Asia Pacific Equity Research

21 October 2011

Singapore Telcos
When the facts don't fit the story...Buy SingTel
We initiate coverage of the Singapore Telecom sector with an OW recommendation on SingTel (TP of S$3.60), and Neutral recommendations on both Starhub (TP S$2.70) and M1 (TP S$2.50). Many, including ourselves, have made much over the potential for Singapore’s National Broadband Network project to increase competition and drive opportunities for infrastructure-lite competition. The facts, however, do not support this case. We think the NBN will largely serve to cement SingTel’s dominance of the local market, potentially forcing Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy, and lock M1 out of the mainstream market.  The NBN will ultimately curtail competition and cement SingTel dominance. On paper, the NBN looks like a great opportunity for M1. In reality, we estimate SingTel earns a much higher long term (2015) margin (47%) on NBN subscribers then others (STH at 21%, M1 at 14%), giving them a structural cost advantage over both Starhub and M1. This ironically means that the NBN serves to institutionalize SingTel’s dominance, in our view. The only potential to break this dynamic would be Starhub’s pursuance of a Virgin Media strategy where they aggressively leverage their own infrastructure and ignore the NBN…we see little sign of this as of yet.  Bundling/ Pay TV will now REALLY matter: A saturated market combined with still relatively high SAC implies that operators will need to bundle in order to reduce churn. MioTV will be competitive in the future as subscribers move from fiber and cross carriage regulations bite, in our view. This should trigger both better Pay TV monetization as well as market share gains in residential broadband for SingTel, at Starhub's expense.  Starhub to opt out of NBN? We do not see M1 as a credible long term alternative carrier in Singapore given its over reliance on NBN infrastructure at much lower margins then peers (we think it becomes the TalkTalk equivalent). It therefore remains a third mobile operator with little traction in overall bundled services, in our view. Starhub, however, has longer term potential to leverage their ubiquitous cable infrastructure (100% household coverage vs. Virgin Media in the UK at approximately 50%) to pursue an in-house alternative to the NBN infrastructure. This would position them as the only real domestic competition for SingTel, albeit with a large CAPEX bill attached.
Equity Ratings and Price Targets Company Singapore Telecom StarHub M1 Symbol STEL.SI STAR.SI MONE.SI Mkt Cap (S$ mn) 50,371.13 4,835.47 2,278.72 Rating Price (S$) 3.16 2.82 2.51 Cur OW N N Prev n/c n/c n/c Price Target Cur Prev 3.60 n/c 2.70 n/c 2.50 n/c

Singapore Asian Telecommunications James R. Sullivan, CFA
AC

(65) 6882-2374 james.r.sullivan@jpmorgan.com J.P. Morgan Securities Singapore Private Limited

Vishesh Gupta
(65) 6882 2367 vishesh.x.gupta@jpmorgan.com J.P. Morgan Securities Singapore Private Limited

Laurent Horrut
(61-2) 9220-1593 laurent.j.horrut@jpmorgan.com J.P. Morgan Securities Australia Limited

Christopher Gee, CFA
(65) 6882-2345 christopher.ka.gee@jpmorgan.com J.P. Morgan Securities Singapore Private Limited

Source: Company data, Bloomberg, J.P.Morgan estimates. n/c = no change. All prices as of 20 Oct 11.

See page 139 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.morganmarkets.com

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Table of Contents
Investment conclusions...........................................................3 Valuation Discussion ...............................................................8 Key risks to our view..............................................................13 Valuing Singapore ..................................................................14 Comparing NBN and existing business EBITDA margin and cash flows ...............................................................................33 What does MioTV actually mean?.........................................36 Counting the Cash: Yield Sustainability...............................43

Appendices
Appendix I: NGNBN Structure in Singapore ........................48 Appendix II: NGNBN in Australia ..........................................59 Appendix III: Economics of Wireless Data: Singapore .......66 Appendix IV: Fiber vs. Cable .................................................69

Companies
Singapore Telecom ................................................................80 StarHub .................................................................................105 M1 ..........................................................................................122

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James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Investment conclusions
You’ve heard it before…from us, as well as others. “M1 is a market share gainer in all product categories, and the big winner from the NBN”. When we began work on this report, that was the easy story to see. But, an interesting thing happened on the way to the report, so to speak…the facts do not fit this view of reality. SingTel is clearly (in our view) the structural winner, Starhub plays an important #2 role but could be ultimately forced into a heavy CAPEX round to replicate a Virgin Media strategy, while M1 will be structurally challenged by the changes wrought on the market place by the NBN.

The Facts
There are several important facts, as we now understand them: 1) Operators face VERY different economics on an NBN subscriber. Per the chart below, we estimate SingTel’s margin on an NBN sub is almost twice that of Starhub and M1. This is due to a 75% revenue claw back of OpenNet’s revenues, which takes their OpenNet fee to S$3.8 vs. S$15 for all others. This implies either higher margins, or significantly greater pricing power relative to their competitors. There is evidence in other markets that high speed broadband pricing begins to move closer to unbundled pricing (BT (covered by JPM Analyst Hannes Wittig) Infinity pricing in the UK, for example, moving closer to the charge from OpenReach for Generic Ethernet Access (GEA). This type of development only favors the network owner, and while SingTel only owns 30% of OpenNet, they still control 75% of the revenues.
Table 1: Singapore NBN margin differential from NetCo and OpCo payments
NBN ARPU NetCo monthly payment OpCo payment Other monthly OpEx NBN monthly profit/user NBN margin
Source: J.P. Morgan estimates

SingTel 60.0 (3.8) (6.0) (25.0) 25.3 42.1%

StarHub 60.0 (15.0) (6.0) (25.0) 14.0 23.3%

M1 60.0 (15.0) (6.0) (25.0) 14.0 23.3%

2) A feedback loop exists between NBN and Pay TV, and therefore residential broadband: Rising NBN penetration combined with cross carriage regulations significantly increase the competitiveness of MioTV relative to Starhub's Pay TV offering. In the first instance, this should put pressure on industry Pay TV ARPU (we forecast this to go to S$40 from S$60 over the next five years). In the second instance, a more competitive Pay TV offering should enable SingTel to take residential broadband market share from Starhub (we forecast SingTel’s residential broadband market share to go to 51% from 42% over the next five years, vs. Starhub 32% from 34%). M1 suffers in this category given the lack of a credible Pay TV product to leverage to gain broadband market share.

3

0% 30.0% 100.P. 3) A feedback loop exists between NBN enabled bundles and mobile churn: Singapore is a heavily penetrated telecom market in almost every product category.0% 50.0 6. Figure 3: Singapore household penetration of Pay TV. ARPU (RHS) 120. Another way to think about this issue graphically is to chart the lifecycle profitability of a subscriber under the current scenario vs. an NBN scenario.0 2.0% 20. CFA (65) 6882-2374 james.0% 2005A 2006A 2007A 2008A 1Q09A 2Q09A 3Q09A 4Q09A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 60.r.P. c) duration of customer life.0 SingTel StarHub M1 Fixed line household penetration Broadband household penetration-fixed Pay TV household penetration Source: Company reports and J. b) ability of an operator to upsell incremental services. while M1 may struggle.0% 100. Morgan estimates.0% 2005A 2006A 2007A 2008A 1Q09A 2Q09A 3Q09A 4Q09A 2009A 2010A 2011E 2012E 2013E 2014E 2015E Figure 2: Singapore residential broadband market share trends 70 60 50 40 30 20 10 0 0. We believe both SingTel and Starhub can successfully upsell services and reduce churn (therefore increasing customer life). profitability is most impacted by a) SAC.0% 0.sullivan@jpmorgan.0% 60.0 0. This implies that a) operators like SingTel will measure the profitability of certain product investments (think Pay TV) in terms of both absolute product P&L as well as its value in churn reduction. Source: Company reports and J.0% 20.James R. Morgan estimates.0 3. b) operators with a weaker bundle will face structurally higher overall costs given more persistent SAC expenditures to manage churn (think M1). Morgan estimates.0% Figure 4: Yearly savings from 10bps of churn reduction (S$ mn) 7.0% 80. Morgan estimates. Per the figures below. with relatively high Subscriber Acquisition Costs (SAC).0 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 1.0% 20.0 5. Source: J.0% 40.0% 0.0% 40.0 4. We estimate that every 10bps of churn reduction is worth S$4-7mn yearly savings per the table below.0% 40.0% 60.P. Residential broadband.com Asia Pacific Equity Research 21 October 2011 Figure 1: Singapore Pay TV market share (LHS) vs. 4 .0% SingTel ARPU StarHub ARPU SingTel sub share StarHub sub share SingTel-Total StarHub-Total M1-NBN Source: Company reports and J. We therefore believe the NBN is most important in enabling churn reduction focused product bundles.P. and Fixed line services 2006-2015 120.0% 10. Sullivan.0% 80.

P.P. vs. * as commented at 4Q10 results. Sullivan. ST benefits from diversification. Morgan estimates. 5 .sullivan@jpmorgan. Company Data.James R. Morgan. Virgin Media has released enough data to allow our UK Telecom team to estimate the value of a customer based on the number of services taken.r. peers at 100%. Morgan. ^ as reported in 2Q11 results.Virgin Media Source: J. SingTel drives 35% of its revenues from Singapore. This analysis indicates that a quad play subscriber offers operators 24x the value of a single play subscriber. CFA (65) 6882-2374 james. 4) The NBN should increase pricing pressure and decrease industry revenue growth. Figure 7: Average customer lifetime revenue .com Asia Pacific Equity Research 21 October 2011 Figure 5: Life cycle profitability of a bundled fixed line customer Figure 6: Life cycle profitability of a bundled fixed line customer NBN environment Source: J. The chart below shows our forecast reduction in telecom industry revenue growth rates from the 5-10% seen in 2004-2010 to an average of 2% moving forward.P. JPMe estimate then applied for calculation. Source: J.

James R. and M1.com Asia Pacific Equity Research 21 October 2011 Figure 8: Singapore Telecom Industry revenue growth Figure 9: Operator revenue contribution from Singapore 120% 100% 80% 60% 40% 20% 0% SingTel StarHub M1 Source: Company reports and J. as shown in Figure x below (M1’s ARPM relative to ST and STH shows a large and persistent gap…this implies that they need to charge a significantly lower price to gain usage / subscribers. The 6 . Morgan estimates.P. with a focus on value pricing.Part One: The Importance of Population Density and Spectrum.P. Morgan estimates. Singtel plays a modified BT role. this implies that SingTel could enjoy the best economics moving forward. OpenReach for BT). VMED and BT best positioned) that instead of explicit price competition. may struggle given lower structural margins. There are relatively clear parallels between the emerging status of the UK fixed line market and what we expect here in Singapore. The M1/TalkTalk analogy becomes especially interesting when one considers M1’s historic lack of pricing power. with ownership of the underlying common network (OpenNet for ST. 6) Impact of wireless data: We have previously published detailed analysis of the impact of wireless data on operators (The Economics of Wireless Data . Source: Company reports and J. Sullivan.7 0. market maturity and superfast broadband driving price rationality. operators are increasingly finding their market niches.r.P. and M1 playing the role of TalkTalk (covered by JPM Analyst Carl Murdock-Smith) on the value end. ST and STH.1 1 0. Morgan estimates.6 0.sullivan@jpmorgan. Carl Murdock-Smith argues in a recent report (UK Fixed-Line Telecom: Bundling. which is difficult given their structurally lower margins).9 0. Starhub playing a combined Sky / potentially Virgin Media role with a history of content aggregation and management. 5) The Singapore telecom market could look increasingly like the UK over time.8 0. If valid. Starhub may eventually need to invest in a competing cable based infrastructure alternative. 2006-2015 1.5 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E M1/SingTel ARPM M1/StarHub ARPM Source: Company reports and J. Figure 10: M1 ARPM vs. per the chart below. CFA (65) 6882-2374 james.

Morgan.r.sullivan@jpmorgan. this analysis suggests that Singapore will move from the current honeymoon period (already built wireless networks allowing for revenue growth with little incremental CAPEX). ATiC Consulting 7 . but this should be a source of margin compression for M1. The more important short-term impact of wireless data is rising international link expenses. in our view. SingTel and Starhub both have memberships in subsea cable consortia that potentially limit some of this impact. CFA (65) 6882-2374 james. The Economics of Wireless Data – Industry Dialogues).James R. given that over 90% of internet data accessed from Singapore resides on servers outside the country. Figure 11: Site numbers in Singapore with increased user demand Source: J. but one years out. Sullivan.P. to full networks and incremental linear economics (full networks and the lack of scaleability of data as a product leads to rising CAPEX and lower structural returns) until usage reaches 50% smartphone penetration at 3GB per user per month…as such this is an issue.com Asia Pacific Equity Research 21 October 2011 Economics of Wireless Data – India Edition.

1% at StarHub and 6% at M1.6 10.87 15.6 2.1 7.6% 1.7 -5. We instead use DCF analysis as another gauge of market sentiment. 8 .2 N 2. Our target price implies 20% total return potential at SingTel vs.0 -5.7 2.3 13.8 13.1 8.5% (0.2 Dividend Yield (%) 2011E 2012E 5. Morgan estimates.9.3%. CFA (65) 6882-2374 james.5 Source: Bloomberg and J. and the upside to street + upside to multiple approach described above a more effective way of forecasting future share price movements. M1 at S$2. SingTel has the best upside to downside ratio of 1. or b) an excessively pessimistic sentiment applied by the market. but do not use this analysis to specifically set target prices. Priced as at 20 October Best/worst case analysis: We analyze the impact on our price target for Singapore Telcos at peak and trough of their P/E valuation range.8 7. STH at 0.9 9.0% 6.9 13.0 10.P.0% 8.1 9. with an Overweight rating on SingTel and Neutral rating on StarHub on M1. PT (LC) 3.8 -5.0 7. J. StarHub and M1.5 -1.0 10.7 11.0% 2.r.1% 2.9 -25.0 3. This appears fair to us given both SingTel's greater revenue diversification outside of Singapore and the fact that it is likely a market share gainer due to the NBN.4% 3.6 15.6 14.5% (0.06) Source: Bloomberg.0 6.9 -34.James R. with a preference for M1 over StarHub.0 10.00 StarHub 2.sullivan@jpmorgan. On our estimates. but also given its status as a large cap stock (S$50.9% 1.3 Total Return 19.6 13.8 0. STH at S$4.15 11. A high discount rate would be indicative of either a) a very risky business / market.3 6.0 PE (x) 2011E 2012E 12.0% and 6. by back calculating what discount rate is implied by the current share price.com Asia Pacific Equity Research 21 October 2011 Valuation Discussion We are assuming coverage of SingTel and initiating on StarHub and M1.2bn vs.7 -15. Our experience has been that the heavy retail participation in most South East Asian markets leaves P/E multiples. Priced as at 20 October DCF analysis: We run full discounted cash flow analysis on all of our companies.4 4.0 6.79% and M1 at 0%).0% respectively of our total returns for SingTel.3 14. Morgan estimates. SingTel's share price currently implies a lower discount rate relative to Starhub and M1. Such an analysis is increasingly important given current global macroeconomic developments and an environment of GDP downgrades.50 12.9% 8.15) M1 2.3 7. Dividends account for 5.4 9.5 % to EV/EBITDA (x) Target 2011E 2012E 14.0 FCF Yield (%) 2011E 2012E 5.2 15.6% 1. Table 3: Singapore Telcos: Best and worst case analysis Current price Current consensus P/E Peak P/E Trough P/E JPM vs.0% Table 2: Singapore Telcos: Valuation summary Company SingTel StarHub M1 Stock code ST SP STH SP M1 SP Rating Price (LC) OW 3.14% of STI vs.3% 1. consensus Best case price % upside Worst case price % upside Up/Down EPS SingTel 3. Sullivan. 7.9 N 2.8% 2.0 while StarHub fares at the bottom with negative upside to target price on both ends of the valuation range.0 6.3% 10.P.2bn) with a much larger index inclusion then STH or M1 (ST at 10.

Sullivan. if we have 10% upside to the Street’s EPS forecasts.0% 0.0% 87. CFA (65) 6882-2374 james. Morgan estimates.e.0% 2012E Terminal value as % of EV 92. either the business has changed or a lot of expectations have already been built into the share price. This structure allows us to focus our research on: 1) getting the numbers right.3% -0. M1 may be permanently locked out of broader participation in the market. This method allows us to capitalize on (hopefully) good fundamental research.1% (0.6% 0.8% 1. but also allows us to understand market sentiment.James R. Our simple valuation methodology is that we believe only two things can mathematically move a share price: 1) changing earnings estimates.8% NA NA 1.0% 4. Morgan estimates.9% (1. FY12E -3. an assumption holding true for all of our coverage companies around the region.15 2.2 3. and 2) understanding what potential range of multiples the market might apply. Starhub faces a loss of its Pay TV monopoly and loss of residential broadband market share. Table 5: Singapore Telcos: JPM vs.sullivan@jpmorgan.0% -0. On our numbers we see largest upside to Street FY12 EPS estimates for SingTel at 6%.P.2% -1.0) -5. Street estimates FY11E SingTel Revenue EBITDA EBITDA margin-BP diff EPS StarHub Revenue EBITDA EBITDA margin-BP diff EPS M1 Revenue EBITDA EBITDA margin-BP diff EPS Source: Bloomberg and J.4% 10.3) -0.5% NA NA 6. Priced as at 20 October The discount rate equivalence between STH and M1 is interesting and arguably justifiable. Valuation Methodology / Setting Target Prices Our investment philosophy has simplified over the years. J. our total target return is 25%. and 2) the multiple the market is willing to put on those earnings estimates.3 3.0% -1.87 2. i.50 2013E Terminal growth rate 4.P.8% -4. If a multiple has expanded to previously unseen levels.8% Implied discount rate at current price 7.9% 10. StarHub’s 2012 consensus EPS is largely in-line with our estimates while we think the Street needs to lower M1’s EPS by 4%. It is our belief that ultimately share prices are driven by earnings estimates. and think there could be 15% multiple expansion. on the other.r..6% 87.1% 9 .com Asia Pacific Equity Research 21 October 2011 Table 4: Singapore Telcos: DCF summary SingTel StarHub M1 Current price (LC) 3.4% -3. A simple sum of the two leads to our target prices.1% Source: Bloomberg. On the one hand.0% 4.1% 0.7% -1.

indicating in our view that investors are assigning too much risk to SingTel’s cash flows relative to their Singapore peers. Figure 12: SingTel dividend yield spread to govt bonds Source: Bloomberg.James R. Sullivan. CFA (65) 6882-2374 james. conversely appear to be underpricing the risks to cash flows. SingTel is trading at one of its largest spreads to local Government bonds over the past few years.r. Per the charts below. but can serve as both a catalyst as well as a gauge of investor sentiment and the perception of risk inherent in a stream of cash flows. in our view. Figure 13: StarHub: Dividend yield spread to government bonds Source: Bloomberg.com Asia Pacific Equity Research 21 October 2011 Dividend Yields do not form a basis for our valuation approach. The large reduction in spreads for Starhub and M1.sullivan@jpmorgan. 10 .

indicating downside risk for the stock.James R. Sullivan. There is the potential for short term earnings downside driven by deteriorating cross forex rates.sullivan@jpmorgan.r. Source: Bloomberg Starhub The market appears to be mispricing the business risk associated with a more competitive pay TV and residential broadband market.com Asia Pacific Equity Research 21 October 2011 Figure 14: M1: Dividend yield spread to government bonds Source: Bloomberg. Figure 15: SingTel: Street 1 year forward P/E Figure 2: SingTel: Street 1 year forward EPS Source: Bloomberg. but (in our view more importantly) we see 6% upside to Street estimates for FY2013 driven by better margins on NBN products. CFA (65) 6882-2374 james. as such we expect yield spreads to re widen. Street View SingTel We believe the Street is not factoring in potential market share gains in residential broadband and Pay TV over the next few years. 11 .

Source: Bloomberg M1 Street EPS estimates have been largely flat for M1.com Asia Pacific Equity Research 21 October 2011 Figure 16: StarHub: Street 1 year forward P/E Figure 2: StarHub: Street 1 year forward EPS Source: Bloomberg.r. Figure 17: M1: Street 1 year forward P/E Figure 2: M1: Street 1 year forward EPS Source: Bloomberg.sullivan@jpmorgan. recently. Sullivan. Source: Bloomberg 12 . and we do not expect material upside from current levels. M1 is also trading close to peak valuations and hence we are Neutral on the name.James R. CFA (65) 6882-2374 james.

has been actively pushing a program called the NextGen Interactive Multimedia Applications and Services program (NIMS).  NIMS project creates unbundles content: The Infocomm Development Authority of Singapore (IDA). but clearly a limiting factor. CFA (65) 6882-2374 james. but are not forecasting an all out price war on a product by product basis.  Forecast competitive dynamics are upended as Starhub pursues an alternative infrastructure approach: We suspect that a Virgin Media type strategy may in fact be the best long term strategic option for the company.. This could theoretically be used to completely unbundle content and reduce the role of SingTel and Starhub as Pay TV content aggregators. however. b) Starhub and to a lesser degree M1 will face structurally lower NBN economics. Were this dynamic to change.r.. This could be somewhat restrained.James R. in our view. which could be destabilizing. This program is at a very early stage of development.not a guarantee that price competition will not get out of control.  A foreign operator takes control of M1 and introduces cross market competitive dynamics into the Singapore environment. which theoretically limits product specific price discovery for consumers. We would not be shocked to see an operator like Telstra (in order to have a counter balance to SingTel's Optus) or Axiata (already a 29. which provides for a common platform Set Top Box (STB). general offer is triggered at ) to eventually make a bid for the firm. Sullivan.23% shareholder in M1. we would expect a greater potential for a degree of price competition between Starhub and SingTel given Starhub's better economics. This has the potential to introduce another layer of strategy into the Singapore market.com Asia Pacific Equity Research 21 October 2011 Key risks to our view  Pricing competition is worse then forecast: We do expect a degree of price compression which will reduce overall industry revenue growth rates moving forward. by Starhub's desire to achieve a reasonable return on their CAPEX investment. but as of yet see no signs that this will occur. but is something we are watching closely. mature market. the Telecom industry regulator. 13 . This is driven by the fact that a) bundles will increasingly drive this saturated. which limits their ability to aggressively cut price without significantly impacting their own margins.sullivan@jpmorgan.

CFA (65) 6882-2374 james. We thus first analyze the impact on fixed line and pay TV business from NBN with wireless business details to follow later Figure 18: SingTel: Revenue distribution FY11A and FY16E 45.0% 20.0% 20.0% 40. 14 . Morgan estimates.0% 50.0% 0. What matters most in terms of value shifts are the fixed line and pay TV businesses in a NBN world.0% 10.0% 15.0% 25.com Asia Pacific Equity Research 21 October 2011 Valuing Singapore Wireless matters most but the change is in fixed line Wireless business is the single largest revenue contributor for StarHub and M1 while SingTel derives almost 30% of its revenues from wireless.sullivan@jpmorgan.0% 30.0% 35.r. Though wireless matters most we do not expect significant market share shifts in the business going ahead and believe the business has matured to a point of stability. Figure 19: StarHub: Revenue distribution FY10A and FY15E 60.P.0% 5.0% Mobile 2010A Fixed line 2015E Pay TV Source: Company reports and J.0% 0.P. Morgan estimates.0% 30.0% 40.0% Mobile Fixed IT and engineering FY11A FY16E Pay TV Others Source: Company reports and J.James R. We expect fixed line business to see further mix shifts in fixed voice/broadband and fixed corporate segments.0% 10. Sullivan.

98 1.0 5.124 2.92 4.00 15 . We are of the view that the required weekly ports capacity has to go up for the NBN to have a sizeable impact in the country.85 16.0 5. Current limit at 2.22 7.8% 106.James R.0% 0.67 3.8% 106.84 211.4% 4.0% 40. StarHub on corporate SME business and M1 on broadband.8% 6.00 1.50 7. Fixed line and pay TV business in an NBN era NBN is expected to change Singapore’s fixed line and pay TV business going ahead.2 2. 2010E 1Q11E 2Q11E 3Q11E 4Q11E 1.079 -0.966 2.8% 1.984 1.83 36.8% 2.P.29 151.9% 5.98 2.0% 70.292 2.0% 1.0% 0.8% 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2. The sections below take a deeper dive into the impact of NBN to Singapore's fixed line and pay TV business.1% 4.0% 30.3% 107.50 0.2 23.4% 1.00 1.50 4.00 2.008 2.00 0.170 4.0% 111.17 3.2 5.sullivan@jpmorgan.2 5.00 2. which was recently increased to 2.0 0.8% 110.72 6.r.6% 2.42 2.23 531. Table 6: JPM NBN model Total Fixed subs QoQ YoY Household penetration (%) BP change QoQ BP change YoY NBN's share in total Fixed line BP change QoQ BP change YoY Total NBN subs (000) NBN Weekly Ports Source: J.P.400 weekly ports implies 520k additional subs from here on until 2015.38 4.0% 80.50 0.8% 108.9% 4.1% 1.1% 1.8% 1.0% 112.0% 10.3% 105.85 0.11 271.7 1.0% 60.20 1.05 4. giving NBN a low market share of 23% by 2015.8 5.8% 10.348 2.90 3.2 2.50 0. in our view).92 121.000 from 3Q12 as we believe this is necessary to allow NBN to gain a substantial market share (falling short of meaningful subscriber share is not a politically acceptable outcome. providing market share gain opportunity to SingTel on broadband and pay TV.00 12. not meaningful for M1 We expect 12% of Singapore’s fixed line subs to migrate to NBN by 2012 and then gradually grow to 45% of the subscriber base by 2015.39 1.7% 4.0% 20.3% 108.0% Mobile 2010A Fixed 2015E Others Source: Company reports and J.90 3.1% 1.238 3.4% 2013E 2.4% 102.11 271.1% 1.400 from 2.2 2.8% 5.com Asia Pacific Equity Research 21 October 2011 Figure 20: M1: Revenue distribution FY10A and FY15E 90. We forecast weekly ports to increase to 5.1% 4.48 0.2 5.8% 0.8% 0.90 4.66 8.7% 11.00 0.50 9.39 91.00 3. Morgan estimates.1% 1.079 2.5% 8.0% 0.5% 2. Key here is the government’s set limit on NBN weekly ports.043 2.39 4.50 0.50 0.00 2. Morgan estimates.147 2.8% 107.00 61. Sullivan.9% 2.39 91.5% 10.4% 2015E 2.4% 2012E 2.3% 106.2 2.3% 3.00 44.7 1.50 5. Fixed line and broadband: Opportunity for SingTel.050.77 790.00 34.0% 50.8% 108.35 5.101 2. CFA (65) 6882-2374 james.27 1051.1% 2014E 2.9% 103.170 1.00 12.1% 3.

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 21: Existing network and NBN market share of total fixed line
120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0%

2010E

2011E

2012E

2013E

2014E

Existing network's share in total Fixed line

NBN's share in total Fixed line

Source: J.P. Morgan estimates.

Fixed line: We forecast SingTel and StarHub to account for 60% and 30% of the NBN market while M1 to account for 10%. The mix is debatable and we thus analyze in further sections the sensitivity of valuation to market share. Within the existing network we expect market shares to remain largely stable.
Figure 22: Singapore fixed line subscriber market share
90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2010A 2011E 2012E SingTel-NBN 2013E SingTel-Total 2014E StarHub-NBN 2015E M1-NBN

SingTel-existing network

Source: Company reports and J.P. Morgan estimates.

We believe SingTel’s existing network ARPU’s will remain under pressure due to additional capacity in the system through NBN networks. 1H11 showed signs of increasing pressure with fixed voice ARPU down 6% in 2Q11 and 7% in 1Q11 vs. 4% in 2010.

16

2015E

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 23: SingTel' existing network fixed local voice ARPU trend
25

20

15

10

5

2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E

SingTel-voice local

Source: J.P. Morgan estimates and Company data.

Fixed broadband: Given that NBN will largely be a bundled product with a monthly charge for fixed voice and broadband this takes NBN share of total fixed broadband markets to parity with the existing network by 2015. So, simply put, we believe all NBN fixed line subs would subscribe to a bundle fixed and broadband package.
Figure 24: Fixed broadband market share split between NBN and existing networks
120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 2009A 2010A 2011E 2012E 2013E 2014E 2015E
17

Existing network's share in total Fixed broadband

NBN's share in total Fixed broadba nd

Source: Company reports and J.P. Morgan estimates.

As with fixed line, we forecast SingTel and StarHub to retain their share in existing network broadband offerings. Thus the opportunity here lies for SingTel and M1 to gain share in the broadband market. SingTel is a unique incumbent in that it is not the market leader in fixed broadband. We believe this was largely driven by StarHub’s superior bundling capabilities through a better pay TV product. SingTel has been gaining pay TV market share since its BPL win and aggressive push of the product. We believe superior bundling capabilities going ahead would be the key driver enabling SingTel to gain market share in fixed broadband and pay TV segments. The second chart below shows the

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

multi-product penetration of the subscriber base for SingTel and Starhub respectively.
Figure 25: Asian incumbent fixed broadband market shares
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Source: Company reports and J.P. Morgan estimates.

Figure 26: SingTel and StarHub bundling market share
90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 3Q07A 4Q07A 2007A 1Q08A 2Q08A 3Q08A 4Q08A 2008A 1Q09A 2Q09A 3Q09A 4Q09A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A SingTel StarHub

SingTel’s Mio TV launch

SingTel’s BPL rights win

Source: Company reports and J.P. Morgan estimates. Note: Bundled subscribers include any user who subscribes to two or more products from the same operator.

18

0 20.com Asia Pacific Equity Research 21 October 2011 Figure 27: Singapore: Total fixed line broadband market share 60.0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 19 SingTel-xDSL SingTel-NBN StarHub-CATV StarHub-NBN M1-NBN Source: Company reports and J. Overall broadband ARPU’s would remain under pressure and we believe NBN bundled ARPU’s would need to come down to existing xDSL and Cable TV levels in order. CFA (65) 6882-2374 james.0 70.0 60. We forecast StarHub's market share to increase to 24% by 2015 from 18% currently.5% every year from 2012 onwards to a size of S$1. A quick survey done amongst our Singapore office colleagues suggested that most were not inclined to increase their monthly broadband bill beyond S$50-60 levels.7% growth in revenues and we expect the segment to decline by 2.0 50.0% 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E SingTel-xDSL StarHub-NBN SingTel-NBN StarHub-Total SingTel-Total M1-NBN StarHub-CATV Source: Company reports and J. Morgan estimates.0% 50.James R.0% 0.0% 30.P. We believe the opportunity lies in here for StarHub to gain market share.0 40.0 80.0% 10.0% 40. Sullivan.0% 20.0 30.r. Morgan estimates. The size of this market was ~S$1.5 bn in 2010 and we expect the space to become competitive with NBN infrastructure. 2Q11 showed signs of slowdown with only 0.36 bn in 2015. even on better quality fiber services.P.0 0.sullivan@jpmorgan.0 10. Figure 28: Singapore: Fixed broadband ARPU trends 90. . Fixed corporate and others: This has been a monopoly segment for SingTel with ~82% market share historically.

P. 20 2015E .0% 60.000 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E SingTel mkt share StarHub mkt share Total corporate and others revenue (S$ mn) Source: Company reports and J.0% 30.600 1.0% 50.0% 10.0% 20.0% 20. Morgan estimates.r.com Asia Pacific Equity Research 21 October 2011 Figure 29: Singapore fixed corporate and other market share and size trends 100. Recent trends have shown significant improvement in SingTel’s pay TV ARPU (up 160% to S$25 in 2010 and at S$26 in 2Q11) and we expect the positive trend to continue driven by increasing take-up of SingTel’s sports package and improving content offering.200 1. Pay TV: This has been a business dominated by StarHub until SingTel's aggressive moves post its BPL rights win in 2009.0% 1.0% 70. Standalone profitability of SingTel’s pay TV business has been low but we believe pay TV would be a key asset for success on the bundling platform. The new content sharing law in Singapore calls for operators to share all new content acquired and any rational analysis would get someone to ARPU parity within the existing virtual duopoly.P.300 1.0% 80. SingTel has been continuously gaining pay TV market share and we believe it would get to parity with StarHub by 2015. CFA (65) 6882-2374 james.0% 80. Morgan estimates. Sullivan.100 1.sullivan@jpmorgan.0% 40.James R.0% 0. Please see our section What does MioTV mean? later in this report for more detail on this issue.0% 100.400 1.0% 90.0% 40. Figure 30: Singapore pay TV subscriber market share trends 120.0% 0.0% 60.500 1.0% 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E SingTel StarHub Source: Company reports and J.

Sullivan.0% 0.0% 70.020 1.0% 10. Morgan estimates.0% 2010A SingTel Source: Company reports and J.6%.0% 50.0% 20.sullivan@jpmorgan.P.080 1.0% 40. 2015E 1.000 980 960 940 2015E StarHub M1 Total revenue 2015E 21 .com Asia Pacific Equity Research 21 October 2011 Figure 31: Singapore Pay TV ARPU trends 70 60 50 40 30 20 10 0 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E SingTel Source: Company reports and J.040 1. Morgan estimates.r. Figure 33: Singapore: Combined fixed line and broadband (ex.P. CFA (65) 6882-2374 james. Morgan estimates.James R. We expect SingTel to lose market share in this segment to StarHub and M1.0% 60. StarHub Total Pay TV revenues (S$ mn) What is the overall impact on fixed and pay TV revenue profiles in an NBN era? Fixed and broadband (ex. We expect the market to grow at a 2015-2010 CAGR of 1.060 1.P.0% 30. corporate) market share and total market size 80. StarHub Figure 32: Singapore: Pay TV revenue share and total market revenues 120% 100% 80% 60% 40% 20% 0% 600 550 500 450 400 350 300 250 200 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E SingTel Source: Company reports and J. corporate): Fixed line and broadband is largely one product in Singapore with a monthly charge for the combined bundle.

we do not forecast M1 to capture pay TV market share.0% 2010A SingTel StarHub M1 2015E Total revenue 1.0% 20.0% 30.940 2.650 1. Sullivan.sullivan@jpmorgan.960 2. Fixed.P. NBN cost analysis NBN being an asset light business model should structurally have lower EBITDA margins than tradition Telco businesses.0% 60.980 2.970 2.920 Source: Company reports and J.990 2.450 1. We expect the combined market to grow at a 2015-2010 CAGR of 0.r. CFA (65) 6882-2374 james. we think SingTel will feel pressure on its corporate fixed line segment while we forecast the total corporate fixed market to contract due to aggressive competition.0% 60. broadband and pay TV (including corporate): The equation now gets changed as with NBN assets in place.950 2.0% 20.7%. We expect the combined market to grow at a 2015-2010 CAGR of 2.0% 0. Figure 34: Singapore: Combined fixed line.0% 10.010 3.0% 70.000 2. broadband and pay TV (ex. corporate) market share and total market size 70.0% 2010A SingTel StarHub M1 2015E Total revenue 3. Morgan estimates. Morgan estimates.com Asia Pacific Equity Research 21 October 2011 Fixed. SingTel and StarHub are expected to lose some market share to M1. broadband and pay TV (ex.0% 30.0% 40.020 3.500 1.0% 10. Figure 35: Singapore: Combined fixed line. On a combined basis.P. Overall. corporate): SingTel is expected to be the biggest beneficiary in the pay TV segment.930 2.400 1. We have simplified our NBN cost analysis for Singapore Telco operations by assuming two sets of expense items.James R.350 1.300 Source: Company reports and J.4%.0% 50.600 1. broadband and pay TV (including corporate) market share and total market size 80. 22 .0% 0. SingTel and M1 are expected to be beneficiaries at the expense of StarHub.700 1.550 1.0% 50.0% 40.

This is inline with the other cost of sales expense reported by M1 on its existing subscriber base. SingTel’s being a key owner of NetCo receives 75% of this compensation back and thus its effective cost of fiber adoption is only S$3. CFA (65) 6882-2374 james.com Asia Pacific Equity Research 21 October 2011 1) Cost of services. We thus forecast a monthly all in cost of services charge of S$25.75 for SingTel vs. 23 . Sullivan. Analysis in the table below highlights that on similar NBN ARPU's there is a large difference in NBN margin between SingTel. S$15 for StarHub: Operators need to pay NetCo a monthly fee of S$15 for residential NBN subs. variable expense per subscriber added: This is a variable monthly expense line which we estimate at monthly S$15/sub for SingTel and StarHub while S$10/sub for M1. and connectivity network maintenance. Effective cost of residential fiber adoption is S$3. StarHub and M1due to NetCo payment. This expense item is expected to remain largely stable going ahead. fixed expense per subscriber added: This is the monthly charge per subscriber paid to NetCo and OpCo at S$15 and S$6 respectively. We forecast a gradual (1%) yearly increase in this monthly marketing and other cost per sub going ahead.James R.sullivan@jpmorgan. SingTel and StarHub would be offering their fixed line.75 vs. SingTel thus has higher effective margins than StarHub and M1. Overall NBN EBITDA margin differs greatly for the three Telcos given the difference in pricing and SingTel’s 75% revenue share from NetCo. Figure 36: SingTel.r. broadband and pay TV products together while M1 in only offering fixed and broadband and hence a lower assumption on this cost item. We analyze the impact from both in greater detail below. We have assumed an additional S$4/subs monthly cost of sales expense on equipments. NetLink and NetCo service and lease agreements Source: SingTel. 2) Marketing and others. S$15 for StarHub and M1.

A quick survey done amongst our Singapore colleagues indicated that majority preferred their absolute broadband monthly expense to stay below S$60 and would not be willing to spend higher even for a faster service. CFA (65) 6882-2374 james. Morgan estimates.0 (3.0) 14. We forecast broadband monthly package to drop to S$50 levels for SingTel and StarHub by 2015 while S$38 for M1.3 42.0) 25. StarHub at S$60 and M1 at S$42.8) (6. Sullivan.James R.0) (25.P.r.0 23.0) (25.1% StarHub 60.com Asia Pacific Equity Research 21 October 2011 Table 7: Singapore NBN margin differential from NetCo and OpCo payments-sensitivity analysis NBN ARPU NetCo monthly payment OpCo payment Other monthly OpEx NBN monthly profit/user NBN margin Source: J.0 (15. SingTel 60.0) (6.0 (15.0) (25.3% M1 60.sullivan@jpmorgan.0) 14.0) (6.3% Taking guidance from the current monthly charge on NBN broadband bundles we estimate SingTel’s current NBN ARPU at S$70. We believe monthly packages need to come down over the long term in order to stimulate mass adoption of the product. Figure 37: SingTel: fiber plans Source: Company website. 24 .0 23.

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 38: StarHub fiber plans

Source: Company website.

Figure 39: M1 current fiber plans

Source: Company website

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James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 40: Singapore: Fixed broadband ARPU trends
90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E

SingTel-xDSL

SingTel-NBN

StarHub-CATV

StarHub-NBN

M1-NBN

Source: Company reports and J.P. Morgan estimates.

Thus we expect NBN EBITDA margin to gradually decline going ahead as pricing goes down.

