asian telecom 20110322 regional)

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MXAPJTC Index: 97.99 Analyst

2011F EV/EBITDA and PER for various telcos in the region

DBS Group Research . Equity 22 March 2011

Regional Industry Focus

Asian Telecom Sector

Switch to growth-yield mix • 2010 result vindicate that data is benefiting telcos,

especially in emerging markets.

• But emerging market telcos are trading at 30-40% discount to mature telcos’ EV/EBITDA multiples as investors continue to pay a premium for yield.

• Switch to telcos that will benefit from growth and may be re-rated with potentially higher dividends. XL, Axiata & SingTel fulfill the criteria.

• Prefer Indonesian tower operators & Chinese equipment players for pure growth.

Data led strong revenue growth in 2010. Despite fears that data was cannibalising voice, cellular revenue growth in Asia was stronger in 2010 than 2009, vindicating proponents of data. Poor fixed-broadband penetration and affordable Chinese handsets (US$40-$200/unit) are supporting rising data usage in emerging markets. However, the market could still be underestimating revenue growth in 2011 due to lack of statistics to forecast growth potential of mobile broadband.

Big opportunities for small players in China & Indonesia. China Mobile & Telkomsel have 79% and 58% revenue share in their respective markets, but that may be difficult to sustain in these three-player markets. While incumbents enjoy early-mover advantage in the voice-space due to superior network coverage, data-growth is accelerating in urban areas where coverage is on par.

Potentially lower costs in Singapore. Singapore telcos may save costs with potentially lower handset subsidies in 2011 due to (i) arrival of Android phones (requiring lower subsidies) and (ii) lower smart phone sales (after the initial frenzy in 2010). Singapore may also benefit from high purchasing power of its consumers who are able to buy tablets with 3G plans.

Cheap valuations and higher dividends are key criteria. Many emerging market telcos are trading at 4x-6x FY11F EV/EBITDA vs 7x-10x for mature telcos, who are valued by dividend yields. We believe that sector growth is not compelling enough currently to forego dividends. Given the market’s appetite for yields, XL and Axiata may be re-rated in anticipation of higher payouts in 2011 and beyond. SingTel’s key concern is its over-exposure to regulatory risks in Asia and Africa, but its 11x FY12F (Mar-YE) PER is attractive given expected 6% yield, mid-single digit growth and proven execution.

Top Picks

1. XL, No. 3 mobile player in Indonesia, is a pure wireless

play in Indonesia with superior execution track record. 2. Axiata, No. 2 mobile player in Malaysia, is a liquid proxy

to XL and yield could surprise above 3%. 3. SingTel, incumbent in Singapore, is a proxy to Bharti’s

growth with a cushion of over 6% yield. 4. Indosat, No. 2 mobile player in Indonesia, is likely to

improve margins in 2011 & has multiple catalysts ahead. 5. DTAC, No. 2 mobile player in Thailand, may raise its

dividend payout ratio above 80% & yield above 8.5% 6. Protelindo & Tower Bersama, are largest tower players

and proxies to data growth in Indonesia. 7. ZTE is a potential beneficiary of 4G-network launch on a

global scale.

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2011F E V/E B ITDA (L HS ) 2011F P E R (R HS )

Industry Focus


Analysts Sachin Mittal +65 6398 7950 [email protected] Tsz Wang TAM CFA, +852 2971 1772 [email protected]

Chirasit VUTTIGRAI +66 0 2657 7836 [email protected] Juliana RAMLI +603 2711 2222 [email protected]

Table of Contents

Countries benefiting from data-growth 3

Unbalanced market structure in China & Indonesia 6

Emerging market telcos trading at huge discount to mature telcos 9

Tower-leasing is true proxy to data-growth in Indonesia 12

Top picks 14

Sector Briefs 18

Competitive & Regulatory Outlook in Asia 20

Singapore 20

Malaysia 20

Indonesia 21

China 21

Thailand 22

Stock Profiles 25

XL Axiata 26

Axiata Group 28

SingTel 30

Sarana/Protelindo (TOWR) 32

Tower Bersama 34



Theme 1 – Countries benefiting from data-growth Revenue growth picked up in 2010 in Asia due to data-growth

Source: DBS Vickers

Non-voice as % of cellular revenue is rising Singapore 2008 2009 2010 SingTel 33% 36% 38% M1 23% 26% 32%

Malaysia 2008 2009 2010 Maxis 30% 32% 39% Digi 19% 20% 23%

Thailand 2008 2009 2010 Advance Info 13% 14% 17% DTAC 11% 12% 14%

China 2008 2009 2010 China Mobile 28% 29% 31% China Telecom 27% 33% 35%

Indonesia 2008 2009 2010 Telkomsel 29% 31% 33% XL 32% 34% 41%

Source: Companies, DBS Vickers

Data-revenue growth was key driver in 2010. As shown in the table on the left, non-voice revenue contributions have surged in all markets. Skeptics argue that ARPU in countries such as China, Indonesia and Malaysia did not rise due to cannibalisation of voice revenue by data. But they missed the following: (i) voice ARPU had always been declining in emerging markets, but data growth had helped to curb the decline. In fact, reported ARPU is often diluted because it includes low-ARPU data-only customers; (ii) data-plans fuel stronger subscriber growth in all markets, bringing in more revenue. The sharp increases in subscriber growth indicate strong pent-up demand for data-services due to the lack of fixed–broadband services. This is evident in the increased take-up of both dongle and hand-phone data plans. And although Singapore witnessed relatively higher revenue growth, it was also accompanied by higher smart phone subsidy costs.

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China Indonesia Malaysia Thailand Singapore

2009 2010 2011F

Industry Focus


Countries benefited in different ways. In some countries, subscriber growth picked up considerably, while others saw much smaller declines in ARPU. Indonesia – subscriber growth picked up considerably in 2010

Source: DBS Vickers

China – Subscriber growth did not pick up but ARPU decline was much lower

Source: DBS Vickers

China and Indonesia benefited from data-growth in different ways. Indonesia witnessed much higher subscriber growth, while China benefited from smaller decline in ARPU. In Indonesia, challenger XL cut prices for voice and SMS to gain revenue share, but data growth resulted in ARPU falling only 9% instead of

14%. And in Indonesia, operators do not subsidize 3G phones. In China, challengers CT and CU offer superior 3G networks due to technological advantage over CM. As a result, there is no need to differentiate themselves with lower prices. However, CT and CU offer subsidies for 3G phones to entice customers to tackle the affordability issue. Going forward, the subsidy burden is likely to come down along with 3G-handset pricing. Singapore – subscriber & ARPU (postpaid) growth up

Singapore witnessed higher subscriber growth and ARPU, but at the cost of margins. In Singapore, data-growth was mostly limited to the post-paid segment because the pre-paid segment caters mainly to foreign workers. The country witnessed healthy post-paid cellular revenue growth of ~10% in 2010. More importantly, subscriber growth was extremely strong at ~10% despite already high mobile penetration of 140%. Yet, ARPU rose because more subscribers took up data plans and roaming contribution also rose. However, operators had to offer significant hand phone subsidies to lure subscribers. There is little pent-up demand for data-services in Singapore due to adequate fixed-broadband services as shown in the figure below.

