Building on principles WPRK TNWJD One-Asia Research | October 7, 2020 Investing in the 5G revolution Asia Telecom Services & AI Mirae Asset Daewoo Co., Ltd. PT. Mirae Asset Sekuritas Indonesia Mirae Asset Securities (Vietnam) LLC Mirae Asset Daewoo Co., Ltd. Youngbae Kwon, CFA Youngjun Lee Hoa Tran Hakmoo Lee [email protected] [email protected] [email protected] [email protected] Mirae Asset Daewoo Co., Ltd. Mirae Asset Capital Markets (India) Pvt. Ltd. Jaeil Lee Achala P. Jethmalani [email protected] [email protected] This publication was prepared by Mirae Asset Daewoo Co., Ltd. and/or its non-U.S. affiliates (“Mirae Asset Daewoo”). Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation, or warranty, express or implied, as to the fairness, accuracy, or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed, or published in whole or in part for any purpose. Please see important disclosures & disclaimers in Appendix 1 at the end of this report. Asia Telecom Services & AI October 7, 2020 CONTENTS I. Executive summary 3 II. Investment strategy for Asian 5G/AI industries 5 Telcos are forging their own paths 5 Investment strategy 10 III. 5G to usher in the age of AI and cloud computing 18 5G to usher in the age of AI and cloud computing 18 AI is already here 22 The value of unique data 23 IV. 5G presents new opportunities for telcos 28 New businesses: MEC and edge cloud 28 5G subscriber count to reach critical mass (20%) in 2021 30 Earnings growth to be sustained over the long term 37 V. Telco industries in Indonesia, Vietnam, and India 38 Indonesia: Telcos to shine in the post-COVID-19 era 38 Data traffic to grow at 14% CAGR in 2019-21 39 Vietnam: A highly saturated mobile market 44 India: Jio or not 53 China Mobile (941 HK) 58 Singapore Telecommunications (ST SP) 68 SK Telecom (017670 KS) 77 Telekomunikasi Indonesia (TLKM IJ) 80 FPT Telecom (FOX VN) 82 China Tower (788 HK) 93 Hikvision (002415 CH) 102 NavInfo (002405 CH) 111 iFlytek (002405 CH) 118 Mirae Asset Daewoo Research 2 Asia Telecom Services & AI October 7, 2020 I. Executive summary The 5G era has finally arrived in Asia. Korea and China are leading the Asian 5G market, with fast-growing 5G subscriber bases. In both countries, the share of 5G subscribers out of total wireless subscribers is projected to exceed 20% by end-2021—a level sufficient for the 5G ecosystem to flourish. We expect the deployment of 5G networks to provide fertile ground for new technology companies to grow, especially in the areas of mobile edge computing (MEC), artificial intelligence (AI), and autonomous driving. Opportunities abound for the telecom industry. With the arrival of 5G, telcos are well- positioned to increase ARPUs over the long term and cross-sell diverse 5G content offerings. A notable example is cloud gaming, which is being aggressively pursued by major telcos such as SK Telecom (SKT), China Mobile, and Singapore Telecommunications (Singtel). While companies face inevitable capex pressures, gradual service monetization should help ease the burden. The MEC market also deserves attention, given its strong growth potential. 5G will enable countless connected devices and fast communication speeds, giving rise to various services that will depend on data centers and cloud computing—areas where 5G network operators have a clear advantage. The ability to secure fresh growth momentum from new markets is especially meaningful for telcos, which have struggled with slow growth. Meanwhile, developing countries such as Indonesia, Vietnam, and India have been preparing steadily for the 5G era and are set to deploy 5G networks on a pilot basis in 2021. We believe telcos in these markets are poised for structural growth, given: 1) still-low smartphone penetration; and 2) sharp increases in mobile data traffic and household internet penetration amid the pandemic. We believe Telekomunikasi Indonesia (TLKM; Indonesia) and FPT Telecom (Vietnam) warrant attention. Table 1. Asia 5G/AI coverage Company Rating TP Notes Hikvision Buy CNY53.0 Smart surveillance through integration of AI with 5G NavInfo Buy CNY17.8 Growing demand for HD maps; ushering in the age of connected cars iFlytek Hold CNY36.0 Sophisticated voice recognition based on 5G-enabled distributed AI China Mobile Buy HK$63.0 Asia’s 5G