26

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Table 8: Singapore Telcos: Detailed NBN margin build
2012E SingTel NBN ARPU (S$) NBN revenue (S$ mn) Revenue share from NetCo (S$ mn) Total NBN revenue (S$ mn) NBN marketing/sub (S$) NBN marketing (S$ mn) NBN cost of services/sub (S$) NBN cost of services (S$ mn) Total NBN OpEx (S$ mn) NBN EBITDA margin StarHub NBN ARPU (S$) NBN revenue (S$ mn) Revenue share from NetCo (S$ mn) Total NBN revenue (S$ mn) NBN marketing/sub (S$) NBN marketing (S$ mn) NBN cost of services/sub (S$) NBN cost of services (S$ mn) Total NBN OpEx (S$ mn) NBN EBITDA margin M1 NBN ARPU (S$) NBN revenue (S$ mn) Revenue share from NetCo (S$ mn) Total NBN revenue (S$ mn) NBN marketing/sub (S$) NBN marketing (S$ mn) NBN cost of services/sub (S$) NBN cost of services (S$ mn) Total NBN OpEx (S$ mn) NBN EBITDA margin
Source: J.P. Morgan estimates.

2013E 56 163 72 235 (24) (74) (14) (45) (119) 49% 50 72 0 72 (14) (20) (23) (33) (53) 26% 38 18 0 18 (9) (5) (23) (11) (16) 14%

2014E 53 254 103 357 (24) (112) (15) (69) (181) 49% 48 114 0 114 (14) (34) (23) (55) (88) 23% 38 30 0 30 (9) (7) (23) (18) (26) 14%

2015E 51 340 138 478 (24) (156) (15) (98) (254) 47% 47 156 0 156 (14) (47) (23) (76) (123) 21% 38 41 0 41 (10) (11) (23) (25) (36) 14%

65 107 50 157 (24) (39) (14) (24) (62) 60% 52 34 0 34 (14) (9) (23) (15) (24) 29% 39 8 0 8 (9) (2) (23) (5) (7) 17%

Figure 41: NBN EBITDA margin, 2012-2015E
70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% SingTel 2012E
Source: J.P. Morgan estimates.

StarHub 2015E

M1

27

Sullivan.6% 193 0.5% 5. StarHub and M1 respectively.5% 370 1.4% -0.0% 0.1% 194 0.3% 5.2% 357 -2.1% 2.580 2.754 5.2% 367 0. This is a long dated conversation with hard data points on subscribers still not released by any operator.216 2. The conclusions after we ran the numbers were interesting: Sensitivity to NBN’s share of total fixed line by 2015: Here we study the impact of varying NBN market share assumptions to our 2015 earnings for SingTel.998 2.0% 13.512 -4. StarHub and M1. 30% and 10% respectively.1% 5. StarHub and M1.P.5% 194 1.4% -0.sullivan@jpmorgan.4% -1.162 2.8% -2.3% 192 0.426 2. The table below highlights that M1 and StarHub are most levered to varying market share assumptions as SingTel has downside protection through payments from OpenNet.594 5.874 5.953 3.8% 11.715 -3.com Asia Pacific Equity Research 21 October 2011 Valuation sensitivity to NBN market share Our best case assumes that NBN would account for 45% of the total fixed line market in Singapore by 2015 and we assume a 60%. 30% and 10% within NBN market share for SingTel.2% -8.3% 194 1.676 5. We keep our estimates of their NBN market share unchanged at 60%.269 2. Morgan estimates.r.913 0.054 2. StarHub and M1.4% 6.0% 2.0% 366 0. We thus believe it becomes important to test the variability of valuation to our NBN market share assumptions.1% 5.3% -2.8% -0.5% -2.528 2.0% -0.3% 190 -1. 10% 15% 20% 25% 30% 35% 40% 1.992 4.4% -11. CFA (65) 6882-2374 james.4% 368 0. Our base case assumes 60%.0% 5.0% 355 -2.2% Sensitivity to market share within NBN: Here we keep NBN’s market share of total fixed line unchanged at 45% by 2015 and study the impact of varying our estimated NBN market share assumptions for SingTel.8% -6.8% -13.8% 5.8% 365 0.7% 358 360 361 363 364 -1. The table below highlights that on our estimates SingTel remains the most levered to this assumption as it receives the highest share of NBN market (60%) and also gets a flow through in revenue share from OpenNet.371 2.1% 371 1.0% -0.8% -1.632 2.2% Base case 45% 50% 55% 60% 65% 70% 75% 2.6% 8.8% 189 -1.James R.7% 1.469 -5.9% 193 0.635 5.3% 4.476 2.796 5.0% 192 0. 28 . 30% and 10% market share split within NBN subs for SingTel.321 -15.1% -1.834 5.6% -0.6% -0.552 5.6% 369 1.4% 2.3% 190 190 191 191 192 -1.683 0. Table 9: Singapore Telcos: Earnings sensitivity to total NBN fixed line market share by 2015 SingTel NBN share of fixed line market by 2015 FY16 Singapore EBITDA (S$ mn) Upside to base case FY16 group net (S$ mn) Upside to base case StarHub 2015 net income (S$ mn) Upside to base case M1 2015 net income (S$ mn) Upside to base case Source: J.6% -4.107 2.

2% -0.314 -3.1% 30% 35% 2.P.0% -2.0% 25% 2.379 0.6% 5.0% -2.0% 45% 206 7.0% 10.6% -0.0% 5% 347 -4.2% 65% 2. This has led a drop in its revenue share which is below 20% now. Morgan estimates.2% 70% 394 7.0% 50. 29 2015E .7% -2. M1’s subscriber share has largely remained unchanged around 30% on the back of aggressive pricing.364 -0.0% 50% 208 8. 10% 15% 20% 2.4% -0.0% 20% 196 2.3% FY16 group net (S$ mn) Upside to base case StarHub NBN market share 2015 net income (S$ mn) Upside to base case M1 NBN market share 2015 net income (S$ mn) Upside to base case Source: J.0% 40% 204 6.1% 45% 376 3.9% 70% 216 12.0% 25% 198 3. Morgan estimates. SingTel lost significant market share to Starhub from 2001-2006 as the latter’s voice pricing was at a significant discount (35-50%) to SingTel.3% 5.sullivan@jpmorgan.2% 70% 2.6% -0.1% 5.0% 35% 202 5.8% -1.8% -0.5% 5.1% 50% 55% 2. Wireless in our view is a stable and saturated market in Singapore with additional subscriber growth driven by multi-SIM phenomenon and dongles.9% 55% 210 9.738 -0. Sullivan.0% Base case 10% 192 0.1% 35% 369 1.300 2.James R.8% 10% 15% 20% 351 354 358 -4.350 -1.721 5.700 5.0% 15% 194 1.759 0.9% 5.9% 60% 212 10. we do not expect big moves in this segment.328 2. Figure 42: Singapore: Wireless subscriber market share trends 60.386 0.307 2.0% 40.3% 5.9% 5% 190 -1.com Asia Pacific Equity Research 21 October 2011 Table 10: Singapore Telcos: Earnings sensitivity to market share within NBN subscribers SingTel NBN market share 5% FY16 Singapore EBITDA (S$ mn) 2.0% 5.743 5.9% -0.0% -3.0% 30% 200 4.r.371 0. SingTel started to gain revenue and subscriber market share from StarHub since 2007 with more competitive pricing and better network quality.0% 30.732 5.343 2.292 Upside to base case -3.321 -2.5% Base case 30% 365 0.3% 40% 372 2. giving it a significant lead in data revenue growth.P.705 5.754 0.716 -0.694 -1.357 2.2% 5.1% 50% 380 4.0% Wireless business As we earlier noted.336 -1.9% 65% 214 11.711 -0.748 -0.0% 60% 387 5. CFA (65) 6882-2374 james.765 0.2% -0.7% 25% 361 -1.1% 40% 45% 2.2% 55% 383 4.0% 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E SingTel StarHub M1 Source: Company reports and J.2% Base case 60% 2.4% 5.727 -0.0% 20.1% 65% 390 6.0% 0.

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 43: Singapore wireless revenue share
60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E

SingTel

StarHub

M1

Source: Company reports and J.P. Morgan estimates.

Wireless MOU: StarHub’s relative historical premium on MOU’s has been converging and we expect the gap to continue to narrow.
Figure 44: Singapore: Wireless MOU trends
600.0 500.0 400.0 300.0 200.0 100.0 0.0

1Q10A

2Q10A

3Q10A

4Q10A

1Q11A

2Q11A

2003A

2004A

2005A

2006A

2007A

2008A

2009A

2010A

2011E

2012E

2013E

2014E

SingTel

StarHub

M1

Source: Company reports and J.P. Morgan estimates.

Wireless ARPM: SingTel and StarHub have kept tariffs quite close while M1’s relative discount is partly due to reporting certain line items (international revenues, which is a low margin business) on a net basis. Both SingTel and StarHub have kept tariffs largely stable while the declining trends at M1 are partly a function of net reporting of international revenues and falling international revenue margins. Operators don’t intend to get aggressive on voice pricing and are fully cognizant of the overall negative impact on the industry from price wars.

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2015E

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 45: Singapore: Wireless ARPM trends (long history)
25.0 20.0 15.0 10.0 5.0 0.0 2003A 2004A 2005A 2006A 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E

SingTel

StarHub

M1

Source: Company reports and J.P. Morgan estimates.

Figure 46: Singapore: Wireless ARPM trends (short history)
9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0

2009A

1Q10A

2Q10A

3Q10A

4Q10A

2010A

1Q11A

2Q11A

2011E

2012E

2013E

2014E

SingTel
Source: Company reports and J.P. Morgan estimates.

StarHub

M1

Wireless data as % of total: Data has been a key growth driver and we expect data’s proportion in total revenues to rise to 40-46% by 2015 from 33-41% currently. SingTel leads the pack here with 41% contribution from data revenues at CY2Q11.
Figure 47: Singapore: Wireless data as % of total revenue trends
50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

2001A

2002A

2003A

2004A

2005A

2006A

2007A

2008A

2009A

1Q10A

2Q10A

3Q10A

4Q10A

2010A

1Q11A

2Q11A

2011E

2012E

2013E

2014E

SingTel

StarHub

M1

Source: Company reports and J.P. Morgan estimates.

Wireless ARPU’s: Given recent trends and maturity of the business, we believe wireless ARPU’s would remain largely stable 2012 onwards while rise by 3% for SingTel in 2011 and decline 4% and 5% for StarHub and M1.
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2015E

2015E

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 48: Singapore: Wireless total ARPU trends
65 60 55 50 45 40 35 30 25 20 2003A 2004A 2005A 2006A 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E

SingTel-total

StarHub-total

M1-total

Source: Company reports and J.P. Morgan estimates.

Wireless market share and total market size: We expect ~100 bps market share gains at SingTel largely at the expense of StarHub, in line with recent trends. M1’s market share is expected to remain largely stable. We expect the wireless market to grow at a 2015-2010 CAGR of 4%. Thus, our point that value shift largely lies in the pay TV and broadband segments.
Figure 49: Singapore: Wireless revenue share and total market size
60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2010A SingTel 2011E StarHub M1 2015E Total Revenue 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 -

Source: Company reports and J.P. Morgan estimates.

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436 4.181 34.3% 33 .485 2.417 4.9% 772 1.407 2.2% 902 1.3% 787 1.547 3.438 4.4% 6.772 2.354 21.571 26.094 32. NBN EBITDA margin Ex. EBITDA and EBITDA margin forecasts for Singapore Telcos on an NBN and ex.203 18.4% 0 95 60.6% 847 1. NBN OpEx Ex.5% 6. CFA (65) 6882-2374 james.430 2.1% 726 1.529 22.995 3.1% 6.772 2. FY 2009A FY 2010A FY 2011A FY 2012E 63 (19) 44 70. 11: SingTel: NBN and ex. Morgan estimates.547 3.786 4.7% 793 1.437 2.sullivan@jpmorgan.1% 652 1. NBN Capex Ex.585 22.2% 6.1% 6.375 24.995 3. given the increasing combined use of assets between wireless and fixed line.126 33.191 18.914 4.455 22.111 38.797 2. NBN FCF margin Total Total revenue Total OpEx Total EBITDA Total EBITDA margin Total Capex Total FCF (EBITDA-Capex) Total FCF margin Source: Company reports and J.7% 6.144 32. Sullivan.7% FY 2014E 235 (119) 116 49.1% 0 175 49. NBN basis.436 4.569 2.312 20.1% 652 1.9% 6.0% 736 1.375 24.574 4.219 2.223 37.147 17.3% 793 1.8% 5.1% 6.371 34. NBN business is the asset light nature of the former.571 26.1% 772 1.8% 5.671 4.492 2.com Asia Pacific Equity Research 21 October 2011 Comparing NBN and existing business EBITDA margin and cash flows In this section we analyze our revenue.104 32.5% 0 116 49. What ultimately is important is the Cash flow margin profile of the two segments as a major difference between NBN and ex.360 21.9% 5.400 4.James R.426 2. NBN business comparison NBN cash flow dynamics S$m NBN NBN revenue NBN OpEx NBN EBITDA NBN EBITDA margin NBN Capex NBN FCF (EBITDA-Capex) NBN FCF margin Ex.456 22.437 2.9% 847 1.r.5% 0 44 70.219 2.7% 6.4% 787 1.049 31.667 2.049 31. Ideal world scenario would have been to analyze wireless and fixed line businesses separately but operators do not release such data and even we are of the view that to a certain extent this would be a cost allocation discussion.P.9% 0 224 46.429 4.8% 902 1.7% 6.4% 6.428 21.297 19.399 4.301 33.543 2.501 4.450 2. NBN EBITDA Ex. NBN Ex.2% 5.147 33.221 33.4% FY 2015E 357 (181) 175 49.5% FY 2013E 157 (62) 95 60.182 34.8% 6.1% 726 1.0% 736 1.223 37.111 38.5% FY 2016E 478 (254) 224 46. NBN FCF (EBITDA-Capex) Ex. NBN revenue Ex.

4% 257 445 19. NBN EBITDA margin Ex.284 1.642 596 26. NBN Capex Ex.6% 2.0% 2. NBN revenue Ex.612 659 29.4% 231 422 19.815 723 31.293 1.5% 2.com Asia Pacific Equity Research 21 October 2011 Table 12: StarHub: NBN and ex.3% 2.6% 272 324 14. NBN FCF (EBITDA-Capex) Ex.James R.734 736 32.2% 2.3% 0 10 29.268 1.497 654 30.483 645 30.483 645 30.6% 2. NBN OpEx Ex.9% 2. J.7% 0 3 35.623 733 31.2% 276 386 17. NBN EBITDA Ex.676 715 31.4% 257 435 19.3% 2013E 72 (53) 18 25.274 1.150 1.646 762 31.308 1.3% 251 464 20.2% 276 383 16.291 1.128 1.9% 0 33 20. CFA (65) 6882-2374 james.691 756 30.408 1. Morgan estimates.9% 0 26 22.0% 34 .9% 261 495 20.r.P.5% 2014E 114 (88) 26 22. NBN business comparison NBN cash flow dynamics S$m NBN NBN revenue NBN OpEx NBN EBITDA NBN EBITDA margin NBN Capex NBN FCF (EBITDA-Capex) NBN FCF margin Ex.3% 2.6% 257 505 21.3% 220 425 20.5% 2.5% 2.1% 257 479 20. Sullivan. NBN FCF margin Total Total revenue Total OpEx Total EBITDA Total EBITDA margin Total Capex Total FCF (EBITDA-Capex) Total FCF margin Source: Company.448 1.0% 2.6% 272 324 14.6% 261 463 20.259 1.2% 2.128 1.0% 2015E 156 (123) 33 20.9% 2.238 1.605 702 30.9% 2.642 596 26.238 1.9% 2.5% 0 18 25.497 654 30.356 1.150 1.1% 2.606 662 29.1% 251 482 20.sullivan@jpmorgan.7% 2012E 34 (24) 10 29.4% 231 422 19.3% 220 425 20. NBN Ex.629 692 30. 2008A 2009A 2010A 2011E 9 (6) 3 35.

2008A 2009A 2010A 2011E 3 (3) 1 19.9% 1. NBN revenue Ex.0% 2015E 41 (36) 6 13.121 782 338 30.r.0% 2014E 30 (26) 4 13. NBN FCF margin Total Total revenue Total OpEx Total EBITDA Total EBITDA margin Total Capex Total FCF (EBITDA-Capex) Total FCF margin Source: Company reports and J.5% 94 222 27.085 758 327 30. NBN OpEx Ex.5% 111 214 20.2% 111 217 20.043 739 318 30.6% 114 220 20.110 842 339 30.0% 100 214 21. NBN FCF (EBITDA-Capex) Ex.1% 1.2% 1.151 806 345 30. NBN Capex Ex.9% 1. NBN EBITDA Ex.1% 1.5% 1.7% 801 485 316 39. NBN EBITDA margin Ex.3% 980 666 314 32.0% 100 214 21.2% 1.6% 0 0 19.5% 119 190 24.8% 801 485 316 39. NBN Ex.8% 1.sullivan@jpmorgan.6% 118 222 20.P.1% 105 214 20.com Asia Pacific Equity Research 21 October 2011 Table 13: M1: NBN and ex. Morgan estimates.5% 107 211 20.091 808 334 30.6% 2012E 8 (7) 1 16.0% 1.025 707 319 31.1% 105 213 20.2% 2013E 18 (16) 3 14.3% 782 473 309 39.7% 1.5% 119 190 24.2% 114 224 20.9% 35 .5% 0 6 13.8% 980 666 314 32.2% 0 3 14.5% 94 222 27. CFA (65) 6882-2374 james.James R.9% 0 4 13.067 773 325 30.4% 107 212 20.022 709 318 31. NBN business comparison NBN cash flow dynamics S$m NBN NBN revenue NBN OpEx NBN EBITDA NBN EBITDA margin NBN Capex NBN FCF (EBITDA-Capex) NBN FCF margin Ex. Sullivan.051 732 320 30.7% 0 1 16.0% 118 227 19.7% 782 473 309 39.

at an equivalent ARPU relative to Starhub. Starhub. The success of mioTV (and the subsequent impact on residential broadband market share. please see below) is largely a function of customer take-up rates for NBN services. The ensuing competition has also played out very close to the playbook of NOW TV vs. We take a slightly more positive tone then market consensus on this issue. i-Cable:  The use of the English Premier League as a primary content based competitive weapon – both new entrants used this content as a way to increase the number of households taking their infrastructure.  Initially quite limited content available from the new entrant. We expect that the quality of mioTV services will increase significantly once customers are on an NBN connection. The parallels are numerous:  IP based new market entrant competing against a HFC cable based incumbent.sullivan@jpmorgan. this is primarily driven by the fact that the platform is currently running on SingTel's DSL network. This view is driven by the Hong Kong experience. In our view. STOMP. We suggest that a resolution of these two issues should enable MioTV to take 50% market share of Pay TV in Singapore. Sullivan. Initial customer feedback directly after the MioTV launch can be found on the Straights Times online forum. We expect that MioTV will be more important for SingTel strategically then the market expects. the current quality level of SingTel's DSL network was one of the drivers of the need for an NBN in the first place. 36 . but also by the two most commonly heard criticisms of mioTV: 1) Lack of content: Regulatory change has brought us to an era of content non-exclusivity as soon as current contracts expire…it is quite difficult to argue that there will be any true. sustainable content differentiation between the two platforms on a multi-year view. and the impact that this product may have on the overall market. CFA (65) 6882-2374 james.  Initial a-la carte pricing strategies employed by the new entrant to reduce entry price for new users.  Initial product reviews of the new entrant quite troublesome at a technical level. We also suggest that these market share gains will enable SingTel to take additional market share in residential broadband. The most obvious case study to reference for the potential outcome of mioTV vs.r. Let's not forget.  The IP based new market entrant backed by the incumbent fixed line player.com Asia Pacific Equity Research 21 October 2011 What does MioTV actually mean? There has been much conversation regarding the future outlook for MioTV.James R. 2) Technical issues: There have been frequent customer complaints regarding picture “freeze” or pixellation.

Sullivan. and therefore begin to split their wallet between the two services. I-Cable management pointed to the fact that while the service took an immediate close to 20% market share of subscribers. This initial phase will likely have no impact on the incumbent Pay TV provider's subscriber or ARPU trends and indeed may actually grow market revenue. They clearly focused almost all of their attention on the paying user base and the derived low overall ARPU.James R. with an initial 23 channels (the initial channel options were seen as quite English heavy. That said. and the subsequent use of bundled content to encourage users to finally recognize the new entrant as a comparable product. b) move from dormant to active status. as users are not spending so much on the second box as to be faced with a decision regarding splitting their "share of wallet" to the two providers. rather then on what we will term the “infection rate”. overly so in hindsight. The argument here is that during an initial ramp up period. This impact. The “infection rate” is a concept we have been discussing with senior telco management teams in Singapore for some time. This concept argues that the only statistic that matters is the percentage of your current households that have been "infected" with your competitor’s set top box.six months from launch subs in '000 Now TV subs . TCM. Hallmark. MTV etc). and technical issues will likely remain.r. The Hong Kong case study clearly shows the use of core "must have" content to increase overall household penetration.com Asia Pacific Equity Research 21 October 2011 The Hong Kong case study PCCW launched NOW TV in Hong Kong in 2003.installed base Net adds PCCW's market share Now TV pay channel subs as % of total Now TV subs Source: Company reports 2H03 147 18.3% 29 19. content offering will likely be sparse. Table 14: NOW TV subscriber base statistics .7% In our view i-Cable management made a very fundamental analytical error. Over time however.sullivan@jpmorgan. CFA (65) 6882-2374 james. your customer's premise has been infected. the large majority of those subscribers were not paying anything for the service. The initial pricing packages included no installation charges with a pay as you go price model that charged HKD9-21 per month per channel. infection rates a) go exponential. was felt most clearly through the incumbent's ARPU statistic rather then their user numbers. and even start spending some initial sum of money. Users could choose and order channels through their remote control (a PCCW patented technology at the time) i-Cable’s initial reaction to the launch of NOW TV was cautious. inclusive of the various Discovery Channels. CNBC. 37 . implying a very small impact on the overall structure of the industry (at least at a headline level). the percentage of the user base paying for premium channels was only 20%. and they may start watching some content on the new set top box. in the Hong Kong example. Initially.

Morgan estimates.sullivan@jpmorgan.r. we therefore expect mioTV to offer a similar suite of content as Starhub within the next few years. Sullivan. only 29K paying Paying sub ARPU 26% of i-Cable 2007 mioTV Launch 2004 2005 2006 NOW buys BPL rights Paying subscriber share of 30% Paying sub ARPU 72% of i-Cable 2008 45K subscribers Paying sub ARPU 11% of Starhub Source: J.P.PCCW takes the lead Source: Company reports and J. 38 . Singapore Pay TV market development timing Hong Kong 2003 NOW TV Launch 147K subscribers. we see the incumbent Pay TV provider showing a clear ARPU shift over to the new player. We suggest that the large overlap in timing suggests we at least take the case study a tad seriously.P.PCCW takes half. which in Hong Kong we feel occurred in mid 2007. Table 15: Hong Kong vs. Morgan estimates. 2007 2008 Paying sub ARPU equivalent to i-Cable 2011e 2012e 2009 i-Cable wins back BPL Total sub base equivalence to i-Cable Paying sub ARPU 2x iCable 2013e 2014e 2015e Total sub base equivalence to Starhub Paying sub ARPU equivalence to Starhub Singapore 2009 2010 mioTV buys BPL rights Paying subscriber share of 29% Paying sub ARPU 44% of Starhub Our forecasts for the Singapore Pay TV market hinge on two specific developments: 1) Content non-exclusivity: All content will be non exclusive post expiry of current contracts. CFA (65) 6882-2374 james.P. Company data.James R. Source: Company reports and J.. Figure 50: Hong Kong Pay TV Subscribers . Any content gap would trigger downside to our SingTel subscriber and ARPU forecasts. Figure 51: Hong Kong Pay TV ARPU .com Asia Pacific Equity Research 21 October 2011 Once the two products had achieved some level of “exchangeability” in people’s minds.. Morgan estimates.

8% 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2. Morgan estimates and Company Reports These NBN take up rate assumptions drive our specific forecasts both for subscriber and ARPU trends in Singapore.0% 1. i.4% 2012E 2.77 790.124 2.170 4.50 9.0% 0.50 5.008 2. One area of potential confusion re future trends is Starhub management assertion that their lack of subscriber loss.2 2. The i-Cable experience in Hong Kong shows clearly that significant market share loss can occur even while the incumbent grows their actual subscriber numbers. Company data.292 2.8 5.9% 4.7% 4.7 1.com Asia Pacific Equity Research 21 October 2011 2) NBN subscriber take-up rates: We argue.00 34.3% 107.James R.1% 4.92 121.0 5.0 0. Morgan estimates.50 4.4% 102.2 2.200 1.0% 0.7% 11.1% 1.966 2.8% 108. We assume rough subscriber equivalence between MioTV and Starhub by 2015.5% 2.98 1.67 3.17 3.90 3. CFA (65) 6882-2374 james.4% 2013E 2.8% 1.00 1.3% 108. 16: JPM NBN subscriber take-up forecasts Total Fixed subs QoQ YoY Household penetration (%) BP change QoQ BP change YoY NBN's share in total Fixed line BP change QoQ BP change YoY Total NBN subs (000) NBN Weekly Ports 2010A 1Q11A 2Q11A 3Q11E 4Q11E 1.1% 1.348 2.22 7.90 3.8% 10.079 2. that mioTV becomes a different.8% 6.11 271. that on NBN the product lives up to its initial claims).5% 10.8% 106.00 0.0 5. rising ARPUs.1% 3. Our ARPU trend assumptions are driven by dual forces: 1) Expanded content line-up at mioTV allows for larger bundles and better subscriber monetization.39 91. Source: J.2 5.9% 103. Company data.39 1. It is important to note that this DOES NOT come at the expense of Starhub’s subscriber growth.4% 2015E 2.P.50 0.42 2.1% 1.e.85 0.00 12. Our current expectations of NBN take-up rates are shown in the figure below…the NBN take up rates are critical both for SingTel's Pay TV competitiveness.3% 3.000 800 600 400 200 1H03 2H03 1H04 2H04 1H05 2H05 1H06 2H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 Figure 53: Singapore Pay TV Subscribers 700 600 500 400 300 200 100 0 2005A 2006A 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E PCCW i-Cable SingTel StarHub Source: J.0% 112.05 4.39 4. is a sign that mioTV is not a concern.2 2.1% 1.8% 106.50 0. and continued growth.8% 110.0% 111.101 2.170 1.48 0.043 2.1% 1.00 61.8% 5.8% 108.984 1.00 2.7 1.50 7.00 12. Figure 52: Hong Kong Pay TV Subscribers 1. 39 .8% 0.6% 2.00 3.P.3% 106.00 Source: J.83 36. more competitive product (or conversely.35 5. as well as M1's entry into residential broadband.147 2.9% 2.8% 2. Sullivan.27 1051.4% 4.50 0.90 4.9% 5.8% 1.23 531.00 2.238 3.72 6.P.1% 4.8% 107.2 5.00 1.1% 2014E 2.92 4.00 44.85 16. Morgan estimates.079 -0.84 211.11 271.20 1.8% 0.39 91.66 8.5% 8.29 151.50 0.3% 105.2 2.00 2.4% 1.sullivan@jpmorgan.2 23.50 0. in effect.2 5.98 2.00 0.r.38 4.

P. Morgan estimates. likely coming in at ARPU levels significantly below the current USD43 posted by Starhub in 2H10. Figure 55: Hong Kong Pay TV ARPU (USD) 35.0 20. SingTel Starhub PCCW i-Cable We note that i-Cable began to show downside to ARPU once PCCW's NOW TV offered BPL.0 10.0 1H08 2H08 1H09 2H09 1H10 2H10 Source: Company reports and J.0 20. Company data.0 PCCW i-Cable Figure 56: Singapore Pay TV ARPU (USD) 80 70 60 50 40 30 20 10 0 2005A 2006A 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E SingTel StarHub Source: J. Company data.0 25.0 15.P.com Asia Pacific Equity Research 21 October 2011 2) The overall industry subscriber growth that we are forecasting from 2H11 on will largely be Heartland driven. 40 .Singapore vs.0 5. we are forecasting ARPU equivalence by 2015 as a result of both rising SingTel ARPU (better content) and falling Starhub ARPU (growth into Heartland).r. These forecasts taken together drive overall industry revenue for Singapore into negative territory from 2H10 through early 2013 as competition and penetration into lower income segments of the market take their toll. Morgan estimates.0 40. The chart below shows the large premium that exists in the Singapore market compared to Hong Kong (the regional market with the closest income levels).James R.sullivan@jpmorgan. mioTV began showing BPL matches in August 2010.0 50. CFA (65) 6882-2374 james.P. Figure 54: Pay TV ARPU levels .0 10.0 30. Hong Kong USD 60.0 30. Morgan estimates. Sullivan. Source: J.

0% 0.P.0% 6. Impact of Pay TV market share on Broadband market share Another issue driving our longer term forecasts is the related nature of Pay TV and residential broadband market share.000 200.0% 2. This was particularly true for the "challenger" Pay TV operator. we now extend this analysis to the relationship between Pay TV and residential broadband. Company data. Morgan estimates. in this case PCCW. i-Cable Our forecast market share gains for mioTV in Singapore demands that we assume market share gains for SingTel in residential broadband. In reality we are quite comfortable with the forecast relative shift in market share.0% 14. CFA (65) 6882-2374 james.P. Source: J.sullivan@jpmorgan. We noted above that we expect fixed line and broadband market shares to eventually converge on the back of product bundles.0% 8. Sullivan.P.0% 18.000 50. Company data.0% 16.000 250.com Asia Pacific Equity Research 21 October 2011 Figure 57: Hong Kong Pay TV Annual Revenue run rate (USD) 25 20 15 10 5 0 -5 300.0% SingTel Source: J. Figure 59: Changes in Broadband market share correlation to changes in Pay TV market share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 93% 67% PCCW Source: J. Company data. SingTel has not had a competitive product.0% 10.000 150.0% 12.r.James R. In our view. we note the very high correlations between changes in Pay TV and broadband market share statistics for both PCCW and i-Cable. and market share losses for Starhub.000 PCCW i-Cable YoY Industry revenue growth (ppts) Figure 58: Singapore Pay TV Annual Revenue run rate (SGD) 450 400 350 300 250 200 150 100 50 2008A 2009A 2010A 2011E 2012E StarHub 2013E YoY 2014E 2015E 20. particularly at the 41 . Morgan estimates. Continuing our use of Hong Kong as a test bed.0% 4. Morgan estImates.000 100.

0% 40.0% 40.0% 30.0% 80. there are reasons for the NBN.0% 20.0% 15.James R.0% 10.P. CFA (65) 6882-2374 james.0% 10.0% 20. Pay TV and Broadband: i-Cable 90.P.0% 60.0% 0.). Morgan estimates.0% 60.0% 50. Sullivan.r.0% 0. Figure 60: Market share trends. Pay TV and Broadband: PCCW 70.0% 5. due to an aging physical plant within their copper infrastructure (again.sullivan@jpmorgan. 42 ..0% i-Cable's Pay TV market share i-Cable Broadband Market share Source: J.0% 20. Morgan estimates.0% 25. Company data. Company data.0% 10.0% 30.com Asia Pacific Equity Research 21 October 2011 high end. Source: J.0% 0..0% 2H03 2H04 2H05 2H06 2H07 2H08 2H09 2H10 PCCW's Pay TV market share PCCW's Broadband Market share Figure 61: Market share trends.0% 50.0% 70.

2) Strength of the balance sheet: This helps us understand if the companies can gear up their balance sheet to an optimum level in case business cash flows are not enough to support dividend payouts.96 0.3% 2013E 7.4% 6. ASEAN Telco net debt/EBITDA ranges from 0. Table 17: Singapore Telcos: FCF vs.9% 2.0x and we believe SingTel has a comfortably placed balance sheet to support its dividend payouts.6% 6.0% -2.0% 7.0% 9.8% -1. Morgan estimates.9% 6. Sullivan.James R.0% 9.8% 2010A 5. Figure 62: Singapore Telcos FY1E net debt/EBITDA 0.8% 8.3% 9.4% 3.80 SingTel StarHub M1 Source: J.r.0% 9.6% 7.3% 13.7% 2.1% 4.2% 6.5% 1. With net debt/EBITDA of <1 all Singapore Telcos have the ability to gear up.1% 5.90 0.3% 2.3% 7.5% 8.7% 9.5% 2011E 5. dividend yield Dividend and FCF yield SingTel-dividend yield SingTel-FCF yield FCF-dividend yield StarHub-dividend yield StarHub-FCF yield FCF-dividend yield M1-dividend yield M1-FCF yield FCF-dividend yield 2007A 3.3% 2009A 4.1% 5.1% 2. SingTel’s dividend yields run higher than FCF's for 2012 and 2013 so the question is whether they would be able to finance it through the balance sheet.0% 2.P.0% -0.0% 5.P.4% 13.7% 1.9% 1.3% 3.5% 8. Morgan estimates. 43 .5% 8.4% 2012E 6.0% 7.5% 1. CFA (65) 6882-2374 james.3% 2.4-2.2% 12.7% 5.0% 7.3% 5. SingTel's net debt/EBITDA would be 0.4% 0. Including these in our calculations.84 0. FCF yield generated: The table below clearly indicates that StarHub and M1 would be able to support their dividends through internal cash flow generation.82 0.4% 4.0% 9.2% 10.0% 6.8% 7.com Asia Pacific Equity Research 21 October 2011 Counting the Cash: Yield Sustainability We believe yield sustainability can be answered by analyzing two key metrics: 1) Dividend vs.sullivan@jpmorgan.2% 12.86 0.4% 1.1% 8.88 0.0% 9.3% 6.9% 4.2% Source: Company reports and J.6% 6.6x. Do note that net debt/EBITDA statistics for SingTel do not include associate contribution as these are recorded below the EBITDA line.2% 2008A 4.5% 3.92 0.94 0.

NBN FCF margin Total FCF margin NBN FCF margin Ex. Sullivan. 44 . CFA (65) 6882-2374 james. given its 75% revenue share from NetCo.r.sullivan@jpmorgan. NBN FCF margin Total FCF margin 2012E 60% 19% 20% 29% 19% 19% 17% 20% 20% 2013E 49% 20% 21% 26% 20% 20% 14% 20% 20% 2014E 49% 21% 23% 23% 21% 21% 14% 20% 20% 2015E 47% 21% 23% 21% 20% 20% 14% 20% 20% StarHub M1 Source: J.com Asia Pacific Equity Research 21 October 2011 Changes to Operating Free Cash Flow based on NBN implementation Over the near term we believe NBN will have a positive impact on FCF margins for all three Telcos but structurally NBN has highest cash flow margins for SingTel.James R. Table 18: Impact of NBN to Singapore FCF margins SingTel NBN FCF margin Ex. NBN FCF margin Total FCF margin NBN FCF margin Ex.P. Morgan estimates.

NBN EBITDA margin Ex.360 21.429 4.1% 6.049 31. FY 2009A FY 2010A FY 2011A FY 2012E 63 (19) 44 70.144 32.354 21.547 3.9% 6.571 26.3% 787 1.049 31.5% 0 44 70.sullivan@jpmorgan.219 2.8% 5.667 2.430 2.2% 902 1.8% 5. NBN business comparison NBN cash flow dynamics S$m NBN NBN revenue NBN OpEx NBN EBITDA NBN EBITDA margin NBN Capex NBN FCF (EBITDA-Capex) NBN FCF margin Ex.786 4. NBN OpEx Ex.371 34.4% 6.671 4.1% 6.5% 0 116 49.126 33.9% 772 1.450 2.9% 5.417 4.437 2.426 2.0% 736 1.com Asia Pacific Equity Research 21 October 2011 19: SingTel: NBN and ex.191 18. NBN Ex.492 2.543 2.9% 847 1.8% 6.4% 6.456 22.P.501 4.104 32.1% 726 1.147 17.181 34. Sullivan.301 33.438 4.203 18.399 4.7% FY 2014E 235 (119) 116 49.r.772 2.3% 793 1.428 21.2% 5.995 3.1% 652 1.772 2.5% 6.6% 847 1. NBN FCF margin Total Total revenue Total OpEx Total EBITDA Total EBITDA margin Total Capex Total FCF (EBITDA-Capex) Total FCF margin Source: Company reports and J. NBN Capex Ex.375 24.221 33.4% 0 95 60.529 22.7% 6. NBN revenue Ex.436 4.7% 6.995 3.7% 6.485 2.437 2.111 38.147 33.111 38.3% 45 .455 22.312 20.5% FY 2016E 478 (254) 224 46.223 37.182 34.James R.1% 0 175 49.8% 902 1.1% 6.219 2.400 4.571 26.223 37.585 22.797 2.574 4.436 4.7% 793 1.1% 772 1.569 2.094 32.407 2. NBN FCF (EBITDA-Capex) Ex.297 19.0% 736 1.1% 652 1.375 24.4% 787 1.2% 6. NBN EBITDA Ex.4% FY 2015E 357 (181) 175 49.5% FY 2013E 157 (62) 95 60. Morgan estimates.547 3.1% 726 1.914 4. CFA (65) 6882-2374 james.9% 0 224 46.

497 654 30.268 1.4% 257 435 19.3% 2013E 72 (53) 18 25. NBN EBITDA margin Ex.2% 276 386 17. NBN FCF margin Total Total revenue Total OpEx Total EBITDA Total EBITDA margin Total Capex Total FCF (EBITDA-Capex) Total FCF margin Source: J.6% 2.com Asia Pacific Equity Research 21 October 2011 Table 20: StarHub: NBN and ex.6% 257 505 21.2% 2.6% 272 324 14.9% 0 33 20.6% 261 463 20.1% 2.497 654 30.5% 2014E 114 (88) 26 22. NBN OpEx Ex.274 1.448 1. NBN revenue Ex.9% 261 495 20.606 662 29.5% 0 18 25.0% 46 . NBN Ex.3% 2.734 736 32.150 1.646 762 31.3% 220 425 20.238 1. Sullivan.7% 0 3 35.5% 2. Morgan estimates.4% 257 445 19.0% 2.3% 0 10 29.0% 2. NBN Capex Ex. NBN EBITDA Ex.1% 251 482 20.284 1.0% 2015E 156 (123) 33 20.676 715 31.291 1. CFA (65) 6882-2374 james.7% 2012E 34 (24) 10 29.408 1.9% 2.150 1.P.612 659 29.5% 2.3% 251 464 20.2% 276 383 16.sullivan@jpmorgan.r.9% 2.238 1.2% 2.1% 257 479 20. NBN FCF (EBITDA-Capex) Ex.308 1.6% 272 324 14.128 1.5% 2.605 702 30.4% 231 422 19.691 756 30.815 723 31.483 645 30.642 596 26.9% 2.3% 2.629 692 30.642 596 26. NBN business comparison NBN cash flow dynamics S$m NBN NBN revenue NBN OpEx NBN EBITDA NBN EBITDA margin NBN Capex NBN FCF (EBITDA-Capex) NBN FCF margin Ex.128 1.9% 2.483 645 30.4% 231 422 19.9% 0 26 22.James R.356 1.6% 2.3% 220 425 20.293 1.259 1.623 733 31. 2008A 2009A 2010A 2011E 9 (6) 3 35.