10%

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10%

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Postpaid subscriber grow th Postpaid ARPU grow th

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Countries with maximum data-growth potential

Per capita broadband penetration – Malaysia, China, Thailand and Indonesia have huge potential

Source: DBS Vickers Population coverage of 3G-networks is not far behind in Malaysia, Indonesia & China. Thailand lags clearly

Source: DBS Vickers Singapore has high GDP per capita (ppp in USD), helping operators to push smartphones and tablets

Source: IMF

0%10%20%30%40%50%60%70%80%90%

100%

Singapore Malaysia Indonesia China Thailand India

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Singapore Hong Kong SouthKorea

Malaysia China Thailand Indonesia India

Fixed Broadband Mobile broadband (including dongles & phones)

Industry Focus


Theme 2 – Unbalanced market structure is an opportunity for challengers in China & Indonesia Cellular revenue market share across various markets

Source: DBS Vickers

China is most unbalanced, followed by Indonesia. In Thailand, Malaysia and Singapore, revenue share of the second largest player trails the largest by only 10%-20%. But in China and Indonesia, the gap is 66% and 37%, respectively. This huge gap can be explained by the legacy of two-player markets in China and Indonesia, which cannot be sustained in a three-player market structure, in our view. Rising data use is catalyst for change. Admittedly, incumbents had early mover advantage in the voice-space due to their wider network coverage in rural areas. But data-growth is mainly taking place in urban areas, where network coverage is almost similar for all players. Affordable Chinese handsets (US$40-$200 per unit) are also fuelling higher data usage. In fact, challengers offer similar or superior data plans as they are less worried about data cannibalising voice revenue. This helps challengers to secure mid-to-high-end subscribers that they were unable to attract previously.

Small gap in Malaysia explains significance of the No.3 player. The revenue share gap between the top two players in Malaysia is only 10%. This can be attributed to relatively low revenue share for the No.1 player due to loss of revenue share to the No.3 player. Malaysia has an aggressive No.3 player - Digi.com - with a strong balance sheet. Meanwhile, the No. 3 player in Singapore - M1 - has been facing structural weakness due to lack of triple play offering compared to its bigger peers. The No.3 player in Thailand – True – has limited coverage outside Bangkok region because of tight financial resources with excessive debt on its balance sheet. However, we believe that both the No.2 and No.3 players in China and Indonesia are aggressive and have sufficient financial resources to gain revenue share. As such, the No.1 players in these two countries could lose revenue share over time.

13%8%

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XL Axia

ta AISDTAC

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StarHub M1

Indonesia Thailand Malyasia SingaporeChina



Revenue share in China We project 11% industry revenue growth in 2011 (versus 12% in 2010), with CM’s revenue growing at 6% versus CT’s 34% and CU’s 23%. Hence, we expect both CT’s and CU’s

revenue market shares to improve in the next three years. CM’s revenue share could drop to 73%% by 2012F, in our view.

Cellular industry in China to grow at 11% in 2011 after 12% in 2010

Source: DBS Vickers CT and CU set to narrow revenue market share gap with CM

Source: DBS Vickers

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Revenue share in Indonesia We project 9% industry revenue growth in 2011 (versus 11% in 2010), with Telkomsel’s revenue growing slightly slower than the industry. But Indosat’s and XL’s revenue

growth should be above industry growth rate. Hence, we expect both XL’s and Indosat’s revenue market shares to improve in the next three years. Telkomsel’s revenue share is estimated to have fallen to 58% in 9M10, and could drop below 55% by 2012F, in our view.

Cellular industry to grow at 9% in 2011 after 11% in 2010

Source: DBS Vickers Telkomsel’s revenue share too high to be sustained, likely to lose share to XL and Indosat

Source: DBS Vickers

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Telkomsel Indosat XL

Industry Focus


Theme 3- Emerging market telcos trading at huge discount to mature telcos’ EV/EBITDA multiples Emerging market telcos are cheap compared to mature telcos. As shown in the figure below, China Unicom, XL, Indosat and Axiata group appear cheap given 2010-12F EBITDA CAGR of 9%-10%. Axiata group offers the higher growth due to its emerging market exposure.

But mature market telcos offer rich dividend yields. Maxis, Digi, M1 and SingTel are trading at rich EV/EBITDA multiples because they are valued based on their dividend yields, which range from 6% to 8%.

Indonesian and Chinese telcos are cheaper versus telcos in Singapore and Malaysia

Source: DBS Vickers Players in Singapore, Malaysia and Thailand offer higher dividend yields

Source: DBS Vickers

2011F Dividend Yie ld

4.3%

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True Corp Indos at XL Axiata P T Telekom

FY 11F E V/E B IT DA

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Many growth stocks are cheap in EV/EBITDA but expensive in PER due to high depreciation expenses

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Source: DBS Vickers Some growth telcos are cheap on EV/EBITDA multiples, but not PER. Indosat, China Unicom, China Telecom, TrueCorp and Telekom Malaysia are cheap in terms of EV/EBITDA multiples. But they are expensive in terms of PE multiples due to smaller net earnings base of only 10%-20% of EBITDA versus 40-50% for mature telcos. The key reason for this is higher depreciation charges because of high capex. However, these stocks may be re-rated if (i) capex drops, leading to higher free cash flow and dividends, and (ii) EBITDA growth beat expectations. But currently, we are not optimistic that these telcos would be able to surprise on dividend front due to the need to reduce debt. However, their data-growth could exceed expectations. Need to be selective among cheap stocks. China Mobile, PT Telkom, XL, Axiata, AIS and DTAC are cheap on both valuation metrics. a) China Mobile and PT Telkom are cheap

because of expectedly weaker growth prospects. A higher dividend payout policy could boost their valuations, but there is little indication from the companies currently.

b) XL and Axiata are growth telcos, but have controlled capex and depreciation well. As such, net earnings are 25-30% of EBITDA compared to 10%-20% for peers. More importantly, both companies have shown inclination to pay dividends to shareholders.

c) AIS and DTAC are cheap because of regulatory

concerns. However, DTAC faces much lower risks than AIS. The market has yet to price in DTAC’s higher dividend payout potential, with its free cash flow yield at over 10%.

SingTel is an exception due to accounting treatment. SingTel is cheap in terms of FY11F PER, but not EV/EBITDA due to under-reporting of group EBITDA. SingTel includes pre-tax earnings instead of EBITDA of associates in the group EBITDA because it employs the equity accounting method. If it were to include that, its group EV/EBITDA multiple would be below 6x.

Industry Focus


Among cheaper telcos, Indosat & TrueCorp need to reduce debt first

Source: DBS Vickers Among cheaper telcos – XL & Axiata are generating strong FCF yield

Source: DBS Vickers

Free Cash f low yield

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Theme 4 – Tower-leasing is true proxy to data-growth in Indonesia 1. Tower revenue growth likely to outpace mobile

revenue growth substantially We estimate 7-8K new towers in Indonesia each year. We expect the top 5 operators to add 12-13K BTS each year, slightly higher than the 11-12K added in recent years due to rising traffic per subscriber led by explosive data growth. The rising tenancy ratio implies that tower growth should be 7-8K each year (lower than BTS growth), translating into 10% tower CAGR. Our estimate is more conservative than street estimates of 10K annually. At least 7-8K towers to be added each year

Source: DBS Vickers Source: DBS Vickers Tower tenancy (average BTS per tower) has ample room to grow, compared to mature tower markets like the US. Indonesian towers currently register tenancy ratios of less than 1.7 against 2.5-2.9 in the US. This means there is strong potential to grow co-location ratio, a trend likely to benefit independent tower companies. In anticipation of 10% tower CAGR in FY10F-14F, we expect tower revenue to expand at 13% CAGR over the same period, led by rising tenancy ratio. This should beat the 8% CAGR for mobile revenue. In fact, independent tower companies could grow at over 15% CAGR, in our view. Average tenancy ratio in various countries

Source: DBS Vickers

2. Independent tower operators to gain market share from mobile operators

Protelindo and Tower Bersama command about 8% and 5% market share in Indonesia in terms of number of sites. While telecom operators dominate with over 80% share currently, we expect more mobile operators to (i) lease towers from independent tower operators, and (ii) sell their towers to independent tower operators. Market share of various tower players in Indonesia

Source: DBS Vickers Mobile towers sold by operators in Indonesia

Source: DBS Vickers Indeed, several large mobile operators are deliberating the sale of towers in 2011. There are three key reasons for this trend: Regulatory push. In Java, telecom regulators are not permitting the construction of new towers in the vicinity of an existing tower, to encourage operators to share existing infrastructure. A new tower can only be constructed if the existing tower cannot be shared for any reason. Expand coverage quickly while keeping capex low. Tower leasing allows telecom operators to expand coverage within a short time. By not having to build a tower from scratch, the timeline to “live network” is reduced from 6-12 months to a few weeks, which is a significant competitive advantage. It also allows the operators to reduce capex for tower-construction. Focus on core business. Outsourcing the management of towers would allow operator to focus on their core business of growing subscriber base. The operators would also not have to deal with the local communities, site construction and contractors, but only with an independent tower company.

