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SingTel ADD

05 July 2011

Initiating coverage

Institutional Equities
Company update
CMP 12mthTP(S$) Marketcap(US$m) Bloomberg Sector

Leadership through diversity


If you are looking for a telecom company with exposure to long term growth opportunities in Asia and Africa; dominant market position in many of its markets; an almost 10% EPS CAGR over a three year period, SingTel is the answer. We are between 5% and 6% above consensus EPS and rate the stock ADD (TP SG$3.29) given its strong growth prospects but near term challenges in Singapore (NBN) and Australia (competition in the wireless space). Core operations (Singapore and Australia) stable but face varied pressures: In Singapore, SingTel is the market leader in mobile, and has outperformed peers on churn, SAC, and ARPU expansion, and marginally raised its already impressive revenue market share by 150bps to 53.5% by our estimates. But the NBN is likely to temper upsides as entry barriers to companies for providing services over fibre bring down the differentiation opportunities SingTels size and full-service range have traditionally afforded. Optus has the complementary opportunity in Australia, given that it is likely to use NBN (in the long run) to challenge Telstras supremacy, but in the near term, Telstra will step up competitive pressure in the wireless space, which is still the biggest revenue earner in Optus. Associate earnings likely to bottom out: We project a 47% increase in the PBT of associates over a 3 year span, with Bharti delivering almost 72% of this increase, thanks to a steadily improving competitive environment and potential for 3G led revenue growth in India, and a turnaround of its African operations. Telkomsel should also most likely step up dividend sharply, assuming its continued inclusion in the SingTel associate group. We rate SingTel ADD, with 12.6% upside: Our SOTP model, using DCF for most parts except AIS and Bharti, yields a total return of 12.6% (8.5% including only 1/2 of the spl dividend) translating to an ADD rating. Our optimism on further upside is tempered by the competitive pressure the core (Singapore + Australia) faces, though long term prospects are bright.
G.V. Giri | gvgiri@iiflcap.com +91 22 4646 4676 |

S$3.16 3.29(4%)

Priceperformance(%)

1M SingTel 1.6 0.3 0.0 4.1 Rel.to StarHubLtd M1Ltd

3M 4.6 4.2 3.3 6.5

1Y 3.9 6.1 23.5 19.9

40,918.0 STSP

Shareholdingpattern(%) Temasek Others


Stockperformance 54.4 45.6 3.33/2.84 15,936.2 50.9 8.4 46.0


Shares(m) 60 50 40 30 20 10 0 Volume(LHS) Price(RHS) (S$) 3.4 3.2 3.0 2.8 2.6 Jul10 Aug10 Sep10 Oct10 Nov10 Dec10 Jan11 Feb11 Mar11 Apr11 May11 Jun11

52WkHigh/Low(S$) Shareso/s(m) Dailyvolume(US$m) DividendyieldFY12ii(%) Freefloat(%)

Financialsummary (S$) Y/e31Mar Revenues(SG$m) EBITDAMargins(%) PreExceptionalPAT(SG$m) ReportedPAT(SG$m) EPS(SG$) Growth(%) IIFLv/sConsensus PER(x) ROE(%) Debt/Equity(x) EV/EBITDA(x) Price/Book(x)

FY10A 16,871 28.7 3,907 3,907 0.245 13.2 12.9 17.8 0.2 11.1 2.1

FY11A 18,071 28.3 3,835 3,835 0.241 1.8 13.1 16.0 0.2 10.2 2.1

FY12ii 18,975 28.0 4,195 4,195 0.263 9.4 4.1 12.0 17.3 0.2 10.1 2.1

FY13ii 19,942 28.2 4,595 4,595 0.289 9.5 5.7 11.0 18.4 0.2 9.4 2.0

FY14ii 21,145 28.9 5,133 5,133 0.322 11.7 7.4 9.8 19.6 0.2 8.5 1.9

Source:Company,IIFLResearch.Pricedason1stJuly2011
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Institutional Equities

SingTel ADD

Table of Contents
1. Introduction and background Page 3 2. SingTel (Singapore) Page 5 3. Optus (Australia) Page 14 4. Telkomsel (Indonesia) Page 19 5. AIS (Thailand) Page 21 6. Bharti (India) Page 23 7. Globe Philippines Page 32 8. Aggregate projections Page 34 9. Valuation Page 35 10. Detailed financials Page 36

gvgiri@iif lcap. com

Institutional Equities

SingTel ADD

1. Company snapshot
Strong presence in emerging markets: SingTel is the largest listed company in Singapore. It has operations in Singapore and Australia (100%-owned) and through associates in Indonesia (Telkomsel), India (Bharti Airtel), Thailand (Advanced Info Service), and the Philippines (Globe Telecom). The company also operates in Pakistan and Bangladesh. In Singapore, SingTel has diversified operations, spanning wireless and fixed-line, voice and data, and retail and corporate customers. It also has 30% ownership of OpenNet, a network company, which provides broadband capacity in Singapore. In Singapore, SingTel is also involved in broadband and Pay TV through ADSL. In Australia, it is the second-largest telco after Telstra, with bulk of revenue coming from wireless operations. Leadership position in four countries: SingTel holds #1 position in Singapore; among its associates, Bharti Airtel, Telkomsel and AIS are leaders in their respective markets (India, Indonesia and Thailand). While Bharti is a diversified company in its own right, Telkomsel is majority-owned by Telkom, which is a full-range services provider in Indonesia. Globe provides mobile, fixed-line, and broadband services in the Philippines, where it is the second-largest after PLDT. SingTel also has small investments in PBTL (Bangladesh, 45%, acquired in 2005) and Warid (Pakistan, 30%, acquired in 2007).

In 2001, SingTel bought over Optus in Australia from Cable and Wireless, which had raised its stake from 24.5% in 1997 to 52.5% by buying out Bell South, listing Optus, and participating in the IPO. In 2003, SingTel divested a majority stake in Singapore Post and it also shed its stake in other non-core businesses, emerging as a core telecom company. In 2005, SingTel entered Bangladesh through PBTL, although it was a small investment by its standards. The company made a much bigger investment in 2007 with its US$758m purchase of a 30% stake in Warid, Pakistan, but later took a writedown on this. Now, SingTels presence spans many countries in the Asean region, India and Australia. Through Bhartis 2010 acquisition of Zain in Africa, SingTel also has an indirect play in the African market, which entails sustained growth opportunities in the long term.
Figure1: Optus(Australia),a100%ownedsubsidiary,isthelargestrevenuecontributor forSingTel.RiseinAustralianDollar,theeconomysrelativelystrongperformance throughthe2008creditcrisis,andOptussimpressiverunboosteditscontributionin SingTelsrevenuepie
Singtel's1Q2011Revenue(SGDm)

SingTel(Sing), 1,661,36%

Background
SingTel was incorporated in 1992 and it was listed in Singapore (through what still remains Singapores largest IPO) in 1993. In 1993, SingTel invested in Globe (the Philippines), its first major overseas telco investment. Globes wireless operations started in 1994. SingTel followed this up with a stake in AIS Thailand in 1999. SingTel entered the Indian and Indonesian markets in 2000 and 2001 by taking stakes in Bharti Airtel and Telkomsel, respectively.
gvgiri@iif lcap. com
Source:Company,IIFLResearch

Optus (convertedto SG$),2,982, 64%

Institutional Equities

SingTel ADD Figure3: SnapshotofSingTelsassociatesInIndia,IndonesiaandThailand,the associatesoccupyleadershipposition SingTel'sinvestments Bharti Telkomsel AIS Globe PBTL Warid Bangla Country India Indonesia Thailand Philippines Pakistan desh 2000 2001 1999 1993 2005 2007 Yearofinitialinvestment 32.30% 35.0% 21.3% 47.3% 45.0% 30.0% EffectiveShareholding% 2.31 1.93 0.87 1.02 0.238 1.31 Investmenttodate(SG$bn) 12.55 NA 2.37 1.02 NA NA SingTelholding(SG$bn) OperationalPerformance: 68.0% Mobilepenetrationrate(3) 20.0% Marketshare,31Dec2010 #1 Marketposition(3)(5)#1 Mobilecustomers('000) 211,919 Aggregate 68,344 Proportionate Creditratings
Sovereign(Moody's/S&P's) Company(Moody's/S&P's)

Figure2: Amongassociates,TelkomselandBhartiaremaincontributors.The100%owned SingaporeandAustralianoperationscontributeto60%ofPAT


1Q2011PAT(SGDm) Telkomsel, 143,14% SingTel(Sing)+ Optus,622, 61% AIS,56,6% Bharti,127, 13%

Globe,40,4% Others,16,2%
Source:Company,IIFLResearch

89.0% 46.4% #1 99,365 34,778

113.0% 44.3% #1 31,951 6,799

93.0% NAV #2 27,320 12,931

44.0% 2.5% #5 1,788 85

63.0% 17.0% #4 17,806 5,342


B3/B NA

Baa3/BBB Ba2/BB Baa1/BBB+ NA/BB+ Baa2/BBB NA/A

Ba3/BB Ba3/BB NA NA

Source:Company,IIFLResearch

gvgiri@iif lcap. com

Institutional Equities

SingTel ADD

SingTel (Singapore) wireless and Pay TV the main growth drivers


SingTel offers a full range of telecom services in Singapore. It has also taken the acquisition route to offer IT services. SingTel competes with Starhub and M1, the other major telcos. Until recently, M1 offered only wireless services, but now, it is turning into a full-services provider (see our report dated 25 April 2011, titled Grim battle for capturing NBN upside). Starhub offers diversified services in Singapore (see our report dated 30 May 2011, titled Growth drivers elusive). Wireless services account for the largest portion of SingTels revenue, but a 28% contribution indicates the extent of the companys diversification. SingTel has a 45% share of Singapores mobile subscribers and a dominant presence in the premium customer segment; its ARPU in the post-paid segment, in a predominantly post-paid Singapore market, is the highest. IT services is the next largest revenue contributor, but it includes a revenue stream relating to fibre roll-out for OpenNet, SingTels 30%owned network company (substantially owned by Singapore Press Holdings, among the major holders of M1 one of SingTels three competitors). This revenue stream, worth SG$70m/quarter, will wind down in FY12 as the fibre rollout will reach its completion. SingTel offers traditional IT services, and increasingly, cloudcomputing products. Its competition here is with the likes of Cisco and AT&T. The company has the largest data centre in Singapore. SingTel also competes in South East Asia; its main market outside of Singapore is Indonesia, where it is involved directly and not through Telkomsel. Corporate data and Internet is another significant revenue stream (18%). SingTel dominates this market, with revenue being almost 4x that of the nearest competitor, Starhub. This business is

likely to undergo a transformation because of NBN, which would incrementally increase Starhubs reach; SingTels reach here is already considerable and NBN may not create much of an upside. Mio TV is SingTels Pay TV initiative. SingTel runs this on its ADSL lines, whereas Starhub runs an equivalent service on cable. It is a recent business and SingTels main strength here has been its financial muscle, which has allowed it to aggressively bag exclusive content (English Premier League) and raise its profile.
Figure4: SingTelsrevenueisconsiderablydiversified,evenlookingatonlyits Singaporeoperations.Wireless,IT,andcorporatedataformalmosttwothirdof revenue
1Q2011Revenue(SGDm) Mobile Communication s,455,28% Miscellaneous (5),39,2% MioTV,23,1% Saleof equipment,86, 5% ITandEngg services,430, 27% National telephone,90, 5% CorporateData, 303,18% RetailData,112, 7% International Telephony,123, 7%

Source:Company,IIFLResearch

In FY11, SingTel delivered a 6.8% revenue growth in Singapore, but EBITDA declined 2.3%. The management has guided to single-digit revenue growth and flat absolute EBITDA for FY12.