5% 1.067 773 325 30.2% 1.9% 0 4 13.1% 1.1% 1.151 806 345 30. NBN revenue Ex.7% 782 473 309 39.0% 118 227 19.6% 118 222 20.6% 2012E 8 (7) 1 16.sullivan@jpmorgan.P.5% 94 222 27.2% 1.5% 111 214 20.2% 0 3 14. 2008A 2009A 2010A 2011E 3 (3) 1 19.3% 980 666 314 32. CFA (65) 6882-2374 james. NBN EBITDA Ex.8% 1.091 808 334 30.1% 105 213 20. NBN Capex Ex.0% 2015E 41 (36) 6 13.r.James R.2% 111 217 20.0% 100 214 21.6% 0 0 19.8% 980 666 314 32.5% 0 6 13.3% 782 473 309 39.121 782 338 30.0% 2014E 30 (26) 4 13. NBN FCF (EBITDA-Capex) Ex. NBN Ex.5% 119 190 24.085 758 327 30. NBN OpEx Ex.2% 2013E 18 (16) 3 14.110 842 339 30.5% 119 190 24. Sullivan.5% 94 222 27.0% 1.4% 107 212 20.7% 801 485 316 39.2% 114 224 20.1% 105 214 20.051 732 320 30.0% 100 214 21.8% 801 485 316 39.6% 114 220 20.022 709 318 31.043 739 318 30. NBN business comparison NBN cash flow dynamics S$m NBN NBN revenue NBN OpEx NBN EBITDA NBN EBITDA margin NBN Capex NBN FCF (EBITDA-Capex) NBN FCF margin Ex. NBN EBITDA margin Ex. Morgan estimates.5% 107 211 20. NBN FCF margin Total Total revenue Total OpEx Total EBITDA Total EBITDA margin Total Capex Total FCF (EBITDA-Capex) Total FCF margin Source: Company reports and J.9% 1.7% 1.9% 1.9% 47 .025 707 319 31.com Asia Pacific Equity Research 21 October 2011 Table 21: M1: NBN and ex.7% 0 1 16.

build and operation of passive infrastructure which comprises of the fibre network and ducts. CFA (65) 6882-2374 james. Sullivan. Figure 63: NGNBN industry structure in Singapore Source: IDA Singapore. Layer 3: The Retail Service Providers (RSPs) offer services over the Next Gen NBN to end-users. Layer 1: This is the Network Company (NetCo) is responsible for the design.James R. including businesses and consumers. Nucleus Connect was selected as the OpCo for the Next Gen NBN. Singapore Telecommunications (SingTel).com Asia Pacific Equity Research 21 October 2011 Appendix I: NGNBN Structure in Singapore Singapore’s NGNBN industry structure is comprised of 3 layers. each comprising a company/group of companies responsible for the functioning and growth of the network. OpenNet was appointed as the Next Gen NBN's NetCo.r. Layer 2: The Operating Company (OpCo) provides wholesale network services over the active infrastructure. comprising switches and transmission equipment.sullivan@jpmorgan. Singapore Press Holdings (SPH) and Singapore 48 . OpenNet the NetCo OpenNet is a consortium of four partners – Axia NetMedia (Axia).

which is part of the Intelligent Nation 2015 or iN2015 blueprint to turn Singapore into a sophisticated city with seamless high-speed connectivity. Ultimate aim for NetCo is enabling the delivery of ultra-high speeds network of 1Gbps and above.com Asia Pacific Equity Research 21 October 2011 Power Telecommunications (SPT). thus aiming for completion by 2012.sullivan@jpmorgan. managing and operating an open and high quality fibre platform. offices and buildings. CityNet is an independent and separately managed company. 49 . installing a network. This fibre optic platform will be the key foundation of the Next Gen NBN. OpenNet will use some of the existing passive infrastructure assets owned by SingTel. OpenNet shares its coverage plan with the public through an interactive website. OpenNet claims to deliver a resilient and robust fibre platform at least 2.r. and S$50 per month for each non-residential fibre connection. For operating companies. Figure 64: NetCo ownership structure Source: Company reports. OpenNet will be required to fulfill all subsequent requests to install connectivity to homes. CFA (65) 6882-2374 james. The Singapore Government would provide a grant of up to S$750 mn to the NetCo for the network rollout. Figure 65: Key milestone timelines in NetCo deployment Source: IDA Singapore. OpenNet is responsible for building. OpenNet will offer wholesale prices of S$15 per month for each residential fibre connection. SingTel has transferred the underlying assets to CityNet in April 2011.5 years ahead of the iN2015 vision timeframe. When inputted with the postal code of the building the website indicates whether OpenNet’s is already present. coming soon or requests invitation.James R. Sullivan. which will take effect from 2013. Under a Universal Service Obligation (USO).

James R. transparent and non-discriminatory for RSPs. Nucleus Connect is a wholly owned subsidiary of StarHub (STH SP). Sullivan. Nucleus Connect the OpCo Nucleus Connect was selected as the OpCo of NGNBN. The IDA will provide a grant of up to S$250 million to Nucleus Connect in support of its infrastructure deployment. Nucleus Connect will design. Nucleus Connect is also committed to establishing an integration test-lab facility that will help RSPs trial and test out new applications and services over the Next Gen NBN's commercial deployment.sullivan@jpmorgan.com Asia Pacific Equity Research 21 October 2011 Figure 66: OpenNet's network coverage interactive search tool Source: OpenNet Figure 67: Search result for Capital Tower in Singapore Source: OpenNet. Its charter also includes the commitment to attract overseas online service providers to host their content in Singapore. build and operate the active infrastructure of the NGNBN. 50 . CFA (65) 6882-2374 james. Established in April 2009.r. Nucleus Connect is tasked to ensure that the prices for its services remain competitive.

Telstra’s has to migrate subscribers to the NBN network post installed at a certain place. NBN Co. CFA (65) 6882-2374 james. The intent is to lower barriers to entry on the fixed line space and make additional room for healthier competition. Incumbent fixed line player has to transfer passive assets to the operating company.  No structural separation. NBN products are already out in the market. Project is supported by financial aid from the government. NBN is still in discussion/negotiation phase.        Similarities in NBN structure between Singapore and Australia. Wholesale pricing has not been decided yet. Singapore Australia   Aimed at providing a comprehensive high speed infrastructure base to the economy. the NBN Co owns both the active and passive infrastructure but would lease Telstra’s ducts and pipes where required. Sullivan.sullivan@jpmorgan. Operators need to migrate subs to NBN only if they want to.James R. Wholesale pricing at S$21 per line. which would be shared to RSP’s.   Aimed at providing a comprehensive high speed infrastructure base to the economy. is owned by the government so there is less probability of conflict of interest. Below are the key structural differences and similarities between the NBN in Singapore and Australia. unless the subscriber objects. Differences in NBN structure between Singapore and Australia. NBN companies are owned by existing Telco operators and hence there can potentially be conflict of interests. which would be shared to RSP’s. Project is supported by financial aid from the government.     Regulatory Aims: Regulatory aims of the NBN project are similar between Singapore and Australia.com Asia Pacific Equity Research 21 October 2011 Nucleus Connect began commercial operation on 31 August 2010. NBN Co is government owned. The intent is to lower barriers to entry on the fixed line space and make additional room for healthier competition. NBN Comparison: Singapore vs. Governments of both countries are supporting the project by partial monetary funding. 51 . Incumbent fixed line player has to transfer passive assets to the operating company.r. Australia Though NBN sound similar between the two countries the composition and structure of the business is drastically different. The NBN companies are owned by private corporate. Singapore Australia     Structural separation between active and passive infrastructure companies.

NBN rollout is expected to be completed by 2015 in Singapore while the timeline in Australia is still uncertain. One key aspect of the changing Singapore market is the loss of exclusivity rights on Pay TV content. Timing: NBN rollout began in early 2009 for Singapore while in Australia it is still at an early stage. Revenue share: SingTel gets paid a revenue share of what OpenNet gets. with the active infrastructure owned by OpCo and passive infrastructure owned by NetCo. Non-residential premises will cost S$75 a month and S$860 respectively Compensation: Government is giving S$750 mn to NetCo of which Singtel is a stake 30% owner. For NetCo the target is to reach 60% coverage by Dec-11 and 95% by June.James R. SingTel has committed to transfer the assets used by OpNet into an open access structure (NetLink Trust). Lower barriers to entry on the fixed line space and transform it to a level playing field.r. which is 75% of NetCo's revenues or a minimum of S$55 mn. the NBN Co owns both the active and passive infrastructure but would lease Telstra’s ducts and pipes where required. Sullivan. Operators see no risk to achieving the targets. Thus. Nucleus Connect is offering a wholesale price of S$21 a month for a 100 Mbps residential end-user and S$121 for a 1 Gbps connection. Operating structure: There is structural separation between active and passive infrastructure companies in Singapore. For both the NetCo and OpCo there are targets that have to be achieved to get the payments. Wholesale Pricing: Wholesale pricing has been fixed by the regulator and Nucleus Connect in Singapore while in Australia final pricing decisions are still a long time away. Content sharing mandates ion Singapore require pay-TV retailers who have acquired exclusive rights to content on or after March-10 to make the content available for cross carriage. they are also giving S$250 mn to OpCo. In Singapore. there is no exclusivity on the infrastructure in both countries.sullivan@jpmorgan. There is no structural separation in Australia. CFA (65) 6882-2374 james. SingTel would reduce the holding in the trust to 25% by 52 .com Asia Pacific Equity Research 21 October 2011 We see two key potential regulatory goals targeted in both countries:   Providing a comprehensive high speed infrastructure base to the economy. Exclusivity: The broader idea behind NBN in both countries is to provide high speed broadband infrastructure at low cost and barriers to entry for the operators.

Segmental Market Share Impact Wireless: We do not expect big shifts in the wireless market from NBN. OpenNet is also paying S$1 bn to SingTel for rolling out the network.com Asia Pacific Equity Research 21 October 2011 2014. Key reason for the view being already high penetration levels in Singapore (150% at June-11) making it difficult for a new entrant to gain a relevant market share. Morgan estimates.0% 50.0% Source: Company reports and J. Industry voice tariffs have already declined by 30-50% since 2006 making profitability hard to achieve without the required levels of scale. Sullivan. 70% of the revenue share from NetCo or S$20 mn out of the minimum S$55 mn would be paid by SingTel to the NetLink trust. 2001A 2002A 2003A 2004A 2005A 2006A 1Q07A 2Q07A 3Q07A 4Q07A 2007A 1Q08A 2Q08A 3Q08A 4Q08A 2008A 1Q09A 2Q09A 3Q09A 4Q09A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 3Q11E 4Q11E 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2012E 2013E 2014E 2015E SingTel StarHub M1 53 .r.0% 40. Figure 68: SingTel.James R.0% 0. CFA (65) 6882-2374 james. this is a very low margin business.0% 10.0% 30.0% 20.sullivan@jpmorgan. Figure 69: Singapore wireless subscriber market share 60.P. NetLink and NetCo service and lease agreements Source: SingTel.

Figure 71: Singapore fixed line subscriber market share 90.0% 10. StarHub's NBN share at 30% and M1’s share at 10%. J.James R.0% 30. Within existing copper fixed line we expect SingTel’s subscriber market share to remain stable at 85%. Morgan estimates.0% 50.0% 20.0% 0.0% 80.0% 40. Sullivan. Overall we expect SingTel to lose fixed line market share to StarHub and M1 as NBN eases barriers to entry in the fixed line market through easily available capacity at uniform prices.0% 2010A 1Q11A 2Q11A 3Q11E 4Q11E 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2012E 2013E 2014E 2015E M1-NBN Existing network's share in total Fixed line NBN's share in total Fixed line Source: Company data. 54 2015E . We expect competition to intensify on fixed line tariffs given the entry of new players in the market and availability of large amounts of idle capacity at no incremental capex.com Asia Pacific Equity Research 21 October 2011 Fixed line: We expect NBN's share in total fixed line to increase to 45% by 2015 and fixed line house hold penetration to increase to 112% from 106% at 2Q11.0% 60.0% 70.0% 60. We forecast SingTel’s share within NBN subs to be 60%.r.0% 0. Morgan estimates. Figure 70: Existing network and NBN market share of total fixed line 120.0% 2010A 2011E 2012E SingTel-NBN 2013E SingTel-Total 2014E StarHub-NBN SingTel-existing network Source: Company reports and J.0% 40.sullivan@jpmorgan.0% 20.0% 100.P.P.0% 80. CFA (65) 6882-2374 james.

Morgan estimates.r.0% 40.0% 20. Like fixed line we expect SingTel’s share within NBN broadband to be 60%. Sullivan.0% 0. Management teams .sullivan@jpmorgan.0% 100.James R. CFA (65) 6882-2374 james. Fixed Broadband: We expect NBN’s share of total fixed line broadband market to rise to 51% by 2015. Figure 73: Fixed broadband market share split between NBN and existing network's 120.0% 2009A 2010A 2011E 2012E 2013E 2014E 2015E 55 Existing network's share in total Fixed broadband NBN's share in total Fixed broadba nd Source: Company reports and J.P. StarHub’s total fixed broadband market share is expected to fall to 32% by 2015 from 34% at 2010.0% 60. SingTel would benefit from increasing up selling of the broadband product given their win on BPL and subsequent increase in Pay TV market penetration. M1’a share is expected to rise to 5% from a low base at 2010.P. Overall we expect SingTel’s fixed broadband market share to increase to 51% by 2015 from 42% from 2010. SingTel's and StarHub’s share within existing network fixed broadband market is expected to remain stable at 42% and 34% respectively.0% 80. Morgan estimates. StarHub at 30% and M1 at 10%.com Asia Pacific Equity Research 21 October 2011 Figure 72: Singapore: Fixed local voice ARPU trends (existing network) 25 20 15 10 5 - SingTel-voice local Source: Company reports and J. We believe major listed players would benefit additionally from the NBN launches and gain market share from other smaller players given the limited bundling opportunity for the smaller players and new entrants.

P.0 30.0 70.r.com Asia Pacific Equity Research 21 October 2011 have been indicating that there has been limited pressure from new entrants in the space.0 0.0% 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E SingTel-xDSL StarHub-NBN SingTel-NBN StarHub-Total SingTel-Total M1-NBN StarHub-CATV Source: Company reports and J.0 50. Figure 74: Singapore: Total fixed line broadband market share 60.0 20. Figure 75: Singapore: Fixed broadband ARPU trends 90.0% 0.0 40.0% 40. CFA (65) 6882-2374 james.0% 30. Morgan estimates.0% 10.sullivan@jpmorgan.0 60.0% 50.0 80. Morgan estimates.James R.0 10. Given the culmination of subscriber and ARPU trends we expect SingTel’s total fixed broadband revenue market share to remain largely stable at 61% while M1 to gain 3% revenue market share from StarHub by 2013.P. Sullivan. 56 .0% 20.0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E SingTel-xDSL SingTel-NBN StarHub-CATV StarHub-NBN M1-NBN Source: Company reports and J.

0% 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E SingTel StarHub Source: Company reports and J. Sullivan. Morgan estimates. We expect increasing Pay TV market penetration by SingTel to help its fixed line broadband offerings too.James R.0% 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E SingTel StarHub M1 Source: Company reports and J.0% 70. from 37% and 63% currently.0% 0.0% 20.P.0% 40. CFA (65) 6882-2374 james.P. 2015E 57 .0% 10. with the consumer’s wallet share shifting from StarHub to SingTel.0% 80.r.com Asia Pacific Equity Research 21 October 2011 Figure 76: Singapore fixed broadband revenue market share 80. Post SingTel’s BPL win.0% 60.0% 30.0% 50.0% 20. Figure 77: Singapore pay TV subscriber market share trends 120. Morgan estimates.0% 40.0% 100. the Pay TV has drastically changed in market dynamics. Pay TV: We expect SingTel and StarHub to own equal share of the total pay TV subscriber market by 2015.sullivan@jpmorgan.0% 0. Content sharing rule established in 2010 would also help push equal wallet share between existing participants.0% 60.

58 2015E 2015E .r.P.P. Morgan estimates. Figure 79: Singapore Pay TV revenue market share 120% 100% 80% 60% 40% 20% 0% 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E SingTel StarHub Source: Company reports and J. Sullivan.sullivan@jpmorgan.James R. CFA (65) 6882-2374 james.com Asia Pacific Equity Research 21 October 2011 Figure 78: Singapore Pay TV ARPU trends 70 60 50 40 30 20 10 0 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E SingTel StarHub Source: Company reports and J. Morgan estimates.

post NBN assuming a A$40 monthly wholesale access price (best case) 3. the margin erosion would have been manageable for Telstra.James R. Senator Conroy referred to a A$60 average wholesale access price (within the range). 59 . Please see the report for detailed assumptions used for the analysis.sullivan@jpmorgan. At A$40 access price. 2.pre-NBN.r. CFA (65) 6882-2374 james.A$70 range to highlight the impact of the NBN price on TLS future fixed margins. Sullivan.com Asia Pacific Equity Research 21 October 2011 Appendix II: NGNBN in Australia Our initial analysis on impact on Telstra’s fixed line business from NBN (Contributed by Lauren Horrut) Highlighted in the table below is our analysis published in the report “Telstra Corporation: NBN: Deal or No deal? “on the basic economics of a bundled Fixed telephony + Broadband for Telstra under 1. In a subsequent press conference. whilst at A$70 the impact would have been dramatic. We used the A$40. Our conclusion of this analysis was that the impact on margins was radically different at both ends of the range.post NBN assuming a A$70 monthly wholesale access price (worst case) The A$40-A$70 access price range (attributed to Optus) was endorsed in late October by Communications Minister Conroy.

. We estimated that every 1% of variance in the long-term capex:sales ratio is worth 25cps (i.e.r.A deal but no fine print” published in June2010.com Asia Pacific Equity Research 21 October 2011 Figure 80: Impact of NBN Access price on Telstra's Fixed margins Source: Company data.James R. assuming 14% LT capex: sales vs. Highlighted below is TLS capex to sales ratio since 2000 showing the well established cyclicality in Telstra’s investment cycles. J. Telstra’s capex profile in an NBN world We analyzed Telstra’s capex profile in an NBN world in our report “Telstra Corporation: NBN Heads of Agreement. 60 .P. 15% adds 25cps to our valuation).sullivan@jpmorgan. Morgan estimates. Sullivan. We believe long-term capital intensity assumptions are the most value sensitive assumption in an incumbent Telco DCF model and Telstra is no different than its global peers. CFA (65) 6882-2374 james.

Morgan estimates. the capital intensity in Fixed line should decline as well. In the context of the transition of the NBN. in our view. Highlighted below is Telstra's capex breakdown over the past four years: 61 . How much Fixed line capex can Telstra save in the NBN environment? 2. CFA (65) 6882-2374 james. one would think that if Telstra has to transition to a lower-margin Fixed line business in an NBN environment.com Asia Pacific Equity Research 21 October 2011 Figure 81: Telstra's capex cycles since 2000 Source: Company reports and J. the two critical questions. the question is to what extent is the NBN likely to change the capital intensity of Telstra? In particular. Would Telstra need to accelerate Mobile capex in order to mitigate the NBN risk on the Fixed earnings? How much Capex could Telstra save in an NBN world? Intuitively.r. are: 1.sullivan@jpmorgan.James R.P. Sullivan.

CFA (65) 6882-2374 james.P. A$1bn in its core and transmission network in FY09. Morgan estimates. representing 15% of total capex in FY09.TLS spent c. We note that NBNCo CEO Quigley recently stated that it will not invest into fibre backhaul where the market is contestable.sullivan@jpmorgan. Sullivan. At the October 2009 Investor day. The NBNco CEO also flagged that NBNco would interconnect in 100 to 200 Points of Interconnection with 62 .. mostly the copper network) amounted to A$750m-A$800m in FY08/FY09. the capex spent in ‘Fixed Access’ (i. the Customer Access Network.r.e.com Asia Pacific Equity Research 21 October 2011 Figure 82: Telstra's capex breakdown Source: Company reports and J.James R. Network Core/ transmission. It is unclear how much of that capex envelope Telstra would save and how quickly it could scale that capex back as the migration to the NBN progresses. Fixed access. management indicated that they themselves have little visibility as to how the Access capex will change in an NBN world.According to Telstra’s disclosure above.

Wireless.) in FY09.com Asia Pacific Equity Research 21 October 2011 carriers but that the exact number of PoI has yet to be determined. given the competitive threat of NBNco on routes where Telstra has a monopoly today.$33 . TLS might have to increase its spend in order to mitigate the earnings risk.TLS spends c. over the past few years. we believe TLS might have to accelerate wireless spend (or not) as it develops risk mitigation strategy on the Fixed line. Land & Building.Assuming that Telstra does secure the additional spectrum required for LTE. A$400m in wireless access capex (base stations. As such.g. it is unclear where Telstra core and transmission capex will be impacted but we believe it is likely Telstra will continue to need to invest in its core and transmission network.a. sites. We believe so and note that Telstra is trialing LTE from May this year . IT. Will Telstra need to accelerate Mobile capex to mitigate the NBN risk on Fixed earnings? The other key question. in our view. CFA (65) 6882-2374 james. Whilst some savings should be realized as Telstra looks at restructuring its number of exchanges in an NBN environment. we believe that Telstra would look at the possibility of bringing forward LTE deployment by a few years.r. Depending on the outcome of on the NBN and the Legislation.45% of customers take the 12mbps option & 30% take 100mbps by 2020.sullivan@jpmorgan.$34 (Option A & B)  IRR – base case 7. e. In fact. It is unclear today how much of that Capex Telstra could save in an NBN environment. We note that Telstra has already upgraded its network to HSPA+ (Feb-09 announcement).James R. Key takeaways include:  Blended ARPU .. we believe it is not inconceivable to forecast an increase in TLS mobile capex in the next few years as a mitigation strategy against the NBN impact on its fixed business. in our view. Mobile. HFC. Key points from NBN Co Corporate Plan Key points from JPM’s report on NBN Co’s corporate plan released in Dec-2010. in order to mitigate the earnings risk on Fixed line from the NBN.TLS spent in excess of A$1bn in IT capex p. 63 .TLS spent c.a. is whether Telstra will have to accelerate spend in other network platforms. In that context. etc. We note that LTE has been rolled out commercially by a number of Western carriers and is tested by Telstra in HK through CSL. the savings are likely to be modest. Please click here for detailed JPM report. Sullivan. etc. the plan sets out the key objectives and priorities for NBN Co for the three years from 1 July 2010 to 30 June 2013.A$300m in Land & Building p.04%  Wholesale access price & Take up – Assumes c.

James R.9bn to the end of the construction period Operating expenditure – $21. (Internet.        Points of interconnect –120 Points of Interconnect (PoI) (80 Metro. Full-scale construction of the NBN is due to 64 .9bn.8bn by 2021 and $7. telephone & TV) Construction –The NBN is expected to take 9.8bn to the end of the construction period Funding – Peak funding is $40. 7% wireless or satellite Figure 84: Fibre premises connected targets (000) Source: NBN Co. NBN Co will seek debt funding from capital markets from 2015 Coverage – 13m premises covered by 2021. This is more than the original 14 PoI but fewer than the 200 to 400 wanted by the major telcos.6bn by 2025. Minimum government equity is $27.5 years to complete in a Telstra deal scenario.r.sullivan@jpmorgan. Revenues – Annual revenues are forecast at $5.5bn. Sullivan.   Products –Opportunity to build a triple play offering. 40 regional) and 980 fibre servicing areas. CFA (65) 6882-2374 james. Capital expenditure – $35. 93% fibre network. Telstra Deal – The NBN Corporate plan assumes that a deal with Telstra is completed by 30 June 2011.com Asia Pacific Equity Research 21 October 2011 Figure 83: NBN Co charge details Source: NBN Co.

Cherry Picking – The Corporate Plan assumes regulatory protection to prevent opportunistic cherry pickers. after which the rate will increase to 5.com Asia Pacific Equity Research 21 October 2011  commence in Q3.sullivan@jpmorgan. Sullivan.4%. Figure 85: Key financial performance indicators (Nominal dollars) Source: NBN Co.8m fewer connections) and the NBN projected return would reduce to 5. CFA (65) 6882-2374 james.200 premises passed per day by March 2014.900 premises per day during peak construction.James R. NBN Co will ramp up its construction capacity to 5.r. it would decrease Greenfield connections by 50% (0. If NBN were to be ‘cherry picked' in the most lucrative regions. 2011. 65 .

This is because we defined this floor scenario to be 800m cell radius to get uplink coverage from the mobile to the base station. As the capacity demand increases the cell radius is decreased but at ever decreasing steps for incremental capacity. Sullivan. 3. CFA (65) 6882-2374 james. Singapore can be described as: 1.com Asia Pacific Equity Research 21 October 2011 Appendix III: Economics of Wireless Data: Singapore We can investigate a “base scenario” for a modern city center with a mature 3 operators.James R. 66 . An operator in Singapore quickly runs out of capacity at around 3-4 Gb per month and will need to add cells to the network to cope with capacity demand.r.sullivan@jpmorgan. Table 22: ATiC Modeling Parameters used for Singapore Modelling parameters 3G bandwidth available per operator Sectors per site 3G spectral efficiency Spectrum band Environment Spectrum carriers assigned for voice Smartphone penetration Land area Density of people Population Source: ATiC Consulting Unit MHz bps/Hz MHz % km^2 persons/km^2 Persons Singapore 30 3 0. The traffic model works on a busy hour of 4 hours per day and busy-hour-days per year of 365 days. There are several key aspects to note with this graph: 1. This 800m cell radius corresponds to 700m in a hexagonal regular grid. Relatively small land mass 2. assuming 100% mobile penetration is a simple division by the number of operators present. 3 Mature 3G operators with over 100% mobile penetration 3. In our first example Singapore is used. A large percentage of smart-phone users – we will assume 30% The modeling parameters are described in Table 2. There is a floor at a cell radius of around 700m where there is no impact going from a 1GB/Month smart-phone plan to a 2 GB/Month smart-phone plan. Once we have these figures a simple linear equation can be derived for determining the number of cell sites required to meet aggregate download capacity demand from the subscriber density and a traffic model.9 2100 Dense Urban 1 30 479 835 4650000 The land area and population density are found in Appendix A for most major cities around the world. 2. Figure 6 shows the decrease in the cell radius with the average user data allowance given per month in GigaBytes. The potential density of people per operator. This is to be expected where cell radius and range are related by a squared relationship.

Figure 7 shows that for every additional GB user monthly allowance a 3G operator with 30 MHz of spectrum would have to add around 120 sites to the base coverage requirement of 400 sites to cover the urban area of Singapore or a capital intensity of around 30%. Another way of looking at Figure 6 is to understand the physical number of sites required to meet capacity growth in Singapore. CFA (65) 6882-2374 james.r. Sullivan.James R. 67 .com Asia Pacific Equity Research 21 October 2011 Figure 86: Average Singapore city cell radius with increasing monthly allowance per subscribers Source: J. Morgan. ATiC Consulting In reality there is a physical limit to macro cell sites being approached at around 300m-400m radius where it become very difficult to find sites in major city areas and an operator has to start moving to a lower powered micro base station solutions that requires an extra carrier to avoid interference with the macro network.sullivan@jpmorgan.P.

ATiC Consulting In Singapore.James R. To understand the implications of this increased smart-phone usage it is necessary to look at places where spectrum is limited and populations differ from the average case of Singapore. or approximately USD40 per smart-phone user to instantaneously increase network capacity with minimal hardware cost.com Asia Pacific Equity Research 21 October 2011 Figure 87: Site numbers in Singapore with increased user demand Source: J.r. Sullivan.sullivan@jpmorgan. CFA (65) 6882-2374 james. Morgan. the three incumbent operators purchased additional 3G spectrum at an average of USD15 million each. 68 .P.

We also provide operators’ long-term targets. In March 2010 it revealed plans to cover ‘up to 10%’ of German households with FTTH by year end 2012.5% 17.0% Ranked 2.0% 40. Few incumbents have been pro-active.3 1. An alternative ranking would utilize investment costs per household (FTTH c. the third (100Mbps) to FTTH.7 0.2 0. CFA (65) 6882-2374 james.4 1.0% 3.0% 2.5% 2.4 1. VDSL c. others spend very little. Company data. We will discuss the relative merits of these two strategies in some detail in a separate chapter in this report.P.0% 40. According to this ranking.5% 51. The laggards are FT. at 50Mbps 2/3 of UK homes FTTC (75%)/FTTH (25%) by 2015 Up to 10% FTTH coverage by 2012 30% FTTH coverage by 2015 (10m homes) 17% FTTH coverage by end 2012 1.sullivan@jpmorgan.com Asia Pacific Equity Research 21 October 2011 Appendix IV: Fiber vs.2 0.0% 12. followed by Belgacom. The following table shows the fibre deployment status expected for year-end 2011E.0% 0. Some incumbents have decided to team up with the competition. Sullivan. Cable Current European incumbent fiber plans (Contributed by Hannes Wittig) Against the backdrop of multiple uncertainties.  France Telecom: FT has so far spent only minor amounts on fibre (€60m in 2010). however. Telefonica and Telecom Italia. Table 23: Fibre coverage by speed category . €300).0% Total 80.0% 27.0% 30. PT and Swisscom will be the most advanced operators by year end 2011E.3% of German households only by year end 2011. creating a potential investment overhang going forward.3% 3. with the first two corresponding to VDSL.8 Longer term targets 85% VDSL coverage end 2013.3% 3.5 4.r. Telekom Austria.5% 2.5% 3. Morgan estimates.0% 2. The midfield is comprised of KPN.YE2011E % of households Year end 2011E Belgacom BT Group Deutsche Telekom France Telecom KPN Portugal Telecom Swisscom Telecom Italia Telefonica Telekom Austria 20-40Mbps 80% 24% 15% 0% 0% 0% 80% 0% 0% 45% 40-50Mbps 0% 0% 15% 0% 4% 0% 0% 0% 0% 3% 100Mbps 0.0 3.5% 13. 69 .6m HH by end 2011 35% FTTH coverage by 2015 11% 50/100Mbps by end 2013 No published targets pre April 2011 investor day 55% coverage by 2013 Source: J. European incumbents have typically been reluctant to commit substantial resources to fiber deployments.0 1. 30% of German households and c. and BT Group.0% 92. it expects to pass 0. DT has not disclosed the magnitude of its planned fiber investments. With this budget FT believes it can pass 10m French homes.James R. €1. We provide a ranked position which is generated by weighing the coverage with the average assumed speed in that category. We provide our estimates according to three different speed categories.500 vs. however. others have preferred a standalone deployment strategy. Some incumbents already spend one fifth of their total capex and free cash flow on fiber. Responses have varied. 10% of German street cabinets in 2007/2008. In this section we review the various incumbents’ fiber strategies and spending commitments.  Deutsche Telekom rolled out VDSL to c. it expects this to be ramped up towards a cumulative amount of €2bn by 2015. DT.

The guidance excludes the costs of inhouse wiring 70 .  Telecom Italia: TI currently covers 2% of Italian households with FTTH.  Belgacom: Belgacom was the first European operator to deploy mass market VDSL (2003).r. Swisscom therefore decided to deploy FTTH through a longer term strategy. 80% of Swiss households from 2005.  BT Group: BT aims to pass two thirds of UK homes with fiber by 2015. At the end of 2009 the company decided to ‘postpone’ deployments by 2 years. SF2bn to cover c. BT has stated a total cost of £2. Through the use of DSL enhancement technologies (see later in this report). FTTH/FTTC for a little over 5%. which within Europe is somewhat unique to Britain. three quarters with FTTC (VDSL). and the dense topology of Lisbon and other key municipalities. Belgacom hopes to increase the speed of its VDSL network to around 50Mbps from the current level of up to 30Mbps.5bn to achieve this coverage.  Telekom Austria: Having previously piloted FTTH and VDSL in Vienna and Graz. in August 2010 TA revealed plans to cover 55% of Austrian households with FTTH/FTTC and VDSL from the exchange by 2013. In the mix we expect VDSL to account for c.com Asia Pacific Equity Research 21 October 2011 presumably hoping to benefit from existing civil infrastructure (sewers etc. At the end of 2010 TI agreed to form a national broadband company together with most of its competitors.  Portugal Telecom: Starting in 2009 PT invested what it expects to be a total of €250m in passing 1. During the past two years Swisscom focused on agreeing fibre deployment joint ventures with local utilities and cable operators. CFA (65) 6882-2374 james.sullivan@jpmorgan. leveraging routine civil works and local collaborations.James R. Sullivan. almost 50%. planning to extend this to 11% by year-end 2013. However. KPN changed tack to embrace FTTH in late 2007 when it agreed its joint venture with Reggefiber. KPN now targets 17% FTTH household coverage by end 2012.) and from sharing deployments with competitors. up from 38% at the end of 2010. having passed 350k homes (10k households and 15k businesses connected  KPN: Having presented plans in late 2005 to replace its entire copper infrastructure with VDSL. which has the aim of furthering and coordinating Italian fiber deployments. and benefits from the availability of drop-wire. Of these. one third of Swiss households. The French regulator has mandated symmetrical access obligations especially for the vertical (inhouse) infrastructure. The budget excludes the cost of the actual customer connection. it aims to pass one quarter with FTTH. Swisscom has guided it will spend c. PT benefits from access to civil infrastructure including cable ducts. due to long sub loops.€550m). At year end 2010 Belgacom covered three quarters of Belgian households with FTTC (investment to date c. and now targets 85% coverage by end 2013.6m homes (40% of Portugal) with FTTH by year end 2011. 15% VDSL) by 2010E.  Telefonica: At its September 2007 investor day Telefonica revealed targets to spend €1bn to pass 40% of Spanish homes with fiber (25% FTTH. VDSL in Switzerland offered only ADSL2+ level speeds. which was in the process deploying an open access FTTH network with ambitious targets.  Swisscom: Swisscom already deployed VDSL to c.

USA. Morgan estimates. We provide the information in absolute terms. which we expect to be a subject at the forthcoming investor day. on fibre in 2011E. On a per pop basis this is equivalent to c. typically informed by company guidance. This is equivalent to c. and as a percentage of capex and free cash flow.James R. Telefonica did not provide any information on current fiber coverage or spending levels.P.com Asia Pacific Equity Research 21 October 2011 Current incumbent fibre spending Huge differences in current incumbent fibre spending In this section we compare how much European incumbents actually spend on fibre. 20% of its free cash flow.sullivan@jpmorgan.r. equivalent to almost half of its free cash flow. The following chart summarizes our estimates. 12% of its capex and free cash flow on fibre. equivalent to c. on fibre deployment. Company data. we believe it is important to take such differences in futureoriented spending levels into account. We find that a few European incumbents spend 15-20% of their capex/free cash flow on fibre. Big fibre spenders  Swisscom: We estimate Swisscom is spending c. 20% of its capex. €16  Portugal Telecom: We estimate PT will spend about 16% of its group capex. 71 . When evaluating incumbents facing a comparable cable/competitive threat. * Excl. CFA (65) 6882-2374 james. Figure 88: Fibre capex (2011/2012E average) € per pop SCOM KPN BCOM BT TKA PT FT DT* 2 TEF TI NA NA 9 8 8 6 5 17 41 % of capex SCOM KPN BCOM BT TKA PT FT 9% 8% 5% 12% 15% 15% 21% % of free cash flow SCOM KPN BCOM BT TKA PT FT DT* 5% 4% 12% 25% 12% 12% 26% 20% DT* 3% TEF NA TI NA TEF NA TI NA Source: J. Sullivan. €41/pop  KPN: On a Reggefiber fully consolidated basis we estimate KPN is spending c. while others – like DT or FT – did not spend much in 2010 and are not intending to do so in 2011.

8 12% 12% 2. 72 .180 1.0% 361 361 2.926 400 41.0% 337 337 2013E 1.  BT Group: We estimate BT’s fibre capex at 15% of its total capex and 25% of its free cash flow post pension funding.599 2. Company data.0 0% 0% 2. 15% of its free cash flow) in 2010 and 2011E.James R.385 2.920 528 0 0.big spenders Local currency in millions 2008 Swisscom Capex Fibre capex Per pop (Euro) % of total capex % of FCF Adjusted FCF Ex fibre KPN Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre Portugal Telecom Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre Source: J.966 2.241 2.7% 19.167 260 16.7% 1.5% 20. with an estimated 11% of sales (corresponding to c.928 676 110 11.7% 2.sullivan@jpmorgan. 2009 1.136 252 16.3 13% 12% 2.857 400 41.  Telekom Austria: Somewhat surprisingly.8% 20.249 1.0 0.9 10% 9% 2.366 2.446 2.050 100 10.863 2.7% 30.063 2.0 16.0% 4.2% 1.3 12% 12% 2.P. on a per pop basis this is 'only' €8 per year. TA is a fairly big fibre spender in the near term.987 100 10.r.840 400 41.161 1.7% 2.985 2. Sullivan.446 745 75 7. Morgan estimates.3% 49.9% 4.903 200 20.429 2.5 10.5 11.0 21.2% 123 198 2010 1.com Asia Pacific Equity Research 21 October 2011 Table 24: Incumbent fibre capex .0% 0.029 2. However.9% 2.3 4.0 0% 0% 2. equivalent to €9 per pop per year. CFA (65) 6882-2374 james.009 200 12.3% 1.0 21.5% 10.149 2.151 1.1% 224 334 2012E 1.0 20.1% 249 324 2011E 1.1% 61.0 0.0% 0.3 5.188 1.767 0 0.061 2.071 268 17.891 569 0 0.599 647 0 0.0% 229 229 Medium fibre spenders  Belgacom: Belgacom is spending about 16% of its capex and 12% of its free cash flows in the next few years.925 0 0.5 10.041 643 75 7.0 0.0% 0.