Companies Sites Market Share % Tenancy ratio

Telkomsel 18K 35 1.70

Indosat 12K 23 1.40

XL Tower 10K 19 1.90

Protelindo 4.7K 8 1.70

Tower Bersama 2.7K 5 1.85

Other telecom operators 3K 6 na

Other tower companies 3K 6 na

Year Seller Buyer Towers 2008 Bakrie Telecom STP 540 2008 Flexi Protelindo 53 2008-10 Hutchison Protelindo 3692

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Industry Focus


3. Regional comparison favour Indonesia over India

and the US India and the US are the closest comparables for Indonesia because tower leasing is popular in these countries. In terms of average annual revenue, Indonesia’s USD18K/tower is similar to the US but more than double the average in India. On the other hand, it takes only USD100K investment to construct a tower in Indonesia, similar to India but three times lower than in the US. Hence, Indonesia stands because of its lowest investment cost and highest revenue per tower.

Annual revenue per tower in various countries (USD K)

Source: DBS Vickers

Source: DBS Vickers

Average investment per tower (USD K)

Source: DBS Vickers

Regulatory restrictions likely to ensure sustainable high returns in Indonesia. The Indonesian government requires all telecom towers to be either owned by telecom operators, or by 100% Indonesian-owned business. This effectively restricts foreign tower companies from entering Indonesia. High up-front investment for tower construction (~USD100K/tower) in Indonesia, where GDP per capita is only ~USD3K, is a significant entry barrier for local companies. And many local companies do not have skilled staff to manage tower leasing and tower-acquisition operations.

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Top picks among telcos 1. XL is a pure play on wireless growth in Indonesia

with superior execution track record - 2011/12 dividends could surprise on the upside - Revenue growth will outpace peers’ - Cheap at 5.4x FY11F EV/EBITDA, given 10% EBITDA CAGR over 2010-12F Higher dividends in 2011-12? XL has met its target 1.0-1.5x net debt-to-EBITDA ratio, which means it might raise dividend payout ratio to c.50% in 2011. This would translate into ~4.5% dividend yield. XL had raised payout to 30% in 2010 from 20% previously, and intends to review its policy again in 2011. Given over 7% FCF yield in FY11F and net debt-to-EBITDA projected to drop to below 1x, dividends could surprise on the upside. Revenue growth to outgrow its peers’. XL has superior execution track record, and we project its cellular revenue to grow by 13% in 2011 against 11% for Indosat and 9% for the industry. XL’s cellular growth will be below 13% only if industry growth falls below 9% in 2011. But in that case, it would also be catastrophic for Telkom and Indosat, which fixed-line revenues are declining (30% and 15% of group revenues, respectively). About 8% of XL’s revenue comes from its infrastructure business, which is expected to grow as tower leasing picks up in Indonesia. 2. Axiata is a liquid proxy to XL, and offers growth in

Malaysia & Sri Lanka - Higher dividends would surprise the market - Growth at all overseas subsidiaries - Cheap at 5.3x EV/EBITDA, given 10% EBITDA CAGR - Trading at 30-40% discount to domestic peers Higher dividends would surprise the market. Axiata’s currently has minimum 30% dividend payout policy, which implies about 2% yield. But with its net debt-to-EBITDA projected to drop below 0.5x and free cash flow yield would exceed 7%, it might raise payout and surprise the market. Any potential acquisition in the near term is unlikely as almost all of its overseas subsidiaries are doing quite well now. Growth at all overseas subsidiaries. In 2011, Axiata is targeting for Robi (Bangladesh) to grow at high-teens to low- 20‘s percentage, Dialog at mid-single digit, XL at high single digit to low teens, and Celcom at mid single digit. Beyond 2011, the network-sharing arrangement with Digi.com should lead to cost savings.

3. SingTel is proxy to Bharti’s growth, with downside cushioned by 6% yield - Key associate Bharti set to grow next year - Concerns about Optus may be excessive - Additional 10-18% yield potential through capital management over next 2-3 years - Trading at only 11x PER versus historical 13-14x Bharti set to grow next year. Bharti could emerge as SingTel’s key growth driver in the next few years given concrete signs of turnaround at its African operations and recovery in India. SingTel’s stable ~6% yield supports our call for an indirect exposure to Bharti through SingTel. Concerns about Optus may be excessive. The No. 3 operator in Australia, VHA is grappling with network problems following the merger. This is benefiting other telcos, including Optus. While Telstra is aggressive, VHA continues to bear the brunt of the problems. Potential capital management could lead to additional 10-18% yield. With net debt/EBITDA ratio at 0.8x, SingTel is well-positioned to execute further capital management. Assuming it raises the ratio to between 1.5x and 2.0x, we could see S$5.0-8.7bn cash distribution (or S$0.30-S$0.55 per share). We expect SingTel to raise gearing gradually rather than in a single move. This would allow it to remain financially flexible to take advantage of acquisition opportunities. 4 Indosat offers large cost-cutting potential, with

multiple catalysts ahead. - EBITDA margins to improve further - Multiple catalysts in the form of tower sale/leasing and sale of CDMA business EBITDA margin improved to 48.6% in FY10 (47.8% in FY09), and we project it to improve to 50% in 2011 (excluding one-off cost for reducing headcount). One of the major projects Indosat has undertaken is to improve energy efficiency at its base stations. These are now beginning to come online and the full benefit should be seen in 2011. Indosat can cut costs in three key areas: • Currently, the local units award network

maintenance contracts. Indosat plans to centralise the award of these contracts in order to negotiate better prices and terms with vendors.

• Indosat’s labor cost is much higher than XL’s despite

similar group revenues, due to a larger workforce at its fixed line business. However, it has recently launched a voluntary separation scheme (VSS) to

Industry Focus


reduce permanent headcount by 900-1,200 (12%-17% of its 7,200-stong workforce). The exercise should be completed by June 2011 and may incur a one-off cost of Rp400bn (c.4% of EBITDA).

• Indosat is also finalising the strategy with regards to

media placement and relationship with the creative agency in order to save costs.

Network cost as % of revenue has room to be reduced

Labor cost as % of revenue has room to be reduced

Source: DBS Vickers

Multiple catalysts ahead for Indosat a) Tower leasing could lead to 3-8% potential upside

to FY11F EBITDA. The key assumption is that 20%-50% of its towers can be leased to another tenant.

b) Potential sale of towers could lead to 5%-10%

upside. We estimate that selling 14K towers at USD100k-120K would create additional USD150m-450m value, which translates into 5%-10% of Indosat’s USD3bn market cap.

c) May sell CDMA business. Contribution from this

unit (StarOne) is immaterial, but the frequency it owns is the valuable asset when it comes to negotiating the selling price.