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Institutional Equities

SingTel ADD

Figure5: InITservices,thebaseeffectoftheNCSacquisitionhaswornoffandwireless andretaildatadeliveredgrowththroughFY11


MobileandIThavedrivenrevenuegrowth Mobile 50% 40% 30% 20% 10% 0% 10% Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 CorporateData RetailData IT FixedRetail

Wireless expect sustained growth from the leader


Figure6: SingTelhashighestsubscribershare,>50%revenueshare,andhighestARPUs inthepostpaidsegment(Singaporeispredominantlyapostpaidmarket)asof31 March2011
SingaporeWirelessSubscribermarketshare M1 26%

Singtel 45%

Source:Company,IIFLResearch

Starhub 29%
Source:Company,IIFLResearch

Figure7: SingTelderives~87%ofrevenuefromthepostpaidsegment ARPU Wirelessbreakup(4QFY11) Subscribers(000) (SG$/month) Prepaid 1,531 15 Postpaid 1,776 87 Total 3,307

Est.Revenue (SG$m) 68.0 457.2 525.2

Source:Company,IIFLResearch;Note:Someportion(~12%)ofwirelessrevenueistakeninto internationalrevenueandthecompanyshowstherestasmobile.

gvgiri@iif lcap. com

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SingTel ADD Figure9: RevenuemarketsharesinSingaporehavebeenstable,althoughinthepast5 quarters,M1gainedattheexpenseofStarhub.SingTelmarginallyraiseditsshareover twoyears Mobile OND JFM AMJ JAS OND JFM AMJ JAS OND JFM Revenue 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 MarketShare M1 16.8% 16.6% 16.5% 16.1% 15.8% 16.1% 16.0% 16.0% 16.1% 16.4% Starhub 31.4% 31.4% 31.7% 31.7% 30.8% 31.4% 31.2% 31.3% 30.4% 30.1% SingTel 51.8% 52.0% 51.8% 52.2% 53.4% 52.5% 52.8% 52.7% 53.5% 53.5%
Source:Company,IIFLResearch

Figure8: Inthepastthreeyears,SingTelswirelesssubacquisitioncostincreased, thankstotheiPhone;relativetocompetitors(whoalsoselliPhonenow),though,its costhaspulledback


SuscriberAcqiusitionCost(SAC)comparison Singtel Starhub M1 160.0 140.0 120.0 100.0 80.0 60.0 JAS2008 JAS2009 JAS2010 JFM 2008 AMJ 2008 OND 2008 JFM 2009 AMJ 2009 OND 2009 JFM 2010 AMJ 2010 OND 2010 JFM2011 40.0

Figure10:EvenaftercompetitorsbegansellingiPhonein2010,SingTelsrevenue growthwasstronger,thoughthedifferencewasnothuge
M1 Starhub Singtel YoYmobilerevenuegrowth(%)

16.0% 12.0% 8.0% 4.0% 0.0% 4.0% 8.0% 12.0% JFM 2009 AMJ 2009

Source:Company,IIFLResearch;JFM2008heldtozero,andfollowingperiodfigurescalculated proportionately

JAS2009

JAS2010

but SingTel outperformed peers: In FY11, SingTels SAC declined impressively; but with iPhone 5 due in FY12, there is some more sting in this tail. We do not expect SAC to decline further, barring the impact of a stronger S$ vs. US$ (most phones are paid for in US$, which may be weak in the coming year).

Source:Company,IIFLResearch

Figure11:ARPUexpansioninthepostpaidsegmentwashigherforM1thanSingTel; this,webelieve,wasduetotheearlier(andexclusive)presenceofSingTelintheiPhone sellingactivity YoYARPUexpansion(postpaid) OND2010 JFM2011 M1 5.9% 3.4% Starhub 2.8% 0.0% SingTel 3.4% 1.2%
Source:Company,IIFLResearch

JFM2011

Singapore wireless is an undifferentiated market: The Singapore market is now quite undifferentiated, with all three telcos offering iPhone, the most popular of all smartphones; as a category, their ASPs have been higher than for regular phones. SingTel had a period of exclusivity up to 2009 for selling iPhones, following which subscriber acquisition cost (SAC) went up for SingTels competitors as well.

OND 2009

JFM 2010

AMJ 2010

OND 2010

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Institutional Equities

SingTel ADD Figure15:iPhoneshoulddriveSingTelsmobileARPUexpansion


SG$/month

Figure12:ChurnmanagementSingTelhasdonebetterthanpeersconsistently
PostPaidmonthlychurn M1 1.8% 1.9% 1.7% 1.7% 1.6% 1.5% 1.7% 1.5% 1.3% 1.1% 0.9% 0.7% 0.5% 3Q2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011
Source:Company,IIFLResearch

Starhub 1.6%

Singtel

Prepaid

Postpaid

120 1.5% 1.4% 1.4% 1.3% 1.0% 1.2% 0.9% 1.1% 1.1% 1.0% 1.0% 1.3% 1.2% 1.1% 1.1% 0.9% 0.8% 100 80 60 40 20 0 FY09A FY10A FY11A FY12ii FY13ii FY14ii
Source:Company,IIFLResearch

86.5

85.9

88.5

91.2

93.5

95.8

1.1% 1.0% 1.0% 1.0% 0.8% 0.9% 0.9%

1.2%

0.9% 0.9%

14.9

14.3

14.1

14.3

14.3

14.3

Figure13:SingTelhasthehighestARPUinthepostpaidsegment,thankstoitsolder customerbaseandearlyandexclusivestartintheiPhonesellingactivity ComparisonofARPU(4Q2010) Postpaid(SG$) Prepaid(SG$) M1 63.8 14.2 Starhub 72.0 20.0 SingTel 87.0 15.0
Source:Companies,IIFLResearch

We expect 8% CAGR (FY11-FY14ii) for mobile revenue: SingTel has several factors in its favour strong performance on churn, post-paid ARPU expansion, and steady subscriber additions have driven revenue growth until now. Going forward, nominal GDP growth in Singapore would be lower than the FY11 level of 14%; so, past revenue growth performance cannot be strictly assumed to continue, even in FY12. However, the following should be noted: 1) In recent times, pre-paid ARPU has also expanded, as 3G products are being marketed to the segment and service sector in-roamers are being targeted we prefer to leave this as upside to our estimates, unless this trend sustains for some time. 2) SingTel has taken the lead in introducing iPad2 and other tablets, and increasingly, it will have the content bank to leverage this opportunity more comprehensively. 3) The sustained investment in smartphones, especially iPhone, would drive ARPU expansion in the post-paid segment on a sustained basis, in our opinion.
8

We expect steady subscriber growth and no major changes in Singapores teledensity, which should almost reach 154% (up from the current 144%) by FY14ii.
Figure14:Ateledensityof153.7%inSingaporebyFY14iiunderpinsoursubscriber projectionforSingTelintheregion SubscriberProjections(000) FY09A FY10A FY11A FY12ii FY13ii FY14ii Postpaid 1,507 1,620 1,776 1,883 1,989 2,092 Prepaid 1,469 1,496 1,531 1,610 1,680 1,742 Total 2,976 3,116 3,307 3,493 3,669 3,834
Source:Company,IIFLResearch

gvgiri@iif lcap. com

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SingTel ADD

These underpin our assumption of an 8% CAGR in mobile revenue over three years. Singtels total subscriber base is 3.3m, of which, post-paid forms 1.8m. Of this, 90-95% is 3G, amounting to ~1.65m. This includes: (a) dongles, which Singtel does not disclose separately; (b) contracted data plans on handsets; and (c) usage-based 3G customers, who may have 3G handsets and hence, use more and contribute to 3G revenue. (a) and (b) are collectively called wireless broadband. The terminology, data only SIMs, refers chiefly to dongles. The classification, thus, done is as per IDA requirements. Excluding these data only SIMs, Singtels postpaid ARPU is higher, as dongles come in at lower ARPU (an estimated SG$22/month).
Figure16:MobilerevenueprojectionsforSingTel(SG$m)
WirelessRevenue(LHS) 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 FY09A FY10A FY11A FY12ii FY13ii FY14ii
Source:Company,IIFLResearch

Corporate data NBN to prevent growth for SingTel


SingTel is the market leader in corporate data (essentially fixedline), with ~70% share, in our assessment. Starhub is the main competitor, with ~20% share. Starhubs customers are concentrated in the CBDs, whereas SingTel is present across the spectrum. SingTel is substantially present across the ~20,000 buildings in Singapore, while Starhub has a presence only in ~5% of these.
Figure17:SingTelscorporatedatarevenuehasbeenquitesteady,butNBNiscoming FY10 FY11 CorporateData 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Revenue(SG$m) 283 285 285 294 286 293 290 303
Source:Company,IIFLResearch

RevenueGrowth(RHS) 10.0% 1,967 2,253 2,110 14.0% 12.0% 10.0% 8.0% 7.3% 6.8% 6.0% 4.0% 2.0% 0.0%

11.4% 9.3% 1,610 1,445

11.1% 1,788

Expect NBN to be a disruptive influence: With NGNBN, we expect that at the margin, Starhub should benefit from improved reach to buildings and experience in servicing corporate customers. SingTel is, however, likely to use NBN to further its ambitions and capabilities in offering cloud-based services. In FY12, in our opinion, talking about cloud-based computing is a bit premature, and hence, we build in no material revenue growth for SingTel from this avenue.

We round off our assessment of the mobile business with the observation that iPad2 and iPhone5 will likely keep EBITDA margins in check; hence, we are not surprised that SingTel guided to flat EBITDA (also based on EPL costs for full-year).

gvgiri@iif lcap. com

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SingTel ADD Figure19:Revenuegrowthhasbeenmodest,butstable FY10 DataandInternet 1Q 2Q 3Q 4Q 1Q Subscribers('000) 508 510 512 515 517 Revenue(SG$m) 109 108 107 106 109 YoYgrowth 1.8% 0.1%

Figure18:NBNwillkeeprevenuegrowthincorporatedatasuppressed
Revenue(LHS,SG$m) Growth(RHS)

1,400 1,195 2.0% 1,225 2.5%

3.5% 1,262 3.0% 3.0% 2.5% 2.0% 1.5%

FY11 2Q 3Q 520 523 109 111 0.6% 3.5%

4Q 529 112 4.8%

1,200

1,147

1,172 2.2%

Source:Company,IIFLResearch;Fixedretailbroadbandcontributes~85%toInternetrevenue.

1,000

1.0% 0.5%

800 FY10A FY11A FY12ii FY13ii FY14ii


Source:Company,IIFLResearch

0.0%

Figure20:StarhubhasdonebetterthanSingTelonsubscriberadditions FY09 FY10 FY11 BroadbandSubscribers 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 505 508 510 512 515 517 520 523 SingTel('000) 383 389 392 400 408 408 412 422 Starhub('000)
Source:Company,IIFLResearch

4Q 529 425

Moreover, we would expect SingTel to stick to its core geographies, i.e. the Asia Pacific region. Further, we would expect the company to tackle various verticals such as education and healthcare through its softwareas-a-service approach.

Figure21:butSingTelsrevenuehasgenerallyrisenfaster,asitsretailsubscribers havemigratedtohigherendplans
BroadbandRevenueGrowthcomparison

Data and Internet expect revenue growth to moderate to 5%

4.0% 2.0%

Starhub

Singtel 2.1% 2.5% 0.1% 0.5% 1.2% 1.5% 0.3%

SingTel offers ADSL and fibre-based retail broadband services; it commands a 45% share of all the retail broadband in Singapore (including cable, which is Starhubs main offering). As with other products, penetration upside is limited, in our view, as it is already in excess of 109% in Singapore. The company derives ~85% of data and internet revenue from retail broadband (4QFY11).

0.5% 0.0% 2.0% 4.0% 0.1% 3.4% 0.6% 0.5% 2.5%

0.7%

0.9% 1.5%

Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11


Source:Company,IIFLResearch

SingTel also includes corporate DSL customers in its revenue, so we do not calculate a pure retail calculate ARPU. However, if the

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SingTel ADD

corporate revenues were stripped out, we would expect SingTels ARPU to be in mid-30s, compared with Starhubs S$45. The differential is explained by the fact that Starhub used to offer 810 Mbps plans, compared with SingTels 1-3 Mbps. Both companies have diversified their ARPU range, with the result that Starhubs ARPU has come off sharply (from almost S$55 levels two years ago to S$45), whereas SingTels (blended with corporate) has been mostly constant. However, SingTels revenue has grown faster than that of Starhub, and we model in ~5% growth over the next three years.
Figure22:Broadbandshouldgrowat5%CAGRover3years
BroadbandRevenue(S$m)(LHS) Growth(RHS)

Figure23:FibrerolloutrevenuetotaperoffinFY12andendinFY13 FY09 FY10 ITandEngg.Revenue (SG$m) 4Q 1Q 2Q 3Q 4Q 1Q CoreITEnggservices 333 257 289 308 382 273

FY11 2Q 3Q 4Q 302 312 378

Source:Company,IIFLResearch;*weexpectthisrevenuestreamtowinddownbyFY13

Figure24:CoreITwemodelin4.8%revenuegrowthoverFY1114.Thisrepresentsa slightaccelerationvs.FY11,andwebelievethatcloudcomputingwillplayinimportant role,thoughrearended.Butinclusiveofthewindingdownofthefibrerollout,the aggregaterevenueswillbeflat.