0 0.6 15. growing to €6/pop in 2012E.4% 29.6 15.0% 0. 73 .946 722 50 6.0 10.r.4% 25.3 6. equivalent to an estimated 3% of its free cash flow.0 0.341 808 0 0. 2% of its ex-US capex on fibre in 2011.8% 28.  Deutsche Telekom: We expect the company to spend c.9% 11.0 12.2% 747 838 3088 400 7.6 15. CFA (65) 6882-2374 james.4% 25.5% 941 1. rising to 4% in 2012/2013E.  Telecom Italia: TI has not indicated any specific levels of fibre investment.9% 12.0% 0.sullivan@jpmorgan.5% 526 576 2013E 643 50 4.9% 842 942 2600 400 7.medium spenders Local currency in millions 2008 Belgacom Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre BT Group Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre Telekom Austria Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre Source: J. 4% of its 2011E capex on fibre.0% 879 879 Low fibre spenders  France Telecom: We estimate FT will spend c. We estimate this amounts to €3/pop in 2011E.0% 0.808 711 0 0. 2009 597 76 7.3% 525 605 2012E 646 100 9.5% 801 877 2533 400 7. Company data.P.James R. Sullivan.3% 816 916 2600 400 7.9% 851 901 2600 400 7.6 15.8% 5.0% 563 563 764 91 8.8% 15.3 15.9% 1546 1.com Asia Pacific Equity Research 21 October 2011 Table 25: Incumbent fibre capex .0 10.4% 1408 1.6 13.4% 25. however.3 15. Morgan estimates.952 680 0 0.0% 674 674 2010 637 76 7.9% 9.6 15.2% 674 749 2600 400 7.0 11.2% 1586 1.0 0.4 11.986 742 80 10. This is equivalent to c. since it is guiding for flat to slightly declining domestic capex.7% 9.6 7.0% 42.4% 1360 1.760 764 80 10.5% 15.8% 1552 1.4% 12. we consider it unlikely that any substantial amounts are currently being spent on fibre deployments. €2 per pop per year.5% 11.6% 513 593 2011E 650 100 9.

equivalent to 9% of DT’s currently expected. Additional annual capex (€bn) 1.0% 4737 4984 4787 5034 To match KPN/Reggefiber.6 0.5% 8.2% 2.0 1.3% 6388 6.3 3.4% 5914 6.2bn pa more Working example DT In the following example we consider what it would mean for DT’s capex and cash flows if its fibre investments were more in line with those peers facing similarly strong cable competition.3% 1.0% 1.9% 5. Company data.r.low spenders Local currency in millions 2008 France Telecom Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre Deutsche Telekom Capex DT (group) DT ex US Fibre Per pop % of total % of total ex US % of u'lying FCF % of u'lying ex US FCF Free cash flow (u'lying) DT DT ex US Ex fibre Ex fibre ex US Source: J. capital expenditure or 15% of its underlying.4% 3959 3600 4009 3650 2010 5590 60 1.7% 1.7% 5275 5.3 1.  KPN’s fibre spending levels. ex US.6% 6. 2009 5396 80 1.6bn per year.7% 5007 4416 5257 4666 6867 80 1.9% 6611 6.P. wanted to match  Belgacom’s fibre spending levels.18 0.2% 1.3% 4782 3996 4832 4046 2011E 5359 200 3.1% 0.com Asia Pacific Equity Research 21 October 2011 Table 26: Incumbent fibre capex .58 0 3 4 5 6 7 1.0 2. Morgan estimates.114 8438 6554 100 1.9% 3. free cash flow yield.7% 3.468 8707 6803 50 0.2% 5.0% 5.James R.6% 0.9% 3.5 1 0.6% 5485 5. in 2011/2012E. free cash flow yield.2% 6921 7. Morgan estimates.1% 1. DT would have to spend €1. Sullivan.5% 0.0 2. CFA (65) 6882-2374 james.7% 4588 3680 4688 3780 2012E 5422 360 6.18 10 11 12 13 14 15 16 17 18 19 20 Fibre capex BT BCOM KPN (€ per POP) 8 9 74 . equivalent to 18% of its currently expected.8% 1. ex US.2 1.8% 1.7% 5.6 0.5% 1. ex US.8% 4803 4296 5053 4546 2013E 5440 460 7.3 1.5 0 0 1 2 DT Source: J.sullivan@jpmorgan. The following chart shows that if DT.P.001 9202 6646 50 0.2% 1. due to structurally higher Swiss capex. capital expenditure.capex levels required to match peers with cable exposure 1. DT would have to spend an additional €1. We leave aside Swisscom.7 8.735 8491 6493 250 3. or 30% of its underlying.5% 2.2bn per year.671 8551 6543 50 0. DT would have to spend an additional €0.6 0. Figure 89: Deutsche Telekom .845 8642 6770 250 3.0 6. ex US.6% 0.

Sullivan. and/or a substantially higher wholesale and retail price level can be achieved and maintained in the longer term. the investing operator would need to generate an incremental contribution of c. If the take-up rate were only 50%.000 per home passed incumbents crucially rely on high ARPU and high take-up rates. where these were priced at a premium. As such. With cable competition able to offer comparable speeds without substantial premium (Docsis 3.James R. at an estimated cost of connecting a household of €1. assuming a hypothetical take-up of 100%. Company data. incumbents would have to hope that eventually copper networks can be switched off completely. In general. fiber deployments can be justified by (1) ARPU upside. CFA (65) 6882-2374 james. Sweden tops the list at >40%. However. Docsis 3. Morgan estimates.r.000. hence cable operators threaten the incumbent's ability to achieve sufficiently high ARPU and/or high take-up rates. European customer take-up of more expensive high speed offerings has so far been muted.3/month) to justify the deployment.4%*) • Orange • Telefonica • DT (VDSL) Spain 7% Germany 3% Source: J. Little evidence for customer willingness to pay up For an incumbent.0 is already paid for). where fibre is charged as a premium product. As a further complication. there is little evidence that at a €17/month premium the take-up rate would be 50%.0 is already paid for in most markets.sullivan@jpmorgan. the take-up is low. assuming a WACC of 10%. (2) market share gains. it is difficult to see how such a premium can be achieved in the marketplace. Figure 90: Fibre take-up rates (%) Sw eden USA Netherlands Denmark Italy Portugal* France 41% 32% 28% 22% 14% 11% 8% • Bredbandsbolaget (Telenor) • Verizon • Reggefiber • Fibre utilities • Fastw eb • Zon (PT estimated at c. However.com Asia Pacific Equity Research 21 October 2011 Customer demand for fibre In order to justify spending >€1. even in the longer term. subscribers would have to spend an additional €17/month to make it worthwhile. Various data points underscore the investment risk for a fibre-deploying European incumbent. €100 per year (€8. Evidence from the marketplace Customers have so far been quite reluctant to sign up for fiber-enabled products. or (3) cost savings. * Percent of cable TV subs 75 . however. in France fiber penetration is struggling to exceed 10%.P. Simply speaking.

Sullivan. in our view. 14%. they also show that incumbents in many markets are likely to have some time to develop their responses.  Portugal: Zon says its fiber offering has been subscribed to by 19% of its broadband subscriber base by year-end 2010. However. This is because competitors. of 350k homes passed (7%). We believe this take-up rate benefits from the absence of strong unbundling competition. VDSL offers 50Mbps compared to standard DSL at 5-10Mbps. despite a comprehensive and exclusive Bundesliga IP TV offering. to consider the take-up of Docsis 3. double the penetration at the end of 2009. DT charges c.com Asia Pacific Equity Research 21 October 2011  Sweden: After more than a decade of availability fiber has achieved 41% penetration of c. 2m Swedish households.  Denmark: iDate estimates fiber penetration in Denmark at c. unless it can benefit from a major infrastructure or scale advantage.  UK: Virginmedia’s 50Mbps product (£11.0-enabled. Competitor FTTX economics Competitor FTTX economics can be better than the incumbents’ The potential calamity for the incumbent is that. can avoid paying wholesale or unbundling charges to the incumbent. by deploying fibre all the way to the premise. a penetration of c. It seems that where these are priced at a premium.  Netherlands: Reggefiber (KPN) had achieved close to 30% take-up at the end of 2010. 10%. 11m homes with VDSL for >3 years.r. we will argue below that the magnitude of the costs involved is nevertheless likely to contain spontaneous competitor action.5/month more expensive than 10Mbps product) is subscribed to by c. take-up is fairly modest.  Italy: After almost 10 years of fiber availability. up from 7% one year ago. These take-up rates show the commercial risk for an incumbent who hopes to fund a fiber deployment through an ARPU premium. 76 . 22% at year-end 2009.sullivan@jpmorgan. This is equivalent to 11% of its cable TV subscriber base. Italy had 348k subscribers out of 2. competitors at least collectively have inherently superior fibre economics. DT has only achieved 342k VDSL subs (3% take-up). where the incumbent invites competition to share deployments the alternative operators’ barrier to entry should be materially diminished. This take-up rate increased to >20% when KDG lowered the price to €40 (€20 for the first year).  Telefonica: At the end of 2009 Telefonica had achieved 25k activations. 3% of net additions. However. a penetration of 32%.  US: According to the Fiber-to-the-Home Council the US had 6.  France: Orange has achieved 8% penetration. KDG achieved a take-up rate of c. highspeed cable products. €10/month more for VDSL.45m fiber subs mid year 2010.  Germany: Based on its initial pricing of €50/month (€20 premium relative to standard 30Mbps offer). CFA (65) 6882-2374 james.5m homes passed with fiber (Fastweb 297k/2m). However.James R.  Germany: Having covered c. It is also interesting. time needed for the lead times and cash requirements of a major fibre deployment. a fairly constant rate during recent years.

But will altnets take advantage of this? While FTTX economics appear manageable or even attractive. This is true for independent players such as Versatel. Jazztel. however. still we do not calculate a clear positive NPV in the case of joint fibre deployments. Figure 91: Competitor FTTX NPV. We calculate that investing in FTTX. in our third scenario (incumbent and altnet share civil works. As we have emphasized we are using somewhat optimistic assumptions. depending on wholesale ARPU Competitor fibre NPV per sub (Euro) 456 262 67 360 165 -30 -224 Incumbent fibre wholesale 16 18 20 22 24 26 ARPU (Euro/month) 555 749 651 846 1041 Sharing civ ils No sharing of civ ils Source: JPMorgan estimates. and Spain. Meanwhile.James R. or QSC. or various parts of Belgium. unbundlers have 20%. this ‘neutral outcome’ would clearly be superior to the scenario where both the incumbent and the altnet invest in fibre. 77 . in order to avoid wholesale charge of €20/month. It can be seen that at wholesale ARPUs below €20/month the new entrant ceases to have a strong incentive to roll out their own infrastructure (unless there is extensive infrastructure sharing with the incumbent). altnet builds own fibre in 100% of the incumbent fibre coverage area) even at €456 (= €196 per home passed). In our second scenario (altnet chooses own fibre over wholesale in 75% of the incumbent’s fibre coverage area) we calculate the NPV per customer connected at €165 (= €69 per home passed). due to other strategic priorities. Alternative scenario – ‘incumbent best case’ The following table varies our assumptions. many incumbents’ NPV would also be close to zero in this scenario. we see the biggest problem for competition in funding such large scale investments. We calculate that in such a scenario the economics would still be tenuous. We are looking at a market structure where the incumbent's market share has already dropped to 20%. and cable 60% of the market.com Asia Pacific Equity Research 21 October 2011 We calculate a positive NPV for altnet fibre if the wholesale rate is €20/month FTTX valuation for altnets Using consistent assumptions with our incumbent model we compare the economic situation for the alternative carrier that uses wholesale and that which deploys FTTX. But even where competitors are owned by cash-rich companies such as France Telecom.sullivan@jpmorgan. the Netherlands. even where the incumbent invests itself. Similar situations exist in strong cable markets such as Austria (Vienna). from avoiding the monthly wholesale charge to the incumbent. Still. Sullivan. CFA (65) 6882-2374 james. or Telefonica. from an incumbent perspective. they may be victims of their parents’ reluctance to commit the required resource. is NPV-positive for alternative carriers in dense enough areas.The following chart shows how this NPV varies with the monthly saving for the altnet.r. Vodafone.

CFA (65) 6882-2374 james.James R. sharing -2250 -500 6 5250 875 1182 18% 10% 28% 0% 45% 28% 48 20 10 0 0 10.5 52.4 1.0 90% 78 .5 42.4 31.9 2.1 1.sullivan@jpmorgan.P.r. Scenario I: Incumbent FTTX -2250 -500 6 5250 875 1265 19% 30% 49% 0% 51% 0% 52 22 10 0 0 16.5 114. Morgan estimates.9 11.actual market share Market shares Retail Wholesale Total incumbent Unbundling Cable Other Incumbent ARPUs Retail Wholesale Unbundling Cable Other Blended ARPU Increase in monthly gross margin Cost saving per customer/month EBITDA return on invest Payback (years) NPV per home passed Source: J.0 271 Scenario II: Competitor FTTX -2250 -500 6 5250 875 1654 16% 17% 33% 0% 48% 20% 49 20 10 0 0 11.1 2.1 2. Sullivan.6 0 10% 10% 20% 20% 60% 0% 45 25 10 0 0 9.100% market share Per HH connected .5 -148 Scenario III: Competitor FTTX.com Asia Pacific Equity Research 21 October 2011 Table 27: Fibre scenario in cable-dominated market € Base case Investment per building connected Investment per HH connected Units per building Total investment per building Per HH connected .8 27. Company data.5 7.

Sullivan.r.com Asia Pacific Equity Research 21 October 2011 Companies 79 .sullivan@jpmorgan.James R. CFA (65) 6882-2374 james.

do not support this case. CFA AC (65) 6882-2374 james.432 4. year-end Mar FY09A FY10A FY11A Revenue (S$ mn) 14. and lock M1 out of the mainstream market. J.gupta@jpmorgan. Morgan does and seeks to do business with companies covered in its research reports.r.5 10.SI.9%) DPS (S$) 0.0% 3.19 10. As a result. www.SI share price (S$) FTSTI (rebased) Abs Rel YTD -2.  Regional assets contributions to improve: We expect 12% growth in FY12 associate contributions for SingTel.5% 1m -6.morganmarkets. 2) the target FY13 earnings multiple currently at 11.871 18.  Key risks: Key downside risks include worse-than-expected pricing competition and lower-than-expected NBN market share.494 0. Morgan Securities Australia Limited Christopher Gee.8 5. Singapore Telecoms Ltd (Reuters: STEL.287 5.com J.com J.0% Source: Company data. driven by 20% growth at AIS and 15% at Bharti.6% Recurring profit (S$ mn) 3.horrut@jpmorgan.Asia Pacific Equity Research 21 October 2011 ▲ Overweight Singapore Telecom Downside hedged benefits from NBN. Bloomberg. a historical high of 390bp.P.5% 3m -5.4% 6. regional asset contributions to improve.755 5.910 3.7% 5.846 5.24 EPS growth (%) (6.gee@jpmorgan.070 EBITDA (S$ mn) 4. We expect 6% growth in Optus’s EBIT contributions to SingTel in FY12.0% 4.16 EV/EBITDA (x) 12.7% 12m 1. investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. we use 13.92 2.720 1. Morgan estimates.2%) 13.7% 0.940 45.com J. Current dividend yield of 6% is more than covered by internal cash flows and we thus see potential for a special dividend as an upside risk. Sullivan.8 11.0% 10.  The NBN should ultimately curtail competition and cement SingTel dominance: Many.2.25 0.0% 0.P. Morgan Securities Singapore Private Limited Vishesh Gupta (65) 6882 2367 vishesh.2% 9.934 16. Morgan Securities Singapore Private Limited Laurent Horrut (61-2) 9220-1593 laurent.2% (2.9x and below the top of its normal trading range.28 14.30 .P. SingTel is trading at a 330bp spread to Singapore govt bonds vs.  Potential for increased capital management: SingTel has the best balance sheet among Singapore telcos with a net debt/EBITDA (including associates) of 0.x.800 Recurring EPS (S$) 0.2% Company Data 52-wk range (S$) Mkt cap (S$ mn) Mkt cap ($ mn) Shares O/S (mn) Free float (%) 3-mth avg trading volume: Average 3m Daily Turnover ($ mn) FTSTI Exchange Rate Price (S$) Date Of Price 3.ka.3% 5.2% 4.166 1.2 S$ 3.8 P/E 14. The facts.7% FY13E 18.14 0.5% 30 71. J.4 3. have made much about the potential for Singapore’s National Broadband Network (NBN) project to increase competition and drive opportunities for infrastructure-lite competition. CFA (65) 6882-2345 christopher.com J.40 Singapore Wireline Services/Incumbents James R.9 11.sullivan@jpmorgan.8 Aug-10 Nov-10 Feb-11 May-11 Aug-11 STEL.6 12.25 3.1% FY12E 18.22 0.942 0.9 13.778 15.60 with a total return expectation of 20% (+14% capital appreciation based on our target FY13 P/E of 13x + 5% expected cash dividends during the next 12 months).75 50.4% 6. The decline over FY11 was largely driven by appreciation of the Singapore dollar vs.27 3. Morgan Securities Singapore Private Limited Price Performance 3.0x for our price target.17 10. including ourselves.16 ▲ Price Target: S$3.16 20 Oct 11 See page 139 for analyst certification and important disclosures. however.1% 6. ST SP Price: S$3.12 0.053 -2.P.6x.6 12.P.2 Dividend Yield 4. Our price target is driven by two factors: 1) our EPS forecasts vs. street: we are 6% ahead for FY13.com .j. Previous: Neutral STEL.5% 5.8% 8.455 3. Bloomberg: ST SP) S$ in mn. including non-US analyst disclosures.116 EBITDA growth (%) -2.SI.5% 1. local currencies.60 Previous: S$3. potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy.2% FCF to mkt cap (%) 6.0% 4. We believe the NBN will largely serve to cement SingTel’s dominance of the local market.0 2. Investors should consider this report as only a single factor in making their investment decision.371 39. upgrade to OW  We upgrade SingTel to Overweight with a Mar-13 price target of S$3.P.2 6.

Other major regional associate investments include Bharti (India).0% EPS impact (%) 0.P.8x and EV/EBITDA of 11.P.78 0.494 Consensus 3. Morgan vs consensus S$ MM FY12E FY13E J. IPTV.2% FY13E 11.501 0. mobile and fixed line telephony services domestically and it also owns 100% of the Australian Telco Optus.7% 3. Morgan estimates EBITDA impact (%) 6.P. JPM EPS estimates. CFA (65) 6882-2374 james. Morgan estimates Source: J. SingTel would be trading at 2010E/11E P/E of 14.7%/5.9x/12. Revenue breakdown (FY12E) Optus-mobile 42% Sing-others 16% Price target and valuation analysis Current consensus P/E (a) Peak P/E (b) FY12E 12.5% 1.5x/12.3% yield. Telkomsel (Indonesia).sullivan@jpmorgan.0 1.4% 6.985 4.4% 0. Morgan estimates.4% 15. Morgan 3. J.3x and provide a 4. Our peak P/E multiple is based on the stock’s historical trading range and expected future business changes.0% 886 0.6% 0.9 13. Source: Bloomberg.040 If our price target were achieved.6 Sing-data & internet 9% Sing-mobile 10% Upside/ (Downside) to peak multiple (b/a-1=e) Optusothers 25% JPM vs. P&L sensitivity metrics (FY2012E) Singapore revenues (S$ mn) Impact of each 1% Forex A$/S$ Impact of each 1% Bharti equitized PBT (S$ mn) Impact of each 5% Telkomsel equitized PBT (S$ mn) Impact of each 5% Source: J. consensus EPS (d) Cumulative upside to current price (e+d) JPM Dec-12 price target (S$/sh) Source: J. Advanced (Thailand) and Globe (Philippines).8 13. and 2) our estimated multiple expansion/(contraction) based on peak P/E multiple.P.r. P.9% 0.8% Price target and valuation analysis Our PT is based on the sum of 1) potential upside/ (downside) to consensus EPS vs.0 9.4% 0.James R. 81 . Less-than-expected NBN and pay TV market share in Singapore is a key downside risk to our price target.com Asia Pacific Equity Research 21 October 2011 Company Description SingTel provides Internet.P. Sullivan. Morgan estimates Net income: J.6% 892 0.819 4.8% 3. Further appreciation of the Singapore dollar is also a risk.

potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy. have made much about the potential for Singapore’s National Broadband Network (NBN) project to increase competition and drive opportunities for infrastructure-lite competition. Current dividend yield of 6% is more than covered by internal cash flows and we thus see potential for a special dividend as an upside risk. Key risks: Key downside risks include worse-than-expected pricing competition and lower-than-expected NBN market share.r.James R. 82 . The facts.6x. we use 13. The decline over FY11 was largely driven by appreciation of the Singapore dollar vs. street: we are 6% ahead for FY13. driven by 20% growth at AIS and 15% at Bharti. SingTel is trading at a 330bp spread to Singapore govt bonds vs. . Sullivan. Regional assets contributions to improve: We expect 12% growth in FY12 associate contributions for SingTel.60 with a total return expectation of 20% (+14% capital appreciation based on our target FY13 P/E of 13x + 5% expected cash dividends during the next 12 months). We expect 6% growth in Optus’s EBIT contributions to SingTel in FY12. Our price target is driven by two factors: 1) our EPS forecasts vs. 2) the target FY13 earnings multiple currently at 11. Please see our Singapore industry report published today in conjunction with this report for details. CFA (65) 6882-2374 james.9x and below the top of its normal trading range.0x for our price target. do not support this case. incorporating NBN into our forecasts and have shifted our price target timeframe to Mar-13. however. The NBN should ultimately curtail competition and cement SingTel dominance: Many. Potential for increased capital management: SingTel has the best balance sheet among Singapore Telcos with a net debt/EBITDA (including associates) of 0. a historical high of 390bp. and lock M1 out of the mainstream market.sullivan@jpmorgan.com Asia Pacific Equity Research 21 October 2011 Investment Summary We upgrade SingTel to Overweight with a Mar-13 price target of S$3. We have rebuilt our Singapore models. The NBN will largely serve to cement SingTel’s dominance of the local market. including ourselves. local currencies.

Sullivan. This program is at a very early stage of development. but as of yet see no signs that this will occur. by StarHub’s desire to achieve a reasonable return on capex. mature market. We assume StarHub would account for 30% of the market while the remaining 10% would be M1. This could be somewhat restrained. Forecast competitive dynamics are upended as Starhub pursues an alternative infrastructure approach: We suspect that a Virgin Media type strategy may in fact be the best long-term strategic option for the company. SingTel’s current fixed broadband market share is 42% while pay TV market share is 37% and less-than-expected share of NBN subs is thus a downside risk. the Telecom industry regulator.sullivan@jpmorgan. which theoretically limits product specific price discovery for consumers. Please see the table below for earnings sensitivity to NBN market share assumptions. Were this dynamic to change. Worse-than-expected NBN market share: We expect SingTel to capture 60% of the total NBN market. b) Starhub and to a lesser degree M1 will face structurally lower NBN economics. which limits their ability to aggressively cut price without significantly impacting their own margins. but are not forecasting an all out price war on a product by product basis. A foreign operator takes control of M1 and introduces cross market competitive dynamics into the Singapore environment. we would expect a greater potential for a degree of price competition between Starhub and SingTel given StarHub’s better economics. 83 . but clearly a limiting factor. CFA (65) 6882-2374 james. in our view. which provides for a common platform Set Top Box (STB). This could theoretically be used to completely unbundle content and reduce the role of SingTel and Starhub as Pay TV content aggregators. general offer is triggered at ) to eventually make a bid for the firm. but is something we are watching closely.not a guarantee that price competition will not get out of control. We would not be shocked to see an operator such as Telstra (in order to have a counter balance to SingTel's Optus) or Axiata (already a 29. This is driven by the fact that a) bundles will increasingly drive this saturated. NIMS project creates unbundles content: The Infocomm Development Authority of Singapore (IDA).23% shareholder in M1.r. which could be de-stabilizing.com Asia Pacific Equity Research 21 October 2011 Risks to our view Pricing competition is worse than forecast: We do expect a degree of price compression which will reduce overall industry revenue growth rates moving forward. This has the potential to introduce another layer of strategy into the Singapore market.James R. has been actively pushing a program called the NextGen Interactive Multimedia Applications and Services program (NIMS). however...

2% 70% 2.P.765 0.0% 5% 347 -4.0% 30% 200 4.721 5.9% 5.364 -0.0% 45% 206 7.0% 50% 208 8.9% 70% 216 12.6% 5.1% 30% 35% 2.1% 40% 45% 2. Sullivan. Morgan estimates.0% 84 .379 0.0% 35% 202 5.738 -0.307 2.9% 65% 214 11.700 5.2% 65% 2.com Asia Pacific Equity Research 21 October 2011 Table 28: Singapore Telcos: Earnings sensitivity to market share within NBN subscribers SingTel NBN market share 5% FY16 Singapore EBITDA (S$ mn) 2.0% -2.James R.759 0.727 -0.0% 15% 194 1.350 -1.1% 50% 380 4.6% -0.1% 5.321 -2.0% -3.314 -3.0% 25% 198 3.9% 60% 212 10.3% 40% 372 2.336 -1.328 2.2% -0.2% 55% 383 4.0% 40% 204 6.0% -2.0% 60% 387 5.3% 5. CFA (65) 6882-2374 james. 10% 15% 20% 2.9% 55% 210 9.4% 5.705 5.8% -0.6% -0.3% FY16 group net (S$ mn) Upside to base case StarHub NBN market share 2015 net income (S$ mn) Upside to base case M1 NBN market share 2015 net income (S$ mn) Upside to base case Source: J.0% 20% 196 2.2% -0.3% 5.5% Base case 30% 365 0.1% 65% 390 6.748 -0.716 -0.9% -0.r.754 0.300 2.1% 35% 369 1.357 2.5% 5.0% Base case 10% 192 0.2% Base case 60% 2.2% 5.8% 10% 15% 20% 351 354 358 -4.0% 5.7% -2.2% 70% 394 7.343 2.743 5.4% -0.8% -1.292 Upside to base case -3.7% 25% 361 -1.694 -1.386 0.1% 45% 376 3.732 5.711 -0.0% 25% 2.sullivan@jpmorgan.371 0.1% 50% 55% 2.9% 5% 190 -1.

0 7.1% 2.4% 3.2 N 2.5 11. an assumption holding true for all of our coverage companies around the region. SingTel looks most attractive on this metric with an equal distribution both sides while StarHub and M1 offer higher losses on the downside than gains on the upside.7 11.3 13. shares are at 11. Sullivan.1 9..9 2.9x.8 7.0 14.3% 10. and 2) understanding what potential range of multiples the market might apply. we are 6% above for 2012 EPS.8 0. and 2) target earnings multiple. Morgan estimates.8% 2. Our peak P/E multiple at 13. we use a 13.6 13. and 2) the multiple the market is willing to put on those earnings estimates.3 12. either the business has changed or a lot of expectations have already been built into the share price.5 -1.4 4.8 13. CFA (65) 6882-2374 james.6 is based on a sum of: 1) potential upside/(downside) to consensus EPS vs. If a multiple has expanded to previously unseen levels.1 7.3% 1.5% (0.9% 8.r.9% 1.8 -5.0 P/E (x) 2011E 2012E 12.0% 6.3 Total Return 19.3 6.7 -15. Our simple valuation methodology is that we believe only two things can mathematically move a share price: 1) changing earnings estimates. Table 29: Singapore Telcos: Valuation summary Company SingTel StarHub M1 Stock code ST SP STH SP M1 SP Rating Price (LC) OW 3.. consensus Best case price % upside Worst case price % upside Up/Down EPS 6.0 JPM vs.and worst-case analysis Current price Current consensus P/E Peak P/E Trough P/E SingTel StarHub M1 3.15) -5.06) Source: Bloomberg and J. Priced on 20 Oct 2011 85 .0 10. the Street. . JPM EPS estimates at +6%. and 2) our estimated multiple expansion/(contraction) at 9% based on peak P/E multiple.6% 1.6 14.6 implies a total return of +20% (14% capital appreciation and 5% dividend yield).6 10.6 15.9 9.0 10.6 2. Priced on 20 Oct 2011 We run a best. if we have 10% upside to street EPS forecasts. Valuation Our price target of S$3.James R. This method allows us to capitalize on (hopefully) good fundamental research. It is our belief that ultimately share prices are driven by earnings estimates.4 9.6% 1.7 2.2 2. Table 30: Singapore Telcos: Best.9 N 2.0% Source: Bloomberg.0% 2.5% (0.5 PT (LC) 3.i.0 6.1 8.0x multiple for our PT. Morgan estimates.0x is based on the stock’s historical trading range and expected future business changes.2 15. our total target return is 25%. but also allows us to understand market sentiment. and think there could be 15% multiple expansion.0 10.9 -25.0% 8. Our share price target is driven by two aspects: 1) our EPS forecasts vs.com Asia Pacific Equity Research 21 October 2011 Valuation and share price analysis Price target calculation Our investment philosophy has been simplified over the years.3 7.9 -34. This structure allows us to focus our research on: 1) getting the numbers right.sullivan@jpmorgan.7 -5.0 FCF Yield (%) 2011E 2012E 5.and worst-case scenario valuation for our companies where we compare our peak and trough level valuation returns.P. A simple sum of the two leads to our price targets.2 Dividend Yield (%) 2011E 2012E 5. and J.0 13.9 15.5 % to EV/EBITDA (x) Target 2011E 2012E 14.e.00 3.0 6.P. Our Dec-12 PT at S$3.

0% 0. we see 6% upside to Street's 2012 EPS estimates for SingTel.3% -0. FY1E 0.P. Sullivan. India and Thailand. SingTel’s P/E has expanded by 13% YTD given its increased dividend payout and improving regional asset performance.1% 0. Morgan vs.2% -1. consensus table below.8% NA NA 1. We expect the trend to reverse given business fundamentals have been strong across Singapore.1% FY2E -3.8% 1.7% -1.9% (1.P.4% -3. Morgan estimates.r.0) -5.James R. 86 . CFA (65) 6882-2374 james. EPS estimates have been revised down 5% YTD for SingTel.com Asia Pacific Equity Research 21 October 2011 As per the J.1% (0. Street estimates SingTel Revenue EBITDA EBITDA margin-BP diff EPS StarHub Revenue EBITDA EBITDA margin-BP diff EPS M1 Revenue EBITDA EBITDA margin-BP diff EPS Source: Bloomberg and J.8% -4.0% -0.sullivan@jpmorgan.3) -0.0% -1. driven to a large extent by appreciation of the Singapore dollar.3 3.6% Figure 92: SingTel: Street one-year forward EPS trends Source: Bloomberg. Table 31: Singapore Telcos: JPM vs. Australia.5% NA NA 6.2 3.

Sullivan.sullivan@jpmorgan. Figure 94: SingTel: Street dividend yield estimates Source: Bloomberg. CFA (65) 6882-2374 james. SingTel’s dividend has been rising since 2009. closing the dividend yield gap to StarHub and M1.com Asia Pacific Equity Research 21 October 2011 Figure 93: SingTel: Street one-year forward P/E trends Source: Bloomberg. 87 .r.James R.

CFA (65) 6882-2374 james.50 2013 Terminal growth rate 4. by back calculating what discount rate is implied by the current share price.79% and M1 at 0%). but do not use this analysis to specifically set target prices.2B vs.0% 4. and the upside to street + upside to multiple approach described above a more effective way of forecasting future share price movements.8% Implied discount rate at current price 7. Our experience has been that the heavy retail participation in most Southeast Asian markets leaves P/E multiples. but also given it’s status as a large cap stock (S$50. SingTel's share price currently implies a lower discount rate relative to Starhub and M1.14% of STI vs.P.9B.r.0% 4. . This appears fair given both SingTel's greater revenue diversification outside of Singapore and the fact that it is likely a share gainer due to the NBN.4% 10.15 2.9% 10. We run full discounted cash flow analysis on all of our companies. Sullivan. Priced on 20 Oct 2011 88 .6% 87.2B) with a much larger index inclusion then STH or M1 (ST at 10. Morgan estimates. A high discount rate would be indicative of either a) a very risky business / market.0% 2012 Terminal value as % of EV 92. and M1 at S$2. Table 32: Singapore Telcos: DCF summary SingTel StarHub M1 Current price (LC) 3.com Asia Pacific Equity Research 21 October 2011 Figure 95: SingTel: Street dividend yield spread to Singapore 10-year govt bonds Source: Bloomberg.0% 87. STH at 0.James R.sullivan@jpmorgan. or b) an excessively pessimistic sentiment applied by the market. STH at S$4.1% Source: Company reports and J.87 2. We instead use DCF analysis as another gauge of market sentiment.

249 13.91 0.5 4.035 58.590 16.896 18.0 13.3% 30.3% 47.5 Acquires 30% Warid stake Commercial pay TV launch 3.com Table 33: SingTel: SOTP valuation Source: Company reports.4 5.786 14.6 Contribution to NAV 20% 29% 25% 14% 6% 3% 2% 0% 1% 100% SG.306 1.5 89 .02 0. M1 Cuts prices by 35% ahead of MNP Sells 41% ISAT stake to Qtel Buys 3% Globe stake MNP commences Lehman files bankruptcy Market fall Analyst downgrades Sells 10% of United Business Solutioins Sell Australia fixed line assets Actively involved in Bharti MTN merger talks Bharti MTN extend merger talks Buys 1.689 (748) 1.0% 32.P.590 16.11 0.974 NA NA 2. Morgan estimates.5 7.9 Source: Company reports and J.52 0.5% 2.5 Net Debt 3.060 Equity Value 11.183 577 1.476 17.0 NA NA 12. Sullivan.605 3.705 955 259 506 58.0% 45. . Bloomberg and J.5 NA NA 8.0% 25.728 18.9 12.Malaysia romaing rate cut S$0.2% YoY Analyst downgrades Dec09 net neats street by 4. Figure 96: SingTel: Share price analysis with key events 1.476 4.411 1.P.635 1.5 4.9% SingTel price Attributable Equity 11.06 0.5 1 2 3 4 EV 14.217 3.5 2.9 5.461 22.5 4.03 3.05 0.954 Implied EV/EBITDA (x) 6.368 NA NA 106 Sells 49% of bharti aquanet Analyst upgrades Optus offers bundled plans Stocks fall on Subprime concerns Optus stops selling Telstra's fixed line product.772 23.9 7.Singapore Optus Bharti Telkomsel AIS Globe Warid PBTL SingPost Total SingTel starts bundled plans Wins pay TV license M1 broadband gives 5Gb free usage Bharti Dec07 net up 100% Analyst upgrades China slowdown concern Optus reports 10% decline in earnings James R.0% 100.sullivan@jpmorgan.5% of Bharti Reduces iPhone price Governmet passes content sharing rule Protest on rising soccer fee in Singapore Lim Chuan: CEO intl. Priced on 20 Oct 2011 Asia Pacific Equity Research 21 October 2011 Implied P/E (x) NA NA 15.786 44.r.066 3. seeks 3G spectrum bids 1Q11 net down 0. to retire Govt.1/share special dividend Telstra NBN negotiations closing S&P downgrades US debt rating 1Q12 net down 3% QoQ Comments Jan-07 Jan-07 Feb-07 Mar-07 Apr-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Aug-07 Sep-07 Oct-07 Nov-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Jul-08 Aug-08 Sep-08 Oct-08 Oct-08 Nov-08 Dec-08 Jan-09 Jan-09 Feb-09 Mar-09 Apr-09 May-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Sep-09 Oct-09 Nov-09 Dec-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Aug-10 Sep-10 Oct-10 Nov-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Mar-11 Apr-11 May-11 Jun-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Implied JPM estimated EV/EBITDA JPM TP Rs460 XL Axiata JPM multiple JPM 2012 TP Bt140 JPM 2012 TP Php930 Purchase price Purchase price Market price-20 Oct 2011 1 2 3 4 1.73 1.115 Equity/sh new (S$) 0. Morgan estimates.461 8.7 11.0% 21.4 SingTel's Stake 100.23 0. CFA (65) 6882-2374 james.3% 35.5 3.

CFA (65) 6882-2374 james. Threats    Risk to SingTel’s monopoly share in corporate fixed line market due to NBN infrastructure. Indonesia and Philippines. Threat from new entrants as NBN infrastructure expands and matures. Growth assets in Indonesia. Opportunities  Opportunity to gain market in share the pay TV and fixed broadband segment post BPL win and new content sharing law in Singapore. India. Philippines and Thailand. Long-term threat to pay TV market share from the NIMS initiative. Excessive competition in India. A high quality mobile network. Growing pay TV base providing higher bundling opportunities.   90 .James R. Sullivan. Strategically well placed in the NBN business model. Weaknesses   Risk of heavy competition on all business lines post opening up of NBN infrastructure.r. Diversified business model.com Asia Pacific Equity Research 21 October 2011 SWOT analysis Strengths     Strongest balance sheet amongst Singapore Telcos.sullivan@jpmorgan.

4% 20.9% 95 -0.3% 1.5% 8.1% 455 1.163 3.0% -2.9% 47.0 21.0 1.4 -1.6 27.5 -3.6% NM NM NM 425 -6.0% 1.8 1. NBN Fixed line ARPU (S$)-JPM calc QoQ YoY Ex.8% 362 3.7% 32.1% 351 -5.3 16.0% 46.0% -1.2 20.6 -4.0 0.0% -6.9% 32.2 3.1% 273 2.8 1.9% -5.7 1.0% 48.0% 177.0% 38.3% 46.8 18.5% 351 0.5% 27.0% 0.153 3.0 0.3 26.0% 0.0% 343 0.6% 91 .6% 90 351 320 293 247 204 -5.4% 19.0% -5.1% 358 3.7% 279 2.0% 0.3 -1. Morgan estimates.0 21.2% 11.189 2.0% 279 2.3 29.4% 351 2.0 14.3% 2.5 0.4 0.2 -0.0 -2.6% 18.0 0.4 18.4% 1.4% 44.6% 10 NM NM NM 10 NM NM NM 17.7% 7.2 26.5 47.9 7.6% 271 4.0 0.6% -1.9% 10.2% 28.2% 24.8% 45.5% -4.0 7.sullivan@jpmorgan.0 20.com Asia Pacific Equity Research 21 October 2011 Regional Asset Discussions Singapore Table 34: SingTel: Singapore revenue build FY FY FY FY FY FY FY FY FY FY FY FY FY FY 2008A 2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011A 1Q12A 2012E 2013E 2014E 2015E 2016E Mobile Voice Blended MOU-JPM calc YoY Voice ARPM (S cents)-JPM calc YoY Voice revenue (S$ mn)-JPM calc YoY Voice ARPU (S$)-JPM calc YoY Data Data ARPU (S$)-JPM calc YoY Data revenue (S$ mn)-JPM calc Data as % of mobile revenue Total mobile communication revenue (S$ mn) YoY Blended ARPU-JPM calc (S$) YoY National telephone Ex.9 15. Sullivan.0% 0.5% -15.2% -16.4% -3.9% 46.3% 29.6% 22 73 202 319 474 631 NM 627.9% NM NM NM NM NM NM NM NM NM NM NM NM 90 375 -5.4% -8.8% -5.3% -6.5% 48.8 28.8% 11.1 -2.3% -2.3% -28.2% -1.4 7.030 38.8% -2. 319 370 9.2% 977 5.5% -4.3% -6.4 8.445 1.0 7.4% -4. NBN National telephone revenue (S$ mn) QoQ YoY NBN Fixed SingTel subs (000) YoY NBN ARPU (S$) YoY NBN Revenue (S$) YoY Total National telephone revenue (S$ mn) YoY Source: Company reports and J.1% -4.1% NM NM NM 95 -4.5 47.4% 2.7% 166 186 182 694 194 825 921 964 998 1.8% 41.7% -17.1 1.0% 2.0% 11.0% 0.2% 0.0% -5.1% 8.2% -5.0 21.3% 11.1% 0.4% 0.0 17.9% 356 1.6% -0.8 17.4% 29.4 5.5% -4.7% -4.127 2.6 18.0% 0.1% 0.3% 0.8% NM NM NM 95 -4.3% -2.2% 1.0% -5.251 2.5% -15.0 25.0% 0.9 -2.8% 46.2% 44.3 9.8% 0.James R.0% 432 13.6% 19.6 47.8% -5.1% 393 0.204 2.5% -0.3% 1.0% 0.4% 16.9 -1.9% -13.7 7.4% -8.0% 0.0 0.7 7.2% -3.8% 437 465 10.5% 343 0.952 9.4 -8.9% NM NM NM 404 -4.0% 40.1% 929 8.0% -0.0% 0.8% -4.3% 45.1% 46.6% -2.322 15.9% 1.6 19.r.0% -6.0 0. CFA (65) 6882-2374 james.0% 40.8% 404 0.8% 2.0% 42.4% 472 9.0% 0.0% -4.0% 0.9 8.0 15.0 14.9 -21.3% 95 -0.8% -1.9% -6.7 -0.9% 1.0% -1.3% 1.8% -8.3 2.3% 44.0 5.1% 12.9% 18.1% -4.0% -5.5% NM NM NM 95 -4.3 -14.0% 0.7% -17.206 1.0 21.5 1.6 26.4% 0.0 0.2 43.221 1.3% 8.0% 160 37.8 -0.8% 27.4% 272 5.4% 58.1% 50.1% 47.0% 7.1 -5.0 14.4% 8.789 9.4% 343 346 345 343 -2.8% -8.3% 28.3 1.7% NM NM NM 393 -2.5% 0.610 9.0 17.0% -1.2% 1.2% -0.058 8.9 -1.4 5.2% 1.0% 18.2% 35.3 15.0 19.084 6.7 -5.9 7.P.0% -2.1 26.0% 15.7% -1.095 3.4 0.1 7.6% -0.5% 90 375 -4.4% 34.6 7.3% 425 0.1% 95 -0.3% -0.1% -0.1% 393 469 552 29.5% 90 351 320 293 247 204 -0.7% 19.1% 17.