5. Total Access Communications is a value play for projected 8.5% dividend yield. - Dividend payout likely to be raised to 80% - Faces lower regulatory risks than larger peers - Valuation attractive at 9x FY11F PE Higher dividend payout? DTAC should complete its debt refinancing deal within 1H11, which would release it from the current debt covenants that currently cap dividend payout at 70%. We assumed DTAC will pay 80% of FY11F net profit as dividends, which is close to 82% payout ratio in 2010, including a special interim dividend of Bt0.56/share paid in Nov 2010. The company is already in net cash position with c. 11% free cash flow yield 11%, implying ample room for a dividend hike. Faces lower regulatory risk than larger peer. AIS, DTAC and TrueMove are currently being sued by the TOT for Bt 214 bn. However, only Bt 76bn is relevant here (AIS being sued for Bt 76 bn) while rest is unpaid access charges, which does not have much legal implications. The dispute started in 2007 when both companies claimed that the NTC’s interconnection regime had rendered the access charge agreements obsolete. Subsequently, both DTAC and TrueMove stopped paying access charges to the TOT, which responded by filing lawsuits with the civil court, but the cases were dismissed in 2008. While TOT could try to re-file the cases with the administrative court, we think TOT is recycling these cases only to give the impression that the state is pursuing all operators, not just AIS. Expect flat (+1%) core earnings in FY11F. Although DTA’s revenue will continue to grow, earnings would be affected by: (i) higher revenue-sharing rate of 30% (vs 25%) effective 16 Sep 2011; and (ii) higher corporate tax rate of 30% (vs 25%) after the 3-year SET listing tax privilege expires. Valuations attractive. DTAC is trading at only 9.3x FY11F PE and 3.6x FY11F EV/EBITDA, and offers 8.6% FY11F dividend yield based on 80% payout ratio. The stock also offers 30% upside to our Bt53.40 target price.

35.3%

30.9%

36.2% 36.3%

20%

24%

28%

32%

36%

40%

2009 2010F

XL Indosat

5.6%5.1%

7.9% 7.8%

0%1%2%3%4%5%6%7%8%9%

2009 2010F

XL Indosat



6. China Telecom - No more concerns on CDMA value chain. - Proven execution track record, likely to concentrate on profitability in 2011 - Three potential key catalysts - CDMA iPhone, MNP, and acquiring CDMA networks - Trading at only 4.4x FY11F EV/EBITDA China Telecom has successfully resolved the bottleneck issue in its CDMA handset value chain, and has more than doubled its mobile subscriber share from 4.8% in 2008 to 10.6% in Nov 2010. Given its more efficient subscriber base now, CT will shift its focus from subscriber growth to managing profitability in 2011. EV-DO & WCDMA gaining market share Three key catalysts in 2011 a) iPhone launch potentially in 2H11F. Another key to

watch is the potential upside from the launch of the CDMA EVDO version of the iPhone. As the world’s No.2 CDMA operator, CT accounts for ~45% of global CDMA subscriber net additions in 2010. We therefore expect CT to win the distribution right in China. Given CT’s strong execution capability in terms of product packaging and service quality, the operator can attract bandwidth-hungry iPhone users with higher ARPU.

b) Potential launch of Nationwide Mobile Number

Portability (MNP). The commercial trials for MNP started in Tianjin and Hainan province in Nov. 2010. The trial in Tianjin is two-way while in Hainan, it was carried out as one-way - only 2G subs of CM could switch to CU and CT. Both trials will last for six months. We expect regulator to continue expand trial scale to more cities. A nationwide rollout can not be ruled out in the medium term. MNP would be negative to CM as some high ARPU users may switch to smaller operators due to pricing discount.

CM’s dominant market share (~80% mobile service revenue share) is the key trigger for regulator to implement MNP, especially one-way scheme. CT along with CU should be potential beneficiaries of MNP.

Potential EPS accretive CDMA network acquisition. We expect China Telecom to acquire provincial CDMA networks from its parent to reduce network-leasing costs over the next three to four years. The earliest timing for the first acquisition is 2H11F. We believe that CDMA leasing costs (28% of cellular revenue) for some provincial networks are already exceeding depreciation charges. For CT to own mobile network asset, investors may also be concerned about higher investment burden in future investment. To justify the acquisitions, potential turnaround in mobile division and EPS accretion is necessary. We believe it is reasonable for the market to look for potential EPS accretion of at least 4%-5%.

Industry Focus


Top picks for growth Tower Bersama - Premium clientele and lower gearing - Highest EBITDA growth in the sector - Trading at 10-15% discount to US peers Premium clientele and lower gearing. As the second largest independent tower operator, TBI has been able to fetch premium rentals (10-15% higher) and higher tenant ratio by leveraging on its early-mover advantage. With over 62% of its revenue from Tier-1 mobile operators, TBI has a premium clientele. FY10F net debt-to-EBITDA of only 2.5x is lowest among listed tower operators globally, and leaves ample room to borrow to grow its tower portfolio. Highest EBITDA growth in the sector. Tower Bersama offers 42% EBITDA CAGR over 2010-12F versus 23% for Protelindo. This is much better than the 9-10% offered by Indonesian telcos such as XL and Indosat. Protelindo (SMN) - Market leader and experienced management - Cheapest tower player, trading at 30-40% discount to US peers Market leader and experienced management team. Protelindo is the largest independent tower operator in Indonesia. Its experienced management team (10-20 years experience at (former) American Tower Corporation) has elevated SMN to market leader.

Protelindo versus Tower Bersama at end 2010

Source: DBS Vickers

Indonesian tower players at significant discount to US peers in FY11F EV/EBITDA terms

Source: Bloomberg except for SMN and TBI, which are based on DBS estimates

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OPERATING METRICSTower sites 5072 1880

Non-tower sites 0 1000Tower Tenants 8419 3480

Tenacy ratio 1.66 1.85

Customer % breakdown

Hutch (45%), Big 3 (18%),

Mobile 8 (14%), Bakrie (11%)

Flexi (42%), Big 3 (18%),

Bakrie (15%), Mobile 8 (14%)

Geographical % breakdown

Java (58%), Sumatra (23%),

Kalimantan (7%), Bali (3%)

Java (63%), Sumatra (22%),

Kalimantan

FINANCIAL METRICSRevenue (Rp bn) 1355 682EBITDA margins 83% 78%

FY10 Net debt to EBITDA 3.8 2.5

2010-12F EBITDA CAGR 23% 42%

VALUATION METRICSStock price 9650 2250

Market cap (USD bn) 1.09 1.12Enterprise Value 1.56 1.27FY10 EV/EBITDA 12.5 21.5

FY11F EV/EBITDA 8.0 12.0



SECTOR BRIEFS

Industry Focus


Competitive & Regulatory Outlook Regulatory Risks vs Degree of Competition

Source: DBS Vickers None of the countries currently suffer from both high-regulatory risks and high degree of competition. Singapore offers both low regulatory risk and low degree of competition. Competition in the cellular space is likely to ease in 2011 following the smart phone deluge in 2010. Competition could intensify in the broadband space, but that might only happen in 2012 with the delayed roll out of the National Broadband Network. Although cross-carriage of content and NBN could see regulatory intervention, the regulators have so fare remained benign so that foreign investors continue to have faith in Singapore.

Indonesia has low regulatory risk, but high degree of competition. Competition is the key driver in Indonesia as XL and Indosat are keen to take away revenue share from Telkomsel. Competition should remain intense but will not turn irrational, as we do not foresee new players entering this 3-player market. Thailand, China & Malaysia have high regulatory risk but low degree of competition. Regulatory risks are highest in Thailand because of uncertainty about concession regime. Meanwhile, the government continues to play an important role in China. In Malaysia, Maxis and Celcom could overpay for refarmed 2G-spectrum to outbid Digi and UMobile at the end of 2011.

