2,625 2,636 ARPU (HK$) 128 116 107 107 107 106 124 108 105 110 Revenue 3,988 3,600 3,397 3,394 3,381 3,377 1,921 1,679 1,653 1,744 yoy -9.7% -5.6% -0.1% -0.4% -0.1% -12.6% -1.5% 5.5%

2. Local data DSL subs (000s) 1,146 1,215 1,363 1,138 1,051 988 1,298 1,215 1,437 1,138 Fiber subs (000s) 143 293 423 523 57 143 Revenue 4,943 5,270 5,680 5,923 6,120 6,387 6,847 7,033 7,221 7,413 yoy 6.6% 7.8% 4.3% 3.3% 4.4% 0.8% 9.7% 10.2%

3. International Revenue 3,678 3,714 4,199 4,217 4,216 4,223 1,851 1,863 2,188 2,011 yoy 1.0% 13.1% 0.4% 0.0% 0.2% 0.6% 17.4% -8.1%

4. Other Revenue 5,838 6,824 7,193 6,960 6,885 6,794 3,067 3,367 3,087 3,622 yoy 16.9% 5.4% -3.2% -1.1% -1.3% 9.8% -8.3% 17.3%

Total fixed line revenue 16,277 16,818 17,858 18,125 18,347 18,653 8,368 8,450 8,618 9,240 yoy 3.3% 6.2% 1.5% 1.2% 1.7% 1.0% 2.0% 7.2% 5. Mobile Subs (000s) 1,422 1,484 1,535 1,585 1,615 1,630 1,469 1,484 1,506 1,535 ARPU (HK$) 101.8 98.0 108.6 121.6 135.0 148.5 95.1 97.8 101.7 113.8 yoy -3.7% 10.8% 12.0% 11.0% 10.0% 7.0% 16.3% Revenue 1,670 1,709 1,967 2,277 2,592 2,891 838 871 919 1,048 yoy 2.3% 15.1% 15.7% 13.8% 11.5% 3.9% 5.5% 14.0% TOTAL REVENUE 17,947 18,527 19,825 20,402 20,939 21,544 9,206 9,321 9,537 10,288 yoy 3.2% 7.0% 2.9% 2.6% 2.9% 1.2% 2.3% 7.9% EBITDA TSS 7,025 6,997 7,005 7,126 7,216 7,342 3,373 3,624 3,386 3,619 Mobile 265 355 510 660 804 954 152 203 218 292 Total, net of other 7,263 7,249 7,411 7,665 7,905 8,164 3,523 3,726 3,623 3,788 EBITDA margin TSS 44.3% 43.1% 40.5% 40.5% 40.5% 40.5% 40.3% 42.9% 39.3% 39.2% Mobile 15.9% 20.8% 25.9% 29.0% 31.0% 33.0% 18.1% 23.3% 23.7% 27.9% Total 40.5% 39.1% 37.4% 37.6% 37.8% 37.9% 38.3% 40.0% 38.0% 36.8%

Net interest income (1,468) (1,562) (1,504) (845) (865) (957) (797) (765) (730) (774)

NET PROFIT 1,323 953 1,257 1,800 1,937 2,845 400 437 537 679

CAC (amortized) (806) (916) (1,259) (1,230) (1,237) (1,158) (315) (601) (561) (698) EBITDA less CAC Fixed 6,756 6,619 6,523 6,636 6,730 6,862 3,277 3,343 3,237 3,287 Mobile (70% CAC) (299) (286) (371) (201) (62) 144 (69) (218) (175) (197) EBITDA less CAC 6,457 6,333 6,152 6,435 6,667 7,006 3,208 3,125 3,062 3,090 EBITDA Margin, CAC Adj 36.0% 34.2% 31.0% 31.5% 31.8% 32.5% 34.8% 33.5% 32.1% 30.0%

Capex + License fee (1,551) (1,706) (1,725) (1,990) (2,038) (2,069) (673) (1,033) (773) (952) % sales 8.6% 9.2% 8.7% 9.8% 9.7% 9.6% 7.3% 11.1% 8.1% 9.3% Working cap (1,006) (976) (588) (602) (618) (623) (402) (574) (253) (335) Adjusted funds flow 2,451 2,019 2,405 2,731 2,770 2,781 1,223 796 1,352 1,053 Margin 13.7% 10.9% 12.1% 13.4% 13.2% 12.9% 13.3% 8.5% 14.2% 10.2%

Note: Net income is after MI

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 8 May 24, 2012 Hong Kong: Telecom Services

Exhibit 9: HKT: Changes to our estimates Exhibit 10: PCCW: Changes to our estimates