6% 433 8.3 27.210 1.5% 10.0% -0.1% -1.2% 80.7% 13.7% 430 -7.314 2.0% -13.4% -4.0% 94 4.3% -25.1% -80.3% 1.4% -0.6% 15.1% 1.5 8.7% 11.9 3.2% 384 5.7% 731 1.7% 19.6% 1.2 15.4% 16.5% 178.2 -4.3% 333 19.574 1.4% -3.263 2.9% -2.520 9.4% 46.0% 3.3 51.9 6.557 2.2% 272 15.020 22.072 1.298 -6.9% 173.1% 346 27.0 126 -7.4 3.4% 401 5.7% 12.7% 2.2 1.0% 1.4% 785 9.2% 24.0% 273 6.0% 765 767 771 3.0 NM NM 92 2.2 16.385 1.3% 42.2 0.3% -4.1 3.5% 374 16.3% -3.0 NM 1 NM 380 5.1% 1.172 7.3% 61.0% 3.400 6.4% 22.8% 1.420 53.5 132 3.0% -6.589 1.2% 1.8 25.5% 4.5% -26.0% 1.8 NM -79.4% 731 1.053 1.129 1.3% 1.1 56.671 1.1% 51.6% 1.1% 379 5.5% 12.5% -2.4% 1.5% -12.8% 1.6% 17.577 2.216 3.341 1.4% 401 5.8% 3.6% 61.4% 1.8% -12.8 27.9 30.0% 31.1 16.0% 534 8.2% 80.5 17.566 0.3% 34.0 NM 1 NM 98 8.0% 37.6% -6.9% .6% -40.531 4.7% 73.9% 317 2.0% -2.8% 300.5% 3.417 17.5 36.0% 1.6% 20.5% 395 0.3 53.914 1.8% 46 220 244 270 305 344 -2.2% 497.P.1% 16.0 NM NM 96 6.5% -11.8% -11.3% 382 5.6 616 3.5 10.0% 48.1 17.3% 181 73 72 72 51 268 47 158 49 10 2 0 NM 421.2% 303 0.0% 312 1.4 -1.634 6.5 17.5 65.9% 86 311 77 346 0.0% -20.1 1.5 6.8% 1 6 16 14 22 21 23 79 23 112 151 188 230 278 NM 1000% 192.0 510 0.0% 34.4% 27.1% 324 1.0 16.4% 363 9.080 1.9% 1.1% 12.3% -2.9% -37.5% 66 29.4% 132.9% -19.7% 6.0% -11.0% 97 7.9% 268 -1.7% 305 1.0 509 0.6% -17.0 66.6% 32.5 9.6% 80.3% 6.5% -10.0% 448 493 3.5% 511 510 0.236 17.0% 1.3% 1.4% 398 1.5% 60.4% 308 1.8% 96 6.3% 5.661 1.1% 47 -8.1% 6.4% -4.1 14.6% -5.9% -9.3 51.3% 60.2% 34.0% -16.586 9.233 1.4% 80.r.2% 36.3% 277 1.7% 85 7.340 2.2 -7.8 27.0% -2.547 10.2 127 1.8% 4 33 107 163 254 340 NM 2649% 225.8% NM NM 333 19.1% 80.0% 1.9 -32.238 1.9% -4.1% 415 3.072 1.2% 1.7% -0.0 510 0. CFA (65) 6882-2374 james.1% 97 5. NBN Fixed broadband revenue (S$ mn) YoY NBN broadband ARPU (S$) YoY NBN broadband Revenue (S$) YoY Total Fixed broadband revenue (S$ mn) YoY Others data & Internet Other data & internet revenue (S$ mn) YoY Total data and Internet revenue (S$ mn) YoY International telephone IDD outgoing mins (mil) YoY IDD revenue per minute (S cents) YoY Elasticity International telephone revenue (S$ mn) YoY IT and engineering services NBN revenue (Fibre rollout) YoY Revenue from NCS group YoY Total IT and engineering revenue (S$ mn) YoY Equipment Sale of equipment revenue (S$ mn) YoY Pay TV Pay TV ARPU (S$) YoY Pay TV (S$ mn) YoY Total Miscellaneous revenue (S$ mn) YoY Total operating revenue (S$ mn) YoY Source: Company reports and J.3% -1.5 1.6% 56.sullivan@jpmorgan.7% 80.6% 59.5 14.7% 36 7.2 131 -0.0 1.226 6.6% 10.3% -0.9% 1.904 5.0% 1.288 2.3 25.8% 10.8 14.James R.3 46.4% 46.0% 1.3% 10.4% -16.0 21.9 15.1% 93 368 326 286 240 194 1.5 6.4% -9. NBN Fixed BB ARPU (S$)-JPM calc YoY Ex.4% -16.8% -0.786 1.7% 360 -0.8% 62.9% 421 5.0% 624 519 1.535 10.0% 3.7% 419.4 0.8% 12.9% 75 41.0% 16.1 1.7% 148.7 1.8% 126.5% -2.5% 6.1% 92 2.8% 302 4.6% 1.1% -1.0% 32.8% 1.266 2.3 0.8% NM NM 360 -0.613 2.501 1.6% 6. 92 61.595 2.1% 364 5.534 8.0% 390.8% -20.4 1.032 -0.1% 195 0.5% 1.2 58.8% 0 NM 1. Sullivan.3% 30.0% -80.7% -11.7% 402 2.9% -69.3% 61.0% NM NM 363 9.0% 59.2% 404.1% -19.3% 17.5 41.1% -35.995 8.9% 717 26.397 1.1% 401 2.1% 191.0% 34.7% 11.4% -5.611 1. Morgan estimates.6% 301 1.573 1.577 1.7% 154 194 27.0% -80.7% 1.8 20.com Asia Pacific Equity Research 21 October 2011 Table 35: SingTel: Singapore revenue build continued FY FY FY FY FY FY FY FY FY FY FY FY FY FY 2008A 2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011A 1Q12A 2012E 2013E 2014E 2015E 2016E Data and Internet (includes fixed BB) Fixed broadband EX.0% 29.771 2.7% 26.1% 379 -0.156 1.0% 1.5% 6.455 2.7% -1.387 5.524 2.312 1.0% -2.0 NM NM 94 4.9% 0 NM 123 511 -0.316 1.9% 51 52 39 189 6.5% 268 0.8% 1.

5% (249) 3.9% (308) 4.1 -6.463 14.4% 0 NM 0 (267) 5.1% -15.5% 17.1 -2.4% 8.0% -13.435 0.388) (1.928 16.6 -3.0% (279) 4.0% FY 2016E 12.1% 3.9% 20.0% (274) 4.7% (372) 5.5% 21.4 -4.8% (309) 4.0% (303) 5.020 785 3.4 7.9 -4.0 0.0% (74) 4.435) 20.0 NM 0.87 0.2% 6.4% (7.2% 20.0 NM 0.7 -5.0% (79) 4.8% (60) 3.3 5. phone outpayments IDD outgoing mins (mil) Tariff per minute (S cents) YoY Intl phone outpayments (S$ mn) As % of ex.420 2.0 7.5 -9.8% 20.0% (319) 19.7% (214) 13.7 1.7 -4.8% (51) 3. NBN revenue Traffic expenses (S$ mn) As % of total revenue 14.114 15.2% (91) 1.9% 9.0) 27.4% (48) 3.405) (1.2% 0.3 1.8 3.1% (885) 13.6% (267) 5.0 NM 0.0% (916) (1.7 -31.1 6.9% 5. NBN revenue NBN monthly marketing/sub (S$) YoY NBN Lease expense (S$ mn) As % of NBN revenues Leases (S$ mn) As % of total revenue Interconnect Mobile minutes (mn) Interconnect per minute (S cents) YoY Interconnect (S$ mn) As % of ex.5% (190) 3.87 1.0 NM (0.3% 19.595 5.8% -17.0 4.0 -2.7% 5.8% (78) 4.0% (136) 2.0% (239) 3.79 9.4% 25.7% (846) 13.4% 11.015) 16.3% 44.0% (864) 13.0% (244) 3.3% 12.2% (908) 13.7% (78) 5.77 0. NBN Selling and administrative (S$ mn) As % of ex.8% 15.0% (916) (1.2% FY 1Q11A 14.3% 14.0% 20.0% (78) 1.9% 3.0% 23.2 3.9% 25.437 13.7% (45) 2.0% (1.9 -7.P.5% 0 NM 0 (761) 15.0% (69.015) 16.2% FY 2013E 14.1% 0.1 -3.7% (58) 3.7% -15.1% (303) 4.4% 20.3% 14.3% (344) 5.5 -7.5% 3.8% 5.4% (28) 1.1% 3.2% 6.6 0.2% (939) 13.7% 25.4) 0.0% (73.4% (834) 15.570 0.com Asia Pacific Equity Research 21 October 2011 Table 36: SingTel domestic OpEx build FY 2008A Selling & Administrative Monthly expense per sub (S$) YoY Ex.3% 4.3% 14.8% (70) 4.8% 2.8% 4.1 -1.279) 20.7% (324) 4.1) (156.2) 31.0% (142) 2.590 (236) 4.2 -1.2% -16.0% (45) 2.6% (247) 3.3% (57) 3.8% (339) 21.3% 19.9% (178) 2.5) 21.771 2.9% (852) 13.2) 0.0% 23.6% 14.9 -2.7% 4.8 -5.3 -3.8 6.5 3.226 3.87 2.249) 20.4% 0.3% (761) 15. NBN revenue Mobile roaming outpayments Monthly expense per sub (S$) YoY Mobile roaming (S$ mn) As % of ex.6% 0.3% 0.6 11.0% (139) 2.0 5.0% 25.5 3.343) (1.0% (97.0% (242) 3.9% 0 NM 0 0 NM 0 (337) (1.0% (179) 2. Morgan estimates.5% 16.9 3.8% (58) 3.2% 3. Sullivan.0) 21.0 NM 0.0 NM (0.0% -17.6% (296) 4.sullivan@jpmorgan.9% (337) (1.1% -19.0% (29) 1.8) 36.0% -15.7% (122) 1.0% (78) 4.6 -6.7% 3.6 1.80 12.284 0. NBN revenue NBN monthly marketing/sub (S$) YoY NBN marketing expense (S$ mn) As % of NBN revenues Total S&A (S$ mn) As % of total revenue Traffic charges Intl.8 6.0 NM (0.8% 6.1% 5.4% -12.4% -18.0 -12.0% (45.3% (25) 1.4% (74) 4.9% 3.3% (249) 5.8% 2.9% FY 2014E 13.1% 19.1 -1.8% 5.5% 0 NM 0 (303) 5. NBN Monthly expense/ sub (S$) YoY Ex.63 -12.1 3.6% (46) 2.4) 0.0 7.6) 35.3% 23.0% (254) 16.8% (27) 1.76 11.9% -18.387 5.5% 25.9% 3.7% 15. 93 .1 6.6 0.9% (194) 3. CFA (65) 6882-2374 james.6) 28.7 6.4 1.4% 16.9% (79) 4.0% (78) 5.8% 5. NBN revenue Leases Ex.7 6.85 6.3 23.7% (285) 4.2% 46.7% -14.362) (1.0% (181) 2.812 0.7% 20.3 8.5% (318) (1.2) 0.0% (177) 2.293) (1.7% (38.531 717 765 767 771 3.1% 15.1% (217) 3.2% 23.4% (11.82 15.5% (202) 4.7) 18.0% (339) 21.9% -14.9% FY 2010A 14.0% Source: Company reports and J.0% (183) 2.1% 21.5% (825) 13.6 0.7 5.5% (319) 19.3) 27.9 -14.0 5.r.8% 2.3) 45.8% 5.0 -6.3 8.7% FY FY FY FY FY 2Q11A 3Q11A 4Q11A 2011A 1Q12A 18.8% (66) 4.1% FY 2012E 16.0% (0.9% (205) 13.0% FY 2015E 12.6% (209) 13.0% (131) 2.3 4. NBN Leases (S$ mn) As % of ex.0 NM 0.6) (112.326 (220) 3.84 10.87 0.1% -11.6% 0.3% 0 NM 0 (320) 5.1% 4.0% 6.4% -14.7% (28) 1.0 NM 0.8% 6.6 0.1 5.4% 14.2 -5.7% (23.5% (254) 16.4% 21.4 -6.0% (317) (1.0 NM (0.5% 12.5% 15.315) (1.0% (309) 4.1% 0.8% 15.7% (210) 12.9% 15.5% 16.8 -0.5% 16.0 0.8% -24.5% 15.374) (1.4 10.1% (108) 1.3 -4.3% -21.414 0.2% 23.2% 6.545 15.0% (246) 3.284 0.5 -20.5% FY 2009A 14.381) (1.455 5.James R.7 8.81 11.8% 1.8% (71) 4.4 9.7% (213) 13.2 3.524 5.3% (784) 16.9% (320) 5.6% (66) 1.5% 25.398 15.249) 20.0% (274) 4.71 12.

8 3.3 -9.0% (224) 13.9% (0.9% 18.1% 1.5 6.666 436 5.272) (1.3% 15.0 7.0% 14.0% -11.15) NM 3 -0.35) NM 7 -0.7% 17.2% 66.814) As % of total revenue 60.91 Source: Company reports and J.7% 63.9% 16.7% FY FY FY FY FY 2Q11A 3Q11A 4Q11A 2011A 1Q12A 12.2% 2.25) NM 21 -0.143) (4.8% (0.7% (901) 14.7% 65.649 434 -1.1% -11.P.1% (665) 13.5% (101) 1.6 1.092 12.5% 6.822 445 1.r.29 2.9% (0.9% (253) 16.40) 94 .4% 1.0% -10.575) 62.2% 1.9% (805) 14.2% (234) 15.6% (701) 14.3% 16.4% 5.0% 28 -0.34 5.893 12.39) NM 7 -0.4 -9.38) NM 26 -0.9 16.com Asia Pacific Equity Research 21 October 2011 Table 37: SingTel domestic OpEx build continued FY 2008A Staff Average employees Subscribers per employee YoY Monthly cost per employee (S$ 000) YoY Staff costs (S$ mn) As % of ex.3% 15.4% (985) (1.9% (0.054) (1.0% 9.4% 1.5% 1.071) (1.0% 26 -0.7 3.5% -14.9 6.5 17.65 2.68 1.127) (1.7 -1.13 3.sullivan@jpmorgan.6% BP change YoY 2.8% (0.3% 17.8% (0.660 12.2% 450 3.920 12.6% 5.9% (229) 14.1 -5.0% 10.034) (1.6 -10.1% 1.4% (235) 14.0 21.177) 19.2 -7.5 11.45) NM 28 -0.0% (850) (1.1% (122) 1.0% (0.9% (859) 14.1 -5.7 1. NBN revenue Cost of sales Monthly expense per sub (S$) YoY Cost of sales (S$ mn) As % of ex.374 456 4.0% 15.3% 12.8% (99) 2.5% 16.0% 31 -0.920 450 3.9 -7.0% 5.3 3.5% 490 439 16.1% -12.956 FY 2010A 12.0% 6.27) NM 21 -0.1% 468 4.4% (30) 1.063) (1.0% (116) 1.5% 5.3 11.084) 15.9 -4.9% 489 1.54 (0.987) (3.8 6.6% 66.9 13.0% 6.092) (1.5% 494 1.9% (0.4% 1.7 0.6 5.9% 67. NBN revenue 9.0% 482 3.42) (0.205 13.5% 16.0% (113) 1.3% 16.6 -4.024) (4.9% (0.5% 6.29) NM 6 -0.8% (0.9% 62.482) (4.5% (29) 1. NBN revenue Others Monthly expense per sub (S$) YoY Others (S$ mn) As % of ex.045) (1. NBN revenue Repair & maintenance Monthly expense per sub (S$) YoY Repair and maintenance (S$ mn) As % of ex.5% 13.0% 5.439) (4.086) (1.7% (30) 1.4% (288) 18.1 3.James R.6 0.462) (4.25) NM 24 -0.4% (331) (1.887 436 2.2% 12.983 13.3) 5.13 1.4% 15.086) (1.5% (29) 1.034) 15.7% 12.8 2.8 3.8% 66.42 3.8% (121) 1.5% -14.68) (0.517) (4. Sullivan.8% 10.0% (118) 1.4% 16.9% (120) 1.5 -9.5 -3.63) (0.4% 1.8% 68.5% 499 1.0 8.1% 16.8 10.43) NM 23 -0.895 FY 2009A 11.8% FY 1Q11A 12.9% (0. (952) (1.3% 67.6% 1.2 7.5% 1.027) 15.4% Total Operating expenses (S$ mn) (2.3 -5.1% FY 2012E FY 2013E FY 2014E FY 2015E FY 2016E 12.3% 1.5% (213) 14.8% (0.4% (114) 1. Morgan estimates.1% 5.5% 68.4% 1.6% 6.6 -4.6 0.2% -14.8% (0.0% 7.6% 68.2% (305) 18.7% 16.1 1.0% 7. CFA (65) 6882-2374 james.3% (243) (1.81 0.22) NM 4 -0.8% 66.9 1.0% (0.3) 5.9% 5.3) 5.6% (33) 2.9 5.479) (3.

661 1.144 2.67 (556) 1.8% 35.786 1.435) (183) (242) (372) (142) (1.705 4.069 42 2.816 4.181 42 2.631 -4.417 268 16 195 5.482) (4.40) (134) 371 -9.4% 32.312 364 151 244 6.06) (476) 1.3% 0.221 1.6% 0.182 -1.81) (488) 1.sullivan@jpmorgan.914 1.586 9.3% FY 1Q11A 272 160 95 92 303 126 346 66 14 47 1.564 -4.665 4.968 3.99) (551) 1.1% FY 4Q11A 273 182 90 98 317 123 430 86 23 39 1.400 6.9% (339) (51) (57) (78) (27) (229) (288) (29) 7 (1.r.8% FY 2009A 977 469 404 363 1.127) (1.381) (1.0% 32.5% 40.024) (4.P.127 825 351 401 1.0% (2.163 921 320 433 1.517) 533 8 541 -6.574 1.249) (45) (190) (58) (239) (79) (309) (28) (108) (235) (901) (331) (1.221 3.177) (33) (121) 3 21 (1.7% FY 2016E 1.015) (194) (220) (320) (91) (859) (1.298 382 188 270 6.129 510 1.374) (1.371 3.9% (254) (48) (58) (78) (25) (213) (253) (30) 7 (952) 568 8 576 2.9% (1.143) (4.030 204 534 1.071) (243) (1.062 32 2.7% Source: Company reports and J.635 10.189 964 293 448 1.0% 31.128 54 2.2% 2.3% 0.084) (1.269 32 2.3% (318) (1.8% (3.James R.520 9.671 1.6% FY 2Q11A 271 166 95 94 308 131 374 75 22 51 1.557 2.301 3.339 32 2.206 998 247 493 1. Telephone outpayments Mobile roaming outpayments Leases Interconnect Staff costs Cost of sales Repair and maintenance Others (govt grant etc.045) (30) (122) (120) (118) (116) 6 21 24 26 28 (1.575) 2.8% (5.634 6.480 5.1% (2.094 -4.1% (2.3% 38.39 (556) 1.7% (761) (202) (249) (267) (66) (701) (665) (99) 23 (2.4% 37.8% (2.1% FY 2014E 1.027) (114) 26 (3. 95 .77) (134) 442 1.058 552 393 360 1.1% 2.210 511 1.919 49 1.6% FY 2013E 1.0% 2.97) (518) 1.2% (1.316 401 230 305 6.6% 33.216 519 1.272) 518 11 529 -6.3% FY 2011A 1.534 311 79 189 6.547 13.388) (1.172 624 1.62 (557) 1. Sullivan.072 268 6 194 5.2% (337) (1. YE Mar) Mobile-voice Mobile-data National telephone Fixed broadband Other data & internet International telephone IT and engineering services Sale of equipment Pay TV Miscellaneous Operating revenue YoY Selling and administrative Intl.743 4.) Operating expenses Gross Operating Profit Other income EBITDA YoY EBITDA margin (%) BP change YoY Depreciation & amortization EBIT YoY FY 2008A 929 393 425 333 1.987) 1.086) 548 24 572 1.905 10.054) (1.88) (530) 1.086) (1.189 32 2.0% (1. CFA (65) 6882-2374 james.034) (113) 31 (4.0% 31.063) (1.2% 2.598 2.223 5.9% 2. Morgan estimates.156 510 1.053 616 731 272 1 154 4.995 8.5% FY 2012E 1.6% FY 3Q11A 279 186 95 96 305 132 384 85 21 52 1.6% 33.462) (4.8% FY 1Q12A 279 194 90 97 301 127 324 77 23 46 1.092) 494 11 505 -6.9% (2.405) (45) (178) (177) (179) (181) (60) (249) (247) (246) (244) (71) (303) (308) (324) (344) (29) (122) (131) (136) (139) (234) (985) (1.8% (319) (46) (66) (74) (28) (224) (305) (29) 4 (1.501 1.13) (134) 407 -7.1% (916) (217) (236) (303) (78) (805) (850) (101) 28 (3.1% (1.5% FY 2010A 1.111 7.814) 2.8% 34.080 510 1.70) (136) 436 1.41 (546) 1.1% 34.341 421 278 344 6.233 511 1.3% 37.1% (0.095 694 375 380 1.112 32 2.5% FY 2015E 1.45) (147) 382 -11.com Asia Pacific Equity Research 21 October 2011 Table 38: SingTel: Singapore P&L SingTel domestic P&L (S$ MM.479) 2.9% 0.032 509 1.034) (1.439) (4.0% 34.397 346 112 220 6.

com Asia Pacific Equity Research 21 October 2011 Australia-Optus What’s changed in the past 12 months? Telstra’s (the incumbent operator in Australia) reassertion in the Mobile (+1. the migration to the new NBN market environment will be the main focus in the Fixed line segment. Key issues that investors need to be aware of for the next 12-24 months Key issues in the Australian Telecom market in the next 12-24 months:  NBN: with NBNco expected to launch core wholesale products commercially in 2012.0% +0. Morgan estimates Source: J.4%) has undeniably been the main development in the Australian Telecom market over the past year.0% +1. Vodafone is likely to try to re-assert itself in the market place though price based competition. J.  Mobile termination rate reduction: the Regulator (ACCC) has recently launched a review on a proposed reduction in termination rates (9cpm today going to 6cpm from 3.James R. This was driven by a significant reinvestment by Telstra (c.6% +0.5% +0.7% Telstra Optus VHA +0.  Competitive environment : Following the well publicized network/customer issues in 2011. Sullivan.5% +0. Company data.0% -2.6% FY11 +2.0% -0. 30%+ mkt penetration) and continued mobile broadband take-up is likely to continue to drive mid to high single digit mobile in revenue growth.0% +1.2% +1.9% Figure 98: Service Revenue Market share changes +2. TPG/IIN ).1% +1.P.5% -2.P.0% -1.1% market share) and Fixed Broadband markets (+1. In Fixed line.5% -1. Layer 2 ISPs in Fixed).5% +1.0% -1. A likely reduction in Mobile Termination rate (60% reduction over next 2 years proposed by the Regulator) is likely to drive a moderation in mobile industry growth (JPMe mobile market growth of +6%) in FY12-13.1% -0.1% -0.6% +0.2% +1.g. Figure 97: Subscribers Market share changes +4. A$1bn) in customers’ acquisition and retention costs but also helped by Vodafone’ network severe congestion issues and subsequent customer dissatisfaction (loss of -400k customers in 2H11) during the year. the carriers’ main focus will be on preparing for the migration to NBN and possibly on consolidation ahead of the NBN roll-out (e.0% -2. Optus remained reasonably resilient throughout the year with most of Telstra’s market share gains coming at the expense of other players (Vodafone in Mobile.5% 1H11 2H11 FY11 -1.0% Source: Company reports.8% -2. CFA (65) 6882-2374 james.0% FY10 1H11 Telstra Optus 2H11 VHA -0.r.1% -2.Morgan estimates.0% +0.sullivan@jpmorgan.6% -0.0% +3. 96 .0% +2.7% -0.6% -1.0% +0.4% +3.8% -0.9% -0.6cpm.0% -3. What is the driver for the sector / operator for the next 12 months? In mobile. wireless data consumption driven by strong smartphone adoption (c.

1% 24.95 (347) 336 21.4% 18.940 11.5% 25.6% FY 2010A 5.551 3.2% 3.9% 24.355 1.2% 9.561 490 336 (2) 2.1% 738 8.553 (20) 7.360) 1.1% 27.679 505 210 2.149 1.5% 24.872 1.5% 17.165 12.254 5.8% (0.06) (1.727 522 226 2.1% 2.6% FY 1Q11A 1.494 500 330 (2) 2.8% 12.8% (0.1% 23.002 0.384 (12) 8.4% 2.9% 1.769 12.5% 25.1% 25.405) 1.279 2.19) (1.7% 25.1% 683 11.323 4.314 (8) 9.4% 11.385 3.153 4.5% 1.8% 1.0% 25.3% 679 20.1% (0.333 8.048 10.249 3.5% 25.0% 24.20) (1.667 2.8% FY 3Q11A 1.0% 16.330 4.8% 3.5% 24.55 (353) 509 21.7% FY 2013E 6.0% FY 2011A 5.3% 28.424 3.977 1.934 11.221) 1.8% 1.492 497 327 (2) 2.7% 16.2% 2.120) 1.7% 25.9% 22.23) (1.2% 3.5% 24.06 (283) 274 20.371 (9) 9.8% (0.5% 25.498 484 343 (2) 2.1% 24.5% 10.9% 1.5% 24.504 -6.81) (1.1% (0.3% FY 2016E 7.6% 25.56 (351) 329 30.949 7.594 2.4% 26.3% 2.072 4.061 1.988 2.9% 25.07 (1.545 2.070 5.066 3.3% FY 2009A 4.8% 374 124 58 557 9.399) 1.243) 1.6% 16.998 2.3% 1.1% 16.5% 15.433 (10) 10.2% (0.8% 25.2% 26.6% 27.255 2.80) (1.33) (367) 370 12.321 7.4% 1.3% 9.1% 712 6.5% 2.1% (0.6% 2.0% 1.2% 0.20) (1.0% 25.8% 1.217 2.374 3.0% 24.124 3.P.0% 0.55 (286) 267 19.033 7.145) 1.401 2.431) 1.257) 1.004 1.809 2.694 3.0% 3.351 3.9% FY 4Q11A 1.387 -5.394 2.3% 12.32) (279) 281 5.626 1.799 565 251 2.3% 24.5% 11.2% FY 2014E 6.77) (1.314 2.2% 1.240) 1.0% 24.6% (0.r.470) 1.5% (0.092) 910 5.7% 24.6% 371 126 56 553 4.9% 26.52 (275) 396 19.968 1.4% 24.216 1.2% (0.2% 28.280 1.James R.0% 16.21 (286) 267 7.3% 2.438) 1.5% 1.974 1.0% 12.5% 1.2% (0.770 543 238 2.1% (0.8% 30.0% 32.1% 1.1% FY 1Q12A 1.7% (1. YE Mar) Mobile Business & wholesale Consumer & multimedia Inter-segment Operating revenue YoY EBITDA Mobile Business & wholesale Consumer & multimedia Operational EBITDA YoY EBITDA margin Mobile Business & wholesale Consumer & multimedia EBITDA margin (%) BP change YoY D&A EBIT YoY Optus P&L (S$ mn) Operating revenue YoY Operational EBITDA YoY EBITDA margin (%) BP change YoY D&A EBIT YoY FY 2008A 4.418) 1.com Asia Pacific Equity Research 21 October 2011 Table 39: SingTel: Australia (Optus) P&L Optus Australia P&L (A$ MM.5% 28.6% Source: Company reports and J.850 7.475 3.22 (368) 344 8.4% 17.7% FY 2012E 6.5% 23.61) (1.5% (0.760 3.966 4.602 5.7% 24.9% 26.6% (0.8% 1.427) 1.573 2.086 1.065 -8.108) 958 5.518 2.3% 24.20) (1.9% 2.6% 369 129 55 553 9.909 -5.321 -9.465 (10) 10.9% 1.0% 24.4% 26.348 (8) 9.6% 371 131 58 560 1.263 18.054 2.130) 1.0% 25.558 3.6% 24.8% (0.713 -4.08) (1.2% 0.1% 26.670 7. Morgan estimates.2% 24.0% 448 162 61 671 9.0% 24.20) (1.8% (0.982 5.5% 25.564 7.562 541 230 2.97) (1.0% 14.19) (1.5% 24.432 421 163 2.3% 17.263 2.285 3.322 4.5% 17.203 16. CFA (65) 6882-2374 james.8% 10.25) (1.8% 18.635 2.3% 3.0% 25. Sullivan.196) 1.6% FY 2015E 7.8% FY 2Q11A 1.3% 862 11.388 474 205 2.032 1.7% 23.876 15.sullivan@jpmorgan.2% (0.6% 12.4% 2.0% 25. 97 .1% 1.022 1.938 1.1% 24.7% 32.402 (9) 10.516 20.816 587 264 2.623 13.03 (1.421 (12) 8.0% 25.424 494 339 (2) 2.455 490 209 2.04) (1.615 2.

Sullivan. higher S&M and depreciation for both TLKM and EXCL AIS (N. Bharti (OW.key takeaways India Telecoms: The future of voice services Bharti Airtel Limited: Encouraging developments in Africa PT Telkom (N. higher than Street 98 .sullivan@jpmorgan.P. Dec-12 PT Php930) TIPM Telcos: The 2Q11 Deep Dive Globe Telecom 2Q11: spot in line with JPM.James R. Dec-12 PT Bt140) Thai Telcos: 3Q11 Preview Asia Telcos: Where to care about GDP downgrades Downgrade AIS/Thailand TIPM Telcos: The 2Q11 Deep Dive Advanced Info Services 2Q11 net 7% ahead of JPM Globe (N. PT Telkom (Telkomsel’s parent company).900) TIPM Telcos: The 2Q11 Deep Dive PT Telekomunikasi IndonesiaTbk: 2Q11 net 11% below JPM.com Asia Pacific Equity Research 21 October 2011 Other Regional Associates We are positive on the business for Bharti in India. AIS and Globe. Dec-12 PT Rp7. Telkomsel’s operations in Indonesia are expected to remain weak due to heavy competition in the industry. Please see below for links to detailed recent J. Mar-12 PT Rs460) India Telecoms: DoT responds to TRAI's recommendations India Telecoms NTP 2011 draft . CFA (65) 6882-2374 james.r. Recent lower contributions from associates to SingTel were largely a function of large appreciation of the Singapore dollar. AIS in Thailand while Globe has been gaining back revenue market share from PLDT in the Philippines. Morgan reports on Bharti.

3% 32.0% 21.0% 45.com Asia Pacific Equity Research 21 October 2011 Table 40: SingTel: Associate contribution breakdown Associates (S$ MM) SingTel's effective stake Telkomsel AIS Bharti Globe Warid PBTL Effective contributions Associate PBT (S$ mn) Telkomsel AIS Bharti Globe Warid PBTL Others Exceptional items Total Associate PAT (S$ mn) Telkomsel AIS Bharti Globe Warid PBTL Others Exceptional items Total Associates Dividends Telkomsel AIS Bharti Globe Warid PBTL Others Total FY 2008A 35.150 639 191 604 139 (61) (17) 108 (3) 1.0% 47.0% 21.0% 21.3% 32.429 Source: Company reports and J. Sullivan.0% 45.296 445 242 150 99 936 1.0% 45.0% 47.153 253 840 317 (31) (23) 83 (1) 2.017 1.0% 21.3% 30.379 664 242 629 146 (38) (7) 92 1.411 492 2.049 950 385 1.3% 47.0% FY 2016E 35.0% 21.0% FY 2014E 35.3% 30.415 327 2 (4) 112 0 4.031 517 179 808 172 (115) (23) 78 1.3% 32.3% 32.0% 21.0% 21.0% 21.149 1.591 803 176 753 209 (32) (38) 60 1 1.061 159 (17) (7) 92 2.0% 47.3% 30.0% 45.600 480 467 17 132 99 1.0% FY 2011A 35.3% 47.3% 30.0% 45.3% 30.4% 44.3% 30.3% 32.4% 47.3% 47.3% 30.3% 32. CFA (65) 6882-2374 james.3% 47.0% 45.James R.0% FY 2013E 35.814 286 7 (2) 112 0 4.3% 47.0% 45.450 234 (17) (7) 112 3.681 223 1 (4) 92 0 3.0% FY 4Q11A 35.0% 21.0% 21.616 534 169 0 231 0 0 134 1.3% 32.0% FY 1Q12A 35.865 194 4 (2) 92 0 3.3% 30.0% 21.981 264 (4) (5) 112 0 3.102 435 1.r.P.0% FY 2012E 35.871 470 289 159 99 1.0% 45. Morgan estimates.2% 47.884 826 334 1.875 447 169 18 228 0 0 92 954 221 68 210 45 (14) (5) 26 551 164 48 164 31 (14) (5) 21 409 0 223 0 0 0 0 5 228 230 67 209 49 (14) (4) 31 567 172 46 156 34 (14) (4) 28 (1) 417 265 80 17 74 0 0 47 483 214 68 184 40 (14) (4) 30 518 161 48 156 33 (21) (4) 27 (2) 398 215 164 0 0 0 22 401 190 73 173 59 (12) (4) 35 514 142 49 128 41 (12) (4) 32 376 0 0 58 0 0 25 83 855 276 776 193 (54) (17) 122 2.728 440 369 141 99 1.3% 32.115 712 239 871 258 (116) (23) 89 1 2.0% FY 1Q11A 35.3% 30.0% 45.0% FY 2015E 35.0% FY 2010A 35.3% 32.3% 30.139 262 2. 99 .195 210 77 154 49 (12) (6) 28 (1) 500 157 53 103 34 (12) 2 23 360 353 102 0 0 0 0 9 464 886 331 892 212 (38) (15) 112 (1) 2.0% 45.0% 21.0% 21.sullivan@jpmorgan.4% 30.617 854 201 1.0% FY 3Q11A 35.0% 21.3% 32.4% 30.932 604 179 0 239 0 0 93 1.3% 30.3% 30.3% 47.068 940 215 987 235 (63) (13) 119 2.0% 45.5% 30.209 722 377 230 99 1.0% 45.108 713 296 1.0% 45.0% FY 2Q11A 35.3% 32.450 179 (4) (5) 92 0 2.430 530 334 186 99 1.420 682 148 848 165 (63) (13) 109 (1) 1.0% FY 2009A 35.3% 30.3% 32.0% 45.3% 47.756 1.059 377 1.3% 47.0% 1.

9% 27.1% 36.1 FY 4Q11A 4.4% 27.887) 2.5% 1.8% 15. 100 .2 FY 2009A 14.559 52 165 (393) (177) 103 5.8 5.264 (266) 21% 998 1 999 0.934 0.6% 4.7% 25.3 FY 2011A 18.841 6.Group BP change YoY Compensation from IDA D&A EBIT Share of results of associates Interest income Forex gain/(loss) Finance costs Net finance (expense)/ income Exceptional items ("EI") Profit before tax Taxation Tax rate Profit after taxation Minority interests Net profit YoY Net profit (underlying) YoY EPS (Sen) Recurring EPS (Sen) FY 2008A 14.391 4.968 2.906 13.8% 4.878) 2.5% (0.719 (1.755 3.187 5.40) 0 (503) 781 519 33 0 (99) (66) 30 1.P.6 FY 3Q11A 4. Sullivan.800 -2.6 FY 1Q11A 4.8 36.141 50 2 (376) (324) 25 4.23) 0 (481) 707 567 6 (7) (87) (88) 1 1.436 8.9% 968 -2.183 15.450 4.2% 27.233 (292) 24% 942 1 943 -0.259 5.643 3.884 27 0 (398) 4.1% 4.0% 27.0% 0.3% 26.8% 5.846 9.7% 1.8% 1.5 32.906 1 3.8 Source: Company reports and J.108 30 0 (398) 3.6 5.166 508 3 0 (96) 2.307 (317) 24% 990 0 990 -2.042 (1.3% 13.871 13.432 -2.9 FY 2Q11A 4.116 5.287 -2.449 -12.6 24.9 5.051 57 (8) (361) (312) (56) 4.704 5.2% 29.8% 30.5% 998 -2.08 FY 2016E 19.986) (1.549) (1.289 11.821 3 3.5% 24.3% 28.9% 5.818) 24% 5.223 3.433 1.sullivan@jpmorgan.2% 873 -7.284 4.795 2.6% 28.77) FY 2013E 18.2 28.9% 36.982) 3.333 2.5 5.5% 5.130 (1.2 6.991 (1.8% 24.3% 3.2% 5.0% 4.494 14.279 1.4% 1.6% 0.183 5.0% 28.4% 6.863 13.7% 0.06) 0 (484) 771 541 4 5 (88) (79) 0 1.867 (4) (4) (4) 4.644 2.1% 21.1% 5.8% 5.410 22 (44) (312) (334) (2) 5.8% 5. Morgan estimates.733) 2.8% 0.757 (4) 5.962 (1) 3.1% 27. CFA (65) 6882-2374 james.8% 3.531 5.3% 943 -0.41) 0 (1.01 0 (1.com Asia Pacific Equity Research 21 October 2011 Group Model Build Table 41: SingTel: Group P&L Group P&L (S$ MM) Total Operating Revenue YoY EBITDA YoY EBITDA margin .8% 0.101 3.3% (0.3% (0.2% 24.9% 3.187 2.166 1.5% (1.754 -1.r.7% (0.0 23.9 FY 1Q12A 4.985 -2.9 23.8% (1.845 11.455 -6.7 (368) (371) (374) 0 0 0 5.209 3.617 43 0 (534) (492) 0 7.9% 27.171) 23% 3.910 13.188 3.3% 6.343) (1.7 21.2% 27.969) 3.147 2.337 3.996) 3.7 FY 2010A 16.85) 0 (1.070 7.2% 29.5 3.1% 3.942 3.736 7.863 12.50) FY 2012E 18.168) 23% 3.8% (1.053 -2.255 11.0% 30.260) 27% 24% 917 3.249 (342) (1.1 36.1% 5.681 3.494 5.961 4.0% 4.853) 23% 23% 24% 4.605 7.382 (933) 21% 3.952) (1.4% 5.450 (1) 3.06 0 (500) 891 514 8 3 (102) (92) (6) 1.4% 5.49) 0 (1.1% 1.1 0 0 (501) (2.7% 891 -6.754 -1.576 (1.823 -2.2 5.3 6.540 1.7% (0.000) 778 3.James R.95) 0 (1.187 (296) 25% 891 1 892 -6.3% 32.0 24.989 (1) (4) 916 3.756 24 0 (398) (93) (371) 66 66 1.387 27 0 (398) 0 0 0 (1.3% (0.699 2.08 FY 2015E 19.09 FY 2014E 18.497 5.136) 23% 3.