1,600
Revenue(LHS,SG$m) 1,534 Growth(RHS)

50% 1,488 1,449 1,455 40% 30%

550 5.5% 525 500 475 450 425 400 FY10A FY11A FY12ii FY13ii FY14ii
Source:Company,IIFLResearch

6.0% 5.0% 487 462 430 4402.2% 5.3% 513 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1,000 800 1,400

46.6%

1,417 32.3%

1,200 1,072

8.2% 3.0% 2.6% 0.4% FY14ii

20% 10% 0% 10%

FY09A

FY10A

FY11A

FY12ii

FY13ii

Source:Company,IIFLResearch

Other businesses steady growth in IT, sharp rise in Pay TV


In August 2008, SingTel acquired SCS (Singapore Computer Systems) and integrated it with its own IT division, NCS. Since then, the company has built upon this inorganic growth at ~5% p.a. (including during the bounce-back from the global credit crisis).

Pay TV: key to revenue growth


Pay TV (a market dominated by Starhub) is a small portion of SingTels portfolio, but we expect strong growth in this segment in the coming years. SingTel has admittedly been late in tapping this growth avenue, but it has done this quite vigorously. One must remember that Singapore is a heavily-regulated market. When SingTel attempted to accelerate its progress in Pay TV by bidding aggressively (and successfully) for exclusive English Premier
11

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SingTel ADD Figure26:AlmostonethirdofSingTelsFY12revenuegrowthtocomefromPayTV


PAYTVRevenue(S$m)(LHS) 300 250 200 150 100 50 0 FY10A FY11A FY12ii FY13ii FY14ii
Source:Company,IIFLResearch

League (EPL) two years ago, a widespread worry was that content costs would rise across the industry. The main loser was Starhub, which saw its ARPU erode by >10% after losing EPL, as EPL fans switched over SingTel. Subsequently, cross-carriage of content was made mandatory in 2010 by MDA (Media Development Authority). It also imposes an obligation on pay-TV operators to make available channels/content, which they have acquired exclusively, for carriage on other specific pay-TV licensees in Singapore. This arrangement will apply for exclusive content agreements entered into on or after 12 March 2010. It will reduce/eliminate the incentive for pay-TV licensees to bid aggressively to bag exclusive deals.
Figure25:EPLaidedrevenueacceleration FY10 PayTVbusiness 1Q 2Q 3Q Subscribers('000) 101 126 155 ARPU(SG$,estimated) 11 11 10 Revenue(SG$m 2.6 3.6 4.2
Source:Company,IIFLResearch

Subscribers 511 546 257 600 550 500 450 400 350 300 250 200 150

412 292 191 16 79 151

218

4Q 191 11 5.7

1Q 220 22 13.5

FY11 2Q 3Q 245 264 31 28 21.5 21.2

4Q 292 27 22.8

Our Pay TV revenue projections for SingTel are based on its subscriber base and ARPU reaching almost 550k and SG$40/month respectively. This would take SingTel to ~60% of Starhubs revenue, as per our FY14ii projections. We do not expect content costs to come down in FY12, but in the longer term, telcos may enable content developers to fight the piracy issue better and hence, pricing may improve.

Figure27:AggregaterevenueprojectionsforSingTelwirelessandPayTVmajordrivers RevenueBreakup(SG$m) FY10A FY11A FY12ii FY13ii FY14ii Mobilerevenue(exestIntl) 1,610 1,788 1,967 2,110 2,253 Nationaltelephone 393 375 363 353 343 Corporatedatarevenue 1,147 1,172 1,195 1,225 1,262 Retailbroadbandrevenue 430 440 462 487 513 Internationaltelephony 519 511 517 543 574 CoreITandEnggrevenue 1,417 1,534 1,488 1,449 1,455 Saleofequipment 268 311 312 315 322 PayTVrevenue 16 79 151 218 257 Miscellaneous(5) 194 191 193 195 196 Total 5,995 6,401 6,648 6,895 7,176 Growth% 8.1% 6.8% 3.9% 3.7% 4.1%
Source:Company,IIFLResearch

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Institutional Equities

SingTel ADD Figure30:OurcapexassumptionforFY12isinlinewiththeSG$900mguidance,whichis sharplyhigherYoYduetoamajorgovernmentITproject


Capex(SG$m,LHS) 1,100 14.0% 850 600 433.0 350 100 FY08A FY09A FY10A FY11A FY12ii FY13ii FY14ii
Source:Company,IIFLResearch

Figure28:Favourablecostimpactoflowmarginfibreinstallationrevenuecomingoffto beneutralisedbycontentcostincreasesinFY12 Costprojections%ServiceRevenue FY10A FY11A FY12ii FY13ii FY14ii Sellingandadministrative 17.7% 20.5% 22.2% 23.2% 23.2% Trafficexpenses 14.4% 13.9% 13.9% 13.8% 13.8% Staffcosts 15.0% 14.8% 14.9% 14.9% 14.9% Costofsales 17.9% 19.3% 17.9% 16.6% 15.9% Others 1.5% 1.6% 1.6% 1.6% 1.6% Total 66.6% 70.1% 70.4% 70.2% 69.4%
Source:Company,IIFLResearch

Capex%ofservicerevenue(RHS) 15.0% 14.2% 902.7 867.5 830.9 13.2%

737.0

726.0 652.0 11.9% 11.4%

13.0% 12.1% 11.0% 9.0% 7.0%

9.3%

Figure29:EBITDAmarginsshouldimproveas%ofservicerevenuefromhereon,as substantialinvestmentsindevelopinganinstalledbaseofsmartphonespeakout
EBITDAmarginprojections 40% 38% 36.4% 36% 34% 32% 30% FY10A FY11A FY12ii FY13ii FY14ii
Source:Company,IIFLResearch

%oftotalrevenue 38.1%

%ofservicerevenue

35.0% 33.3%

34.5% 32.9%

34.6% 33.0%

35.3% 33.7%

gvgiri@iif lcap. com

13

Institutional Equities

SingTel ADD Figure31:WirelessisthemajorcontributortoOptusrevenue


Revenues(AU$m,FY11) Consumer 13% Wholesale 7% Business 14% Handsets 11%
Source:Company,IIFLResearch

Optus Near-term pressure on wireless, long-term upside on NBN


Optus is a diversified telecom service provider in Australia, and occupies the #2 position, after Telstra. SingTel purchased Optus in 2001 from Cable and Wireless. Optus is the #2 wireless player in Australia behind Telstra, marginally ahead of in terms of revenue and significantly ahead of in terms of EBITDA relative to VHA (Vodafone Hutch Alliance, the #3 player). Optus has 9m wireless subscribers (with post-paid marginally higher in weightage than pre-paid), including ~1.3m of wireless broadband subscribers. Wireless accounts for 64% of reported revenue. Optus business and wholesale fixed division is the next biggest, accounting for 21.5% of revenue. It includes wholesale satellite bandwidth sales to competing Pay TV providers. Optus consumer and SMB (small and medium-sized businesses) division accounts for 14% of revenue and it provides fixed-line services to consumers and businesses. Optus has ~1m subscribers in fixed line, evenly split between own lines on HFC (Hybrid Fibre Coaxial) and ULL (Unconditioned Local Loop, which involves paying Telstra, who owns these lines, a fixed charge and taking over the entire subscriber relationship, along with revenue and operating costs). Most of these subscribers are with Optus on voice and broadband.

SMB 2%

Mobile Services 53%

Figure32:WirelessisthemainrevenuegrowthdriverforOptus
MobileServices Q4FY11 Q3FY11 Q2FY11 Q1FY11 Q4FY10
Source:Company,IIFLResearch

Handsets

Business

Wholesale

Consumer

SMB

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14

Institutional Equities

SingTel ADD Optus has been outperforming Telstra: Optus has been consistently outpacing Telstra in revenue growth, as it has been able to hold on to its ARPU and increase its share in the post-paid market. The key planks of Optuss strategy are as follows: 1) It intends to constantly improve its network coverage and capacity it has now reached 98% of population coverage and narrowed the historical gap between itself and Telstra in terms of network coverage and quality, as measured by IDC. 2) It has also been early to anticipate a data traffic surge, a global phenomenon, but very much seen in Australia as well; Optus has added capacity in metros, where the bulk of revenue is generated from. This capacity addition has come in the form of: a. Doubling 3G spectrum holdings (2100MHz) by purchasing Qualcomms spare spectrum; b. Concentrated build-out of metro sites; c. Raising the proportion of fibre-connected sites in metros to 80% in the past three years. Optus seems to be more nimble on the network side than the #3 VHA and on the subscriber-facing side, ahead of the leader, Telstra. Figure34:GainingonTelstra
HoHrevenuegrowthrates 20.0% Optus 16.7% Telstra

Wireless bracing for a tough competitive environment


Australias wireless market is characterised by: 1) market leader, Telstra facing threats from a steadily-improving Optus and hence, stepping up aggression in defending market share; 2) a low population density, with a very uneven spread, given the massive land area of Australia and its mere 22m population; 3) significant capex-intensity problems in connecting different parts of the country and hence, the importance of common national networks, which is now being addressed through the NBN (National Broadband Network); and 4) focus on formation and operation of NBN and divestiture of assets by Telstra, the dominant incumbent, as well as other regulatory undulations, notably around interconnect charges.
Figure33:Optusisthesecondbiggestplayerinthewirelessspace,with9msubscribers asof4QFY11
AustraliaWirelessSubscribers('000),marketshare Vodafone Hutch Alliance 7,570 27%

Optus 8,964 32%

15.0% 10.0% 5.0% 3.7% 8.5% 3.5% Jun07 Dec07 1.3% Jun08 Dec08 7.6% 3.4% 8.7% 1.7% 5.8% 1.0% Jun09 Dec09 9.1% 1.2% 0.6% Jun10 Dec10 8.4%

5.3%

Telstra 11,481 41%


Source:Company,IIFLResearch

0.0% 5.0%

Source:Company,IIFLResearch

gvgiri@iif lcap. com

15

Institutional Equities

SingTel ADD

We believe that Optus 1.3m wireless broadband subscribers (dongles) give it a significant subscriber market share (~50%); this is a recent phenomenon, illustrating the companys growing presence. Optus declares an overall wireless post-paid ARPU (currently ~AU$71), which includes wireless broadband subscribers at monthly spends of AU$30-AU$50. This brings the overall ARPU, and ARPU expansion, down relative to what it would have been otherwise. Optuss fairly large market share in the dongles space means that the ARPU dilution effect is not so large for Telstra; hence, if one were to strip out dongles from ARPU of both companies, Optuss ARPU would be even higher than Telstras. Figure35:OptushasincreasedthegapbetweenitselfandTelstraonARPU PostPaidARPU(AU$) Dec08 Jun09 Dec09 Jun10 Dec10 Optus(simpleaverageofsuccessivequarters) 69 68 70 69 70 Telstra 64 61 62 63 62
Source:Company,IIFLResearch

may be losing revenue share to both companies, a hypothesis that is currently difficult to confirm as VHA does not report financials. We project 4%-5% ARPU erosion in FY12: We build in a 3% drop in pre-paid ARPU and a 5% drop in post-paid ARPU (inclusive of dongles) in FY12, YoY. This compares with almost no change in postpaid ARPU and a 7% erosion in pre-paid ARPU in FY11.
Figure37:FY12willbearoughyearforallwirelessplayersOptuswillnotbean exception900bpsEBITDAmargindropinFY12projected
7,800 6,800 5,800 4,800 3,800 2,800 1,800 800 FY09A FY10A FY11A FY12ii FY13ii FY14ii
Source:Company,IIFLResearch

WirelessRevenue(AU$m,LHS) 28.1% 5,573 4,937 26.1% 26.1% 25.2% 5,977 6,189

EBITDAMargins 7,131 6,588 26.2% 25.2% 29.0% 28.0% 27.0% 26.0% 25.0% 24.0% 23.0% 22.0% 21.0% 20.0%

Expect EBITDA margin to be under pressure in FY12


Figure36:Postpaidsubscribergrowthwillcontinuetobestrong SubscriberProjections(000) FY09A FY10A FY11A FY12ii Prepaid 4,195 4,307 4,295 4,215 Postpaid 3,595 4,191 4,773 5,297 Total 7,790 8,498 9,068 9,512
Source:Company,IIFLResearch

FY13ii 4,175 5,768 9,943

FY14ii 4,135 6,192 10,327

Despite revenue growth of ~7% in 4Q and FY11, Optus guided to low single-digit revenue and EBITDA growth for FY12. This is principally because increased aggression from Telstra is foreseen, and it will impact ARPU and subscriber adds, in our view. Looking at 2H2010, Telstra outpaced Optus marginally, after a sustained period of lagging behind on revenue growth. This plus Optuss strong growth in 4QFY11 (JFM quarter) suggests that VHA

Optuss deployment of 3G capacity may enable it to raise its share of high-speed wireless traffic, and this could throw up a margin upside. However, we stay within the managements guidance, by projecting only 2.7% EBITDA growth. Our margin recovery projection is decidedly rear-ended, but we have no doubt that eventually, margins will rise slightly.