High

High

Degree of Competition

Low

Malaysia

Low Thailand

Singapore

Regulatory Risks

Indonesia

China

High

High

Degree of Competition

Low

Malaysia

Low Thailand

Singapore

Regulatory Risks

Indonesia

China



SINGAPORE Cellular competition likely to ease after intense competition in 2010. Competition intensified in 2010, as StarHub and M1 subsidized iPhones to regain lost market share from SingTel, which secured exclusive iPhone rights much earlier. We expect competition to ease due to three reasons.

a) High smart phone penetration. Smartphone

penetration among postpaid subscribers has already reached 50-60%. Most handset users made the transition in 2010 and are now locked in two-year contracts. Moreover, smartphone adoption is unlikely to breach 80% as there is still a large pool of users, such as the elderly, who are resistant to the switch. Telcos require three to six months to recoup subsidies for each smartphone, and this should happen in 2011.

b) Arrival of Android phones. SingTel and StarHub had

clearly mentioned their intent to move away from iPhones to Android phones. Android phones from companies such as Motorola and HTC are much cheaper than iPhones, and may need lower subsidies.

c) Foresee tablet glut, including iPad 2. This could

boost mobile subscriptions further, because 3G-enabled touch-screen slates can boost cellular revenue without the bane of incurring an upfront loss. All three telcos have already introduced iPad-specific data plans.

Regulatory risks are minimal despite uncertainties. The regulator had been benign in the past as (i) the

market does not seem to have much growth potential, (ii) the government has large stakes in two out of the three players, and (iii) players are positioned as dividend plays. Most of the uncertainties are in the pay TV and broadband sectors.

a) Zero mobile termination rate (MTR). Mobile

operators do not pay any fees for inter-operator calls, while termination fee is fixed. This arrangement is unique to Singapore (among the markets we cover).

b) Concerns for Pay TV segment. The main concern

is the Media Development Authority (MDA)’s plan to (i) launch common set top box solutions, and (ii) come up with a satisfactory content sharing mechanism. A common set top box could prompt Singapore players seek regulatory subsidies to invest in the new technology, so this should not be a major worry. But the regulator would need to come up with a satisfactory formula for carriage-cost for content-sharing mechanism. Telcos are currently negotiating the formula between themselves, so we expect a mutually beneficial outcome.

c) Roll out of National Broadband Network is

behind schedule. Over 50% of households in Singapore now have NBN coverage in their area, but the percentage with NBN access up-to-house is less than half that. This is much lower than the end-2010 rollout target of 60%. Therefore, NBN will only start to have a meaningful impact in 2012 instead of 2011.

MALAYSIA Cellular competition in Malaysia remains rational. There are two reasons for our view:

a) Differentiated offerings of handset-brands and

pricing plans. Out of the three major mobile players, only Maxis and Digi offer iPhones, while Celcom focuses on Blackberries. For iPhones, Maxis offers upfront handset subsidies while Digi offers monthly rebates. The major players also target different segments with different subsidy plans.

b) New players targeting dongle-based broadband

segment. The new WiMAX-based wireless

broadband players – Green Packet and YTL - have been trying to grab market share. But we believe the impact will be limited given the lack of network coverage and WiMAX enabled handsets. Currently, WiMax network coverage is relatively thin and it could take a couple of years to expand coverage to a satisfactory level. Regulatory risks in Malaysia higher than in Singapore. With the expiry of 2G-spectrum in 2012-15, there are some concerns in the sector. a) 2G-spectrum refarming is the biggest issue. We

believe that DiGi and UMobile have been

Industry Focus


pushing for a more uniform allocation of 900MHz spectrum (Digi has 8MHz versus 34 MHz for Celcom and 32 MHz for Maxis). The 900 MHz spectrum for Maxis set to expire in Dec 2012, Celcom by Mar 2014, and Digi by Jan 2015. It is understood that the regulator has left it to the three mobile incumbents to resolve the issue. However, bigger operators are unwilling to part with their 900 MHz spectrum as network configuration cost could be quite high. An auction would also be an expensive proposition for telcos, in our view.

b) 4G-spectrum likely to be awarded to all players.

In 2010, the regulator indicated that 2.6GHz spectrum would be awarded to nine players,

subject to the approval of business plans. We are not sure if smaller WiMAX players will have the necessary financial muscle for an LTE rollout, so consolidation cannot be ruled out.

c) Potential cuts in termination rate could affect

bigger players slightly. Termination rates are due to be revised in Jul 2011 to replace the current interim rate. In July 2010, both mobile termination rates (MTR) and fixed termination rates (FTR) were reduced to 5 sen/min, representing cuts of 40% for MTR and 18% for FTR. Further rate cuts could have ~1% adverse impact on Maxis & Celcom, neutral impact on Digi, but could be positive for TM.

INDONESIA

Cellular competition in Indonesia likely to remain intense but not irrational. In 4Q10, Telkomsel and XL launched aggressive voice plans, which might not dilute ARPU but generate much higher traffic for similar ARPU. We do not expect competition to ease in 2011 for two major reasons. a) Incumbent needs to retain price-conscious

subscribers. Given that XL is a price-leader, Telkomsel needs to retain its price-conscious customers. The optimum solution is to offer more minutes for the same ARPU. We do not see any reason for Telkomsel to change its strategy of voice-promotions.

b) Mobile players are leasing towers aggressively.

Our channel checks indicate that Telkomsel and XL are leasing towers aggressively in 2011. This indicates their expectations of continued surge in traffic both voice and data. But the higher tower-leasing expenses could adversely affect EBITDA margins.

Low regulatory risks in Indonesia, given recent positive regulations. The new 2G-fee regime and tower leasing regulations are positive for the industry.

a) New 2G-frequency fee regime may punish very small players. The regulator changed the 2G-frequency fee regime in Dec 2010. Going forward, the fee would be based on bandwidth rather than number of base stations, but implementation would be gradual over five years. This should benefit bandwidth-efficient players like Telkomsel and XL, but may be mildly negative for Indosat in the near term. And it could be especially negative for smaller players who possess spectrum but have not invested in enough BTS due to limited network coverage.

b) Minor mobile termination rate cuts. The regulator

announced a minor cut (<5%) in interconnection fee recently, which should have minimal impact on mobile operators.

c) Regulatory push for tower sharing. Mobile

players can no longer construct new towers in Java unless they can prove that their requirements cannot be served by leasing an existing tower. This is healthy for the whole industry as it would minimise duplicate expenditures to build towers.

CHINA

Cellular competition to remain moderate. The reforms in 2008 introduced one smaller player - China Telecom (CT) - to the market. We expect competition to remain moderate for two reasons.

a) Market balancing happening as expected. We notice that monthly net adds market share is seeing more uniform distribution. CM is registering ~50% net adds each month (compared to ~70% total subscriber share),



leaving the remaining 50% to CT and CU to expand their respective subscriber bases. However, if the regulator assigns too ambitious 3G subscriber targets, it could lead to higher handset subsidies and consequently, affect telco’s earnings adversely.

c) Differentiated offerings due to technology

platform. Chinese players do not compete on price alone. For example, China Unicom (CU) and CT have better 3G offerings because of technology advantage, while CM continues to march ahead in 2G due to its network coverage advantage.