HKT, Changes to estimates PCCW, Changes to estimates 2012E 2013E 2014E 2012E 2013E 2014E Old Revenue 20,270 20,824 21,404 New Revenue 20,402 20,939 21,544 Old Revenue 24,875 25,358 25,992 % Change 0.6% 0.5% 0.7% New Revenue 24,998 25,467 26,126 % Change 0.5%0.4%0.5% Old EBITDA 7,612 7,842 8,095 New EBITDA 7,665 7,905 8,164 Old EBITDA 7,801 8,033 8,250 % Change 0.7% 0.8% 0.8% New EBITDA 7,852 8,090 8,313 Old Net Income 1,591 1,803 2,718 % Change 0.7%0.7%0.8% New Net Income 1,624 1,838 2,774 % Change 2.0% 2.0% 2.0% Old Net Income 1,790 2,158 2,199 New Net Income 1,814 2,183 2,221 Old EBITDA Margin 37.55% 37.66% 37.82% % Change 1.4%1.2%1.0% New EBITDA Margin 37.57% 37.75% 37.89%

Old EBITDA Margin 31.4% 31.7% 31.7% Old EPS 0.25 0.28 0.42 New EBITDA Margin 31.4% 31.8% 31.8% New EPS 0.25 0.29 0.43 % Change 2.0% 2.0% 2.0%

Old AFF 348 351 354 Old EPS 0.25 0.30 0.30 New AFF 350 355 357 New EPS 0.25 0.30 0.31 % Change 0.7% 1.0% 0.7% % Change 1.4%1.2%1.0%

Source: Goldman Sachs Research estimates. Source: Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 9 May 24, 2012 Hong Kong: Telecom Services

Disclosure Appendix

Reg AC

I, Piyush Mubayi, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

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The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.

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Disclosures

Coverage group(s) of stocks by primary analyst(s)

Piyush Mubayi: Asia Pacific Media, Asia Pacific Telecoms. Asia Pacific Media: Ambow Education Holding Ltd., Baidu.com, Inc., Changyou.com, Ctrip.com International, Dangdang, Daum Communications, Dish TV India, Focus Media, NCsoft, New Oriental Education & Technology Group Inc. (ADR), NHN, S.M.Entertainment, Shanda Games Limited, SINA Corporation, Sohu.com, SouFun Holdings Limited, Sun TV Network, Television Broadcasts, Tencent Holdings, Vipshop Holdings Limited, Xueda Education Group, Youku.com Inc., Zee Entertainment Enterprises. Asia Pacific Telecoms: Advanced Info Service, Axiata Group Bhd, Bharti Airtel, Chunghwa Telecom, Chunghwa Telecom (ADR), Digi.com, Far EasTone, HKT Trust, Hutchison Hong Kong Holdings, Idea Cellular, , KT Corp, KT Corp (ADR), LG UPlus, M1 Ltd, Mahanagar Telephone Nigam, Mahanagar Telephone Nigam (ADR), Maxis Berhad, PCCW Limited, Philippine Long Distance, Philippine Long Distance (ADR), PT XL Axiata, Reliance Communications, Singapore Post, Singapore Telecommunications, SK Telecom, SK Telecom (ADR), SmarTone, StarHub, Taiwan Mobile, Tata Communications, Tata Communications (ADR), Telekom Malaysia, Telekomunikasi Indonesia, Total Access Communications.

Company-specific regulatory disclosures

The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of Goldman Sachs and referred to in this research. Goldman Sachs has received compensation for investment banking services in the past 12 months: PCCW Limited (HK$2.76) Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: PCCW Limited (HK$2.76)

Goldman Sachs Global Investment Research 10 May 24, 2012 Hong Kong: Telecom Services

Goldman Sachs had an investment banking services client relationship during the past 12 months with: PCCW Limited (HK$2.76) Goldman Sachs had a non-investment banking securities-related services client relationship during the past 12 months with: PCCW Limited (HK$2.76) Goldman Sachs had a non-securities services client relationship during the past 12 months with: PCCW Limited (HK$2.76) Goldman Sachs has managed or co-managed a public or Rule 144A offering in the past 12 months: HKT Trust (HK$5.97)

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 31% 54% 15% 48% 41% 36% As of April 1, 2012, Goldman Sachs Global Investment Research had investment ratings on 3,507 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.

Price target and rating history chart(s)

PCCW Limited (0008.HK) Stock Price Currency : Hong Kong Dollar HKT Trust (6823.HK) Stock Price Currency : Hong Kong Dollar Goldman Sachs rating and stock price target history Goldman Sachs rating and stock price target history 4.00 7.00 24,000 24,000 2.4 2.82 5.95 3.50 22,000 6.50 22,000 3.00 2.3 20,000 6.00 20,000 2.1 2.50 18,000 5.50 18,000 3.5 16,000 16,000 2.00 2.87 5.00 2.6 14,000 14,000 1.50 12,000 4.50 12,000 6.05 1.00 10,000 4.00 10,000

e Jun 3 Jan 2 e e Jan 2 e N NR N B M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M 2009 2010 2011 2012 2009 2010 2011 2012 Index Pric Index Pric Stock Pric Stock Pric Stock Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 3/31/2012. Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 3/31/2012. Rating Covered by Piyush Mubayi, Rating Covered by Piyush Mubayi, Pr ic e t ar g et as of Jul 29, 2010 Pr ic e t ar g et as of Jan 2, 2012 Price target at removal Not covered by current analyst Price target at removal Not covered by current analyst Hang Seng Index

The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets. may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.