805 6.664 34.652 29.555 11.587 1.735 42.James R.324 2014E 2.190 51.136 2016E 3.567 33.650 1.sullivan@jpmorgan.805 6.738 3.770 31.750 10.714 2009 1. Sullivan.461 33.029 44.391 14.403 3.699 1.813 49.835 5.434 401 5.076 2.731 3.392 49.932 22 2.580 368 6.805 6.328 39.623 26.699 1.391 15.144 10.652 12.807 37.493 37.199 33.587 1.061 1.805 6.392 11.913 11.956 13.594 4.200 10.244 44.621 29.024 4.875 521 5.268 1.199 1.449 368 6.757 12.711 16.199 32.296 10.588 14.372 2.588 368 6.255 2010 1.587 1. 101 .323 12.653 10.465 12.623 24.436 23 2.587 1.699 1.587 1.com Asia Pacific Equity Research 21 October 2011 Table 42: SingTel: Group balance sheet S$ MM.324 4.871 20.412 1.619 2.795 2013E 2.136 4.282 2012E 2.293 3.687 27.756 5.197 1.937 1.591 7.668 40.616 20.541 137 4.250 7.392 8.123 10.719 4.392 1.392 8.000 34.172 359 5.668 2.528 657 6.662 368 8.504 2.754 24 2.113 10.387 2015E 4.812 5.699 1.199 40.659 3.124 10. Morgan estimates.391 17.391 14.391 17.r.541 4.379 10.445 32.985 29 2.952 2011 2.858 1.532 186 3.725 5.587 1.392 8.199 43.450 2.255 3.057 8.360 1. plant and equipment Intangible assets Associate & JV companies Others Total Non-Current Assets Total Assets Trade and other payables Borrowings Others Total Current Liabilities Borrowings Others Total Non Current Liabilities Total Liabilities Minority interests Share capital Reserves Total equity Total liabilities and equity 2008 1.111 33 2.359 11.606 17.103 6.199 35.714 3.406 21.050 10.882 40.712 3 2.027 8.392 8.199 1.601 14.794 9.805 6.730 368 7.877 23.709 4.952 4.476 33.795 4.218 10.199 38.707 36 2.794 40 2.310 42.659 1.590 11.342 10.P.418 1. YE March Cash and cash equivalents Trade and other receivables Others Total Current Assets Property.965 3.706 24.727 39.288 7.623 23.629 2.267 51.388 4.850 10.024 Source: Company reports and J.282 4.045 10.046 25.962 1.491 368 6.101 26 2.834 18.403 4.623 21.614 3.623 30.805 6.594 18.540 1.316 4. CFA (65) 6882-2374 james.944 30.623 28.392 11.351 2.391 15.

792 24 0 0 (2.171 2009 4.918) (4) (63) (2.419 2010 5.166 (411) (2.986 (27) 398 (3.731 2.529) (1.076 1.576 1.736 1.634) 515 23 1. plant and equipment Purchase of intangible assets Others Net cash outflow from investing activities Net proceeds from borrowings Net interest paid on borrowings and swaps Final dividends paid to shareholders of the Company Interim dividends paid to shareholders of the Company Proceeds from issue of shares Others Net cash outflow from financing activities Net decrease in cash and cash equivalents Exchange effects on cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Net debt / (cash) Source: Company reports and J.250) (234) 0 2.083) 7 (283) (2.274) (1.614 2.437 1.647) (328) 0 2.500 (398) (2.982 (43) 534 (4.594) (1.108) 0 5.042 1.130 1.027 936 (629) 0 5.996 (24) 398 (4.280) 0 (398) (1.320 2013E 5.548 2012E 5.258) 0 0 (3.141) (5) 5.391) (466) (374) (1.614 5.403 4.611) 0 0 (4.372 1.333 (75) 96 0 5.209 (97) 125 0 5.633 27 0 0 (2.642) 0 0 (1. CFA (65) 6882-2374 james.403 4.314) 0 (534) (2.613) 1.r.171 43 0 0 (2.194 (301) (4) 6.141) 1.390 1.005) (27) (92) (2.841 1.890 0 2.116) 0 0 (3.149 (711) 0 5.163 35 (185) (255) (1.884) 0 5.711) (6) (12) 1.545) (891) 32 (63) (2.410) 39 4.076 6.355 1.719 1.923) (123) (60) (2.043 34 0 (670) (2.731 4.068 (339) (4) 5.051) 89 4.049 (687) 0 5.969 (44) 368 (2.738 2.991 1.232 (131) 169 0 5.451) 0 0 (3.102) (1.sullivan@jpmorgan.249 2.126 102 .266 2011 4.184) (123) 0 (2.491) (633) 0 4.000 (27) 398 (2.018) (245) (51) 1.293 3.362) 0 (398) (1.952 (30) 398 (3.733 (49) 361 (2.270 1. Morgan estimates.429 (710) 0 6.073) (1.P.138 (134) 101 48 5.617) 0 5. Sullivan.797) (1.433 (67) 87 0 5.598 27 0 0 (2.154 1.382 1.293 5.097) (987) 11 (42) (2.748) 1.334 30 0 0 (2.883 2015E 7.143 (18) 1.225) (123) 0 (2.756) 0 5.053 89 (115) 0 5.887 (216) 393 (2.372 6. YE March Profit before tax Adjustments for Depreciation and amortisation Interest and investment income (net) Finance costs Share of associated and JV's (Pretax-tax) Others Operating cash flow before working capital changes Changes in operating assets and liabilities Trade and other receivables Trade and other payables Others Cash generated from operations Dividends received from associated and joint venture companies Income tax and withholding tax paid Others Net cash inflow from operating activities Interest received Net Payment for acquisition of subsidiary Net Investment in associated and joint venture companies Payment for purchase of property.266) (123) 0 (2.738 4.454 52 0 (1.747 954 (370) (2) 5.329 17 0 (90) (1.043) 227 0 2.965 4.883 (456) 357 (37) 4.879) (3) 184 (2.965 2.017 (656) 0 5. 2008 5.878 8 326 (2.465 (86) 96 (38) 4.237 1.James R.759) 840 (348) (1.555 2014E 6.559) (52) 4.114 (335) (12) 5.233) (123) 0 (2.387) 0 5.191) (123) 0 (2.290) 2.687 1.452 1.659 6.345) (1.583 (36) 177 (38) 4.493 2016E 7.318) 0 (398) (1.com Asia Pacific Equity Research 21 October 2011 Table 43: SingTel: Cash flows S$ MM.179) (204) (315) (1.098) (891) 12 (201) (3.

95 0.15 2 S.0x 10.26 Sep/08 Sep/09 Sep/10 Sep/11 0.0x Sep/08 Sep/09 Sep/10 Sep/11 0.0x 4.63 -21.40 0.P.19 5.0x PBV hist PBV Forward Current: 2.35 0.00 2.14382 SEDOL B02PY22 Telecommunication Services Diversified Telecommunication Latest Min Max 12mth Forward PE 8.00 0.0x 1. Morgan Calcs As Of: Local Price: EPS: % to Max % to Med 109% 14% 216% 15% 54% -33% 98% 19% 391% 140% 13-Oct-11 3.33 18.28 -0.D.0x 3.25 0.00 3.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Current: 3.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/11 ROE (Trailing) 35.21 12 Mth Forward EPS 0.38 SINGAPORE 71.45 6.0x 0.sullivan@jpmorgan.6% Source: Bloomberg.4x Price/Book Value 7.53 Dividend Yield (Trailing) 9.EY/Cost of equity) where cost of equity =Bond Yield + 5.50 1. 39378.00 0.40 -0.48 0.50 4.0 8.37 % to Min -29% -29% -100% -40% -76% * Implied Value Of Growth = (1 .57 9.05 Current: 0.r.97 ROE (Trailing) 9. IBES CONSENSUS.50 3.0x 2.0 6.26 % to Avg 23% 44% -29% 28% 171% Median 14.00 -0.0x 5.72 15.03x Dividend Yield (Trailing) 0.92 3.0x 15.00 10. 7.00 30.68 2 S.00 15.00 1.95 12.09 Sep/11 Average 15.00 25.40 0.42 2.91 0.32 30.50 0.20 Current: -21.30 0.52 19.0 7.35 0.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Current: 12.80 0.15 0.20 0.14 2.0x 25.0x 5.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/10 Sep/10 Sep/10 Sep/11 Earnings Yield (& local bond Yield) 12% 10% 8% 6% 4% 12Mth fwd EY Singapore BY Proxy Current: 8% Implied Value Of Growth* 0. Reuters Global Fundamentals.20 0.James R.0 1.82 25.56 7.+ 23. CFA (65) 6882-2374 james.00 20.60 0.0 5.0 4.21 0.98 -0.61 29.0 0.60 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/11 PE (1Yr Forward) 30. J.64 4.0 3.com Local Share Price 4.D.com Asia Pacific Equity Research 21 October 2011 JPM Q-Profile Singapore Telecommunications Ltd.00 7.0x 20.40x P/BV (Trailing) 1.0 2. (SINGAPORE / Telecommunication Services) As Of: 13-Oct-2011 Quant_Strategy@jpmorgan.00 5.0x 6.27 2.62% 2% 0% Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/11 -0.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Current: 15.38 0.50 2.34 3.10 0.0 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Current: 4. Sullivan.53 Implied Value of Growth -0.97 Sep/08 Sep/09 Sep/08 Sep/09 Sep/10 Summary Singapore Telecommunications Ltd.0% (ERP) Sep/11 103 .

1% Cash flow from financing 12.3% 15.0% (12.2%) 21.910 15.33 0.823 3.587 1.184) (96) (3.884 Total current liabilities 6. Sullivan.719 (2.541 FY12E 2.171) 3 3.0% 15.6% 17.28 0.647) (328) 2.727 39.986) (1.71 FY13E 5.7% 13.731 3.494 4.952 5.1% 16.70 15.3% Cash flow from other investing 9.918 0.94 FY13E 27.699 6.111 29.388 4.sullivan@jpmorgan.493 37.6%) 19.reported Net profit .351 2.223 27 ST loans (398) Others 3.969) 0 3.9% ROC 10.805 15.1% Shareholders' equity 15.8% 9.587 1.24 0.931 0.8% 15.2% 13.343) -4 4.906 3.8% FY13E 18.699 5.952) 0 3.000) 0 3.61 Ratio Analysis %.328 39.9% Beginning cash 16.082 35.16 68% 7.598 (2.0% 12.807 37.4% 18.614 2.070 5.895 8.r.588 368 6. Morgan estimates.166 (2.2% Capex 18.179 38.125 1.614 1.735 42.699 5.932 24. year end Mar Revenue EBITDA Depreciation Amortization EBIT Interest income Interest expense Associates Profit before tax Tax Minorities Net profit .2% ROA 11.334 (2.931 0.101 30 (398) 3.48 FY11 2.329 6.968 22 (312) 2.25 0.691) 10.796) 11.25 0.8% 13.614 3.4% ROE 17.731 2.965 104 .0% 9.209 Accounts receivable (1.1%) 22.379 22.4% Total liabilities and equity 15.1% 5.183 Net fixed assets 5.633 (1.249 (1.24 0.805 15.005) 11.709 FY13E 2.14 58% 13.113 21.952 5.502 33.731 FY14E 2.com Asia Pacific Equity Research 21 October 2011 Singapore Telecom: Summary of Financials Profit and Loss Statement S$ in millions.668 40.0% (12.166 27 (398) 2.587 1.0% Change in cash for year (11.0% 14.913 2.736 (1.053 (1.387 5.8% Balance Sheet statement FY14E S$ in millions.7% 3.8% 1.835 (1.878) 0 2.72 FY10 FY11 FY12E 5.5% 23.0% 3.436 23.555 2.850 26.5% FY11 18.846 (1.0% 9.580 368 6.7% 3.912 0.043) 538 1.494 15. year end Mar 27.755 5.19 68% (2.144 1.923) (2.8% 3.141) (3.020 8.324 4.587 1.320 1.2%) 14.0% 23.0% 17.72 Source: Company reports and J.25 0.361) 11.8% Tax rate 22.7% Closing cash 14.2% 10.795 4.387 4.5%) (2.965 2.653 24.4%) (11.842 8.101 25.6% FY12E 18.28 0.795 4.307 6.22 Long-term debt 68% Other liabilities Total Liabilities 2.116 (1.2% 22.403 (1.25 0.800 15.33 Total Assets 0.3% FCF margin 20.9% 24.491 368 6.942 15. year end Mar 18.057 32.3% 13.183 Other long term assets Total non-current assets 15.634) (2.549) Net working capital -4 5.449 368 6.615 32.738 2.1% 16. year end Mar FY10 FY11 EBITDA margin 28.244 44.871 4.250) (234) 2.985 27.147 50 (376) 2.795 Cash and equivalents 5.282 4.James R.3% Net debt/(cash) Book value per share Cash flow statement FY14E S$ in millions.7% 23. FY12E 27.076 1.2% 13.06 FY10 1.108 5.266) (256) (755) (96) (2.738 227 2.84 FY14E 5.594 (2.528 5.011 8.883 1.136) 1 3.931 0.965 3.0% 9.841 (1.17 68% 3.042 (1.2% 10.403 3.adjusted Shares Outstanding (mn) EPS (S$) (Reported) EPS (Adjusted) DPS (S$) DPS payout ratio Revenue growth EBITDA growth Adj Net profit growth Adj EPS growth DPS growth FY10 16.555 1.172 359 5.805 14.7% Interest cover (x) 16.359 2.8% 9.5% Capex to sales (11.7% Cash flow from operations 18.750 22.141 4.1%) Debt/Capital 22.805 14.266 1.882 40.6% (2.225) (94) (3. CFA (65) 6882-2374 james.590 2.8%) (2.699 6.043 5.029 44.1% Net debt or (cash) to equity 22.410 5.260) -4 3.8% 23.9%) 15.310 42.287 5.P.991 (1.282 4.985 3.324 4.738 3.250 14.5% 18.005) (2.986) Others 0 Total Current assets 3.7% 28.548 1.53 11.

Morgan Securities Singapore Private Limited Price Performance 2. have made much over the potential for Singapore’s National Broadband Network project to increase competition and drive opportunities for infrastructure-lite competition. including ourselves.150 EBITDA (S$ mn) 645 654 EBITDA growth (%) 0. we use 14.morganmarkets.4% Recurring profit (S$ mn) 311 320 Recurring EPS (S$) 0.18 0.com J.8% 263 0. www.  Stable dividend yield and cash flows: StarHub’s committed 20c/year in dividends imply a yield of 7.9% 14.  Key risks: Key upside risk are higher than expected NBN market share for StarHub (we currently forecast 30%) and special dividend payments. J.8% Company Data 52-wk range (S$) Mkt cap (S$ mn) Mkt cap ($ mn) Shares O/S (mn) Free float (%) 3-mth avg trading volume: Average 3m Daily Turnover ($ mn) FTSTI Exchange Rate Price (S$) Date Of Price 2.3% 1. Higher than expected price competition is a downside risk. CFA AC (65) 6882-2374 james. do not support this case.0% 3 5.1 18.20 8. potentially force Starhub into a Virgin Media (covered by JPM analyst Carl MurdockSmith) type strategy. year-end Dec FY08A FY09A Revenue (S$ mn) 2.1% 312 0.x.5 P/E 15.0% 6.4% 2.50 4.82 Price Target: S$2.2% DPS (S$) 0.9% 0.835 3. including non-US analyst disclosures.27 2.1% 7.20 9.4 7.ka.70 Singapore Asian Telecommunications James R. The NBN will largely serve to cement SingTel’s dominance of the local market. With a low geared balance sheet (2011 net debt/EBITDA at 0.268 662 11. and lock M1 out of the mainstream market.19 EPS growth (%) -2.715 33.8% 9.5% 18.9% 12m 16.1% 329 0.238 596 -8.  NBN to potentially force StarHub into a Virgin Media type strategy: Many.com Christopher Gee.r.92 .3% and are well supported by FCF yields of 7-8%.1% 8.18 EV/EBITDA (x) 8.5% StarHub (Reuters: STAR.4% 6. Bloomberg: STH SP) S$ in mn. Investors should consider this report as only a single factor in making their investment decision. street: we are 3% ahead for 2012.720 1. As a result.sullivan@jpmorgan. CFA (65) 6882-2345 christopher. Morgan estimates.P. STH SP Price: S$2.Asia Pacific Equity Research 21 October 2011 Initiation StarHub Pay TV share at risk from SingTel while NBN margins are relatively less attractive  We initiate coverage of StarHub with a Neutral rating and Dec-12 price target of S$2.P. Current content sharing rule coupled with the government’s NIMS initiative are expected to unbundle content/products over the longer term.3x and above the top of its normal trading range.819 1.8% 1m 0.81 2.1 Dividend Yield 6.SI share price (S$) FTSTI (rebased) Abs Rel YTD 4.3 7. J. The facts.SI.P. investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.2% 5. Bloomberg. Sullivan. a historical high of 810bps.gupta@jpmorgan.8 S$ 2.SI.6 2.82 20 Oct 11 See page 139 for analyst certification and important disclosures. StarHub is trading at 530 bps spread to Singapore govt bonds vs.128 2.8 14.1% 6. Neutral STAR.0x for our price target.8% 0.8% 3m -3.4 15. Morgan does and seeks to do business with companies covered in its research reports.2 Aug-10 Nov-10 Feb-11 May-11 Aug-11 STAR.5% Source: Company data. Our price target is driven by two factors: 1) our EPS forecasts vs.3 15.70: With a total return expectation of 1% (-6% capital appreciation based on target FY12 P/E of 14x + 7% expected cash dividends during the next 12 months).2% FY11E 2.  Pay TV business at biggest risk: StarHub’s pay TV business faces multiple risks in the near and longer term.15 -17. however.19 5.6 7.20 7.com .6% FCF to mkt cap (%) 7.18 19. 2) target 2012 earnings multiple currently at 15.gee@jpmorgan.4 2.com Vishesh Gupta (65) 6882 2367 vishesh.2.8 8. First from improving content and bundling capabilities at SingTel.9x) special dividends are an upside risk. FY10A 2.308 702 6.5% FY12E 2.18 0.3% 0.

0 -8.1% Revenue breakdown (2011E) Sale of equipment 5% Cable TV 16% Cable BB 11% Price target methodology Wireless 53% Fixed 15% Our PT is based on a sum of 1) potential upside/ (downside) to consensus EPS vs. Bloomberg 106 . Sullivan.0% -5. Source: J. consensus EPS (d) Cumulative upside to current price (e+d) JPM Dec-2011 price target (S$/sh) Consensus 2.r. CFA (65) 6882-2374 james. Price target and valuation analysis Current consensus P/E (a) Peak P/E (b) 2011E 16.P.9x/7.3% 3. P&L sensitivity metrics 2011E Wireless revenue (S$ mn) Impact of each 5% Cable TV revenue (S$ mn) Impact of each 5% EBITDA margin (%) Impact of each 1% Capex (S$mn) Impact of each 5% Source: J.sullivan@jpmorgan.268 2. Morgan estimates Upside/ (Downside) to peak multiple (b/a-1=e) JPM vs.3% -9.P.4%/7.0 -13.8% 30. JPM EPS estimates and 2) our estimated multiple expansion/(contraction) based on peak P/E multiple.3 14.3% 276 NM EPS impact (%) 5.9% 2012E 15.5% 5.291 2. Morgan 2.4x but still provide a healthy 7. Higher than expected NBN and pay TV market share are the key upside risks to our price target for StarHub while extensive pay TV competition and threat of new entrants are downside risks. Morgan estimates. As of 2Q11. cable TV. which has a 150% penetration rate.8% 0.308 662 702 312 329 If our price target were achieved.9x and EV/EBITDA of 7.2% 3.207 2.com Asia Pacific Equity Research 21 October 2011 Company Description StarHub is the second largest mobile operator in Singapore.7% 3.P. StarHub would be trading at 2011E/12E P/E of 14. it had 29% share of Singapore’s wireless market.8% 361 0. Morgan vs consensus S$ mn FY11E-Rev FY12E-Rev FY11E-EBITDA FY12E-EBITDA FY11E-Net inc.3% 2. Morgan estimates EBITDA impact (%) 1. Our peak P/E multiple is based on the stock’s historical trading range and expected future business changes.P.1 14.7 Source: J.0% 1. J. P.4% yield. FY12E-Net inc. broadband and fixed network services.380 662 697 303 324 J.78x/13.James R. providing mobile.

NBN to potentially force StarHub into a Virgin Media type strategy: Many.James R. Our price target is driven by two factors: 1) our EPS forecasts vs. Stable dividend yield and cash flows: StarHub’s committed 20c/year in dividends imply a yield of 7.com Asia Pacific Equity Research 21 October 2011 Investment Summary We initiate coverage of StarHub with a Neutral rating and Dec-12 price target of S$2. CFA (65) 6882-2374 james. street: we are 3% ahead for 2012.70: With a total return expectation of 1% (-6% capital appreciation based on target FY12 P/E of 14x + 7% expected cash dividends during the next 12 months). potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy.sullivan@jpmorgan. The NBN will largely serve to cement SingTel’s dominance of the local market. have made much over the potential for Singapore’s National Broadband Network project to increase competition and drive opportunities for infrastructure-lite competition. Higher than expected price competition is a downside risk. 2) target 2012 earnings multiple currently at 15. a historical high of 810bps. Key risks: Key upside risk are higher than expected NBN market share for StarHub (we currently forecast 30%) and special dividend payments. Upside/downside risks to our view Positive risks Better than expected NBN market share: We expect StarHub to capture 30% of the total NBN market. we use 14.9x) special dividends are an upside risk. StarHub’s current fixed broadband market share is 34% while pay TV market share is 64% and better than expected share of NBN subs is thus an upside risk. Please see the table below for earnings sensitivity to NBN market share assumptions. Current content sharing rule coupled with the government’s NIMS initiative are expected to unbundle content/products over the longer term. 107 . The facts. including ourselves. do not support this case. We assume SingTel would account for 60% of the market while the remaining 10% would be M1. With a low geared balance sheet (2011 net debt/EBITDA at 0.r. and lock M1 out of the mainstream market.3% and are well supported by FCF yields of 7-8%. First from improving content and bundling capabilities at SingTel. StarHub is trading at 530 bps spread to Singapore govt bonds vs.3x and above the top of its normal trading range. Pay TV business at biggest risk: StarHub’s pay TV business faces multiple risks in the near and longer term. Sullivan.0x for our price target. however.

0% 20% 196 2.6% -0.0% -2.314 -3.1% 40% 45% 2.371 0. Potentially an operator like Telstra (in order to have a counter balance to SingTel's Optus) or Axiata (already a 29.3% 5.379 0.6% -0.0% 50% 208 8.5% 5.P.0% 45% 206 7.2% 55% 383 4.0% 15% 194 1.350 -1.7% -2.James R. in our view.748 -0.716 -0.sullivan@jpmorgan. This has the potential to introduce another layer of strategy into the Singapore market.5% Base case 30% 365 0. however. Were this dynamic to change.300 2.9% 5.328 2.2% 70% 2.23% shareholder in M1. This could theoretically be used to completely unbundle content and reduce the role of SingTel and Starhub as Pay TV content aggregators. 108 . Morgan estimates.2% -0.0% 60% 387 5.9% 55% 210 9.3% 40% 372 2.711 -0.0% Base case 10% 192 0.7% 25% 361 -1.1% 30% 35% 2. b) Starhub and to a lesser degree M1 will face structurally lower NBN economics. CFA (65) 6882-2374 james.com Asia Pacific Equity Research 21 October 2011 Table 44: Singapore Telcos: Earnings sensitivity to market share within NBN subscribers SingTel NBN market share 5% FY16 Singapore EBITDA (S$ mn) 2.1% 50% 55% 2.0% 25% 2. but as of yet see no signs that this will occur. but are not forecasting an all out price war on a product by product basis. but clearly a limiting factor.1% 45% 376 3.3% FY16 group net (S$ mn) Upside to base case StarHub NBN market share 2015 net income (S$ mn) Upside to base case M1 NBN market share 2015 net income (S$ mn) Upside to base case Source: J.307 2.0% -2. Forecast competitive dynamics are upended as Starhub pursues an alternative infrastructure approach: We suspect that a Virgin Media type strategy may in fact be the best long term strategic option for the company.9% 60% 212 10.9% -0.743 5.2% Base case 60% 2.1% 50% 380 4.2% 65% 2. which could be de-stabilizing.292 Upside to base case -3. 10% 15% 20% 2.0% 5.721 5. which theoretically limits product specific price discovery for consumers.0% -3.336 -1. This program is at a very early stage of development.700 5.9% 70% 216 12. general offer is triggered at ) to eventually make a bid for the firm.694 -1.6% 5. This could be somewhat restrained.343 2.759 0. has been actively pushing a program called the NextGen Interactive Multimedia Applications and Services program (NIMS).2% 5.732 5.not a guarantee that price competition will not get out of control.705 5. by StarHub’s desire to achieve a reasonable return on their CAPEX investment. which provides for a common platform Set Top Box (STB). This is driven by the fact that a) bundles will increasingly drive this saturated. A foreign operator takes control of M1 and introduces cross market competitive dynamics into the Singapore environment.8% 10% 15% 20% 351 354 358 -4.738 -0.1% 65% 390 6.2% 70% 394 7.r.727 -0. we would expect a greater potential for a degree of price competition between Starhub and SingTel given StarHub’s better economics.754 0..0% 30% 200 4.4% -0.0% 25% 198 3. NIMS project creates unbundles content: The Infocomm Development Authority of Singapore (IDA).0% 5% 347 -4. but is something we are watching closely. mature market..8% -0.1% 35% 369 1.8% -1.0% 40% 204 6. Sullivan.3% 5.2% -0.1% 5.9% 5% 190 -1.321 -2. the Telecom industry regulator.357 2. which limits their ability to aggressively cut price without significantly impacting their own margins.364 -0.386 0.9% 65% 214 11.0% Negative risks Pricing competition is worse than forecast: We do expect a degree of price compression which will reduce overall industry revenue growth rates moving forward.765 0.0% 35% 202 5.4% 5.

1 9.2 Dividend Yield (%) 2011E 2012E 5.3% 10.4 4.9 N 2.06) Source: Company reports and J.6 15.P.9% 1.7 11.0 10.3x.. Valuation Our price target of S$2.0% Source: Company reports and J. consensus Best case price % upside Worst case price % upside Up/Down EPS 6. 109 . Our simple valuation methodology is that we believe only two things can mathematically move a share price: 1) changing earnings estimates.15 2. We run a best and worst case scenario valuation for our companies where we compare our peak and trough level valuation returns.8 -5.8 13. SingTel looks most attractive on this metric with an equal distribution both sides while StarHub and M1 offer higher losses on the downside than gains on the upside.5 -1.0x multiple for our PT.0 10.9 15.0% 8.00 3. and 2) the multiple the market is willing to put on those earnings estimates. and think there could be 15% multiple expansion. This structure allows us to focus our research on: 1) getting the numbers right.1% 2.. the Street.6 14.3 6.8 0.0 FCF Yield (%) 2011E 2012E 5. If a multiple has expanded to previously unseen levels.0 7.6 10.5 PT (LC) 3.6 13.7 -5.9 -34. we use a 14. JPM EPS estimates at +3%.0 PE (x) 2011E 2012E 12.9 -25.0 14. Our Dec-12 PT at S$2.6 2.r. if we have 10% upside to street EPS forecasts.15) -5. Table 45: Singapore Telcos: Valuation summary Company SingTel StarHub M1 Stock code ST SP STH SP M1 SP Rating Price (LC) OW 3.4% 3.3 Total Return 19. and 2) our estimated multiple expansion/(contraction) at -8% based on peak P/E multiple.com Asia Pacific Equity Research 21 October 2011 Valuation and share price analysis Price target calculation Our investment philosophy has been simplified over the years.i.0 10. Our peak P/E multiple at 14.8% 2.0x is based on the stock’s historical trading range and expected future business changes.8 7.0 6. 2) Target earnings multiple. Priced on 20 Oct 2011.7 -15.9% 8.2 N 2.7 2. This method allows us to capitalize on (hopefully) good fundamental research.0% 2.5% (0.0 JPM vs.3% 1.3 7.4 9.2 15.sullivan@jpmorgan.5 % to EV/EBITDA (x) Target 2011E 2012E 14. Sullivan. our total target return is 25%. A simple sum of the two leads to our price targets. Priced on 20 Oct 2011.1 7. either the business has changed or a lot of expectations have already been built into the share price.James R.3 13. but also allows us to understand market sentiment. we are 3% above for 2012 EPS.6% 1. It is our belief that ultimately share prices are driven by earnings estimates.0 6. shares are at 15.1 8.87 2. and 2) understanding what potential range of multiples the market might apply.7 is based on a sum of: 1) potential upside/(downside) to consensus EPS vs.9 9. an assumption holding true for all of our coverage companies around the region.3 12. Table 46: Singapore Telcos: Best and worst case analysis Current price Current consensus P/E Peak P/E Trough P/E SingTel StarHub M1 3.e. Morgan estimates. Our share price target is driven by two aspects: 1) Our EPS forecasts vs.7 implies a total return of +1% (-6% capital appreciation and 7% dividend yield).50 11.6% 1.P.0% 6. Morgan estimates.0 13. CFA (65) 6882-2374 james.5% (0.

Sullivan. CFA (65) 6882-2374 james.1% (0. Street estimates SingTel Revenue EBITDA EBITDA margin-BP diff EPS StarHub Revenue EBITDA EBITDA margin-BP diff EPS M1 Revenue EBITDA EBITDA margin-BP diff EPS Source: Bloomberg and J.6% Figure 99: StarHub: Street 1 year forward EPS trends Source: Bloomberg.8% NA NA 1. Morgan estimates.3) -0.1% 0. Figure 100: StarHub: Street 1 year forward P/E trends Source: Bloomberg.9% (1.7% -1.1% FY2E -3. FY1E 0.0% 0.3 3.8% 1.4% -3.3% -0.com Asia Pacific Equity Research 21 October 2011 As per the J.P.P. StarHub P/E has expanded by 15% YTD as people were willing to pay higher for yields given concerns on global macro economic events.5% NA NA 6.2 3.James R. 110 . EPS estimates have been flat YTD for StarHub.2% -1.0% -0. Table 47: Singapore Telcos: JPM vs.sullivan@jpmorgan. we see 3% upside to Street's 2012 EPS estimates for StarHub.0% -1.8% -4.r. Morgan vs. consensus table below.0) -5.

We run full discounted cash flow analysis on all of our companies. StarHub's share price (combined with our free cash flow forecasts) implies a discount rate of 10.4%. by back calculating what discount rate is implied by the current share price. in our view Figure 101: StarHub: Street dividend yield estimates Source: Bloomberg. govt bonds Source: Bloomberg.com Asia Pacific Equity Research 21 October 2011 Yields have contracted massively for StarHub to 7% levels now from 10% earlier. CFA (65) 6882-2374 james. or b) an excessively pessimistic sentiment applied by the market. We instead use DCF analysis as another gauge of market sentiment. Per Table 2 below. and the upside to street + upside to multiple approach described above a more effective way of forecasting future share price movements. Figure 102: StarHub: Street dividend yield spread to Singapore 10 yr. A high discount rate would be indicative of either a) a very risky business / market.r. 111 . The large reduction in spreads for Starhub appear to be under pricing the risks to cash flows. largely in line with M1.James R. but do not use this analysis to specifically set target prices. Our experience has been that the heavy retail participation in most South East Asian markets leaves P/E multiples. Sullivan.sullivan@jpmorgan.

1 Launches HDTV Asia Pacific Equity Research 21 October 2011 Wins bid to run high speed internet n/w 1Q09 net up 3% YoY 2. Table 48: Singapore Telcos: DCF summary Source: Company reports and J.6% 87. Sullivan.com 2Q07 eps up 19% YoY.1 3.Malaysia romaing rate cut STH to raise pay TV rates S&P downgrades US debt rating 1Q11 net up 62% Jan-07 Jan-07 Feb-07 Mar-07 Apr-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Aug-07 Sep-07 Oct-07 Nov-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Jul-08 Aug-08 Sep-08 Oct-08 Oct-08 Nov-08 Dec-08 Jan-09 Jan-09 Feb-09 Mar-09 Apr-09 May-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Sep-09 Oct-09 Nov-09 Dec-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Aug-10 Sep-10 Oct-10 Nov-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Mar-11 Apr-11 May-11 Jun-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Market decline 1.3 2.Source: Bloomberg.9 3.3 1Q07 eps up 32% YoY 2.9 3.0% 4.50 2013 Terminal growth rate 4.7 1.4% 10.7 2.3 Current price (LC) 3. dividend raised to 40 cents Settles network dispute with SingTel.8% SG.3 Implied discount rate at current price 7.5 2.1 3.P. Priced on 20 Oct 2011.1 2.0% 4. Priced on 20 Oct 2011.5 2.5 SingTel StarHub M1 James R.1% . Morgan estimates. Figure 103: StarHub: Share price analysis with key events 112 1.7 2.9 2. seeks 3G spectrum bids Analyst downgrades Wins Marina Bay Sands contract 2012 Terminal value as % of EV 92.0% StarHub price Analyst downgrades DPS raised to 50 cents StarHub and SingTel make joint bid for world cup Governmet passes content sharing rule Protest on world cup fee hike Analyst upgrades Govt.r. 3Q07 net declines 0.15 2.9 2.0% 87.2% Stocks fall on Subprime concerns DPS increased to 45 cents SPH might sell stake 2Q08 net down 21% YoY Lehman files bankruptcy Analyst upgrades Market decline Dividends sustainable 1.87 2.5 1.9% 10. CFA (65) 6882-2374 james.7 1.sullivan@jpmorgan.

sullivan@jpmorgan. CFA (65) 6882-2374 james. 113 . Long term threat to pay TV market share from the NIMS initiative.com Asia Pacific Equity Research 21 October 2011 SWOT analysis Strengths   Access to corporate fixed line customers through the new NBN network at low incremental capex. Strategically not well placed in the NBN business chain. SingTel the biggest beneficiary through OpenNet.9x) to support future expansion and dividends. Sullivan. Weaknesses   Potentially heavy competition on strength segments of pay TV and broadband. Threats    Risk to Pay TV business from SingTel. Opportunities  NBN assets provide significant opportunity to StarHub to participate in earlier less accessible corporate fixed line market.James R. Strong balance sheet (2011E net debt/EBITDA at 0.r. Threat from new entrants as NBN infrastructure expands and matures.

4 -0.3% 54.0% 60 0.com Asia Pacific Equity Research 21 October 2011 Model build Table 49: StarHub revenue build 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A Mobile Voice Blended MOU-JPM calc YoY Voice ARPM (S cents/min)-JPM calc YoY Voice revenue (S$ mn) YoY Voice ARPU (S$)-JPM calc YoY Non-voice Non voice ARPU (S$) YoY Non voice revenue (S$ mn) YoY Total mobile revenue (S$ mn) YoY Total mobile ARPU (S$)-JPM calc YoY Pay TV Pay TV ARPU (S$)-JPM calc YoY Pay TV revenue (S$ mn) YoY Broadband CATV broadband ARPU (S$)-JPM calc YoY CATV Broadband revenue (S$ mn) YoY NBN broadband ARPU (S$)-JPM calc YoY NBN Broadband revenue (S$ mn) YoY Blended BB ARPU (S$)-JPM calc YoY Total Broadband revenue (S$ mn) YoY 419 3.7% 1.7 NM 47.9 -5.6 -1.4 4.6% 7.037 12.327 1.1% 296 3.5% -11.2 2.7 7.8 -3.7% 24.James R.1% 48.0% 235.3% 28.7% 276 5.4 -0.5% 18.3 -0.8% 202 -1.9 49.8% 298 7.7 -4.3 -0.9 37.2% -1.7 191.1 -0.4 0.1% 55.0% 47.3 -0.7 -9.5 162.0 NM 0.1 -3.0% 7.5% 17.6 -6.241 2.2% -1.6 4.0% 0.8% 46.7% 465 450 429 455 420 416 -6.4 -0.6% 241 -5.7% 303 1.9 49.0 NM 59.5 -1.207 2.9% 9.6 -22.0 0.0 14.9% 39.1 -4.8 0.1 -1.2% 34.5% 244 3.0 -4.6 2.2 47.1% 59 -1.0 NM 0.8% -15.8% 286 8.0% 58.2 47.3% 12.9% -10.6 -1.1% 92 92 -9.6% -3.8% 29.5 59.8 5.3% 0.7% 31.8% 505 5.4 -5.9% 9.5% 17.1 -2.7% 806 -4.5% 1.5% 57.0% 30.6% 302 -2.8% 46.4% 49.1 7.7% 2015E 384 -1.0 34.9 -5.8% 61 3.1% 29.2% 803 -2.4 -9.8 -6.9% -10.8% 48.3% 110.5 64.6 7.094 1.7 -2.3% -10.1% 13.6% 58.0 NM 56.0% 114.6% 41.3% 303 2.3 0.0% -8.3 0.3% 263 2.5 0.4 -0.0 -0.5% 61.4 -0.181 7.6 -9.5 -4.0% -18.1% 46.0 NM 61.6% 0.6% -10.5% 47.0% 7.1% 7.0% 15.2 -1.1% 2011E 413 -9.7% 1.8% 38.4% 37.2% 70.5 -4.0 NM 42.8% 70.0 NM 70.9 -3.4% 7.6% 25.7% -12.5 6.5% 52.0 NM 0.9 -8.5% 110 9.3 -6.5 2.3% -11.3% 1.3% 223.5 56.0% 51.0% 15.2% 1.9 -4.8% 14.9 61.1% 46.5% 807 0.9% 11.2% 438 495 4.8% 52.3% 475 -4.0 236.0 NM 47.9% 16.2% 1.7 -3.2 -9.0% 0.7% 247 12.0 -5.9% 70.0 0.2% 50.1 30.2 -3.3 -7.6 -9.6% 518 2.8 14.2% 45.4% 206 1.5 1.3 -0.0 -2.8 -4.9 12.3 -9.2% 46.8% 825 9.5% 10.3 1.2% 46.7% 794 -1.5% 43.0 0.5% 10.5% 810 0.5 -4.sullivan@jpmorgan.7% 246.8% 47.2 36.0 133.4% -17.1% 43.6% -12.5 NM 47.4% 206 2.9% -2.4 -5.7% 12.6% 49.3% 819 1.3% 20.0% 1.5 -1.6 -5.0% 63.8% 200 0.8% 253 2.3% 213 239 288 86 88 93 95 362 95 100 27.1 -9.0% 2012E 400 -3.4 -7.8% 59.079 4.8% 28.0 71.312 2.5% 32.6% 47.2% -7.0 -0.5% 62.3 48.7% 7.1 32.0% 2014E 388 -1.9 2.0% 480 7.3 0.1% 31.7% 47.3% 25.5% 40.8 13.1% 36.7 51. Morgan estimates.9% -14.3 -8.4% 294 8.0% -10.7% 59.1 -2.2% 13.0% 15.5% 46.9% Source: Company reports and J.5% -7.8% 59 236 -0.6% 45.0 NM 240.8% -16.P.6 3.3% 447 10.7% 67.0 NM 0.8 -2.2% 59.6% 58 -0.3 -4.9% 46.1% 59. CFA (65) 6882-2374 james.7% 200 0.9% 47.2% -7.4 -7.6 14.6 -4.3% 7.9% 404 11.0% 11.0 NM 0.4 -0.1% 34.2% 7.1% -11.5% 1.9% 31.9% 8.5% 7.5% 800 0.6% -10.2 -3.281 3.7 -3. Sullivan.r.3 13.8% 840 1.6 -4.5% 406 1.6% 361 -8.1% 16.3 -9.0% 12.1 56.5 -3.3% 342 398 9.1% 48.0% 7.1% 337 -6.3% 57.3 -8.8% 47.0 NM 0.5 33.7% 41.1 -4.9 -4.4% 34.3 -8.0% 60 -4.5 -8.6% 70.9 -6. 114 .8% 253.1% 58.0% 321 -5.8 14.4% 1.6% 10.9% 258 5.5% 309 -3.5% -2.1 -4.6% 14.7% 290 4.6% 2013E 392 -2.4 2.0 NM 48.0 NM 0.8% 21.9% 70.0 NM 0.0% 7.4 0.8% 208 2.4% -15.8% 92 92 395 -7.6 NM 279.1% 156.1 -4.6% -10.4% 21.2% 14.1% 47.8 7.4% 7.7 51.1% 102 -0.3% -11.2% 70.2% 49.1 -2.