Wireline businesses: long-term prospects improve, thanks to NBN


Business and wholesale fixed - Stable, but outlook not exciting: Optus derives 21.5% of revenue from the business and
16

gvgiri@iif lcap. com

Institutional Equities

SingTel ADD

wholesale fixed segment, which is a portfolio of several enterprise and wholesale revenue streams. The company has done fairly well, with an EBITDA CAGR of 7.8% in the past three years, but we model in a slightly more conservative number for the next three years, principally because: 1) We do not foresee the same opportunities for margin improvement as those that existed in the past three years. 2) In both business and wholesale, revenue growth was very modest (1.9%) in FY11; the outlook is not materially brighter in the medium term, though the businesses are stable.
Figure38:Businessandwholesalefixedprojections Businessandwholesalefixed %totalFY13 FY11 FY13 (AU$m) revenue Voicerevenue 412 446 4.5% DataandIPrevenue 478 497 5.0% ICT&ManagedServices 392 408 4.1% TotalBusinessrevenueA 1,282 1,352 13.5% Voicerevenue 145 142 1.4% DataandIPrevenue 258 268 2.7% Satelliterevenue 281 297 3.0% Other TotalWholesalerevenueB 685 707 7.1% TotalB&Wfixedrevenue(A 1,968 2,059 20.6% +B)

Optus also has a very low-margin reseller revenue stream, which it has been winding down; thus, EBITDA growth has been quite strong, at 12%, over the past three years, revenue growth lower than it would have been, and hence the pronounced margin improvement. We build in marginal deceleration on this, at 8.6% for EBITDA growth over the next three years, because of limited incremental EBITDA upside from reduction in the very-low margin reseller revenue; its proportion in overall consumer revenue is now only ~5% (from ~40% three years ago), thanks to Optuss efforts in this direction.
Figure39:Consumerbusinesses4.6%EBITDACAGRoverthenextthreeyears ConsumerBusinesses FY09A FY10A FY11A FY12ii FY13ii TelephonySubscribers('000) 961 1,004 1,016 1,024 1,032 BroadbandSubscribers('000) 818 889 927 958 978 AggregateRevenue(AU$m) 1,422 1,384 1,348 1,346 1,357 EBITDA% 14.4% 15.1% 17.1% 19.0% 21.0%

FY14ii 1,040 998 1,372 21.5%

3yCAGRto 3yCAGRto FY11 FY14 1.8% 3.7% 1.8% 2.0% 3.3% 2.0% 1.0% 2.6% 1.3% 4.3% 4.0% 2.9% 1.0% 1.9% 2.7% 1.6%

Source:Company,IIFLResearch

Signing of the NBN improves long-term prospects for Optus. A neutral company, NBN Co, will be running the (largely) fibre-based network, instead of the bulk of the assets being with Telstra, as is the case now. The upside for Optus would principally come from fixed-line businesses, in our view. Migration of subscribers to the NBN network will begin in 2014, and it will happen over a four-year period. At present, details of cash flows are not clear, and we know that the agreed compensation for Optus is AU$800m on an NPV basis and principally for service disruption (as subscribers are migrated from the current to the NBN network) and asset shutdown (HFC network).

1.7%

2.2%

Source:Company,IIFLResearch;threeyearEBITDACAGRuntilFY11includesadjustmentforaoneoff contributionin4QFY11;basedonreportednumbers,EBITDACAGRwouldhavebeen9.2%.

Optus has 1m subscribers for fixed-line voice telephony; 95% of them also are on broadband. These subscribers are on its own network, either built by it (HFC) or hired by it (ULL arrangement with Telstra for copper lines). Subscribers are split almost evenly between these two arrangements.

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17

Institutional Equities

SingTel ADD

NBN in Australia: This month, the Australian government signed the NBN agreement with Telstra and Optus. This paves the way for: 1) structural split-up of Telstra into (wireline) assets and operations; and 2) roll-out of NBN. Major agreements: 1) Telstra/NBN Co agreement covers: (a) definition of the conditions precedent for the deal; (b) disconnection of copper network and broadband (but not Pay TV) services on its HFC network wherever NBN fibre is to be rolled out; (c) access provided by Telstra to NBN Co for dark fibre, ducts and exchanges (along with an undertaking that Telstra will need to delive these assets in usable condition); and (d) pricing of NBNs wholesale capacity supply as well as basic services 2) Telstra Commonwealth agreement covers inter alia, a guarantee by the commonwealth of payments and performance obligations to be made by NBN Co. Telstra will get ~AU$11bn, of which AU$4bn relates to the compensation for disconnection of services and AU$5bn relates to the infrastructure to be given by Telstra to NBN. The major milestones from hereon are: (a) ACCC (Australian Competition and Consumer Commission) approval of the deal as well as the operation of Telstras copper network during the transition period; and (b) Telstras shareholder approval. Optuss agreement involves a post-tax NPV compensation to Optus of AU$800m for similar reasons. Unlike Telstra, Optus will have to give up Pay TV on its HFC / ULL lines. Migration to NBN will start in 2014, and will be done over a four-year period. Companies must use only NBN to deliver fixed-line services. The deal opens up fixed line to competition, whereas until now, Telstra was very dominant. There will be service disruptions to Optuss 1m customers, as they are evenly split between HFC, Optuss own network, and ULL (Optus serving subscribers on copper lines rented from Telstra). Most of them (~90%) are also broadband customers. Optus also has a small Pay TV operation on these lines. The AU$800m compensation principally consists of compensation for this service disruption, in our opinion.

Further, the specifics of separation of Telstras wholesale and retail business, in the format the agreements stipulate, are not totally taken on board by all stakeholders. It is not clear that telcos will have to purchase no wholesale services from Telstra. Finally, several media reports have highlighted the apparent disparity between the payment on a per subscriber basis made to Optus and Telstra, with the import being that the former is significantly higher. Regardless of whether this is correct or no, it does add to the pressure the (Julia) Gillard government may face and hence, it raises the overall uncertainty surrounding the specifics of the deal. Expect a modest FY12, but 10% three-year EBIT CAGR: In our final analysis, we build in a 10% EBIT CAGR over FY11-14, chiefly powered by wireless. In SGD, this translates into a 11.2% EBIT CAGR. Beyond FY14, NBN brightens Optuss prospects. We emphasise EBIT CAGR because post-NBN, capex intensity will begin receding, but so will EBITDA margins, making EBIT growth a better metric.
Figure40:AggregateOptusprojections:PostNBN(FY15),capexintensitywillreduce AggregateOptusProjections FY09A FY10A FY11A FY12ii FY13ii FY14ii Revenue(AU$m) 8,333 8,959 9,292 9,548 10,004 10,605 EBITDA% 24.8% 24.1% 25.1% 25.1% 25.6% 26.4% Capextosales 21.3% 11.7% 10.9% 12.0% 11.5% 11.0% EBIT% 11.3% 11.6% 13.0% 13.4% 14.0% 15.3%
Source:Company,IIFLResearch

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18

Institutional Equities

SingTel ADD Figure42:ComparisonofQoQrevenue(LHS)andtrafficgrowth(RHS) Telkomselsawa hugesurgeintrafficafteritmatchedsharppricecutsbyXL,butthiswasnotmatchedby revenuegrowth


Revenue grow th (LHS) 30% 25% 20% 15% 10% 59.9% 5% 0% -5% -10% -4.1% 1QFY09 2QFY09 22.5% -6.1% 3QFY09 4QFY09 -16.0% -12.0% 2QFY10 1QFY10 11.8% 207.0% 24.5% 16.4% 8.8% 4.1% 2.0% 4.9% 3QFY10 4QFY10 16.3% 5.1% 52.9% 100% 50% 0% -6.8% -50% 1QFY11 Out going traffic grow th (RHS) 250% 200% 150%

Telkomsel: Recovery after a brutal price war; but sell-out in the offing?
SingTel owns 35% of Telkomsel, with Telkom (Indonesia) owning the rest. Telkom is a full-service (wireless and fixed) telco, owned 52.5% by the Indonesian government. The government has been vocal in the media regarding its desire to buy back 35% of Telkomsel that SingTel owns, principally to spin Telkomsels mobile towers into a separate company, which SingTel appears not to be enthusiastic about. However, given Telkoms government ownership, we would expect this to happen eventually. Recovery after a price war: In 2009, Indonesia saw a brutal price war, triggered when XL Axiata cut rates heavily, taking advantage of its spare network capacity. Telkomsel matched these initial price cuts, which then turned into a full-blown tariff war, bringing margins crashing down for Telkomsel. Despite this, thanks to its 46% market share, Telkomsel survived the onslaught and it still has a healthy EBIT margin of 35% as of 1Q2011 (~1200bps down from the peak).
Figure41:QoQrevenuegrowth:Afterhavingbeenoutpacedforsometime,Telkomsel recordedanimprovementinperformance
Telkomsel(LHS) 20.0% 15.0% 10.0% 5.0% 0.0% 5.0% 10.0% 15.0% XLAxiata(LHS) Indosat(RHS) 20.0% 15.0% 10.0% 5.0% 0.0% 5.0% 10.0% 15.0%

Source:Company,IIFLResearch

Figure43:ThissawEBITmarginscomeofffromthehigh40stomid30s 2009 2010 KeyP&LItems 1Q 2Q 3Q 4Q 1Q 2Q 3Q Revenue(IDRbn) 9,206 10,123 10,887 11,366 10,012 10,541 11,102 Revenuegrowth 4.1% 11.8% 24.5% 16.4% 8.8% 4.1% 2.0% %YoY EBITDAMargin% 63.6% 67.9% 67.0% 64.3% 62.7% 61.4% 60.6% EBITDAGrowth 20.9% 39.6% 15.7% 7.2% 5.9% 7.8% YoY 13.8% EBIT% 42.3% 47.5% 47.8% 43.0% 39.3% 39.4% 39.0%
Source:Company,IIFLResearch

2011 4Q 1Q 10,588 10,519 6.8% 5.1%

62.4% 58.2% 9.7% 2.5% 39.9% 35.4%

Source:Company,IIFLResearch;financialyearcoincideswithcalendaryear

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

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19

Institutional Equities

SingTel ADD In the past five years, Telkomsel paid out IDR45trn in dividends, supported by IDR38trn of FCF. We believe that sharply-reduced capex to sales % will rectify this ratio, and enable 100% dividend payout ratio. 3G, spurred by cheap handsets, a key revenue growth driver: We believe revenue growth would come from a fairly-widespread emerging markets phenomenon conversion of subscriber base from 2G to 3G. In the case of Indonesia, recovery from a price war in 2G will coincide with proliferation of 3G, through data on regular phones as well as greater choice in devices. Telkomsel has also been quite vigorous in pushing the supply chain to deliver cheaper handsets. Movements in this direction elsewhere, notably in China and India, will bring prices of 3G phones before long below the US$35 mark. For Indonesia and Telkomsel, this should be good news from a revenue-growth perspective. Figure46:Telkomselprojections7.3%threeyearrevenueCAGR,modestmargin improvement,andimprovedFCFgenerationanddividends Telkomselprojections FY08A FY09A FY10A FY11ii FY12ii FY13ii Revenuegrowth% 1.3% 11.9% 1.6% 7.1% 8.5% 6.4% EBITDA% 64.6% 65.7% 61.7% 61.3% 62.1% 62.1% EBIT% 45.1% 45.2% 39.4% 39.5% 40.1% 40.1% PATgrowth% 16.2% 15.2% 5.2% 12.9% 7.9% 5.2% Capextosales 33.2% 32.1% 21.8% 15.1% 14.1% 14.0% FCF(IDRbn) 6,325 9,431 8,697 17,464 19,577 20,695 Dividendpayoutratio 77.7% 70.0% 78.6% 89.1% 108.5% 110.0%
Source:Company,IIFLResearch