leader; mobile cloud to emerge as a new growth driver; dividend growth likely SKT Buy W335,000 Likely to gain an early lead in building a 5G ecosystem thanks to its 3.5mn 5G subscribers Singtel Buy SG$2.65 700mn subscribers across 21 countries; focusing on gaining a lead in 5G content TLKM Buy IDR4,960 Growing demand for data amid COVID-19; solid data network FPT Telecom Buy VND58,700 Upgraded telecom infrastructure to attract new subscribers China Tower Buy HK$1.86 Demand for 5G base stations to increase rapidly; growing demand from the public sector amid COVID-19 Source: Mirae Asset Daewoo Research Mirae Asset Daewoo Research 3 Asia Telecom Services & AI October 7, 2020 As 5G takes hold, we expect new technologies such as AI and autonomous driving to make their way into our everyday lives. Through 5G networks, distributed AI/cloud networking technologies will allow voice/video/location-based services to offer more immersive, realistic, and compelling user experiences. We believe the following companies are noteworthy. China’s Hikvision leverages advanced AI to take CCTV systems to the next level (smart surveillance). NavInfo, a leader in the connected car space, is likely to achieve rapid growth on the back of its high-definition (HD) maps and advanced driver assistance system (ADAS)/autonomous driving solutions. And iFlytek, China’s answer to Siri, has been securing voice data in specialized areas like law, education, and healthcare. These companies have gathered large, unique data sets (big data) in their respective domains, making them competitive even against big tech players. Indeed, their unique data sets have been valued highly enough to lead to partnership deals with big tech players. Meanwhile, with the growth of China’s AI and robotics industries set to accelerate with the development of 5G, new technology companies (other than those mentioned above) are set to kick into high gear. Against this backdrop, the Global X China Robotics & AI ETF, comprising 20 companies in the AI and robotics sectors, looks promising. Table 2. Global X China Robotics & AI ETF constituents Last closing price Market cap Ticker Company Sector Weight (%) P/E (x) (CNY, US$) (CNYbn, US$bn) 1 300124 CH Inovance Industrials 10.4 52 90.3 66.5 2 002236 CH Dahua Technology IT 7.5 21 63.9 18.8 3 002415 CH Hikvision IT 7.4 36 340.0 26.3 4 002008 CH Han's Laser Technology Industrials 7.5 35 37.0 42.5 5 002690 CH Hefei Meiya Optoelectronic Technology Industrials 6.8 50 33.7 69.5 6 002405 CH NavInfo Consumer disc. 6.9 16 31.1 N/A 7 600406 CH NARI Technology Industrials 5.9 20 94.0 20.8 8 002230 CH iFlytek IT 5.7 35 77.2 93.7 9 000988 CH Huagong Tech IT 5.6 23 22.9 64.2 10 300024 CH Siasun Robot & Automation Industrials 4.8 17 26.1 137.6 11 300747 CH Wuhan Raycus Fiber Laser Technologies IT 4.8 71 20.4 117.6 12 601727 CH Shanghai Electric Group Industrials 5.1 5 72.8 19.3 13 300567 CH Wuhan Jingce Electronic Group IT 4.8 56 13.8 87.2 14 600728 CH PCI-Suntek Technology IT 3.8 9 16.6 162.4 15 603666 CH Yijiahe Technology Industrials 4.2 89 12.3 47.8 16 300276 CH SanFeng Intelligent Equipment Group Industrials 1.9 8 10.7 61.5 17 300607 CH Topstar Technology Industrials 2.1 43 11.5 22.6 18 002747 CH Estun Automation Industrials 2.2 18 14.9 229.5 19 600545 CH Saurer Intelligent Technology Industrials 1.7 5 9.5 37.8 20 HOLI US Hollysys Automation Technologies IT 1.5 11 0.7 5.7 Source: Mirae Asset Daewoo Research Mirae Asset Daewoo Research 4 Asia Telecom Services & AI October 7, 2020 II. Investment strategy for Asian 5G/AI industries Telcos are forging their own paths Korea, China, and Singapore are leading the way The launch of 5G mobile networks in Asia has begun in earnest, led by Korea and China. By end-2020, we expect 5G subscribers as a percentage of total mobile subscribers to reach 15% in Korea and 10% in China. In addition, Vietnam is aiming for 5G commercialization this year, and Singapore plans to increase 5G network coverage to 50% by 2022. Meanwhile, in India and Indonesia, the major networks are still 3G/4G. Korea and China—which have managed to curb the spread of COVID-19 better than other countries—are set to mount full-scale 5G marketing campaigns in 2H20 to coincide with the launch of a major 5G-enabled flagship smartphone model (expected in October).