9% 15 9.5% 0 NM 0 NM 340 2.308 1.2% 2011E 282 1.9% 63 3. 115 .1% 68 0.0% 2.9% 0 NM 0 NM 396 3.1% 97 -9.4% 93 0.8% 74 53 -10.150 1.356 2.7% 93 30 25 18 20 -4.2% 2015E 329 3.1% 12.2% 128 3.7% 269 9.8% 2.9% 67 3.9% 0 NM 0 NM 0 NM 332 4.408 2.0% 569 6.0% 237 48.0% 2013E 304 4.4% 70 2.9% 69 0.6% 0 NM 0 NM 0 NM 85 7.9% 108 15.0% 2.1% 18.8% 0 NM 0 NM 367 4.0% 315 32.3% 0 NM 0 NM 351 3.0% -29. Morgan estimates.9% 552 2.8% 132 3.5% 115 23. Sullivan.0% 10.128 5.014 11.2% 58 9.7% 61 5.1% 559 2.0% 0 NM 0 NM 0 NM 318 5.3% -28.9% 68 1.James R.P.1% 14.7% 18.8% 28 29 -6.1% 49 -9.7% 13 14 14 53 13 8.9% 2.7% 0 NM 0 NM 0 NM 80 1.3% 569 -0.4% 2. CFA (65) 6882-2374 james.0% 12 1.9% 71 5.6% 4.1% 0 NM 0 NM 0 NM 280 7.6% 0 NM 0 NM 0 NM 300 7.4% 19.8% 5 NM 0 NM 0 NM 84 4.6% 27 81 NM 197.1% 559 0.r.8% 33.448 1.sullivan@jpmorgan.0% 0 NM 0 NM 0 NM 85 6.8% -15.1% Source: Company reports and J.5% 0 NM 0 NM 0 NM 82 2.6% 124 3.0% 2.238 1.9% 0 NM 0 NM 382 4.0% 159 95.1% 557 5.0% 11 NM 0 NM 0 NM 83 2.com Asia Pacific Equity Research 21 October 2011 Table 50: StarHub revenue build continued 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A Fixed Network Services Data & internet revenue (S$ mn) YoY IDD Voice Voice revenue (S$ mn) YoY Fixed NBN NBN fixed subs (000) YoY NBN fixed ARPU (S$) YoY NBN fixed Revenue (S$) YoY Fixed network services total (S$ mn) YoY Equipment sales Sale of equipment (S$ mn) YoY Total Revenue YoY 206 247 16.6% 71 6.0% 25.4% 2012E 289 2.1% 2014E 317 4.0% 2.1% 2.0% 278 3.4% 65 3.1% 121 5.268 1.

4 -1. NBN revenue Total cost of sales (S$ mn) as % of total revenue BP change YoY -107% -146% -149% -215% -227% -237% -272% -235% -201% -199% -197% -167% -142% -122% -117% (8.1% -19.2% 12.81 7.8% 7.8% 38.9% -25.0% 15.286 10.1% 15.0% -12.0 NM 0 0.7% 12.7% 2.8% 2.4 -7.1% 10.0% (222) 9.6 8.2% 22.6 7.4% 22.2 11.4% 12.2% 2.97) (94.0 NM 0 0.0 NM 0 0.5% (239) (242) (266) (67) (67) (67) (61) (262) (62) (61) (245) (235) (228) 11.2 7.9 -0.1% 15.5% 13.9 0.0% 46.151 -0.2 -4.57) (1.4 2. NBN monthly expense per sub (S$) YoY Ex.6% 40.0% 35.7% 40.6 -5.1% 13.975 11.2% 47.68) (4.5 7.1% 2.0% 2.2% 13.r.0% 0.5% 2.8% 13.1% 2.7% 39.7% 12.0% 38.3% 1.1% 10.7% 12.9% 11.064 -4.1 -2.05 Source: Company reports and J.0 0.7% 44.5% 15.6% -20.30 6.00 20.0% 6. 116 .6 -9.702 10.0% (217) 9.James R.23) (2.3% 2.93 37.3 -5.6% 14.9% 18.75) (85.0 -4.88 2.3 -3.6% 14.4% 12.9% 2.1 5.9% 14.0% 35.0 NM 0 0.832 10.0% 0.8% 38.5% 15.0 22. Sullivan.0 NM 0 0.9 -2.748 11.7% 35.56 (0.5% 15.5% 2.0% 15.1% 13.0 NM 0 0.3 -2.7% 16.92) 0.21 (5.69 27. NBN cost of services (S$ mn) as % of ex.7% 11.2% 44.0% 25.9 -4.9% 18.3% -18.8% 2.6% 12.9 0.2 -9.1% 7.4% 8.6% 44.5 27.0 NM 0 0. NBN revenue Cost of services Ex.7% -33.1% 12.6% 14.4 -3.92) (92. NBN revenue NBN monthly expense per sub (S$) YoY NBN cost of services (S$ mn) As % of NBN revenues Total cost of services (S$ mn) as % of total revenue Traffic expenses Total voice minutes (mn) YoY Traffic expense/min (S cents) YoY Traffic expenses (S$ mn) as % of ex.32) 2.3% 11.0% 2.684 10.8% 14.282 9.9% 11.1% 18.3% 0.0% (696) (782) (830) (249) (251) (202) (210) (913) (216) (222) (875) (854) (845) (842) (857) 34.0% 25.817 -0.sullivan@jpmorgan.35) (77.9% 10.0% 2.1 -4.2% 2.4% 12.4% 13.0% (234) (301) (333) (88) (103) (74) (73) (339) (71) (72) (285) (281) (283) (281) (277) 11.22 1.2% 12.2% 9.0 NM 25. CFA (65) 6882-2374 james.3 -3.0% 25.7% 12.11) (0.0% 25.0 -3.9 4.773 4.00 25.0% 0 (0) (1) (4) (15) (33) (55) (76) 0.702 -2.1% 15.0% 7.5% 7.8% 12.691 10.00 5.23) (1.967 22.91) 13.0% 35.P.1% 13.0% 22.0% 25.7% (234) (301) (333) (88) (103) (74) (73) (339) (71) (72) (288) (296) (316) (335) (353) 11.1% 1.49 30.9% 12.4% 12.2% 2.3 -4.0% 3.5% 13.1% 12.7% 12.3% 2.0% 2.97) (5.6% 37.6% -4.6% 37.9% 2.4% 12.9 9.1% 0.1% 14.0% 22.9% 35.2% 36.6% 12.3% 10.1% 15.com Asia Pacific Equity Research 21 October 2011 Table 51: StarHub OpEx build 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E Cost of sales Cost of equipment sold Equipment sales margin BP change YoY Cost of equipment sold (S$ mn) as % of ex.1% 10.6% 2.1% 2.8% 10.1% 11. Morgan estimates.7 7.0% -0.3% 10.2% 1.813 2.56) (97.6% 36.84) (39.00 (223) (240) (230) (94) (81) (61) (76) (312) (84) (88) (341) (322) (301) (284) (286) 11.9 0.20) (2.8% 10.0% 25.0 0.1% 21.7% 48.0 -2.7% 2.0% 11.

3 5.8% 12.0 -7.2% 4.4% 2.4% (156) 7.0% 21.r.605) (1.9 -2.4% 14.9% 1.1% 4.9 12.371) (1.6 7.5 1.5% 30.James R.6% 3.2% 15.6% 32.7% -32.1% (18) 3.1% 2.6% 44.55) (1.6% 0.3% 12. NBN revenue Total other OpEx (S$ mn) as % of total revenue Total opex (S$ mn) as % of total revenue BP change YoY Opex per minute (S cents) YoY Opex ex.1 7.6% 32.1% (171) 7.7% (18) 3.1 -1.9 -7. 117 .1 7.2) (9.8% 69.8 -1.4% 71.0 0.4% 12.5% (37) 6.0% (44) 7.3% 0 NM 0 (187) 9.90 (2.8% (35) 6.8 1.5 7.4 0.9 5.623) (1.6% (156) 7.5 1.3% 15.5% (131) 5.2% 32.2% 9.0% (183) 8.5% 40.5% (18) 0.0% (22) 0.0% (73) 3.8% 28.0 NM 0.4 -6.0% 31.0 5.6% (67) 3.7% -10.5 1.6% (42) 7.3% (5) 0.7% 28.5 0.5% 4.4% 4.6% 30.3% -10. Morgan estimates.5% 0.0% (187) 8.4% (50) 2.8 -22.19) 3.2% (0.4 -7.2% (203) 8.0% -10.5% (228) (216) (202) (68) (57) (60) (65) (250) (66) (68) (270) (288) (306) (321) (335) 11.3) (33.0% (43) 7.4 0.0% (22) 1.4 6.7% 75.1% 4.7 8.6% 4.0 0. marketing/min (S cents) YoY (187) 9.5% (124) 5.1 2.0% (73) 3.2% 10.7% 13.1% (238) 9.2% (5) 0.5) 0.8 -2.1% 13.sullivan@jpmorgan.1% 11.5 0.0 13.6% 78.0 1.0% (34) 6.1% 26.3% 10.0 0.2 14.8% (17) 3.05 0.9% 11.9 -4.0% -12.3% (91) 4.5% (73) 3.3 -7.9 -5.2% 14.0 13.3% (67) 3.7% 15.7 -3.0 -5.1% 69.0% 10.1 7.0% (191) 8.5% 3.9% 6.5 3.2% 12.1) (20.606) (1.3% (129) 6.8 6.0 NM 0. NBN monthly expense per sub (S$) 6.77 (7.4% 14.2 2.2% 5.1% 0.7 1.0 -5.9% 12.9% 13.0% (85) 3.0% 3.0% (44) 7.6% 68.0% (190) 8.3 YoY -10.9 -0.7% -31.2% (675) (701) (667) (189) (180) (178) (182) (729) (182) (183) (732) (752) (777) (804) (834) 33.4% 34.7% 68.9% 13.2% -25.6% 4.5% -12.7% 0.2% 70.1% (0.P.2% (221) 9.7% -12.1% (20) 0.2% (20) 3.2% 17.0% 3.646) (1.1% 4.2 -8.6% (44) 7.7% 69.0 8.2 0.0% 4.1 -7.5% 2.4% 14.4 13.4 0.6% (11) 0.2% (19) 3.7 3.3% (64) 3.6% -17.5 0.3% 14.4 1.8% 70.1) (0.2% 0 NM 0 (155) 7.7% (18) 3.5% (5) 0.3 2. CFA (65) 6882-2374 james.9% 31.6 1. NBN marketing (S$ mn) as % of ex.2 4.5% 19.0% (14) 2.8 15.8% 15.4% 4.com Asia Pacific Equity Research 21 October 2011 Table 52: StarHub OpEx build continued 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E Other OpEx Staff cost Monthly expense per sub (S$) YoY Staff cost (S$ mn) as % of ex.3% (23) 4.9% 1. Sullivan.5% -14.8% 13.5 2.6% 33.0 -0.8% 2.5 4.8 4.0 -0.5% 15.7% 2.6 1.2% (41) 7.0 4.9% 15.7 6.7 1.6% 4.32) (4.497) (439) (431) (380) (392) (1.3% (37) 6.1 3.0% (22) 1.6% 15.7% (54) 2.25) (0.5% (61) 2.5 39.3% -31.2% 2.8% 12.9% 13.63 (0.3% 32.8 -6.8 -2.0 3.1% 0.691) 68.1% (19) 3.0% 13.8% 4.4% 69.1% 0.8% -10.8 -0.1% (113) 5.0% 14.3 -1.3 -3.5 2.0% (48) 2.2% -15.3% 15.2% (66) 3.7 -6.0% (4) 0.3% 32.6% 2.2% (73) 3. NBN revenue Repair and maintenance Monthly expense per sub (S$) YoY Repair and maintenance (S$ mn) as % of ex.2% 11.0 1.7 3.642) (399) (405) (1.5% 3.2 5.9% 1.9% 1.6% 11.1% (18) 3.3% (5) 0.6% 16.3% 2.5% 32.0 -0.0 NM 0.0% 33.2 7.7% (138) 6.2% Ex.2 -5.5% (73) 3.2% 1.69) (0.4 0.1 -1.6% 4.0 2.3% 13.3% 6.0% (37) 6.6% (169) 7.7% 10.0% (177) 7.5% (13) 0.5% (21) 0.6 2.2% 13.6% -10.483) (1.2% (186) 8.0% Marketing & promotion Ex.3 8.0 7.5 -2.36 6.8% 0.7 7.0% 15.0% (119) 5.0 7.9% 1.7 -5.0% 1.9% (18) 3.3 -7.3% (37) 6.6 15.9% 13.0% 1.3% 29.3% (5) 0.9% 13.3 7.5% (146) 6.7% 13.8 6.0% 2.0% 14.51) (2.7% (23) 4.4 -2.6 -9.3% 14.2% 1.0% (41) 7.3 1.9% 68.4% 24.0% (118) 5.9% (86) 4.7% -9.4% (36) 6.0% 19.3 -1.2 0.1 1.0 4.9% 0 NM 0 (190) 8.3% 14.0% (48) 2.2% 73.1% 2.1 1.52) 0.5% 4.4 1.5 1.9% -17.6 -9.0% 34.5% 3.7% 41.4) (2.5% (13) 0.9% 12.0% (35) 6.1 -1.0% 2.5% -12.9% -11.6% 15.1 2.6% 15. NBN revenue Others Monthly expense per sub (S$) YoY Others (S$ mn) as % of ex.7 -4.9% -22.10) 10.5% 3. NBN revenue 7.9 -6.2% (145) 6.2 -8.6% 32.9% (44) 7.2% 4.0 NM 0.2% 14.0% 15.0 -5.3 1.1% (1.9% 14.0% 13.7) (47.5% (37) 6.7% 4.2% 15.4% 71.2 1.5 1.8% 2.4% 21.75 16.2% 0.6% -14.9 -2.0 1. NBN revenue NBN monthly marketing /sub (S$) YoY NBN marketing expense (S$ mn) As % of NBN revenues Total marketing & promotion (S$ mn) as % of total revenue Allowance for doubtful accounts Monthly expense per sub (S$) YoY Doubtful accounts (S$ mn) as % of ex.0 NM (34) 6. NBN revenue Operating lease Monthly expense per sub (S$) YoY Operating lease (S$ mn) as % of ex.6% 32.9% (155) 7.5 3.4 7.3% 15.20) 1.1% (72) 3.9% 2.8% 2.2% Source: Company reports and J.6 2.6% 13.8% -17.5 0.6 1.

James R.4 20.3% 17.4% 30.5% 17.448 (223) (240) (230) (234) (301) (333) (239) (242) (266) (228) (216) (202) (113) (129) (145) (187) (190) (155) (13) (11) (13) (67) (64) (66) (67) (91) (86) (1. Sullivan.7% 17.6% 19.1% 16.623) (1.7 2.308 2. Morgan estimates.7 18.4% 32.0 4.5 3.7% 32.5% 15.691) 643 645 654 119 138 172 167 596 160 164 662 702 733 762 756 33.r.4 19.9 4.5 18.1 21.606) (1.5% 12.7% 31.128 2.0% 18.3% 31.0% 27.014 2.642) (84) (71) (62) (66) (34) (43) (5) (18) (17) (399) (88) (341) (322) (301) (284) (286) (72) (288) (296) (316) (335) (353) (61) (245) (235) (228) (222) (217) (68) (270) (288) (306) (321) (335) (34) (138) (131) (124) (119) (118) (44) (171) (186) (203) (221) (238) (5) (20) (21) (22) (22) (22) (18) (72) (73) (73) (73) (73) (14) (61) (54) (50) (48) (48) (405) (1.9% 33.1% 19.3 4.8% 22.7% (226) (235) (245) (61) (63) (65) (70) (260) (69) (69) (276) (290) (295) (296) (299) 417 409 409 58 75 107 103 342 91 95 394 420 448 476 467 3 1 1 0 1 1 0 2 0 1 2 1 2 3 5 (26) (27) (24) (6) (7) (7) (7) (27) (5) (5) (22) (24) (24) (27) (32) (23) (26) (23) (5) (6) (6) (7) (25) (5) (4) (20) (23) (23) (24) (27) 394 383 385 53 69 101 96 318 86 91 374 398 426 451 440 (63) (71) (66) (10) (13) (19) (12) (54) (17) (14) (62) (69) (72) (77) (75) 16.371) (1.8 22.P.5% 25.356 2.4% 32.0% 17.5 Source: Company reports and J.268 2.4 4.646) (1.238 559 569 2.150 557 569 552 559 2.605) (1.0% 18.408 2. CFA (65) 6882-2374 james.service Depreciation Operating profits Interest income Interest Expense Net Finance costs Profit before tax Tax Tax Rate (%) Net income Reported EPS 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E 825 840 806 200 206 206 208 819 200 202 803 794 800 807 810 213 239 288 86 88 93 95 362 95 100 404 447 480 505 518 342 398 406 102 110 92 92 395 92 92 361 337 321 309 302 247 253 241 60 59 58 59 236 60 61 244 258 263 276 290 206 247 269 68 68 71 71 278 70 69 282 289 304 317 329 74 53 49 12 13 14 14 53 13 15 58 61 63 65 67 108 97 93 30 25 18 20 93 28 29 115 121 124 128 132 2.1% 30.com Asia Pacific Equity Research 21 October 2011 Table 53: StarHub P&L S$ mn.7 15.497) (94) (88) (67) (68) (37) (41) (4) (18) (23) (439) (81) (103) (67) (57) (37) (44) (5) (18) (19) (431) (61) (74) (67) (60) (36) (35) (5) (18) (23) (380) (76) (312) (73) (339) (61) (262) (65) (250) (37) (146) (37) (156) (5) (18) (19) (73) (20) (85) (392) (1.7% 31.0% 18.483) (1. YE Dec Mobile-voice Mobile-non-voice Pay TV Broadband Fixed-data & internet Fixed-voice Sale of equipment Total revenues Cost of equipment Cost of services Traffic expenses Staff costs Operating lease Marketing and promotion Allowance for doubtful accounts Repair and maintenance Others Total opex EBITDA EBITDA margin (%) .0% 17.0% 330 311 320 43 56 82 83 263 69 77 312 329 353 375 365 18.3 18. 118 .8% 30.sullivan@jpmorgan.1% 32.9% 17.

719 352 171 124 72 719 844 49 892 0 247 (275) 108 1.733 377 196 290 62 925 605 76 681 0 258 (274) 126 1.750 2012E 207 179 105 48 539 797 399 5 (0) 1.860 2014E 593 187 109 48 938 753 359 5 (0) 1. prepayments Others Total current assets PPE Intangible assets Deferred tax assets Others Total non-current assets Total Assets Current liabilities Trade payables and accruals Other payables Bank loans Others Total current liabilities Non current liabilities Interest bearing borrowings Others Total non-current liabilities Minority Interest Share capital Other reserves Total equity Total Liabilities & Equity Source: Company reports and J. YE Dec Cash and bank balances Trade receivables Other receivables.058 475 191 666 0 260 (269) 26 1.054 2015E 871 190 111 48 1. Morgan estimates.James R.739 2013E 365 183 107 48 704 773 379 5 (0) 1.661 2009A 234 125 116 51 526 785 416 5 0 1. Sullivan.661 339 198 218 41 796 696 62 758 0 255 (286) 108 1. CFA (65) 6882-2374 james.232 1.093 925 191 1.299 119 .719 2008A 128 128 113 41 410 846 381 25 0 1.078 2.232 1. deposits.com Asia Pacific Equity Research 21 October 2011 Table 54: StarHub balance sheet S$ mn.298 451 245 330 68 1.065 575 191 766 0 260 (269) 28 1.116 2.252 1. 2007A 138 114 95 35 382 894 352 92 (0) 1.338 1.206 1.058 475 191 666 0 260 (269) 15 1.739 428 232 330 68 1.750 428 232 330 68 1.733 2010A 238 174 102 48 561 776 452 5 (0) 1.075 725 191 916 0 260 (269) 63 2.156 1.860 433 235 330 68 1.794 2011E 191 176 103 48 518 809 419 5 (0) 1.794 438 237 330 68 1.P.054 439 238 330 68 1.sullivan@jpmorgan.r.220 735 339 5 (0) 1.073 475 191 666 0 260 (269) 54 1.116 0 260 (269) 89 2.200 1.

CFA (65) 6882-2374 james.sullivan@jpmorgan. Morgan estimates.com Asia Pacific Equity Research 21 October 2011 Table 55: StarHub cash flows S$ mn. tax paid) Operating cash flow before WC changes Changes in WC Trade receivables Other receivables. 2007 393 226 (3) 26 22 664 (2) 13 12 8 696 (213) 3 2 (208) (432) (266) (22) 335 (16) (400) 88 50 138 830 2008 383 235 (1) 27 25 669 (14) (18) 7 (46) 597 (220) 1 0 (219) 8 (308) (29) (54) (6) (388) (10) 138 128 785 2009 385 245 (1) 24 6 660 2 (3) 41 (8) 692 (231) 1 1 (230) 2 (317) (24) (18) (0) (357) 106 128 234 662 2010 318 260 (2) 27 4 606 (49) 14 96 2 670 (272) 2 2 (268) 2 (343) (27) (90) 60 (398) 3 234 237 568 2011E 374 276 (2) 22 (62) 608 (2) (1) (15) 0 590 (276) 2 0 (274) 0 (341) (22) 0 0 (363) (47) 237 191 615 2012E 398 290 (1) 24 (69) 641 (3) (2) (0) 0 636 (257) 1 0 (256) 0 (340) (24) 0 0 (364) 16 191 207 599 2013E 426 295 (2) 24 (72) 671 (4) (2) 7 0 672 (251) 2 0 (249) 0 (340) (24) 100 0 (264) 159 207 365 540 2014E 451 296 (3) 27 (77) 695 (4) (2) 10 0 698 (257) 3 0 (254) 0 (340) (27) 150 0 (217) 228 365 593 462 2015E 440 299 (5) 32 (75) 691 (3) (2) 19 0 705 (261) 5 0 (256) 0 (340) (32) 200 0 (171) 278 593 871 385 120 . prepayments Trade payables & other payables Others Net cash from operations Purchase of PPE and intangible assets Interest received Others Net cash outflow from investing Proceeds from share issuance Dividends paid Interest paid Net proceeds from loans Others (including grants received) Net cash outflow from financing Net change in cash Starting cash Ending cash Net debt / (cash) Source: Company reports and J.James R. deposits.P.r. YE Dec Profit/(Loss) before taxation Adjustments for: Depreciation and amortization Interest income Interest expense Others (incl. Sullivan.

607 1.4% 16.8% 6.Net working capital 353 353 Net fixed assets Other long term assets 1.3% -0.716 0.93 FY09 FY10 FY11E FY12E FY13E 692 670 590 636 672 -231 -272 -276 -257 -251 -230 -268 -274 -256 -249 -357 -398 -363 -364 -264 106 128 234 3 234 237 -47 237 191 16 191 207 159 207 365 Tax rate 17.9% 18.9% Capex 1641.1% 1.1% FY11E 2.750 475 191 1.9%) 8.18 0.6% Change in cash for year 17.8% FY10 26.0% 17.150 654 -245 409 1 -24 0 385 -66 320 320 1.4% 14.3% 1.P.0% 30.reported Net profit .19 0.1% Capex to sales -10.4% 273.20 109.9% 2401.2% 98.156 1.1% Cash flow from financing 19.7% 36.356 Cash and equivalents 733 Accounts receivable -295 Others 448 Total Current assets -24 ST loans 0 Others current liabilities 426 Total current liabilities -72 . year end Dec EBITDA margin FCF margin ROE ROC ROA FY09 30.34 FY09 FY10 FY11E FY12E FY13E 234 238 191 207 365 125 174 176 179 183 167 150 151 161 0 526 561 518 539 704 290 330 635 743 925 1.8% 50. year end Dec 31.9% 1.4% 40.6% 16.733 1.8% 0.0% 5.8% -12.1% Other liabilities 4. Morgan estimates.2% 4069. Sullivan.860 540 785 776 421 456 1.0% Cash flow from other investing 51.2% 2.0% Total liabilities and equity Net debt/(cash) Cash flow statement FY13E S$ in millions.3% Balance Sheet statement FY13E S$ in millions.8% 784.0% Closing cash 1905. year end Dec 2.698 0.4% 1630.2% Debt/Capital 87.698 Total non-current assets 0.3% FY10 2.725 26 1.com Asia Pacific Equity Research 21 October 2011 StarHub: Summary of Financials Profit and Loss Statement S$ in millions.739 475 191 1.0% 18.8% 1051.4% 2.r.750 615 330 728 1.7% Interest cover (x) 28.James R.860 575 191 1.4% Shareholders' equity 0. year end Dec Revenue EBITDA Depreciation & Amortization EBIT Interest income Interest Expense Other Income Profit before tax Tax Minorities Net profit .20 103.794 605 475 76 191 1.5% 7.9% FY11E 29.20 Total Assets 96.6% 19.15 0.3% 5.7% Net debt or (cash) to equity 525.20 130.206 1.4% FY12E 2.200 1.4% 21.7% 93.05 24.4% 11.0% -10.711 0.adjusted Shares Outstanding (mn) EPS (S$) (Reported) DPS (S$) DPS payout ratio Revenue growth EBITDA growth Net profit growth EPS growth DPS growth FY09 2. CFA (65) 6882-2374 james.065 -361 773 383 1.058 -540 809 423 1.5% -12.7% 2.18 98.7% (17.2% 32.238 596 -260 342 2 -27 0 318 -54 263 263 1.9% 30.9% -17.073 -399 -512 330 728 1.1% Long-term debt 2.1% 1.6% 17.56 FY12E 30.698 0.8% 292.232 1.19 0.sullivan@jpmorgan.268 662 -276 394 2 -22 0 374 -62 312 312 1.6% Total Liabilities 7.733 1.02 Source: Company reports and J.2% 46.724 15 1.8% 17.1% -7.794 662 568 Ratio Analysis %.2% 96.739 599 330 735 1.058 -519 797 403 1.6% 17. 121 .1% Cash flow from operations 17.3% 18.21 0.7% Beginning cash 97.308 702 -290 420 1 -24 0 398 -69 329 329 1.740 126 54 1.2% 4.2% 13.232 1.3% -11.832 28 1.

P.P. J. Investors should consider this report as only a single factor in making their investment decision.com Vishesh Gupta (65) 6882 2367 vishesh.7% FY12E 1. a historical high of 540bps.5% 3.720 1. M1 suffers from a lack of pay TV and inferior NBN business margins. Morgan Securities Singapore Private Limited Price Performance 2. Higher than expected price competition is a downside risk.8% Source: Company data. in our view. however.4% 1m -4.8% 0.2% 21.4 7. Our price target is driven by two factors: 1) our EPS forecasts vs.5% Recurring profit (S$ mn) 150 157 Recurring EPS (S$) 0.17 EPS growth (%) 0.7% Company Data 52-wk range (S$) Mkt cap (S$ mn) Mkt cap ($ mn) Shares O/S (mn) Free float (%) 3-mth avg trading volume: Average 3m Daily Turnover ($ mn) FTSTI Exchange Rate Price (S$) Date Of Price 2.3% 1 2.sullivan@jpmorgan.789 908 37. Bloomberg: M1 SP) S$ in mn. with a total return expectation of 6% (0% capital appreciation based on target FY12 P/E of 13x + 6% expected cash dividends during the next 12 months).  Bundling/Pay TV will now REALLY matter: A saturated market combined with still relatively high SAC implies that operators will need to bundle in order to reduce churn.2% 1.2% 7. J.8 6.0% DPS (S$) 0.2.0x for our price target.41 2.Asia Pacific Equity Research 21 October 2011 Initiation M1 Lack of pay TV and inferior NBN margins lock M1 out of mainstream market  We initiate coverage of M1 with a Neutral rating and a Dec-12 price target of S$2.morganmarkets. potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy.70 .051 320 0.0% 0.com Christopher Gee.gee@jpmorgan.2% 12m 19.  Key risks: Key upside risks are higher than expected NBN market share for M1 (we currently forecast 10%) and better participation in the pay TV market through the NIMS initiative.15 7.x.16 2.SI.6x and near the top of its normal trading range.9 Aug-10 Nov-10 Feb-11 May-11 Aug-11 MONE.1% 7. M1 SP Price: S$2.1% 11. 2) a target 2012 earnings multiple currently at 12. we use 13. have made much of the potential for Singapore’s National Broadband Network project to increase competition and drive opportunities for infrastructure-lite competition.9 14. www.5 S$ 2.085 327 2.9 13. The facts. Neutral MONE.P.8% 0.6% 171 0.279 1. CFA (65) 6882-2345 christopher.20 3.51 Price Target: S$2. investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. do not support this case. As a result. including non-US analyst disclosures.2% FCF to mkt cap (%) 4.50 Singapore Asian Telecommunications James R. Morgan estimates.1 8.5% 179 0.27 2.1% 7. including ourselves.SI. Sullivan.2 P/E 14.9 Dividend Yield 5. M1 (Reuters: MONE. the Street (we are 6% below for 2012).19 0.1 1.SI share price (S$) FTSTI (rebased) Abs Rel YTD 5.18 8.3 6.15 7.13 0.ka.6% FY13E 1. M1 is trading at 400 bps spread to Singapore govt bonds vs. Morgan does and seeks to do business with companies covered in its research reports.3% 172 0.13 EV/EBITDA (x) 8. Bloomberg.3 2.5% 15.2% 2.3% 5.  NBN not a big opportunity for M1: Many.gupta@jpmorgan.com J.2% FY11E 1. We believe higher capital management could be a positive share price driver if the company decides to pay out specials.0 13.17 0. year-end Dec FY09A FY10A Revenue (S$ mn) 782 980 EBITDA (S$ mn) 309 314 EBITDA growth (%) -2.025 319 1. We believe NBN will largely serve to cement SingTel’s dominance of the local market.19 11.  Stable dividend yield and cash flows: With a payout ratio of 80% M1 provides a stable 6% dividend yield which is well supported by FCF yield of 8%. CFA AC (65) 6882-2374 james.7 2.6 12. and lock M1 out of the mainstream market.50.6% 0.6% 3m 2.com .51 20 Oct 11 See page 139 for analyst certification and important disclosures.r.

4% 105 NM EPS impact (%) 6. Bloomberg 123 .025 1. Our peak P/E multiple is based on the stock’s historical trading range and expected future business changes.7% 0. P.0% 2. consensus EPS (d) Cumulative upside to current price (e+d) JPM Dec-2012price target (S$/sh) Consensus 1.026 1.5 Source: J. Sullivan. Price target and valuation analysis Current consensus P/E (a) 2011E 13. providing mobile and broadband services. M1 would be trading at 2010E/11E P/E of 13.6% 42. Morgan 1. FY12E-Net inc.5% -5.sullivan@jpmorgan. Morgan vs consensus S$ mn FY11E-Rev FY12E-Rev FY11E-EBITDA FY12E-EBITDA FY11E-Net inc. Source: J.0 -2. which has a 150% penetration rate.P. Key upside risk to M1 is attracting higher than expected NBN share while the key downside risk remains entry of new competitors.6 13. Morgan estimates.com Asia Pacific Equity Research 21 October 2011 Company Description M1 is the third largest mobile operator in Singapore.3x/13.1% -2. JPM EPS estimates and 2) our estimated multiple expansion/(contraction) based on peak P/E multiple.P.0 3.P.0%/6. Morgan estimates Peak P/E (b) Upside/ (Downside) to peak multiple (b/a-1=e) JPM vs.r.6% 2.1% -1. J.P.1x/8.0x but still provide a healthy 6. CFA (65) 6882-2374 james.2% -0.James R.0% -1.051 319 320 171 172 If our price target were achieved.2x and EV/EBITDA of 8.9% 267 -0. P&L sensitivity metrics 2011E Wireless revenue (S$ mn) Impact of each 5% Equipment sales revenue (S$ mn) Impact of each 5% EBITDA margin (%) Impact of each 1% Capex (S$mn) Impact of each 5% Source: J. it had 26% share of Singapore’s wireless market.0% 3. Morgan estimates EBITDA impact (%) 593 3. As of 2Q11.0% yield.067 321 334 168 177 J.4% 2012E 12.1% Revenue breakdown (2011E) Fixed 4% IDD 12% Price target methodology Sales 26% Mobile 58% Our PT is based on a sum of 1) potential upside/(downside) to consensus EPS vs.3 13.

however. M1 is trading at 400 bps spread to Singapore govt bonds vs. We believe NBN will largely serve to cement SingTel’s dominance of the local market. potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy. Higher than expected price competition is a downside risk.0x for our price target. Bundling/Pay TV will now REALLY matter: A saturated market combined with still relatively high SAC implies that operators will need to bundle in order to reduce churn. 124 . we use 13. Key risks: Key upside risks are higher-than-expected NBN market share for M1 (we currently forecast 10%) and better participation in the pay TV market through the NIMS initiative. the Street (we are 6% below for 2012). Please see the table below for earnings sensitivity to NBN market share assumptions. We assume SingTel will account for 60% of the market while the remaining 30% will be Starhub. NBN not a big opportunity for M1: Many.r. with a total return expectation of 6% (0% capital appreciation based on target FY12 P/E of 13x + 6% expected cash dividends during the next 12 months). in our view. do not support this case. Our price target is driven by two factors: 1) our EPS forecasts vs. and lock M1 out of the mainstream market. Upside/downside risks to our view Positive risks Better than expected NBN market share: We expect M1 to capture 10% of the total NBN market given the lack of current payTV bundling capabilities. The facts.6x and near the top of its normal trading range. CFA (65) 6882-2374 james. M1 suffers from lack of pay TV and inferior NBN business margins. a historical high of 540bps. including ourselves. M1’s current wireless market share is ~26% and the company expects to account for a similar proportion of the NBN market. Sullivan. We believe higher capital management could be a positive share price driver if the company decides to pay out specials. 2) a target 2012 earnings multiple currently at 12.50. have made much of the potential for Singapore’s National Broadband Network project to increase competition and drive opportunities for infrastructure-lite competition. Stable dividend yield and cash flows: With a payout ratio of 80% M1 provides a stable 6% dividend yield which is well supported by FCF yields of 8%.com Asia Pacific Equity Research 21 October 2011 Investment Summary We initiate coverage of M1 with a Neutral rating and a Dec-12 price target of S$2.sullivan@jpmorgan.James R.

not a guarantee that price competition will not get out of control. given StarHub’s better economics. general offer is triggered at ) to eventually make a bid for the firm.0% 30% 200 4. 125 . Were this dynamic to change.364 -0.1% 50% 55% 2.371 0. This could be somewhat restrained.6% -0. Morgan estimates. which provides for a common platform Set Top Box (STB).711 -0.. in our view.1% 30% 35% 2.23% shareholder in M1. mature market.0% 5% 347 -4. but clearly a limiting factor.com Asia Pacific Equity Research 21 October 2011 Table 56: Singapore Telcos: Earnings sensitivity to market share within NBN subscribers SingTel NBN market share 5% FY16 Singapore EBITDA (S$ mn) 2.P. the Telecom industry regulator.307 2. Sullivan.3% 5.James R.0% -2. however.705 5.732 5. Negative risks Pricing competition is worse than forecast: We do expect a degree of price compression.1% 5. by StarHub’s desire to achieve a reasonable return on its CAPEX investment.5% Base case 30% 365 0.0% 5.765 0. Forecast competitive dynamics are upended as Starhub pursues an alternative infrastructure approach: We suspect that a Virgin Media type strategy may in fact be the best long term strategic option for the company.9% 70% 216 12.sullivan@jpmorgan. which will likely reduce overall industry revenue growth rates moving forward.343 2.7% 25% 361 -1.2% Base case 60% 2. which limits their ability to cut prices aggressively without significantly impacting their own margins.350 -1.0% 45% 206 7.3% 40% 372 2.8% 10% 15% 20% 351 354 358 -4.0% 25% 2.716 -0.2% 70% 394 7.9% 5% 190 -1.0% Base case 10% 192 0.357 2.8% -0. b) Starhub and to a lesser degree M1 will face structurally lower NBN economics.292 Upside to base case -3.1% 50% 380 4.r. which could be de-stabilizing. This is driven by the likelihood that a) bundles will increasingly drive this saturated.321 -2.754 0. This could theoretically be used to completely unbundle content and reduce the role of SingTel and Starhub as Pay TV content aggregators.748 -0. has been actively pushing a program called the NextGen Interactive Multimedia Applications and Services program (NIMS).2% 70% 2.0% 40% 204 6.5% 5.328 2.9% -0.2% 5.3% FY16 group net (S$ mn) Upside to base case StarHub NBN market share 2015 net income (S$ mn) Upside to base case M1 NBN market share 2015 net income (S$ mn) Upside to base case Source: J.9% 55% 210 9.759 0.1% 65% 390 6.9% 60% 212 10.738 -0.6% 5.2% 65% 2.0% 60% 387 5. CFA (65) 6882-2374 james.700 5.386 0.721 5. but as of yet see no signs that this will occur..6% -0.0% NIMS project creates unbundled content: The Infocomm Development Authority of Singapore (IDA).1% 45% 376 3.727 -0. Potentially an operator like Telstra (in order to have a counter balance to SingTel's Optus) or Axiata (already a 29.0% 35% 202 5.336 -1.9% 5.314 -3.8% -1. 10% 15% 20% 2.1% 40% 45% 2.3% 5.7% -2.9% 65% 214 11.0% -3.0% 15% 194 1. which theoretically limits product specific price discovery for consumers. we would expect a greater potential for a degree of price competition between Starhub and SingTel. This program is at a very early stage of development.2% -0.0% 50% 208 8.4% 5.0% -2. but is something we are watching closely. but are not forecasting an all-out price war on a product by product basis.4% -0.0% 25% 198 3.694 -1. This has the potential to introduce another layer of strategy into the Singapore market.2% -0.743 5. A foreign operator takes control of M1 and introduces cross market competitive dynamics into the Singapore environment.379 0.2% 55% 383 4.1% 35% 369 1.300 2.0% 20% 196 2.

we use a 13.0% 8.0 PE (x) 2011E 2012E 12.e.0% Source: Company reports and J.0 6. Our peak P/E multiple at 13. Morgan estimates. A simple sum of the two leads to our price targets.9% 8. and 2) the multiple the market is willing to put on those earnings estimates. Priced on 20 Oct 2011.sullivan@jpmorgan.15 2.1 9.2 Dividend Yield (%) 2011E 2012E 5.9% 1.5 is based on a sum of: 1) potential upside/(downside) to consensus EPS vs. and 2) understanding what potential range of multiples the market might apply.8 13. our total target return is 25%.6 14.r.6 2. Priced on 20 Oct 2011. JPM EPS estimates at -5.0 10.15) -5..0x multiple for our PT.7 -15.9 9.4 9. and think there could be 15% multiple expansion.3 12.6 13.9 N 2.3 7.0 FCF Yield (%) 2011E 2012E 5.1 8.2 N 2.6 10. either the business has changed or a lot of expectations have already been built into the share price.50 11.1% 2.1 7. This method allows us to capitalize on (hopefully) good fundamental research.0% 2.2 15.8% 2.4 4.0 10.6% below for 2012 EPS).0 10.7 -5.0 7.4% 3.3 6.9 -25. Sullivan. an assumption holding true for all of our coverage companies around the region. the Street (we are 5. Table 57: Singapore Telcos: Valuation summary Company SingTel StarHub M1 Stock code ST SP STH SP M1 SP Rating Price (LC) OW 3.0x is based on the stock’s historical trading range and expected future business changes.5% (0.6% 1.00 3.5 -1. This structure allows us to focus our research on: 1) getting the numbers right.6%.3 Total Return 19.6x. Our share price target is driven by two aspects: 1) Our EPS forecasts vs. and 2) our estimated multiple expansion/(contraction) at +3% based on peak P/E multiple. SingTel looks most attractive on this metric with an equal distribution both sides while StarHub and M1 offer higher losses on the downside than gains on the upside.com Asia Pacific Equity Research 21 October 2011 Valuation and share price analysis Price target calculation Our investment philosophy has been simplified over the years. It is our belief that ultimately share prices are driven by earnings estimates.5% (0.9 15.87 2. If a multiple has expanded to previously unseen levels.06) Source: Company reports and J. Morgan estimates. Valuation Our price target of S$2. 2) Target earnings multiple. if we have 10% upside to street EPS forecasts.0 6.P.i.5 % to EV/EBITDA (x) Target 2011E 2012E 14.7 2.9 -34.7 11.5 PT (LC) 3.6% 1.0% 6.0 JPM vs.3% 10.James R.P.3 13. consensus Best case price % upside Worst case price % upside Up/Down EPS 6. 126 .0 14.5 implies a total return of +6% (0% capital appreciation and 6% dividend yield). Our Dec-12 PT at S$2. shares are at 12. We run a best and worst case scenario valuation for our companies where we compare our peak and trough level valuation returns. CFA (65) 6882-2374 james.8 0. Our simple valuation methodology is that we believe only two things can mathematically move a share price: 1) changing earnings estimates. Table 58: Singapore Telcos: Best and worst case analysis Current price Current consensus P/E Peak P/E Trough P/E SingTel StarHub M1 3.3% 1.8 -5. but also allows us to understand market sentiment.0 13.8 7..6 15.