Figure44:PrepaidARPUstabilisedafterasteepfall.3Gshouldhelpraiseit 2009 2010 1Q 2Q 3Q 4Q 1Q 2Q 3Q KPIs Prepaidsubs(m) 70.2 74.0 Postpaidsubs(m) 2.0 2.0 Totalsubs(m) 72.1 76.0 PrepaidARPU(IDR'000) 42.5 42.0 PostpaidARPU(IDR'000) 200.0 218.7
Source:Company,IIFLResearch;

4Q 91.9 2.1 94.0

2011 1Q 97.2 2.2 99.4

77.7 2.1 79.8 44.0 214.5

79.6 2.0 81.6

79.9 2.0 82.0

86.2 2.1 88.3

91.0 2.1 93.1

43.7 39.0 39.0 39.0 36.0 37.0 221.0 208.0 211.0 212.0 206.0 196.0

However, control on capex is remarkable: Cash flow generation (EBITDA capex) improved steadily during the last two years. This is quite commendable, as Telkomsel used to report >90% capacity utilisation historically (measured by subscriber count, which might not strictly be objective). In our assessment, Telkomsel had a very scalable network, which came to its rescue, when it needed to add capacity in response to the traffic surge (200% + in 2Q2009). Figure45:Capexintensityhascomeoffinthepasttwoyears,aidingcashflows
50.0% 45.0% 40.0% 35.0% 30.0% 25.0%
1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

EBITDACapex(%sales) 45.8% 39.5% 35.9% 31.8% 29.6% 32.9% 38.8% 45.6% 39.2%

20.0%

Source:Company,IIFLResearch

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20

Institutional Equities

SingTel ADD Figure47:Strongfreecashflowgenerationiflicensefeescomedown,thereisfurther scopeforimprovement AISProjections(THBm) FY08A FY09A FY10A FY11ii FY12ii FY13ii Teledensity 91.1% 97.0% 103.7% 110.2% 115.6% 120.3% Postpaidsubscribers(m) 2.6 2.9 3.1 3.2 3.3 3.4 Prepaidsubscribers(m) 24.7 25.9 28.1 30.3 32.1 33.8 Totalsubscribers(m) 27.3 28.8 31.2 33.5 35.4 37.2 ARPU 270 242 244 246 246 247 Revenue 110,791 102,452 111,280 125,383 134,105 142,400 EBITDA 46,406 45,899 52,063 57,710 61,724 65,542 PAT 19,660 21,172 24,018 26,737 27,523 29,131 Capex 12,333 13,364 10,118 11,637 12,620 13,539 FCF 17,354 27,280 38,529 41,853 40,182 42,428
Source:Company,IIFLResearch

AIS: Struggling against regulation


A move to a more favourable license regime crucial: AIS is one of the three private telcos in Thailand (a market with 101% teledensity), the other two being DTAC and True Move. The three private telcos operate on the basis of concessions taken at a rev share of 25%-30% from the two state-owned telcos, TOT and CAT. These concessions begin running out from 2013 onwards, and the private telcos have been arguing for a lower rev share. The lower rev share would have applied on the 3G spectrum and would have been payable to the government, rather than the stateowned telcos, had the auctions been held. However, the state-owned telcos have successfully lobbied against the auction of 3G spectrum, because of denial of rev share to them, and thus Thailand continues to be a 2G market for now. AIS has 17.5MHz of 900MHz spectrum, for which the concession expires in 2015, plus 12.5MHz of 1800 MHz spectrum. The various possibilities are: 1) the concession is simply extended, 2) new license is given, with the same 25%-30% revenue share, or 3) revenue share is reduced, which AIS hopes, will be 6% as agreed upon. AIS has stated that it will not agree to unchanged license fees. The first company whose license expires is True Move (in 2013). While AISs management and operational expertise will be valuable (as the new owners of AISs network will be unable to run it as efficiently if AIS were to walk away), the current decision making paradigm in Thailand makes it unrealistic to expect clarity in the near future.

Data drives growth, but on 2G: Data usage is driving revenue growth in Thailand. AIS offers unlimited plans for 2G data, principally as the speeds will naturally limit consumption. For 3G, however, a per-KB pricing is offered to consumers. Around 10% of the users use 3G handsets. While AIS has grown revenue faster than the market in the past 3-4 quarters, until 3G comes, revenue growth will not accelerate. Steady-state growth will be ~5%, as per our estimate. ARPU for post-paid users is 610b/month; 700b/m for smartphones and >1000b/m for Blackberry. In the high-ARPU Blackberry market, which is currently 250,000 strong (per our estimates), AIS has a 60% market share.
Figure48:AISwillpayoutatleast100%dividend AISratios FY08A FY09A FY10A FY11ii FY12ii FY13ii RevenueGrowth 2.2% 7.5% 8.6% 12.7% 7.0% 6.2% EBITDA% 41.9% 44.8% 46.8% 46.0% 46.0% 46.0% Capextosales% 11.1% 13.0% 9.1% 9.3% 9.4% 9.5% DividendPayoutRatio% 96.0% 94.5% 242.0% 137.0% 147.3% 153.4% Debt/EBITDA(x) 0.4 0.3 0.5 0.2 0.2 0.2
Source:Company,IIFLResearch

Strong cost reduction measures, but little EBITDA improvement incrementally: 3G auctions not happening resulted
21

gvgiri@iif lcap. com

Institutional Equities

SingTel ADD

in capex to sales falling temporarily, but we expect it to go up as the accumulated capacity augmentation needs become urgent. The company has implemented several cost reduction measures, which allow it to have a 45% EBITDA margin, despite a 25% revenue share cost for spectrum. The measures have been quantified based on international benchmarking by AT Kearney, and AIS appears to be one of the most cost-competitive telcos in the world. Nevertheless, we foresee little EBITDA improvement incrementally, as much depends on the license rev-share fee.

gvgiri@iif lcap. com

22

Institutional Equities

SingTel ADD 30.1% share of revenue, and in Africa, it is the market leader in many of the 16 countries. Its major competitors are Vodafone, RCOM, Tata DoCoMo, Idea Cellular and BSNL in India, and MTN in Africa. Bharti owns 89% of Bharti Infratel, which owns 42% in Indus Towers. Indus Towers is a three-way JV between Bharti, Idea and Vodafone, into which the three companies have pooled their tower assets to improve cost efficiencies. In DTH, Bhartis major competitors are Dish TV and BIG TV. Figure50:BhartidominatestheIndiamarketwitha30%revenuemarketshare

Bharti Airtel Stable pricing and regulation, strong growth


Bharti (owned 32% by SingTel) is Indias largest telco by subscriber base, revenue and profitability. It has a collective subscriber base of almost 162m across wireless, fixed-line and DTH. Bharti has ~230m subscribers (including its presence in Sri Lanka, Bangladesh and 16 countries in Africa). In India, the company owns 3G spectrum across ~68% of its revenue footprint and it recently launched 3G services. Its Africa operations have begun showing improvement in EBITDA margins, after a period of distress under the previous management, Zain.

IndiaWirelessRevenueSharebreakup(4QFY11) Idea 13.6% RCOM 9.8% BSNLMTNL 8.5% Aircel 4.6% TTL 8.6% Others 3.4% Bharti 30.1%
Source:Company,IIFLResearch

Figure49:FinancialSummary Y/e31Mar IndiaWirelesstraffic(minm) %growth(qoq,annualforfullyear) India&SouthAsiaRevenues %growth(qoq,annualforfullyear) ConsolidatedRevenues(Rsm) %change EBITDA(Rsm) EBITDAMargins(%) Interestexpense(Rsm) Effectivetaxrate(%) ReportedPAT(Rsm) PAT(PreExceptional)(Rsm) %change
Source:Company,IIFLResearch

1QFY11 2QFY11 3QFY11 4QFY11 FY10A FY11A 190,396190,767199,146211,822610,430792,132 10.2% 0.2% 4.4% 6.4% 27.5 29.8 112,725113,312117,030120,839396,090463,906 0.5% 3.3% 3.3% 7.2 17.1% 122,308152,150 157,560 162,654 396,090 594,672 23.0 54.5 61.2 61.8 7.2 50.1 44,140 51,212 49,816 54,496 160,208 200,265 36.1 33.7 31.6 33.5 40.4 33.7 6,708 6,258 7,856 6,999 3,679 21,887 20.3 29.4 22.3 27.5 13.1 18.6 16,816 16,612 13,033 14,007 90,897 60,994 16,816 16,612 15,838 14,071 90,897 60,994 18.2 1.2 4.7 11.2 7.3 32.9

Vodafone 21.4%

Most businesses in India and South Asia are cash flow positive
Except for Bhartis DTH business, which is housed under the others segment, all other segments are cash flow positive. This includes the mobile division, which has been in an investment mode in Sri Lanka and Bangladesh since FY11. Currently, almost all revenue comes from India, where Bharti is not only the biggest, but also the most profitable. Bharti also owns BWA (Broadband Wireless Access) spectrum in the 2300 MHz band (in four key circles out of
23

Background Bharti Airtel, founded by entrepreneur Sunil Mittal in 1995, grew into a national operator through a combination of organic and inorganic initiatives. It is now present in all 22 circles of India, 15 countries in Africa (acquisition of Zains Africa operations), Sri Lanka, and Bangladesh (70% stake in Warid Telecom). In India, the company has a

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22), which it will use to launch very high-speed wireless data service in 2011. In all likelihood, the company will use this to target enterprise and home broadband markets. Among Bhartis competitors, BSNL/MTNL (the state-owned telcos), Reliance Communications (RCOM) and Tata Teleservices (which sells wireless services under the Tata DoCoMo and Tata Indicom brands) are the diversified telcos. Idea Cellular and Vodafone Essar are pure wireless players, though Vodafone is beginning to make its fixed line enterprise presence felt. Bhartis telemedia division consists of an 84-city spread in India and ~3.4m subscribers, of whom ~43% are on broadband, all fixed line. Finally, in a short span of less than three years, Bharti, with 5.6m subscribers, is one of the premier Pay TV service providers in India, and it uses the DTH platform.
Figure51:IndiaandSouthAsiaBreakdownbysegment EBITDA EBIT EBITYoY FY11 India&SouthAsia(INRm) Revenue % % % Mobile 362,689 33.7% 22.6% 21.8% Telemedia 36,324 45.2% 23.2% 16.1% Totalenterprise 41,292 23.3% 12.7% 84.5% PassiveInfrastructureServices 85,555 35.9% 12.5% 356.9% Others 10,317 96.9% 139.4% 11.3% TotalGross 536,177 Eliminations 72,271 TotalNet 463,906 36.3% 19.9% 7.4% Capex/ Sales 16.2% 22.1% 10.0% 26.4% 127.3%

for six years, the Indian market was characterised by very rapid subscriber growth plus revenue growth. Thereafter, while subscriber growth continued, revenue growth collapsed from almost 40% in FY09 to single digits. The key reason was that the government decided to permit new telcos to compete, and it released licenses and spectrum at controlled prices. Consequently, the number of competitors went up from 6 in most service areas to 12. Once the network roll-out was done, these telcos, notably RCOM and Tata DoCoMo, had little option, but to create visibility for themselves through sharp tariff cuts. This brought tariffs down by 30% in a few months, to levels of 1 paise (rupee cent)/second. With this, all telcos, especially the start-ups, suffered financially, but fierce competition raged on throughout 2009-10.
Figure52:Sharptariffcutsbydesperatecompetitorsbroughtrevenuegrowthand profitabilitycrashingdowninFY10 Mobilebusiness FY06 FY07 FY08 FY09 FY10 FY11 Revenue 82,392 141,443 217,860 303,601 324,872 362,689 Growth(YoY) 52.5% 71.7% 54.0% 39.4% 7.0% 11.6% EBITDA% 36.1% 37.6% 39.2% 31.0% 31.1% 34.7% EBIT% 23.3% 25.2% 27.4% 22.6% 21.4% 23.6% Capextosales 50.5% 51.0% 54.5% 21.4% 19.3% 16.2%
Source: Company, IIFL Research; Beginning 4QFY08, EBITDA of towers was transferred to the passive infrastructure division, which pulled down reported EBITDA sharply. In FY11, along with change to IFRS (US GAAP before then), high EBITDA margin longdistance services were clubbed withthemobiledivision.