Regulatory disclosures

Disclosures required by United States laws and regulations

See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co- managed public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs usually makes a market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities. The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of their households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S. analysts may not be associated persons of Goldman, Sachs & Co. and therefore may not be subject to NASD Rule 2711/NYSE Rules 472 restrictions on communications with subject company, public appearances and trading securities held by the analysts. Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs website at http://www.gs.com/research/hedge.html.

Additional disclosures required under the laws and regulations of jurisdictions other than the United States

The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and regulations. Australia: Goldman Sachs Australia Pty Ltd and its affiliates are not authorised deposit-taking institutions (as that term is defined in the Banking Act 1959 (Cth)) in Australia and do not provide banking services, nor carry on a banking business, in Australia. This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act, unless otherwise agreed by Goldman Sachs. Brazil: Disclosure information in relation to CVM Instruction 483 is available at http://www.gs.com/worldwide/brazil/area/gir/index.html. Where applicable, the Brazil-registered analyst primarily responsible for the content of this research report, as defined in Article 16 of CVM Instruction 483, is the first author named at the beginning of this report, unless indicated otherwise at the end of the text. Canada: Goldman, Sachs & Co. has approved of, and agreed to take responsibility for, this research in Canada if and to the extent it relates to equity securities of Canadian issuers. Analysts may conduct site visits but are prohibited from accepting payment or reimbursement by the company of travel expenses for such visits. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited; Japan: See below. Korea: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. New Zealand: Goldman Sachs New Zealand Limited and its affiliates are neither "registered banks" nor "deposit takers" (as defined in the Reserve Bank of New Zealand Act 1989) in New Zealand. This research, and any access to it, is intended for "wholesale clients" (as defined in the Financial Advisers Act 2008) unless otherwise agreed by Goldman Sachs. Russia: Research reports distributed in the Russian Federation are not advertising as defined in the Russian legislation, but are information and analysis not having product promotion as their main purpose and do not provide appraisal within the meaning of the Russian legislation on appraisal activity. Singapore: Further information

Goldman Sachs Global Investment Research 11 May 24, 2012 Hong Kong: Telecom Services

on the covered companies referred to in this research may be obtained from Goldman Sachs (Singapore) Pte. (Company Number: 198602165W). Taiwan: This material is for reference only and must not be reprinted without permission. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial Services Authority, should read this research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent to them by Goldman Sachs International. A copy of these risks warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs International on request. European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available at http://www.gs.com/disclosures/europeanpolicy.html which states the European Policy for Managing Conflicts of Interest in Connection with Investment Research. Japan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer under the Financial Instrument and Exchange Law, registered with the Kanto Financial Bureau (Registration No. 69), and is a member of Japan Securities Dealers Association (JSDA) and Financial Futures Association of Japan (FFAJ). Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese Securities Finance Company.

Ratings, coverage groups and views and related definitions

Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return. Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership. Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation. Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and price target for this stock, because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

Global product; distributing entities

The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs on a global basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on macroeconomics, currencies, commodities and portfolio strategy. This research is disseminated in Australia by Goldman Sachs Australia Pty Ltd (ABN 21 006 797 897); in Brazil by Goldman Sachs do Brasil Corretora de Títulos e Valores Mobiliários S.A.; in Canada by Goldman, Sachs & Co. regarding Canadian equities and by Goldman, Sachs & Co. (all other research); in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs New Zealand Limited; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 198602165W); and in the United States of America by Goldman, Sachs & Co. Goldman Sachs International has approved this research in connection with its distribution in the United Kingdom and European Union. European Union: Goldman Sachs International, authorized and regulated by the Financial Services Authority, has approved this research in connection with its distribution in the European Union and United Kingdom; Goldman Sachs AG, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also distribute research in Germany.

General disclosures

This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment. Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships with a substantial percentage of the companies covered by our Global Investment Research Division. Goldman, Sachs & Co., the United States broker dealer, is a member of SIPC (http://www.sipc.org). Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research. The analysts named in this report may have from time to time discussed with our clients, including Goldman Sachs salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks. Any

Goldman Sachs Global Investment Research 12 May 24, 2012 Hong Kong: Telecom Services

such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks, which rating reflects a stock's return potential relative to its coverage group as described herein. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents which are available from Goldman Sachs sales representatives or at http://www.theocc.com/about/publications/character-risks.jsp. Transaction costs may be significant in option strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation will be supplied upon request. In producing research reports, members of the Global Investment Research Division of Goldman Sachs Australia may attend site visits and other meetings hosted by the issuers the subject of its research reports. In some instances the costs of such site visits or meetings may be met in part or in whole by the issuers concerned if Goldman Sachs Australia considers it is appropriate and reasonable in the specific circumstances relating to the site visit or meeting. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients or available to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of our research by third party aggregators. For all research available on a particular stock, please contact your sales representative or go to http://360.gs.com. Disclosure information is also available at http://www.gs.com/research/hedge.html or from Research Compliance, 200 West Street, New York, NY 10282. © 2012 Goldman Sachs. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs Group, Inc.

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