Regulatory risks are moderate in China. The government owns substantial stakes in the three players and continues to drive 3G-subscriber growth.

a) Potential asymmetric regulations such as Mobile Number Portability (MNP). The commercial trials for MNP started in Tianjin and Hainan province in Nov. 2010. The trial in Tianjin is two-way while in Hainan, it was carried out as one-way - only 2G subs of CM could switch to CU and CT. Both trials will last for six months. We expect regulator to continue expand trial scale to more cities. A nationwide rollout can not be ruled out in the medium term. MNP would be negative to CM as some high ARPU users may switch to smaller operators due to pricing discount. CM’s dominant market share (~80% mobile service revenue share) is the key trigger for regulator to

implement MNP, especially one-way scheme. CT along with CU should be potential beneficiaries of MNP.

b) CDMA network acquisition by CT. We expect

CT to acquire provincial CDMA networks from its parent to reduce network-leasing costs over the next three to four years. The earliest timing for the first acquisition is 2H11F. We believe that CDMA leasing costs (28% of cellular revenue) for some provincial networks are already exceeding depreciation charges. For CT to own mobile network asset, investors may also be concerned about higher investment burden in future investment. To justify the acquisitions, potential turnaround in mobile division and EPS accretion is necessary. We believe it is reasonable for the market to look for potential EPS accretion of at least 4%-5%.

a) Regulator’s aggressive 3G-growth targets could

hit earnings. Industry sources indicate that the Ministry of Industry and Information Technology (MIIT, Chinese Telecom regulator) has set 2011 3G subscriber addition targets of 40m for each of the three telcos. This 120m total target is aggressive given only 37m 3G net adds in FY10. But if true, it could result in irrational handset subsidies, which could hurt earnings. We do not expect operators to revise their internal targets or guidance immediately following this news.

THAILAND

Cellular competition liked to remain relaxed in Thailand. Price competition had been easing for the last two years, and this trend is likely to continue for two major reasons.

a) High depreciation charges for new investments. Remaining concession periods are becoming shorter (True Move in 2013; ADVANC in 2015; and DTAC in 2018). As the network is bound to be transferred to state enterprises, the shortening usage period does not justify new investments. Further, if any new capex is depreciated over the remaining life of the concessions, a shorter depreciation period would result in a jump in incremental depreciation charges per year.

b) True Move is in weak financial position. ADVANC and DTAC are focusing on profitability, not market share.

c) Price cuts unlikely before issue of 3G licenses. As the 6.5% regulatory cost for the 3G licenses is much lower than the 20-30% charged currently, operators may have room to reduce prices only when 3G-licenses are issued and not before.

Regulatory risks are highest in Thailand. This is mainly due to concession damage claims.

a) ADVANC may be forced to pay up to Bt75bn. This figure is based on the conclusions of a committee

Industry Focus


appointed by the Information and Communications Technology. The committee believes nine amendments made to the contract between ADVANC and TOT had breached the 1992 Public- Private Joint Venture Law. The report said the government has lost Bt55bn since TOT Corp agreed to reduce the share ADVANC paid on its prepaid cellular revenue, and ADVANC owes Bt20bn in network roaming fees (which it had refused to pay). The sums exclude an estimated Bt35bn paid by ADVANC to the Finance Ministry as excise tax in lieu of revenue sharing to TOT. ADVANC reported to the SET that it had been complied with the terms and conditions of the amendments, and that it was not obligated to make additional payments for revenue sharing as demanded by TOT.

b) But Thai government is keen to negotiate. It seems that PM Abhisit Vejjajiva and a few cabinet members disagree with the ICT Minister’s proposal to sue ADVANC for the (non) payments. And the

Cabinet has ordered the MICT to set up a committee to negotiate with the cellular operators. In the worst case, where the committee reaffirms that the three major cellular operators, especially ADVANC, had breached the concession agreements and the Cabinet approves the lawsuit, TOT would be responsible for pursuing legal action against ADVANC. But under Thai laws, they would have to first ursue an arbitration process, which could take two years, before taking the case to the Administrative Court, which would take another two years. After the expected 3-4 years, the National Broadcasting and Telecommunications Commission (NBTC) would have been set up and 3G-licenses may have been auctioned and awarded, and ADVANC’s concession would be close to expiry (Sep 2015). This news flow will create negative sentiment towards ADVANC, but we do not expect any material negative impact on the company.



Regional Peers Valuation

Bloomberg Mkt Mkt Price Target Avg CAGRCompany Code FYE Cap Cap (S$) Price % 6-mth 10-12 P/BV

(US$m) LC 18-Mar (S$) Upside Rcmd Vol (m) (%) 10A 11F 12F 10A 11F 12F 10A 10A 11F 12F

China / Hong Kong HSI Index 23,668China Mobile 941 HK Equity Dec 179,689 1,401,589 69.85 82.00 17% Buy 22.2 3 9.9 9.5 9.4 4.4% 4.5% 4.6% 2.0x 3.8x 3.5x 3.2xChina Telecom 728 HK Equity Dec 7,775 60,644 4.37 4.90 12% Buy 61.6 30 20.5 16.4 12.1 2.0% 2.0% 2.0% 1.3x 4.6x 4.3x 3.7xChina Unicom 762 HK Equity Dec 37,276 290,757 12.34 14.00 13% Buy 32.4 75 62.9 34.6 20.6 1.5% 1.5% 1.5% 1.2x 5.1x 4.5x 3.7x

1,752,991 9 10.7 9.8 9.1Malaysia KLCI Index 1,504Digi.Com DIGI MK equity Dec 7,018 21,350 27.46 25.80 -6% Hold 0.4 8 18.3 16.9 15.7 5.9% 5.9% 7.3% 15.9x 9.0x 8.7x 8.1xMaxis Bhd Maxis MK Equity Dec 13,312 40,500 5.40 5.10 -6% Hold 3.5 6 17.6 16.7 15.7 7.4% 6.0% 6.4% 4.7x 10.2x 9.7x 9.4xTelekom T MK equity Dec 4,562 13,880 3.88 3.35 -14% Hold 6.8 4 24.6 24.6 22.9 7.8% 5.0% 5.0% 1.8x 5.5x 6.1x 6.0xAxiata Group AXIATA MK Equity Dec 13,241 40,283 4.77 5.60 17% Buy 14.5 14 15.4 13.5 11.9 2.1% 2.6% 2.9% 2.2x 6.1x 5.3x 4.6x

116,014 9 17.5 16.0 14.6Singapore STI Index 2,936M1 M1 SP Equity Dec 1,689 2,150 2.38 2.60 9% Buy 0.9 3 13.6 13.2 12.9 7.3% 7.6% 7.7% 7.4x 7.9x 7.7x 7.6xSingTel ST SP Equity Mar 35,676 45,416 2.85 3.55 25% Buy 18.2 8 11.7 11.0 10.1 6.0% 6.4% 7.4% 1.9x 7.0x 6.6x 6.2xStarhub STH SP Equity Dec 3,517 4,478 2.61 2.90 11% Buy 1.9 9 17.0 14.5 14.2 7.7% 7.6% 7.8% 82.5x 8.4x 7.6x 7.4x

52,044 8 12.1 11.3 10.5Thailand SET Index 925Advanced Info Service ADVANC TB Equity Dec 8,563 259,193 87.25 121.71 39% Buy 6.4 4 11.7 11.2 10.8 14.8% 8.5% 8.9% 6.3x 5.3x 5.0x 4.7xTotal Access CommunicaDTAC TB Equity Dec 3,364 101,816 43.00 53.43 24% Buy 6.3 -1 9.9 9.7 10.2 8.8% 8.2% 7.8% 1.5x 3.9x 3.8x 3.8xTrue Corporation TRUE TB Equity Dec 1,618 48,987 6.30 9.00 43% Buy 209.1 - -117.9 47.7 33.9 0.0% 0.0% 0.0% 4.1x 5.8x 5.0x 4.7x

409,996 1 -32.1 22.9 18.3Indonesia JCI Index 3,494Indosat ISAT IJ Equity Dec 3,192 27,984,760 5,150 7,000 36% Buy 2.6 19 24.1 20.8 17.0 2.1% 2.4% 2.9% 1.5x 5.3x 4.7x 4.4xPT Telekom TLKM IJ Equity Dec 15,405 135,072,000 6,700 8,900 33% Buy 22.9 5 11.1 10.3 10.0 5.0% 5.2% 5.5% 3.3x 4.3x 4.3x 3.9xXL Axiata EXCL IJ Equity Dec 5,191 45,517,800 5,350 7,200 35% Buy 1.9 25 14.9 11.3 9.5 2.0% 4.4% 5.3% 3.9x 6.0x 5.2x 4.5x

163,056,760 10 10.0 8.9 8.3

* PT Telkom is adjusted for SingTel's 35% stake in TelkomselSingapore Telecom 11 & 12 earnings respectivelySource: DBS Vickers

PE (x) EV/EBITDADividend Yield (%)

Industry Focus


STOCK PROFILES

Industry Focus

XL Axiata

“In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.