23.0%

Source:Company,IIFLResearch;Inthemobiledivision,capexdoesnotincludethecostof3Gspectrum acquisition,anditincludesonlyspendingonequipment.

Mobile regulatory and tariff struggles over; time for 3G-led growth
Brutal competition took its toll on margins: The last two years (FY10-11) have been a troublesome period for Bharti. Before this,

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SingTel ADD Figure54:RPMdeclineswerevicious,butnow,ithasreturnedtonormallevelsandwill stabilisewithin23quarters


5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11
Source:Company,IIFLResearch

Figure53:butsubscribergrowthcontinuedtobestrong,andsoalsowastrafficgrowth (voice) Keyperformanceindicators FY06 FY07 FY08 FY09 FY10 FY11 Subscribers(000) 19,579 37,141 61,985 93,923 127,619 162,203 Traffic(min,m) 70,425 152,582 284,399 475,346 610,430 792,132 Rate/Min(RPM) 1.2 0.9 0.8 0.6 0.5 0.4 MOU/Sub 377.2 448.3 478.2 508.1 459.2 455.5 ARPU(Rs) 441.3 415.6 366.3 324.6 243.8 200.9
Source:Company,IIFLResearch

Bharti

Idea

RCOM

But 3G auctions and a change in the telecom ministry signalled a turnaround: In 2010, the government conducted 3G auctions, and an industry, which generates less than US$30bn in annual revenue was made to spend US$20bn. Bharti paid up US$3.5bn for its 3G and BWA spectrum, and other competitors ended up with significantly higher levels of debt. With profitability already severely dented, new telcos including Etisalat and Telenor (operating in India as Uninor, a 67%-owned subsidiary), reevaluated their investments. In the meantime, there was a change of leadership in the telecom ministry, and the circumstances under which licenses were issued in 2008 were investigated in detail. This enquiry is still in progress, and it has created uncertainty for all telcos who secured spectrum in recent years. The new minister indicated that there would be a step up in transparency and progressive regulation and has begun taking steps in this direction. The impact of all this was a return of mass subscriber faith to old telcos, including Bharti, and a halt in tariff cuts. This is evident in strong traffic growth and stable rate/minute (RPM).

Figure55:Tariffcutsspurredusageinthelasttwoyears,asseenfromverystrong mobiletrafficgrowth FY10 FY11 WirelessTraffic Growth(YoY) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Bharti 33.7% 24.0% 24.0% 32.2% 35.3% 32.8% 30.0% 22.6% Vodafone 37.1% 34.2% 35.0% 43.6% 43.8% 37.8% 33.0% 27.3% Idea 47.3% 38.6% 43.7% 54.4% 68.8% 68.5% 61.7% 49.3%
Source:Company,IIFLResearch

Now upside is more likely to emerge: Key upside factors include: 1) revenue growth from rural areas; 2) growth from data services (3G); and 3) clarity on regulation, especially license fees to be paid upon renewals (Bhartis licenses come up for renewals from 2014). We examine each of these briefly: Strong rural presence, poised to deliver growth: Bharti, with its 116,000 BTSs, covers 86% of the population, among the highest in India. The population coverage in urban areas, which has ~25% of the population, is already 100%, and teledensity exceeds 140%. In rural

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SingTel ADD Rural presence calls for a fairly strong investment, as infrastructure and opex costs are very high, compared with the urban markets, due to low population density. Once this market is seeded, usage upsides from 2G, and eventually 3G, can be tapped. The market is also less competitive than the urban markets, as the higher investment required in rural areas keeps away financially-weaker competitors. In Bhartis case, most of this investment is already done, and hence exploitation of rural upside can be done with relative ease. Figure58:InIndia,mostoperatorsareseeingsubscriberadditionsfromruralareas Ruralproportionin Mar09 June09 Sept09 Dec09 Mar10 June10 Sept10Dec10 subscriberbase Bharti 31.4% 33.0% 34.8% 36.4% 37.7% 38.6% 39.2% 39.9% Reliance 20.8% 20.5% 20.3% 20.5% 20.7% 21.1% 21.3% 21.6% Vodafone 29.7% 32.5% 32.9% 33.2% 36.5% 36.4% 37.3% 38.4% BSNL 36.6% 35.6% 35.6% 35.7% 36.4% 36.1% 36.2% 35.5% Idea 40.1% 42.0% 43.1% 45.3% 46.7% 48.9% 48.5% 49.7% Tata 7.6% 7.9% 9.5% 18.8% 20.4% 21.1% 21.1% 21.3% Aircel 30.5% 40.5% 41.7% 37.7% 38.0% 37.0% 35.7% 35.3% Others 0.1% 1.9% 6.4% 12.8% 13.6% 15.1% 17.3% Total 28.0% 29.5% 30.0% 31.3% 32.7% 33.0% 33.0% 33.4%
Source:Company,IIFLResearch

India, tele-density is barely above 30%. Most incremental subscriber additions are happening from rural India, which contributes 40% to Bhartis subscriber base. Urban ARPUs are ~1.5x of rural ARPUs for most telcos. Figure56:Bhartihasastrongruralpresence,andpenetrationinthateconomyisstill relativelylow,providinggrowthopportunitiesfor23years
WirelessTeledensityinIndia Total Urban 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Rural

87.2% 36.6% 15.4% June09

95.0% 40.3% 17.2% Sept09

103.2% 44.7% 20.0%

112.0% 49.6% 23.1%

120.6% 53.8% 25.3%

129.8% 58.0%

140.5%

63.2% 27.3% 30.1%

Dec09

Mar10

June10

Sept10

Dec10

Source:Company,IIFLResearch

Figure57:Bhartileadsintheruralmarket,afterabriefclimbbyTatain2009.New competitorshavechippedawayinthelast3quarters Ruralsubscriber Mar09 June09Sept09 Dec09 Mar10 June10 Sept10 Dec10 share Bharti 26.9% 26.8% 27.1% 26.3% 25.2% 25.2% 24.8% 24.3% Reliance 13.8% 13.0% 12.4% 11.7% 11.1% 11.1% 11.0% 10.8% Vodafone 18.6% 19.7% 19.3% 18.5% 19.3% 18.9% 19.0% 19.0% BSNL 17.4% 15.4% 14.8% 13.6% 13.2% 12.5% 12.5% 12.3% Idea 15.7% 15.7% 15.6% 15.8% 15.6% 16.1% 15.9% 16.2% Tata 2.4% 2.3% 3.1% 6.6% 7.0% 7.3% 7.4% 7.1% Aircel 5.1% 7.0% 7.6% 7.1% 7.3% 7.4% 7.3% 7.1% Others 0.0% 0.1% 0.5% 1.2% 1.5% 2.2% 3.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source:Company,IIFLResearch

3G should boost revenue growth: Bharti won 3G spectrum in 13 of the 22 circles in India, which cover more than 68% of its revenue. We expect 3G to propel strong revenue growth and Bharti would participate in it for the following reasons: 1) India is a unique country, because two independent movements have happily coincided: a) There has been a worldwide spurt in the last 15 months in devices, particularly tablets and smartphones, which has enabled genuine high speed data access at affordable prices; and b) In India, telcos finally got their hands on 3G spectrum, with a ready 3G technology as well as a hungry subscriber base.

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2) Bharti has the highest ARPU among telcos, illustrating its dominant share of the high-ARPU segment, the most-likely consumers of 3G. 3) Bhartis Airtel brand is one of the strongest in the country, and it is ideally positioned to take advantage of the increase in spending by subscribers on data. Figure59:BhartienjoysthehighestARPUamongalltelcos
BhartihasthehighestARPUintheindustry Bharti Vodafone Idea RCOM
300.0 250.0 200.0 150.0 100.0 50.0 0.0 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11

Bhartis extensive tower portfolio will be a competitive advantage, holding costs down.
Figure60:SnapshotoftowercompaniesinIndia CurrentestimatedofBTSsandTowers TowerCount BhartiInfratel 32,792 IndusTowers 108,586 VodafoneEssar 15,000 IdeaCellular 9,077 BSNL 45,000 RCOM 54,000 GTLInfrastructure 32,493 ViomNetworks 41,000 MTNLandOthers 20,000 Total 357,948
Source:Company,IIFLResearch

Tenancy 1.7 1.8 1.5 1.5 1.1 1.7 1.2 1.9 1.1 1.6

Tenants 56,710 198,557 22,500 13,616 49,500 91,800 38,900 77,900 22,000 571,482

Source:Company,IIFLResearch

Tower sharing to help control both opex and capex: Bhartis passive infrastructure consists of towers owed by subsidiary, Bharti Infratel and JV Indus Tower (with Vodafone Essar and idea Cellular). Bharti pioneered tower sharing in India. This model principally features pooling of towers by several operators into a single neutral company, and loading multiple sets of electronics on each tower, to better defray fixed site costs (capex and opex). We estimate that there will be minimal need for Bharti from here on to invest in towers, as between Infratel and Indus Towers, Bharti has a sufficient spread of towers to access locations from. Towers can constitute up to 60% of total capex in a site, and especially so in rural areas, where to cover large distances, taller towers are needed. Sharing enables capex and opex savings, and hence, we believe that at a time when 3G capacity has to be added,

Figure61:InbothBhartiInfratelandIndustowers,toweradditionshavesloweddown andinsteadtenancyhasincreased.Thesefactorswillcontinuegeneratingcostsavings. FY10 FY11 TowerPortfolio 3Q 4Q 1Q 2Q 3Q 4Q Indus TowerCount 102,696 102,938 104,901 106,438 107,789 108,586 Tenancy 1.66 1.71 1.75 1.78 1.80 1.83 BhartiInfratel TowerCount 29,806 30,568 31,196 31,831 32,424 32,792 Tenancy 1.57 1.62 1.65 1.65 1.68 1.73
Source:Company,IIFLResearch

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Figure62:Weexpecttenancyinbothtowercompaniestorisesignificantlyfromcurrent levelswithin34years TowerPortfolio Current SteadyState Indus TowerCount 108,586 140,000 Tenancy 1.83 2.50 BhartiInfratel TowerCount 32,792 40,000 Tenancy 1.73 2.25
Source:Company,IIFLResearch

Africa challenging, but a sustainable, long-term growth opportunity


When Bharti entered, Africa operations were wobbly: Bharti acquired Zains Africa operations in 15 countries in 2010, at which time, the following problems existed: 1) Zain Africa was losing market share and profitability was receding sharply. 2) The previous management, Zain, based in Kuwait, was not sufficiently hands on. 3) Network capacity and quality were not at competitive levels. 4) Tariffs were misaligned, and often much higher than competition. Tariffs in Africa, at ~7.5 US$ cents/min, were high, and usage was only 20%-40% of that in other low-cost economies such as India.
Figure65:UnderBharti,Africacontinuedtoslide,butinthepasttwoquarters,visible improvementshavestarted
Revenue(Rsm,LHS) 950 910.6 900 850 800 750 700 1QFY11
Source:Company,IIFLResearch

Figure63:Wirelessbusiness:ExpectanEBITDACAGRofalmost15%overFY1113 WirelessProjections FY09 FY10 FY11 FY12ii FY13ii FY14ii Subscribers(m) 93.9 127.6 162.2 191.0 210.2 219.8 ARPU(Rs) 324.6 243.8 200.9 186.2 185.9 197.6 Revenue(Rsm) 303,601 324,872 362,689 411,873 469,493 536,566 EBITDA% 31.0% 31.1% 34.7% 35.1% 35.4% 35.7% Capex/Sales 21.4% 19.3% 16.2% 19.0% 17.0% 15.0%
Source:Company,IIFLResearch

EBITDA%(RHS) 923.9 26.3% 30% 25% 20% 15% 10%

Other businesses Strong growth in DTH expected:


Figure64:Wirelesstocontinuetobethemajordrivingforceforrevenuegrowth AggregateIndiaProjections(Rsm) FY09A FY10A FY11A FY12ii FY13ii FY14ii Mobile 303,601 324,872 362,689 411,873 469,493 536,566 Telemedia 33,517 34,154 36,324 38,236 40,350 42,694 Enterprise(IncLD) 84,882 83,597 41,292 43,616 46,232 49,006 PassiveInfrastructure 42,489 35,425 85,555 96,287 108,257 121,298 Others 3,611 5,825 10,317 17,913 24,538 28,761 TotalGrossRevenue 468,100 483,873 536,177 607,924 688,871 778,326 Eliminations 98,485 87,723 72,271 80,145 86,559 93,166 AggregateNetRevenue 369,615 396,150 463,906 527,778 602,312 685,160 EBITDA% 41.0% 40.5% 36.4% 37.2% 38.5% 38.7% CapextoSales 38.3% 27.9% 23.0% 24.0% 21.4% 18.9%
Source:Company,IIFLResearch