6% Figure 104: M1: Street 1 year forward EPS trends Source: Bloomberg. EPS estimates have largely remained flat YTD for M1. 127 .0) -5.3) -0. Table 59: Singapore Telcos: JPM vs. M1 saw 10% P/E expansion YTD to July as people were willing to pay higher for yields. FY1E 0.1% (0. CFA (65) 6882-2374 james.8% 1. Since July valuations have retracted by 6% on the back of a worsening macro economic outlook.P.3% -0.7% -1.8% NA NA 1.com Asia Pacific Equity Research 21 October 2011 As per the J. Street estimates SingTel Revenue EBITDA EBITDA margin-BP diff EPS StarHub Revenue EBITDA EBITDA margin-BP diff EPS M1 Revenue EBITDA EBITDA margin-BP diff EPS Source: Bloomberg and J.1% FY2E -3.0% 0.James R.r.sullivan@jpmorgan. consensus table below.5% NA NA 6.8% -4.0% -1. Sullivan. we see 6% downside to Street's 2012 EPS estimates for M1. Morgan estimates.2% -1.1% 0. Morgan vs.3 3.2 3.4% -3.P. Figure 105: M1: Street 1 year forward P/E trends Source: Bloomberg.9% (1.0% -0.

Figure 106: M1: Street dividend yield estimates Source: Bloomberg.50 2013 Terminal growth rate 4.8% Implied discount rate at current price 7. We run full discounted cash flow analysis on all of our companies. and the upside to Street. A high discount rate would be indicative of either a) a very risky business/market. Our experience has been that the heavy retail participation in most South East Asian markets leaves P/E multiples. plus upside to multiple approach (described above) as a more effective way of forecasting future share-price movements.4% 10.87 2.r.0% 4.P. M1's share price (combined with our free cash flow forecasts) implies a discount rate of 10.sullivan@jpmorgan. 128 .0% 2012 Terminal value as % of EV 92. Figure 107: M1: Street dividend yield spread to Singapore 10 yr. Morgan estimates.1% Source: Company reports and J.0% 87. or b) an excessively pessimistic sentiment applied by the market. Table 60: Singapore Telcos: DCF summary SingTel StarHub M1 Current price (LC) 3. largely in line with StarHub.1%.James R. We instead use DCF analysis as another gauge of market sentiment. Priced on 20 Oct 2011.9% 10. govt bonds Source: Bloomberg. by back calculating what discount rate is implied by the current share price. but do not use this analysis to specifically set target prices.com Asia Pacific Equity Research 21 October 2011 The Street's dividend yield estimates have largely been flat at ~6% levels for M1. Sullivan. Per Table 2 below.0% 4.15 2.6% 87. CFA (65) 6882-2374 james.

5 2. seeks 3G spectrum bids 3Q10 eps up 16% YoY M1 4Q10 net down 5% QoQ SG. Morgan estimates.Malaysia romaing rate cut 2Q11 profit up 5% S&P downgrades US debt rating Market decline 0.0 1. Priced on 20 Oct 2011.5 3. Bloomberg.0 Stock split Source: J. Sullivan. CEO to step down next month.5 1.0 - Figure 108: M1: Share price analysis with key events Market fall Lehman files bankruptcy 3Q08 net down 21% M1 to maintain dividend payouton subsidies Submits bid to build and operate NGN n/w.com Stocks fall on Subprime concerns Partners Mediacorp: mobile TV trial 4Q07 net down 5% YoY Cuts prices by 35% ahead of MNP SPH might sell stake MNP commences 2Q08 eps up 7% YoY 0.5 1. DBS decreases stake 2.0 - Jan-07 Jan-07 Feb-07 Mar-07 Apr-07 May-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 129 .M1 broadband gives 5Gb free usage Secures S$250 mn facility Temasek sells down stake James R.0 1. CEO neil montefiore steps down.r. CFA (65) 6882-2374 james. Analyst downgrade 1Q09 net up 10% YoY Asia Pacific Equity Research 21 October 2011 Karen Kooi new CEO M1 price Acquires Qala Singapore Signs agreement with Apple iPhone 3GS launch Analyst upgrades Governmet passes content sharing rule 1Q10 net down 6% YoY 2Q10 eps up 10% YoY Govt.5 3.0 2.5 2.P.sullivan@jpmorgan.

Threat from new entrants as NBN infrastructure expands and matures.sullivan@jpmorgan.r. Sullivan. Smallest player out of the three and hence most sensitive to top line fluctuations due to macro economic conditions. Not a member of the NBN operating bodies (OpenNet and OpCo).9x) and FCF yields (2011 FCF yield at 8%) to support future expansion and dividends.  130 . Threats   High pricing on NBN infrastructure might impact future plans on the fixed line business. Weaknesses    No Pay TV offering at the moment to compete with the bundled plans offered by SingTel and StarHub.  Opportunities  NBN assets provide significant opportunity to M1 to participate in earlier inaccessible fixed line and fixed broadband segments. The NIMS initiative provide significant opportunity participate the pay TV market and eventually become a bundled service provider like StarHub and SingTel. Strong balance sheet (2011E net debt/EBITDA at 0. CFA (65) 6882-2374 james.com Asia Pacific Equity Research 21 October 2011 SWOT analysis Strengths   Access to corporate fixed line customers through the new NBN network at low incremental capex. Weaker fixed line and broadband profile as compared to SingTel and StarHub.James R.

7 -3.1% 2009A 306 8.9 -9.7 -5.6% 697 3.6% 380 -3.9 4.3 -5.7% 382 0.1% 2013E 329 1.4% 237 11.2% 275 6.2 -2.2% 619 4.3% 141 8.9 -13.9% 2014E 332 1.5% 95 -2.5 0.9 5.8 -5.5% 395 -5.3% 471 4.7% 460 -2.8% 674 4.1% 8. CFA (65) 6882-2374 james.4% 26.9% 9.6 -10.1% 566 -5.3% 25.7% 2015E 335 1.4% 185 26.3 -4.8 -8.3 -6.6% 8.8% 147 4.4% 1Q11A 318 2.2% 25.0% 4.0% 213 15.4% 15.6% 16.0 -12.7 -1.1% 131 .8% 5.6 -10.sullivan@jpmorgan.5% 389 2.8% 148 2.2 -15.8% 50 17.0 0.5% 34.5 5.0% 10. 2008A 282 -0.7 -21.2% 8.4 4.3 -9.0% 4.5% 2Q11A 323 2.4% 4.9% 16.4 -13.1 0. Morgan estimates.0 -1.0 0.0% 579 2.0% 15.6 -2.5 -1.3% 53 14.1% 24.2 -11.P.6% 25.2% 31.5% 10.9% 53 12.6% 9.1% 25.5% 7.9% 5.4% 24.2% 7.0 -5.1 -6.0 -10.5% 24.4% 600 5.0 -12.0% 20.6% 2011E 322 2.0% 2012E 325 1.James R.0 7.5% 95 -5.0% 7.5% 9.com Asia Pacific Equity Research 21 October 2011 Model build Table 61: M1 revenue build 2007A Mobile Voice Blended MOU-JPM calc YoY Voice ARPM (S cents/min)-JPM calc YoY Voice revenue (S$ mn) YoY Voice ARPU (S$)-JPM calc YoY Non-voice Non voice ARPU (S$) YoY Non voice revenue (S$ mn) YoY Total mobile revenue (S$ mn) YoY Total mobile ARPU (S$)-JPM calc YoY Source: Company reports and J.0 7.4 1.1% 2010A 315 2.4% 284 4.5% 15.4 16.5% 148 2.0% 27.8% 17.6 2.5% 409 2.3% 25.5% 15.7 -15.0% 4.2% 9.5% 3Q11A 322 1.5% 5.0% 399 2. Sullivan.7% 647 4.4 -1.3% 5.1% 95 -3.9% 27.9% 257 8.5% 15.8% 601 0.1% 593 2.6 -15.8% 9.6% 288 4.6% 419 -9.5% 6.8 -12.7% 145 1.3% 25.7 -9.5 -0.2% 130 11.1% 8.7 8.0% 4.7% 16.r.7 1.3 -4.

0% 1.James R.3% 3Q11A 11 83.051 2.3% 278 1.1% 30 64.0 -19.6% 270 24.9% 289 25.2% 41 39.7% 2012E 37 -2.9% 31 -3.0% 9.7% 18 115.1% 41 39.4% 9 NM 0 NM 0 NM 62 23.3% 259 4.7% 166 1.5% 30 64.151 2.0% 1.6% 8 148.8% 0 NM 310 50.6% 18 115.1% 2Q11A 10 63.6% 10.2% 16 NM 0 NM 0 NM 43 -15. Morgan estimates.8% 980 25.4 -24.6% 2011E 38 57.3% 2009A 7 NM 728 38.9% 32 -0.0% 127 11.4% 2010A 24 258.9% 0 NM 0 NM 38 -0.5% 41.5% 2013E 35 -5.0% 246 10.4% 17.0% 1.5% 172 3.4% 129 0.5% 0 NM 0 NM 0 NM 0 NM 0 NM 0 NM 135 -1.0% 118 -5.4% 2 NM 0 NM 0 NM 50 0.1 -36.0% 1.0% 1.0% 0 NM 0 NM 41 8.6% 81 30.3% 275 1.3% 2015E 32 -5.6% 163 -1. 2008A 0 NM 526 69.1% 782 -2.2% 177 3.8% 0 NM 0 NM 38 -2.085 3.0% 1 NM 1 NM 41 7.8% 57 40.4% 128 -6.1 -4.3% 137 8.121 3.0% 1.241 5.9% 1.4% 0 NM 0 NM 0 NM 0 NM 0 NM 0 NM 0 NM 76 -14.6% 3 NM 3 NM 166 8.3% 247 205.5% 0 NM 0 NM 0 NM 50 NM 0 NM 0 NM 153 13.4% 267 8.6% 1.0% 105 32.6 -32.9% 272 1.0% 0 NM 0 NM 39 2.241 0.0% 1.5% 245 -0.025 4.5% 0 NM 0 NM 39 -37.0% 104 -4.6 -22.4 -4.0% 8.5% 27 197. Sullivan.0 -26.0% 53 95.9% 0 NM 0 NM 38 -0.3% 801 -0.9% 29 -10.0% 109 -4.0% 79 48.241 0.2% 956 31.182 23.2% 4 NM 0 NM 0 NM 50 0.com Asia Pacific Equity Research 21 October 2011 Table 62: M1 revenue build continued 2007A Fixed Network Services Fixed Service revenue (S$ mn) YoY IDD Voice IDD minutes (mn) YoY IDD ARPM (S cents) YoY Voice revenue (S$ mn) YoY Fixed-NBN NBN fixed subs (000) YoY NBN fixed ARPU (S$) YoY NBN fixed Revenue (S$) YoY NBN broadband ARPU (S$)-JPM calc YoY NBN Broadband revenue (S$ mn) YoY Fixed-NBN Revenue Total (S$) YoY Fixed network services total (S$ mn) YoY Equipment sales Sale of equipment (S$ mn) YoY Total Revenue YoY Source: Company reports and J.7% 26.3% 13.0% 0 NM 0 NM 0 NM 0 NM 0 NM 0 NM 137 NM 62 -18.0% 113 -4.9% 75 11.3% 305 19.241 0. CFA (65) 6882-2374 james.0% 1.6% 803 4.0% 9.4% 12.6% 9.7% 10.r.5 -23.5 -10.7% 269 1.7 -4.sullivan@jpmorgan.4% 8 148.P.5 -21.0% 132 .9% 56 -12.2% 2014E 33 -5.0% 8.8% 125 -3.3% 1Q11A 7 18.

33 (138) 17.4% (5.9 -28.8% 0.00 (308) 28.1% (16) 6.0% 4.4 9.9 -7.0 -0.9% (27) 11.0% (28) 2.3% 1.3% (53) 6.1 -13.5 2.0% 2.965 13.7% 2.9% 2012E -14% 1.9 0.8% (493) 50.1% 1.0% 2014E -12% 1.9% 133 . Morgan estimates.4% (9) 3.2 -15.sullivan@jpmorgan.9% 5.0% (0.0% (133) 51.5 9.7% (16) 6.0% (25.9% (554) 48.2% 0.5% 0 NM 0 4.9% 4.5% 25.7) 58.2% (30) 2.8% 6.8% 8.813 3.3 -6.7% 1.6 6.5% 2015E -11% 1.0% (11.3% 2Q11A -25% 5.0) 59.0% (0.5 0.0% (27) 2.6% 25.842 17.2% 6.r.0% (121) 10.8% (532) 49.3% 0. NBN revenue Leased circuit Monthly expense per sub (S$) YoY Leased circuit cost (S$ mn) as % of ex.2% 7.4% 0.0% 1.9 0.com Asia Pacific Equity Research 21 October 2011 Table 63: M1 OpEx build 2007A Cost of sales Cost of equipment sold Equipment sales margin BP change YoY Cost of equipment sold (S$ mn) as % of ex.4 24.66 (71) 28.99) (128) 16.0% (0.3% (296) 36. 2008A -106% (30.150 14.2% (118) 48.5% 1.0% 4.8 -0.0 0.8% 4.0% (26) 10.6 -24.8% 3Q11A -18% (0. Sullivan.97) (133) 16.5 0.2% 4.7% (8) 3.890 9.8% 1.136 6.5% 9.2% (112) 10.0 -2.0% 0 NM 0 4.1) 50. CFA (65) 6882-2374 james.5% 8.3% 1.0 28.0 0.13 (307) 30.0% 0.5 0.0% (67) 6.9% (543) 48.5% 2013E -13% 1.5 42.3% (59) 6.5% 4.0% (71) 6.8% 1.6% (40) 4.5% 22.0% (69) 6.James R.3% 2011E -15% 5.0 -7.00 (308) 27.2% -75% (20.3 -1.4% (52) 6.9% (75) 9.621 9.8% 0.3% 1.8 -2.5 0.6% 0. NBN revenue Total cost of sales (S$ mn) as % of total revenue Source: Company reports and J.1% (120) 48. NBN revenue Traffic expenses Total voice minutes (mn) YoY Traffic expense/min (S cents) YoY Traffic expenses (S$ mn) as % of ex.8% (64) 6.0% 4.4 -25.00 (307) 29.00 (308) 28.922 7.6% 1.513 4.3% (512) 49.075 3.3% 4.67) (66) 27.3% (33) 3.3% 0.9 0.9 2.8 -5.4% (327) 41.9% 1.0% (73) 6.8 -1.0 NM 0. NBN revenue NBN cost of sales NBN monthly expense per sub (S$) YoY NBN cost of sales (S$ mn) As % of NBN revenues Other cost of sales Monthly expense per sub (S$) YoY Other cost of sales (S$ mn) as % of ex.81 (82) 31.7% 0.8 -1.5% 22.3% (8) 3.3% 1.4 -25.1% (81) 10.0% (1.0% (18.0 -5.3) 61.4% 22.0% 25.3% 1Q11A -9% 13.5% 22.5% 0.0 0.60 (297) 30.8 -1.8 -2.1 -8.2% 25.5% (55) 7.0% (42) 5.0% (27) 2.0% (116) 10.3 -24.P.0% (119) 10.6% 2009A -71% 35.0% (81) 10.6% 2.2% (301) 37.7% (521) 49.387 11.6% 8.9% 0 NM 0 4.6 25.4% (96) 9.1% 4.2) 61.5% (25) 10.9 -35.6% (41) 4.4% (47) 5.5% 1.9) 57.2 -3.0% 4.831 11.2% 1.0) 60.8% 2010A -20% 50.3% 35.2% (106) 10.2) 50.7% (16) 6.8 -1.

0% 9.0% (18) 7.4% 8.0% (35) 3.1% (41) 3.6% (17) 6.0% (707) 68.7 -14.9 12.4% 0 NM 0 (19) 2.sullivan@jpmorgan.1% (146) 18.05 10.9% (25) 10.4 47.2% 9.0% (73) 6.6% 0.3% (23) 9.7% 1.8% 10.6% (92) 11.7 0.7 0.5% 0.07) 9.3 -6.5% 1.1 -1.4% 2012E 4.6% 1Q11A 4.2 6. Sullivan.3 2.8% 0.0% 8.9 -1.8% (16) 6.8 -26.3 2.7 3.9% 9.4% 2013E 4.3% (48) 18.5 -1.9 -3.9% 4.8% 4.8) 23.5% (101) 9.0% (70) 6.6 -3.4 -0. NBN marketing & promotion (S$ mn) as % of ex.01 8.0% (29) 2.7% (666) 68.5 1. Morgan estimates.2% (77) 9.5 -6.7% 2.5) 25.5% (5) 2.9% 2.7% (181) 69.5) 24.4% (46) 4.6% 8.3 -34.0 2.0% (72) 6.4% (90) 9.4% 3Q11A 4.4% -42.0% 7.9 -0.7% 2015E 4.2% (31) 3.4 -7.4 3.2% (22) 2.0 0.7 -9.5% (0.7% (21) 2.7% -14.2 25.4% (8) 3.5% (119) 11.9% 8.1% 2.0% -14.9% (37) 3.4% (166) 67.94 9. CFA (65) 6882-2374 james.0% (25) 2.4 6.6% (226) 20.3% 5.5) 25.2 7.0 -3.8% 0.1 -1.2 2.0% 1.3 4.0% (29) 2. marketing per minute (S cents) YoY Source: Company reports and J.2 5.4% 1.9% 10.6 7.9% 1.4% 2011E 4.2% (48) 19.1) 20.0 0.1% (732) 69.6 -7.r.8% (2.7 -0.3% (19) 2.0% 2.3 -3.9% 3.0 7.1% 9.0% (33) 3.0% (33) 3.8% (758) 69.84 9.3% (782) 69.0% 0. NBN revenue NBN monthly expense per sub (S$) YoY NBN marketing expense (S$ mn) As % of NBN revenues Total marketing & promotion (S$ mn) as % of total revenue Others Monthly expense per sub (S$) YoY Others (S$ mn) as % of ex.0% (8) 3.6% 10.6% 2.9% 0.9 3.6% (184) 22.6% (76) 9.6 3.4% 1.9 0.9% 134 .P.5% (86) 10.0% 8. NBN revenue Marketing & promotion Ex.6% (239) 21.3% 9.22 8.6 -6.3% 1.0% (4. NBN revenue Total other OpEx (S$ mn) as % of total revenue Total opex (S$ mn) as % of total revenue BP change YoY Opex per minute (S cents) YoY Opex ex.0 -6.0% (10.0% 9.10) 8.0% 8.0% 2.8 -5.0% (34) 3.4% 2.5% (126) 11.8% 14.6% (65) 6.68 9.4% (186) 23.6% 0 NM 0 (21) 2.8 6.5% (211) 20.1 4.0% (0.8% 1.6 24.74 8.9 12.6% 1.4 1.7% 2Q11A 3.1% 1.3 -10.9 2.9% (25) 2.1% 2.0) 20.7% (7) 2.9% (173) 17.5 3.1% 10.James R.6% (58) 5.9% 0.0% (7) 2.2% (5) 1.3% 0. 2008A 2009A 2010A 4.0 0.9% (806) 70.0% (7.8% 2.6% (252) 21.2% 8.2 6.6% (111) 10.7% -17.1% (167) 67.0 NM 0.9% (485) 60.0) 24.1 9.7% (0.1 -1.1% (75) 9.47 (48) 6.com Asia Pacific Equity Research 21 October 2011 Table 64: M1 OpEx build continued 2007A Other OpEx Staff cost Monthly expense per sub (S$) YoY Staff cost (S$ mn) as % of ex.8% 0 NM 0 (22) 2.2% (482) 60.1% 8.2 42.3 -7.3) 23.5 6.4% 9.7 0.0% (0.9% (47) 19.7 3.5% (133) 12.4 -0.2% 1.4% 4.0% (0. NBN monthly expense per sub (S$) YoY Ex.6 12.3 2.4% 2014E 4.4 1.1% 3.9 -5.3% (195) 19.0% (0.20 8.52 9.6% (473) 60.8% (68) 6.6% (24) 9.

1% (128) 181 1 (7) 175 (25) 14.1% (117) 204 0 (10) 195 (23) 11.025 (307) (33) (64) (106) (101) (29) (65) (707) 319 42. YE Dec Mobile-voice Mobile-non-voice Fixed Service IDD Sale of equipment Total revenues Cost of equipment Leased circuit Traffic expenses Other cost of sales Staff costs Marketing and promotion Others Total opex EBITDA EBITDA margin (%) .2% 150 16. 135 .0% (108) 230 2 (7) 225 (38) 17.0% 179 19.1 Source: Company reports and J.7% 172 18. Sullivan.service Depreciation Operating profits Interest income Interest Expense Profit before tax Tax Tax Rate (%) Net income Reported EPS 2007A 471 130 0 127 76 803 (133) (42) (47) (75) (92) (19) (75) (482) 321 44.9% (28) 51 0 (2) 50 (9) 17.5% 157 16.8% 150 16.4% 43 4.0% 187 20.3% (107) 221 1 (7) 215 (37) 17.5% (110) 235 3 (7) 231 (39) 17.James R.P.4% 43 4.0% 172 18.8% (118) 196 0 (6) 191 (33) 17.com Asia Pacific Equity Research 21 October 2011 Table 65: M1 P&L S$ mn.0% (105) 214 0 (7) 207 (36) 17. CFA (65) 6882-2374 james.085 (308) (28) (69) (116) (119) (37) (70) (758) 327 40.8 2009A 419 147 7 128 81 782 (138) (53) (55) (81) (76) (22) (48) (473) 309 44.5 2015E 409 288 32 104 278 1.7 2Q11A 95 53 10 31 57 246 (71) (8) (16) (25) (23) (7) (17) (167) 79 41.8% (26) 53 0 (2) 52 (9) 17.9 2013E 389 257 35 113 272 1.7% 41 4.5 2008A 460 141 0 137 62 801 (128) (40) (52) (81) (86) (21) (77) (485) 316 42.4% 171 18.8 1Q11A 95 50 7 32 75 259 (82) (9) (16) (26) (24) (8) (16) (181) 78 42.sullivan@jpmorgan.9% (106) 214 1 (7) 207 (35) 17.7 3Q11A 95 53 11 29 56 245 (66) (8) (16) (27) (25) (5) (18) (166) 79 41.051 (307) (30) (67) (112) (111) (33) (68) (732) 320 40.8% (124) 192 0 (8) 185 (35) 18.8 2010A 395 185 24 129 247 980 (297) (41) (59) (96) (90) (25) (58) (666) 314 42. Morgan estimates.6 2014E 399 275 33 109 275 1.8 2012E 382 237 37 118 269 1.121 (308) (27) (71) (119) (126) (41) (72) (782) 338 40.5 2011E 380 213 38 125 267 1.0% 192 21.3% (25) 53 0 (1) 52 (9) 17.151 (308) (27) (73) (121) (133) (46) (73) (806) 345 39.r.

YE Dec Cash and bank balances Trade receivables Others Total current assets PPE License & spectrum rights Goodwill Others Total non-current assets Total Assets Current liabilities Trade payables and accruals Unearned revenue Bank loans Others Total current liabilities Non current liabilities Interest bearing borrowings Others Total non-current liabilities Minority Interest Share capital Retained earnings Other reserves Total equity Total Liabilities & Equity Source: Company reports and J. 2007 23 81 23 127 637 83 0 1 720 847 198 0 35 55 288 250 107 357 0 114 83 5 202 847 2008 18 69 24 111 613 79 0 1 693 804 149 32 0 50 231 250 100 350 0 116 103 4 223 804 2009 7 87 46 141 611 73 12 1 697 838 153 31 269 41 494 0 88 88 0 117 133 6 256 838 2010 9 178 47 234 601 87 13 1 701 935 158 33 66 43 300 250 82 332 0 128 169 6 303 935 2011E 19 187 47 252 605 82 13 1 700 952 168 35 66 43 312 250 82 332 0 128 175 6 309 952 2012E 51 191 47 289 612 77 13 1 702 991 174 36 66 43 319 250 82 332 0 128 207 6 341 991 2013E 87 197 47 331 621 72 13 1 706 1.com Asia Pacific Equity Research 21 October 2011 Table 66: M1 balance sheet S$ mn.037 180 38 66 43 326 250 82 332 0 128 246 6 379 1. CFA (65) 6882-2374 james.133 136 .P.085 2015E 157 209 47 414 644 62 13 1 719 1.sullivan@jpmorgan. Morgan estimates.r. Sullivan.James R.085 186 39 66 43 334 250 82 332 0 128 287 6 420 1.037 2014E 123 204 47 374 632 67 13 1 712 1.133 192 40 66 43 340 250 82 332 0 128 327 6 461 1.

Sullivan. CFA (65) 6882-2374 james.sullivan@jpmorgan. Morgan estimates.com Asia Pacific Equity Research 21 October 2011 Table 67: M1 cash flows S$ mn.P. tax paid) Operating cash flow before WC changes Changes in WC Trade receivables Trade payables. YE Dec Profit/(Loss) before taxation Adjustments for: Depreciation and ammortization Others (incl.r.James R. 2007 195 111 (73) 232 1 (2) (2) 229 (56) 0 (56) 5 (358) 35 0 (318) (146) 169 23 262 2008 185 118 (33) 270 12 (17) (10) 255 (94) (3) (97) 2 (130) (35) 0 (163) (5) 23 18 232 2009 175 122 (27) 270 (16) 1 (32) 222 (119) (13) (132) 0 (120) 19 (0) (101) (10) 18 7 262 2010 191 111 (24) 277 (91) 7 (6) 187 (120) (0) (120) 0 (121) 47 8 (66) 1 7 9 307 2011E 207 105 (36) 276 (8) 12 0 280 (105) 0 (105) 0 (165) 0 0 (165) 10 9 19 297 2012E 207 106 (35) 278 (5) 7 0 280 (107) 0 (107) 0 (140) 0 0 (140) 33 19 51 265 2013E 215 107 (37) 286 (6) 8 0 287 (111) 0 (111) 0 (140) 0 0 (140) 36 51 87 229 2014E 225 108 (38) 295 (6) 7 0 296 (114) 0 (114) 0 (146) 0 0 (146) 36 87 123 193 2015E 231 110 (39) 302 (6) 7 0 304 (118) 0 (118) 0 (151) 0 0 (151) 34 123 157 159 137 . accruals & other payables Others Net cash from operations Purchase of PPE and intangible assets Others Net cash outflow from investing Proceeds from share issuance Dividends paid Net proceeds from loans Others Net cash outflow from financing Net change in cash Starting cash Ending cash Net debt / (cash) Source: Company reports and J.

James R.3% 0.47 FY12E 30.5% 13.2% Capex 49.6% -14. Morgan estimates.13 77.6% Cash flow from financing 17. year end Dec 1.8% 3.2% 50.085 Cash and equivalents 327 Accounts receivable -107 Others 221 Total Current assets 1 -7 ST loans 0 Others current liabilities 215 Total current liabilities -37 0 Net working capital 179 179 Net fixed assets Other long term assets 911 Total non-current assets 0.6% 2.2% Cash flow from operations 16.1% 17.0% -3.6% 8.4% 56.3% 1.00 FY11E 31.3% 0.8% Shareholders' equity -0.3% 18.2% 62.4% 4.2% Capex to sales -15.2% 48.051 320 -106 214 1 -7 0 207 -35 0 172 172 911 0.1% 17.5% Closing cash 60.3% 18. year end Dec EBITDA margin FCF margin ROE ROC ROA FY09 39.5% -10.3% 17.9% 11.4% -10.6% Change in cash for year 17.0% 33.7% 17. CFA (65) 6882-2374 james.20 0.2% 0.19 0.025 319 -105 214 0 -7 0 207 -36 0 171 171 911 0.66 FY09 FY10 222 187 -119 -100 -132 -120 -101 -66 -10 18 7 1 7 9 Tax rate 14.6% 96.13 79.2% 34.com Asia Pacific Equity Research 21 October 2011 M1: Summary of Financials Profit and Loss Statement S$ in millions.3% 60.7% FY12E 1.3% Total liabilities and equity Net debt/(cash) Cash flow statement FY13E S$ in millions.2% 48.reported Net profit .5% 0.2% Interest cover (x) 53.0% -9.5% Long-term debt 3.9% Balance Sheet statement FY13E S$ in millions.18 96.39 FY09 FY10 7 9 87 178 46 47 141 234 269 225 494 -353 611 86 697 838 0 88 581 256 838 262 66 234 300 -66 601 100 701 935 250 82 632 303 935 307 FY11E 19 187 47 252 66 246 312 -60 605 95 700 952 250 82 643 309 952 297 FY11E 280 -105 -105 -165 10 9 19 FY12E 51 191 47 289 66 253 319 -30 612 90 702 991 250 82 650 341 991 265 FY12E 280 -107 -107 -140 33 19 51 FY13E 87 197 47 331 66 260 326 5 621 85 706 1.0% -10.19 0.1% 25.9% 34.8% 36.17 0.sullivan@jpmorgan.6% 0.1% 101.6% (2.7% 17.037 250 82 658 379 1.r.15 81.2% Other liabilities 2.1% 55.2% Beginning cash 45.4%) -2.4% 16.7% 1.3% 17.6% Cash flow from other investing 32.3% FY10 32.5% Total Liabilities 3. 138 .5% 53.1% 77.8% FY10 980 314 -118 196 0 -6 0 191 -33 0 157 157 935 0. year end Dec 30.P.1% FY11E 1.5% 4.9% 56.5% 0.0% -10.8% 39.adjusted Shares Outstanding (mn) EPS (S$) (Reported) DPS (S$) DPS payout ratio Revenue growth EBITDA growth Net profit growth EPS growth DPS growth FY09 782 309 -128 181 1 -7 0 175 -25 0 150 150 895 0.037 229 FY13E 287 -111 -111 -140 36 51 87 Ratio Analysis %.28 Source: Company reports and J.15 Total Assets 78.17 0.0% 8. year end Dec Revenue EBITDA Depreciation & Amortization EBIT Interest income Interest Expense Other Income Profit before tax Tax Minorities Net profit .2% 51.6% 50.2% Net debt or (cash) to equity 102.2% Debt/Capital 51. Sullivan.

with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers. is.38 3.16 Price Target (S$) 2.60 24-Jan-07 02-Mar-07 27-Mar-07 14-Aug-07 12-Sep-07 OW S$3.45 N S$3.James R. Morgan currently has. and (2) no part of any of the research analyst's compensation was.23N S$4.sullivan@jpmorgan.SI) Price Chart Rating Share Price (S$) N N N OW OW OW OW N N N 2.00 4. Date 08-Nov-06 15-Jan-07 Singapore Telecom (STEL. or had within the past 12 months. CFA (65) 6882-2374 james.63 2.86 3.74 2. and the services provided were non-investment-banking.28 N S$4.96 3. or had within the past 12 months.23 4.26S$4. Initiated coverage Nov 08.40 3.r.55 S$4 N S$4.06 N S$2.27 OW OW N S$4.75 3.48 2.8 OW S$4. where multiple research analysts are primarily responsible for this report.5 OW S$3.42 3.55 2.44 3.55 3.35 4.24 N S$3.71 3.26 4.45 3. or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.55 S$4.63 N S$3.27 4.99 2.2 S$4 OW N 6 N S$2.51 2. Sullivan.85 3.06 4.58 2. Non-Investment Banking Compensation: J.28 4.94 3. StarHub. 14-May-09 N 25-May-09 N 03-Feb-10 09-Feb-10 17-Feb-10 21-Oct-11 N N N OW 139 .75 2.35 N S$4. securities-related: Singapore Telecom. price data adjusted for stock splits and dividends.P. Client/Non-Investment Banking.80 4.2 N S$2. the research analyst denoted by an “AC” on the cover or within the document individually certifies.24 4.20 3. Morgan has received compensation in the past 12 months for products or services other than investment banking from Singapore Telecom.20 2. the following company(ies) as clients: Singapore Telecom.46 2.55 3. Important Disclosures    Client: J.95 3.85 N S$2.4 07-May-07 OW N S$3. 2006.00 3.8 4 Price(S$) 05-Feb-08 11-Apr-08 09-May-08 N 14-May-08 N 2 08-Aug-08 12-Aug-08 11-Nov-08 03-Feb-09 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 N N N N N N 0 16-Mar-09 07-Apr-09 Source: Bloomberg and J. Securities-Related: J.52 3.85 3.05 N S$3.88 3.81 2.75 N N S$2.P.50 3.40 3. Morgan.05 3.08 3. M1.66 3.607-Nov-07 N S$3. the following company(ies) as clients.P.94 S$3.com Asia Pacific Equity Research 21 October 2011 Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or.80 2.4 N S$3. Morgan currently has.P.20 4.50 3.00 3.

the current analysts may or may not have covered it over the entire period. 2011. Morgan uses the following rating system: Overweight [Over the next six to twelve months.] Underweight [Over the next six to twelve months. Digi (DSOM. N= Neutral. UW = Underweight Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.Oct 21.30 -2. www. each stock’s expected total return is compared to the expected total return of a benchmark country market index.93 2.r. AXIATA Group Berhad (AXIA.P. PT 140 .SI) Price Chart 4 3 OW S$3 OW S$2.] Neutral [Over the next six to twelve months.P. not to those analysts’ coverage universe.KL).KL). Morgan.JK). we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.50 1 0 Aug 08 Nov 08 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11 Source: Bloomberg and J. CFA (65) 6882-2374 james. (VNET). the certifying analyst’s coverage universe can be found on J. Morgan. If it does not appear in the Important Disclosures section of this report. we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.88 1. we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.34 2.90 2.] In our Asia (ex-Australia) and UK small. The chart(s) show J. Globe Telecom (GLO.Oct 21.com.PS). price data adjusted for stock splits and dividends.00 2.KL). 2008 . M1 (MONE.7 Date Price(S$)2 Rating Share Price (S$) OW OW OW N 2. Maxis Berhad (MXSC.com Asia Pacific Equity Research 21 October 2011 StarHub (STAR. M1 (MONE.BK).22 1. 2010 .James R.SI) Price Chart 4 3 N N S$2.70 05-Nov-08 26-Nov-09 07-May-09 OW 1 28-Apr-10 21-Oct-11 0 Aug 08 Nov 08 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11 Source: Bloomberg and J. Morgan's continuing coverage of the stocks. Sullivan. 2011.sullivan@jpmorgan. Coverage Universe: Sullivan. Break in coverage Oct 09. Advanced Info Services (ADVA.51 Price Target (S$) -2.P. James: 21Vianet Group Inc.morganmarkets.P.82 Price Target (S$) 3.SI).and mid-cap equity research.5 Price(S$)2 Date 09-Oct-08 21-Oct-11 Rating Share Price (S$) N N 1.3 OW N S$2.91 2. price data adjusted for stock splits and dividends. J.9 OW S$2. Break in coverage Apr 28.P. Morgan ratings: OW = Overweight.P. PT Indosat Tbk (ISAT. Morgan’s research website.

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