Bloomberg: EXCL IJ | Reuters: EXCL.JK

BUY Rp5,350 JCI : 3,494.07 Price Target : 12-month Rp 7,200 Potential Catalyst: Quarterly result Analyst Sachin MITTAL +65 6398 7950 [email protected]

Price Relative

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R e la t iv e In d e x

X L A x ia t a ( L H S ) R e la t iv e K L C I IN D E X ( R H S ) Forecasts and Valuation FY Dec (Rp bn) 2009A 2010A 2011F 2012F

Turnover 13,880 17,448 19,714 21,548 EBITDA 6,205 9,289 10,242 11,205 Pre-tax Profit 2,350 4,098 5,388 6,375 Net Profit 1,709 3,063 4,041 4,781 Net Pft (Pre Ex.) 1,244 3,063 4,041 4,781 EPS (Rp) 237 360 475 562 EPS Pre Ex. (Rp) 173 360 475 562 EPS Gth Pre Ex (%) 252 109 32 18 Diluted EPS (Rp) 237 360 475 562 Net DPS (Rp) 50 108 237 281 BV Per Share (Rp) 1,221 1,375 1,741 2,066 PE (X) 22.6 14.9 11.3 9.5 PE Pre Ex. (X) 31.0 14.9 11.3 9.5 P/Cash Flow (X) 7.1 6.3 5.5 5.1 EV/EBITDA (X) 8.3 6.0 5.2 4.5 Net Div Yield (%) 0.9 2.0 4.4 5.3 P/Book Value (X) 4.4 3.9 3.1 2.6 Net Debt/Equity (X) 1.4 0.8 0.5 0.3 ROAE (%) 26.1 29.9 30.5 29.5 Earnings Rev (%): - - Consensus EPS (Rp): 461 545 Other Broker Recs: B: 16 S: 0 H: 3 ICB Industry : Telecommunications ICB Sector: Mobile Telecommunications Principal Business: GSM telecommunications

Source of all data: Company, DBS Vickers, Bloomberg

At A Glance Issued Capital (m shrs) 8,508 Mkt. Cap (Rpbn/US$m) 45,518 / 5,191 Major Shareholders Indocel Holding Sdn (%) 67.0 Khazanah Nasional (%) 17.0 Parkmix Ltd (%) 16.0 Free Float (%) 0.0 Avg. Daily Vol.(‘000) 1,927

Pure wireless exposure • 2011/12 dividends could surprise on the upside

• Revenue growth will outpace peers’

• Cheap at 5.4x FY11F EV/EBITDA, given 10% EBITDA CAGR over 2010-12F

Higher dividends in 2011-12? XL has met its target 1.0-1.5x net debt-to-EBITDA ratio, which means it might raise dividend payout ratio to c.50% in 2011. This would translate into ~4.5% dividend yield. XL had raised payout to 30% in 2010 from 20% previously, and intends to review its policy again in 2011. Given over 7% FCF yield in FY11F and net debt-to-EBITDA projected to drop to below 1x, dividends could surprise on the upside. XL to outpace peers’ revenue growth. XL has superior execution track record, and we project its cellular revenue to grow by 13% in 2011 against 11% for Indosat and 9% for the industry. XL’s cellular growth will be below 13% only if industry growth falls below 9% in 2011. But in that case, it would also be catastrophic for Telkom and Indosat, which fixed-line revenues are declining (30% and 15% of group revenues, respectively). About 8% of XL’s revenue comes from its infrastructure business, which is expected to grow as tower leasing picks up in Indonesia. Cheap in PE and EV/EBITDA valuation metrics. XL has controlled its capex well at c.25% of revenue in 2010, much lower than peer Indosat. Depreciation is also not too high. At 11.4x FY11F PE, XL is an attractive bet for 25% EPS CAGR in 2010-12F and 4.5% FY11F dividend yield.

Industry Focus

XL Axiata

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2009A 2010A 2011F 2012F FY Dec 2009A 2010A 2011F 2012F

Turnover 13,880 17,448 19,714 21,548 Net Fixed Assets 23,616 24,568 25,447 26,419 Cost of Goods Sold (2,201) (2,251) (2,661) (2,909) Invts in Associates & JVs 0 0 0 0 Gross Profit 11,678 15,197 17,052 18,639 Other LT Assets 1,756 1,756 1,756 1,756 Other Opng (Exp)/Inc (9,214) (10,031) (11,074) (11,664) Cash & ST Invts 748 366 1,504 3,747 Operating Profit 2,464 5,166 5,979 6,976 Inventory 20 21 25 27 Other Non Opg (Exp)/Inc 640 (518) (151) (161) Debtors 332 418 493 539 Associates & JV Inc 0 0 0 0 Other Current Assets 907 1,409 1,409 1,409 Net Interest (Exp)/Inc (1,218) (550) (440) (440) Total Assets 27,380 28,539 30,634 33,897 Exceptional Gain/(Loss) 465 0 0 0 Pre-tax Profit 2,350 4,098 5,388 6,375 ST Debt 2,475 977 977 977 Tax (641) (1,035) (1,347) (1,594) Other Current Liab 3,533 5,086 5,261 5,764 Minority Interest 0 0 0 0 LT Debt 10,988 9,202 8,000 8,000 Preference Dividend 0 0 0 0 Other LT Liabilities 1,580 1,580 1,580 1,580 Net Profit 1,709 3,063 4,041 4,781 Shareholder’s Equity 8,803 11,694 14,817 17,577 Net Profit before Except. 1,244 3,063 4,041 4,781 Minority Interests 0 0 0 0 EBITDA 6,205 9,289 10,242 11,205 Total Cap. & Liab. 27,380 28,539 30,635 33,897 Sales Gth (%) 14.2 25.7 13.0 9.3 Non-Cash Wkg. Capital (2,274) (3,238) (3,334) (3,788) EBITDA Gth (%) 20.9 49.7 10.3 9.4 Net Cash/(Debt) (12,716) (9,813) (7,473) (5,230) Opg Profit Gth (%) 17.8 109.7 15.7 16.7 Net Profit Gth (%) (11,414.2 79.2 31.9 18.3 Effective Tax Rate (%) 27.3 25.3 25.0 25.0 Cash Flow Statement (Rp bn) Rates & Ratio FY Dec 2009A 2010A 2011F 2012F FY Dec 2009A 2010A 2011F 2012F Pre-Tax Profit 2,350 4,098 5,388 6,375 Gross Margins (%) 84.1 87.1 86.5 86.5 Dep. & Amort. 3,741 4,122 4,263 4,229 Opg Profit Margin (%) 17.8 29.6 30.3 32.4 Tax Paid (611) (638) (1,191) (1,470) Net Profit Margin (%) 12.3 17.6 20.5 22.2 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 26.1 29.9 30.5 29.5 Chg in Wkg.Cap. (538) 1,069 (60) 331 ROA (%) 6.1 11.0 13.7 14.8 Other Operating CF 2,775 64 0 0 ROCE (%) 7.5 16.3 18.4 19.6 Net Operating CF 7,718 8,715 8,401 9,464 Div Payout Ratio (%) 21.1 30.0 50.0 50.0 Capital Exp.(net) (5,259) (5,075) (5,142) (5,201) Net Interest Cover (x) 2.0 9.4 13.6 15.9 Other Invts.(net) 136 0 0 0 Asset Turnover (x) 0.5 0.6 0.7 0.7 Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 9.4 7.8 8.4 8.7 Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) (637.3) (492.8) (662.4) (827.0) Other Investing CF 0 (374) 0 0 Inventory Turn (avg days) (17.5) (4.0) (5.3) (7.2) Net Investing CF (5,123) (5,449) (5,142) (5,201) Current Ratio (x) 0.3 0.4 0.6 0.8 Div Paid 0 (360) (919) (2,021) Quick Ratio (x) 0.2 0.1 0.3 0.6 Chg in Gross Debt (5,796) (3,285) (1,202) 0 Net Debt/Equity (X) 1.4 0.8 0.5 0.3 Capital Issues 2,786 0 0 0 Net Debt/Equity ex MI (X) 1.4 0.8 0.5 0.3 Other Financing CF (6) (3) 0 0 Capex to Debt (%) 39.1 49.9 57.3 57.9 Net Financing CF (3,017) (3,648) (2,121) (2,021) Z-Score (X) 0.6 1.3 3.0 3.4 Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (Rp) (1,764) (1,153) (878) (615) Chg in Cash (422) (381) 1,138 2,242 Opg CFPS (Rp) 1,145 899 994 1,074 Free CFPS (Rp) 341 428 383 501 Quarterly / Interim Income Statement (Rp bn) Segmental Breakdown / Key Assumptions FY Dec 1Q2010 2Q2010 3Q2010 4Q2010 FY Dec 2009A 2010A 2011F 2012F