27.5% 799.6

24.0% 843.6 20.8%

2QFY11

3QFY11

4QFY11

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Bharti strengthened its management team, aligned tariffs, and cut costs: 1) The company appointed ex-CEO of India operations as CEO of the African one. 2) It transferred more than 30 senior experienced people from India to Africa, to strengthen the involvement of management. 3) It focussed on network capacity augmentation, by stepping up capex and attempting to replicate its India cost structure. 4) It attempted to extend its success in India, in outsourcing IT to IBM, to the Africa operations. 5) According to media reports, it lobbied in several countries to bring down interconnect charges. 6) In markets where: (a) interconnect charges were brought down; (b) Bharti Africas tariffs were too high vs. competition, or (c) there was substantial under-utilisation of capacity (as in Kenya), Bharti cut tariffs sharply. These measures have resulted in revenue growth resumption and margin improvement in the past two quarters.
Figure66:Afteraninitialroundoftariffcuts,Bhartihasbeenlessaggressive PerformanceIndicatorsinAfrica 1QFY11 2QFY11 3QFY11 Subscribers('000) 36,362 40,082 42,124 Traffic(minm) 3,695* 12,782 14,904 ARPU(US$) 7.43 7.38 7.34 MOU(min) 103 112 120 ARPM(US$c) 7.2 6.6 6.1 NonVoice 7.9% 7.1% 7.9%
Source:Company,IIFLResearch,*Onlyfor23days

2) In large markets such as Nigeria (35%-40% of Bhartis revenue), power is expensive and it is provided by diesel gensets. There appears to be no near-term solution to attacking this important element of cost, as the various African country governments are not in any hurry to implement power reforms. 3) Local competitors have been lobbying with governments to prevent Bharti from cutting tariffs and becoming competitive; in a few cases (like DRC), the governments have moved on this, to Bhartis disadvantage. 4) Other network capex and opex, principally consisting of nonenergy site costs, depend on passive infrastructure costs, i.e. towers. Bharti has so far, in 12 months of involvement with Africa, been unable to string together tower-sharing arrangements. It is difficult to say if this will happen, but the economics certainly support this, because there are several struggling sub-scale operators in much of Bhartis Africa footprint, who would benefit from sharing their surplus passive capacity with a tower-hungry operator such as Bharti. Based on the above, our estimates are well below the Africa CEOs target of US$5bn in revenue and a 40% EBITDA margin in FY13; although it must be admitted that in the months after margin recovery began (two quarters back), the management has certainly been more vocal about the achievability of the target.
Figure67:Wearelower,atpresent,thantheAfricaCEOstargetofUS$5bninrevenue anda40%EBITDAmargin AfricaProjections FY11A FY12ii FY13ii FY14ii Revenue(US$m) 2,882.5 4,226.1 4,649.0 5,114.9 EBITDA% 24.0% 30.7% 34.0% 38.0% EBIT% 3.7% 4.5% 7.8% 9.9% Capex/sales% 30.0% 29.0% 26.0% 23.0% Source:Company,IIFLResearch

4QFY11 44,206 14,915 7.16 115 6.2 7.8%

Following are some major challenges for profitability: 1) To spread penetration despite Africas low average population density, significant network expansion needs to be undertaken.

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SingTel ADD Figure70:WillBhartiraisedividendpayout?Webelievethattheywilllookformore inorganicgrowthinAfrica Cashflowsummary(Rsm) FY10A FY11A FY12ii FY13ii FY14ii ProfitBeforeTax 106,979 76,782 94,692 137,295 177,314 Depr.&amortization 60,457 102,066 135,380 157,071 178,069 TaxPaid 22,145 24,388 19,946 34,176 48,310 Workingcapital 28,923 8,293 33,321 36,217 39,627 Otheroperatingitems 19,813 2,008 175 335 386 Operatingcashflow 136,181 164,761 243,622 296,741 347,085 Capitalexpenditure 81,875 276,865 138,601 149,501 162,387 Freecashflow 54,306 112,104 105,021 147,240 184,698 EquityRaised 27,568 402 2,283 1,490 1,848 Investments 347,681 Debtfinancing/disposal 54,183 429,586 39,544 39,820 39,820 Dividendspaid 4,428 3,068 6,687 12,473 Otheritems 272 25,462 37,122 30,809 25,384 Netchangeincash 27,964 60,491 27,570 71,414 108,869
Source:Company,IIFLResearch

Figure68:ExpectsustainedtrafficgrowthwithstablepricinginAfrica AfricaProjections FY11A FY12ii FY13ii Subscribers('000) 44,205.7 54,205.7 63,205.7 Traffic(minm) 46,296.3 69,001.6 83,638.9 ARPU(US$) 7.33 7.16 7.22 ARPM(US$c) 6.53 6.13 6.09
Source:Company,IIFLResearch

FY14ii 70,605.7 99,710.5 7.56 6.09

Bharti Consolidated Financials:


Figure69:MarginimprovementshouldhappeninbothIndiaandAfrica Incomestatement(Rsm) FY10A FY11A FY12ii FY13ii Revenue 396,150 594,672 718,089 831,340 EBITDA 160,267 199,664 256,060 316,537 EBITDA% 40.5% 33.6% 35.7% 38.1% EBITDAGrowthYoY 5.7% 24.6% 28.2% 23.6% EBIT 99,810 97,598 120,679 159,466 EBIT% 25.2% 16.4% 16.8% 19.2% Interestincome 1,386 1,363 1,336 1,336 Interestexpense 5,783 27,821 27,323 23,507 Others 5,643 Profitbeforetax 106,978 76,783 94,692 137,295 Taxes 13,958 17,790 19,946 34,176 TaxRate 13.0% 23.2% 21.1% 24.9% Minoritiesandother 1,994 1,475 2,683 5,503 Netprofit 91,026 60,468 72,063 97,616
Source:Company,IIFLResearch

FY14ii 958,200 370,055 38.6% 16.9% 191,986 20.0% 1,336 16,008 177,314 48,310 27.2% 7,954 121,049

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Figure71:BYFY13ii,debt/EBITDAwillbewellbelow2x Balancesheetsummary(Rsm) FY10A FY11A FY12ii FY13ii FY14ii Cash&equivalents 77,034 16,543 44,113 115,527 224,396 Sundrydebtors 24,335 54,929 64,873 75,675 87,492 Inventoriestrade 484 2,139 2,632 3,147 3,707 Othercurrentassets 37,494 38,466 44,320 50,889 58,105 Fixedassets 443,808 651,426 676,986 693,481 701,863 Intangibleassets 52,675 637,317 614,977 590,913 566,849 Othertermassets 10,578 64,244 224,843 237,922 235,198 Totalassets 646,408 1,465,064 1,672,744 1,767,554 1,877,610 Shorttermdebt 17,166 84,370 84,873 85,053 85,233 Sundrycreditors 63,109 239,684 282,949 329,967 381,411 Othercurrentliabs 67,836 45,791 52,312 59,731 67,894 Longtermdebt/CBs 47,452 532,338 492,794 452,974 413,154 Otherlongtermliabs 8,656 46,650 179,772 184,753 190,179 Minorities/otherequity 28,489 28,563 30,846 32,336 34,184 Networth 413,699 487,668 549,197 622,739 705,555 Totalliabs&equity 646,408 1,465,064 1,672,744 1,767,554 1,877,610
Source:Company,IIFLResearch

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Globe Strong traction in broadband


Globe is the second-largest telco in the Philippines, behind PLDT, and ahead of Digitel and Bayantel. It is 47%-owned by SingTel and 30% by Ayala Corp, a conglomerate. Globe offers wireless, fixed-line and broadband services. Very high data proportion in wireless revenue: In wireless, the Philippines market is unique with a very high proportion of data. 53% of wireless revenue (27m subscribers, 30% market share in a 90% penetrated market) for Globe comes from mobile data, consisting of SMSs, Blackberry and mobile surfing. Globe also has 631k fixed-line subscribers, 1m wireless broadband and 265k wired broadband subscribers. Broadband, 11% of revenue, also has a substantial wireless component, with 1m broadband subscribers. The main source of revenue here is surfing from dongles, gaming etc. PLDT (backed by DoCoMo) has between 50% and 60% of the wireless and fixed-line markets, though in recent quarters, Globe has led in broadband net subscriber additions. Broadband leads growth: The bulk of revenue growth is coming from broadband (29% YoY in 1Q2011, compared with 4.2% for wireless services, which accounts for 76% of service revenue), which accordingly, accounts for a greater proportion of Globes investment than mobile. 28% of Globes revenue is linked to the US$, and a strong Peso has played a role in keeping revenue growth suppressed. Wireless to grow at modest pace: Our projections are based on: 1) Strong traction in broadband with stable pricing (ARPU bottoming out) and market share gains in subscriber adds; 2) Modest growth in the mobile market and Globes preservation of the current 32% subscriber market share (since unique ownership incidence has been flat over three years and SIM penetration is already more than 90% and this is unlikely to change in the foreseeable future).

Globes main issue has been that PLDT is set to merge with Digitel; despite PLDTs stated aim of keeping Digitels operations separate, it is concerned that there would be an undue concentration of spectrum in the hands of a single dominant operator, PLDT.
Figure72:Modestgrowthforeseeninthemobilemarket GlobeKPIProjectionswireless FY08A FY09A FY10A Teledensity 73.0% 80.0% 93.0% Totalsubscribers(m) 24.7 23.2 26.5 ARPU 206 185 168
Source:Company,IIFLResearch

FY11ii 95.0% 29.4 150

FY12ii FY13ii 99.3% 101.3% 31.3 32.6 136 126

Figure73:Broadbandrevenueshouldgrowfromthecurrent19%to31%oftotal revenueswithinthreeyears GlobeProjections(PHPm) FY08A FY09A FY10A FY11ii FY12ii FY13ii Revenues WirelessServices 55,562 53,321 49,977 50,379 49,612 48,422 WirelessnonServices 1,647 916 2,374 3,149 3,359 2,921 Wireline 7,609 9,624 12,671 16,130 19,889 23,731 Total 64,818 63,861 65,022 69,657 72,860 75,074 EBITDA 37,398 36,462 33,013 35,999 36,811 38,681 PAT 11,276 12,569 9,744 11,145 11,551 12,645 Capex 18,785 20,989 17,552 17,876 16,758 17,267 FCF 5,115 11,297 6,201 15,831 15,284 16,336
Source:Company,IIFLResearch

Figure74:SmartphonesubsidieswillsuppressEBITDAgrowthforthenext23years Globeratios FY08A FY09A FY10A FY11ii FY12ii FY13ii RevenueGrowth 1.1% 1.5% 1.8% 7.1% 4.6% 3.0% EBITDA% 57.7% 57.1% 50.8% 51.7% 50.5% 51.5% Capextosales% 29.0% 32.9% 27.0% 25.7% 23.0% 23.0% DividendPayoutRatio% 124.7% 132.7% 83.2% 92.7% 100.0% 100.0% Debt/EBITDA(x) 0.9 1.1 1.3 1.0 0.9 0.7
Source:Company,IIFLResearch

gvgiri@iif lcap. com

32

Institutional Equities

SingTel ADD

Figure75:Globewillspendmoreonbroadbandcapexthanmobile
Globe'sCapex2011outlook
Submarine 18% BackOffice 6% Corporate Data 7% Mobile 32%
Source:Company,IIFLResearch

Broadband 37%

gvgiri@iif lcap. com

33

Institutional Equities

SingTel ADD

Aggregate Projections for SingTel (Consolidated)


Figure76:Optustodeliverthebulkoftherevenuegrowth AggerageProjections(SG$m) FY10A FY11A FY12ii FY13ii FY14ii OpRevenue SingTel 5,995.0 6,400.6 6,647.6 6,895.3 7,175.7 YoYgrowth 8.1% 6.8% 3.9% 3.7% 4.1% Optus 10,875.9 11,670.0 12,327.8 13,046.4 13,968.9 YoYgrowth 15.9% 7.3% 5.6% 5.8% 7.1% Total 16,870.9 18,070.6 18,975.4 19,941.7 21,144.6 YoYgrowth 13.0% 7.1% 5.0% 5.1% 6.0%
Source:Company,IIFLResearch

Figure79:BhartisPBTrecoveryshouldraiseassociatesPBT
PBTBreakdown(SG$m) Singtel,Optus 4,000 3,000 2,000 1,000 0 FY10A FY11A FY12ii FY13ii FY14ii AssociatePBT

Figure77:EBITDAexpansionpostFY12 OperatingEBITDA FY10A SingTel 2,179.9 EBITDA% 36.4% YoYgrowth 5.4% Optus 2,572.0 EBITDA% 23.6% YoYgrowth 13.3% Total 4,751.9 EBITDA% 28.2% YoYgrowth 9.5%
Source:Company,IIFLResearch

FY11A 2,129.5 33.3% 2.3% 2,859.6 24.5% 11.2% 4,989.1 27.6% 5.0%

FY12ii 2,184.9 32.9% 2.6% 3,003.9 24.4% 5.0% 5,188.9 27.3% 4.0%

FY13ii 2,278.6 33.0% 4.3% 3,243.3 24.9% 8.0% 5,521.9 27.7% 6.4%

FY14ii 2,417.7 33.7% 6.1% 3,589.0 25.7% 10.7% 6,006.8 28.4% 8.8%

Source:Company,IIFLResearch

Figure80:BhartilikelytobethelargestcontributortoAssociateearningsgrowth AssociatePBT(SG$m) FY11 FY12 FY13 FY14 Telkomsel 868.6 1,008.2 1,050.1 1,112.6 AIS 292.4 294.4 311.6 326.3 Bharti 708.0 853.1 1,223.0 1,564.0 Globe 193.2 212.3 215.9 221.7 Others 161.1 135.3 138.0 140.8 Total 2,223.3 2,503.3 2,938.7 3,365.3
Source:Company,IIFLResearch

Figure78:EBITgrowthwillbepoweredbyOptus EBIT FY10A FY11A SingTel 1,705.3 1,632.0 EBIT% 28.4% 25.5% Optus 1,263.3 1,518.6 EBIT% 11.6% 13.0% Total 2,968.6 3,150.6 EBIT% 17.6% 17.4%
Source:Company,IIFLResearch

FY12ii 1,628.1 24.5% 1,651.1 13.4% 3,279.2 17.3%

FY13ii 1,666.7 24.2% 1,832.3 14.0% 3,499.0 17.5%

FY14ii 1,743.3 24.3% 2,143.6 15.3% 3,886.9 18.4%

Figure81:Expectregulardividendstoriseabove85% Taxes FY10A FY11A PAT 3,907 3,835 Dividends 2,084 2,357 PayoutRatio 60.4% 60.3%

FY12ii 4,195 4,246 110.7%

FY13ii 4,595 3,261 77.7%

FY14ii 5,133 4,031 87.7%

Source:Company,IIFLResearch

gvgiri@iif lcap. com

34

Institutional Equities

SingTel ADD

Valuation ADD (13% total return)


Figure82:WeestimatethatSingTelcarriesa13%12monthupside;werecommendADD Exit Valuation(All EV/ Fwd Price/ AmountsinSG$ Share EBIT Multip HC m) Approach WACC DA le MCap Holding Discount (SG$) SingTel (Singapore) DCF 8.0% 6.0 100.0% Optus (Australia) DCF 10.0% 6.0 100.0% Core DCF 23,553 100.0% 1.48 Telkomsel DCF 12.0% 6.4 31,464 35.0% 10.0% 0.62 AIS PER 12.1 13,529 21.4% 10.0% 0.16 Globe DCF 11.0% 5.0 4,527 47.3% 10.0% 0.12 BhartiIndia& SA PER 14.0 34,754 BhartiAfrica EV/EBITDA 8.7 11,608 BhartiTotal 46,362 32.3% 10.0% 0.84 Others DCF 0.06 Total/share 3.29 Dividend/share 0.27 CMP 3.16 TotalReturn 12.6%
Source:Company,IIFLResearch

NGNBN, with relatively low weightages for Globe and AIS, it boils down to whether the upsides from Telkomsel and Bharti are sufficient to raise our optimism. Bharti is the single biggest component of the per share target price, and upside surprise could come from 1) higher tariffs we feel it is premature to build these upsides as competitive pressure in India has by no means disappeared 2) high usage from 3G here our estimates could be beaten as smartphone prices fall rapidly 3) regulatory stability with a new leader in the telecom ministry, the stage seems to be set for stable and progressive regulation, but we feel that these upsides are already factored in, and incremental earnings upsides are unlikely and 4) Africa turnaround challenges abound here, but as we have discussed, the management seems game.
Figure83:ComparisonofSingTel,StarhubandM1SingTel tradesatanattractiveP/FCF multiple Item SingTel Starhub M1 P/E(FY12/CY11) 12.0 14.8 13.3 P/E(FY13/CY12) 11.0 14.4 11.7 P/FCF(FY12/CY11) 15.2 16.7 13.8 P/FCF(FY13/CY12) 12.9 15.3 11.6 EBITDA/Int(FY12/CY11) 17.3 31.4 66.4 EBITDA/Int(FY13/CY12) 18.1 31.0 75.3 RevenueCAGR(FY11/CY10+3) 5.4% 3.9% 6.8% EBITDACAGR(FY11/CY10+3) 6.0% 8.4% 6.3% EPSCAGR(FY11/CY10+3) 10.2% 9.6% 8.2% FCFCAGR(FY11/CY10+3) 10.6% 5.3% 46.3% TGTP/E(FY12/CY11) 12.5 15.3 13.9 TGTP/E(FY13/CY12) 11.4 14.8 12.2 TGTP/FCF(FY12/CY11) 15.8 17.2 14.4 TGTP/FCF(FY13/CY12) 13.4 15.8 12.0

We rate SingTel ADD, with a 12.6% total return (note that SingTel declared higher than average payouts reflecting a capital management move), reflecting our belief in the robust business spread SingTel has. Optus accounts for 55% of the core SingTel + Optus EV. The core constitutes 45% of the Target price. With Optus facing heightened competitive pressure, with the massive market share in Singapore operations likely to face heightened competition in parts due to

Source:Company,IIFLResearch

gvgiri@iif lcap. com

35

Institutional Equities

SingTel ADD

Financial summary
Incomestatementsummary(S$m) Y/e31Mar Revenue EBITDA EBIT Interestexpense Exceptionalitems Others Profitbeforetax Taxes Minoritiesandother Netprofit Cashflowsummary(S$m) Y/e31Mar ProfitBeforeTax Depr.&amortization TaxPaid Workingcapital Otheroperating&NonCashitems Operatingcashflow Capitalexpenditure Freecashflow EquityRaised Investments Debtfinancing/disposal Dividendspaid Otheritems Netchangeincash
Source: Company data, IIFL Research

FY10A 16,871 4,847 2,969 334 2,407 5,041 1,136 1 3,907

FY11A 18,071 5,119 3,151 324 2,176 5,002 1,170 3 3,835

FY12ii 18,975 5,321 3,279 308 2,503 5,474 1,279 0 4,195

FY13ii 19,942 5,617 3,499 310 2,939 6,128 1,532 0 4,595

FY14ii 21,145 6,101 3,887 312 3,365 6,941 1,808 0 5,133

FY10A 5,041 1,878 592 136 912 5,280 2,213 3,067 709 0 902 2,084 252 538

FY11A 5,002 1,969 621 111 401 6,060 2,803 3,257 7 0 844 2,357 627 1,124

FY12ii 5,474 2,042 681 16 1,456 5,364 2,048 3,316 0 0 40 4,246 0 890

FY13ii 6,128 2,118 768 20 1,535 5,923 2,017 3,905 0 0 40 3,261 0 685

FY14ii 6,941 2,214 880 25 1,843 6,407 1,997 4,410 0 0 40 4,031 0 419

Balancesheetsummary(S$m) Y/e31Mar Cash&equivalents Sundrydebtors Inventoriestrade Othercurrentassets Fixedassets Intangibleassets Othertermassets Totalassets Sundrycreditors Othercurrentliabs Shorttermdebt Longtermdebt/CBs Otherlongtermliabs Minorities/otherequity Networth Totalliabs&equity Ratioanalysis Y/e31Mar Revenuegrowth(%) OpEbitdagrowth(%) OpEbitgrowth(%) OpEbitdamargin(%) OpEbitmargin(%) Netprofitmargin(%) Dividendpayout(%) Taxrate(%) Netdebt/equity(%) Netdebt/opEbitda(x) Returnonequity(%) ROCE(%) Returnonassets(%)
Source: Company data, IIFL Research

FY10A 1,614 3,172 346 13 10,750 10,200 11,857 37,951 4,650 657 1,528 5,351 2,250 23 23,493 37,952

FY11A 2,738 3,449 299 69 11,113 10,218 11,396 39,282 4,550 1,291 2,699 4,587 1,805 22 24,328 39,282

FY12ii 1,848 3,422 297 68 11,118 10,218 12,254 39,226 4,515 1,281 2,719 4,607 1,805 22 24,278 39,226

FY13ii 2,533 3,388 294 67 11,017 10,218 13,025 40,543 4,470 1,268 2,739 4,627 1,805 22 25,612 40,543

FY14ii 1,614 3,172 346 13 10,750 10,200 11,857 37,951 4,650 657 1,528 5,351 2,250 23 23,493 37,952

FY10A 13.0 9.4 10.0 28.7 17.6 23.2 60.4 22.5 22.4 1.1 17.8 8.7 25.5

FY11A 7.1 5.6 6.1 28.3 17.4 21.2 60.3 23.4 18.7 0.9 16.0 9.1 25.4

FY12ii 5.0 3.9 4.1 28.0 17.3 22.1 110.7 23.4 22.6 1.0 17.3 9.3 29.3

FY13ii 5.1 5.6 6.7 28.2 17.5 23.0 77.7 25.0 18.9 0.9 18.4 9.4 31.4

FY14ii 6.0 8.6 11.1 28.9 18.4 24.3 87.7 26.0 16.7 0.7 19.6 10.2 35.6

gvgiri@iif lcap. com

36

Institutional Equities

SingTel ADD

Key to our recommendation structure BUY - Absolute - Stock expected to give a positive return of over 20% over a 1-year horizon. SELL - Absolute - Stock expected to fall by more than 10% over a 1-year horizon. In addition, Add and Reduce recommendations are based on expected returns relative to a hurdle rate. Investment horizon for Add and Reduce recommendations is up to a year. We assume the current hurdle rate at 10%, this being the risk-free rate of return + equity risk premium. Add - Stock expected to give a return of 0-10% over the hurdle rate, ie a positive return of 10%+. Reduce - Stock expected to return less than the hurdle rate, ie return of less than 10%.

Published in 2011. IIFL Securities Pte Ltd, Singapore (IIFL) 2011. MICA (P) 125/10/2010 This report is not intended for distribution to or use by any person or entity who/which is a citizen or resident of or located in any locality, state or other jurisdiction where such distribution, publication or use would be contrary to law or regulation. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information of IIFLs clients, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. Opinions expressed in this document are our current opinions as of the date appearing in the material and may be subject to change from time to time, without notice. The views expressed in this report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations(s) or view(s) in this report. IIFL prohibits the analyst(s) who prepared this research from receiving any compensation, incentive or bonus based on specific investment banking transactions or for providing a specific recommendation for or view of a particular company. However, the analyst(s) may receive compensation that is based on their coverage of company(ies) in the performance of their duties or the performance of their recommendations, and the research personnel involved in the preparation of this report may also participate in the solicitation of business as described below. IIFL, its affiliates and related companies, their directors, associates, connected parties and/or employees may own or may have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, IIFL or its affiliated companies may deal in the securities mentioned herein as a broker or for any other transaction as a market maker, investment advisor, etc to the issuer company or its connected persons or seek to perform significant investment banking or underwriting services for or relating to such company(ies) or any entity mentioned in this report. IIFL generally prohibits its analysts from having financial interest in the securities of any of the companies that the analysts cover. In addition, the company prohibits its employees from conducting F&O transactions or holding any shares for a period of less than 30 days. As on the date of this report, the analyst(s) who prepared this report do not own and do not have an interest in the securities in the company(ies) covered or recommended in this report. IIFL or any persons connected with it do not accept any liability arising from the use of this document. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. IIFL or any of its connected personsincluding its directors or affiliated companies or associates or employeesshall be in no way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained, or views and opinions expressed in this publication.

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37