Turnover 4,166 4,304 4,485 4,683 Revenues (Rp bn) Cost of Goods Sold (608) (543) (613) (562) GSM Revenue 11,220 14,234 16,275 17,922 Gross Profit 3,558 3,761 3,872 4,121 GSM interconnect 1,551 1,727 1,744 1,762 Other Oper. (Exp)/Inc (2,390) (2,446) (2,516) (2,637) Other GSM 0 0 0 0 Operating Profit 1,168 1,315 1,356 1,484 Others 1,109 1,487 1,695 1,865 Other Non Opg (Exp)/Inc (138) (116) (220) 292 Associates & JV Inc N/A N/A N/A N/A Total 13,880 17,448 19,714 21,548 Net Interest (Exp)/Inc (211) (205) (188) (176) Exceptional Gain/(Loss) 0 0 0 0 Pre-tax Profit 819 994 948 1,600 Tax (221) (269) (189) (298)

Minority Interest 0 0 0 0

Net Profit 598 725 0 0 Net profit bef Except. 598 725 759 1,302 EBITDA 2,141 2,288 2,363 2,653 Sales Gth (%) 3.3 3.3 4.2 4.4 EBITDA Gth (%) 7.3 6.9 3.3 12.3 Opg Profit Gth (%) 20.4 12.6 3.1 9.4 Net Profit Gth (%) 17.7 21.2 (100.0) N/A Gross Margins (%) 85.4 87.4 86.3 88.0 Opg Profit Margins (%) 28.0 30.6 30.2 31.7 Net Profit Margins (%) 14.4 16.8 0.0 0.0 Source: Company, DBS Vickers

Industry Focus

Axiata Group

“In Singapore, this research report or research analyses may only be distributed to Institutional “Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, to contact DBSVR at +65 6398 7950 in respect of any matters arising from or in connection with Chapter 289 of Singapore.” this report.”


Bloomberg: AXIATA MK | Reuters: AXIA.KL

BUY RM4.77 KLCI : 1,503.89 Price Target : 12-Month RM 5.60 Potential Catalyst: Market share gains, improving efficiency Analyst Juliana RAMLI +603 2711 2222 [email protected]

Price Relative

1.30

1.80

2.30

2.80

3.30

3.80

4.30

4.80

5.30

5.80

2008 2009 2010

RM

19

69

119

169

219

Relative Index

Axiata Group (LHS ) Relative KLCI INDEX (RHS ) Forecasts and Valuation FY Dec (RM m) 2010A 2011F 2012F 2013F

Turnover 15,621 17,179 18,463 19,702 EBITDA 7,642 8,429 9,154 9,755 Pre-tax Profit 3,206 4,826 5,472 5,988 Net Profit 1,770 2,992 3,393 3,713 Net Pft (Pre Ex.) 2,611 2,992 3,393 3,713 EPS (sen) 21.0 35.4 40.2 44.0 EPS Pre Ex. (sen) 30.9 35.4 40.2 44.0 EPS Gth Pre Ex (%) 45 15 13 9 Diluted EPS (sen) 21.0 35.4 40.2 44.0 Net DPS (sen) 10.0 12.4 14.1 15.4 BV Per Share (sen) 221.7 244.8 270.9 299.4 PE (X) 22.8 13.5 11.9 10.9 PE Pre Ex. (X) 15.4 13.5 11.9 10.9 P/Cash Flow (X) 7.0 6.7 6.2 5.8 EV/EBITDA (X) 6.1 5.3 4.6 4.1 Net Div Yield (%) 2.1 2.6 2.9 3.2 P/Book Value (X) 2.2 1.9 1.8 1.6 Net Debt/Equity (X) 0.2 0.1 CASH CASH ROAE (%) 9.6 15.2 15.6 15.4 Earnings Rev (%): - - - Consensus EPS (sen): 36.9 41.2 42.8 Other Broker Recs: B: 20 S: 2 H: 7 ICB Industry : Telecommunications ICB Sector: Mobile Telecommunications Principal Business: Regional cellular telco


At A Glance Issued Capital (m shrs) 8,445 Mkt. Cap (RMm/US$m) 40,283 / 13,241 Major Shareholders Khazanah (%) 44.5 EPF (%) 14.0 Skim ASB (%) 8.5 Free Float (%) 32.9 Avg. Daily Vol.(‘000) 14,229

Solid growth ahead • Axiata is a liquid proxy to XL while offering

exposure to other growing markets

• As balance sheet strengthens, it could surprise the market with higher dividends

• Maintain Buy for potential returns of over 20% Might surprise market with higher dividends. Axiata currently has minimum 30% dividend payout policy, which implies about 2% yield. And as its balance sheet strengthens (expected to turn net cash in FY12) and operating cash flows improve, it could surprise the market with higher dividends. We project 35% payout ratio, premised on more-than-sufficient free cash flows over the next 2-3 years. Growth at all overseas subsidiaries. In 2011, Axiata is targeting for Robi (Bangladesh) to grow at high-teens to low- 20‘s percentage, Dialog at mid-single digit, XL at high single digit to low teens, and Celcom at mid-single digit. Except for Dialog, other subsidiaries should perform ahead of the industry. Celcom, XL and Dialog will continue to grow mobile data services while remaining cost efficient, while Robi plans to improve service quality and offerings. Consequently, we expect Axiata’s FY11F revenue to grow by 10% and EBITDA margin to remain stable at 49%. Undemanding valuation. Trading at only 13.5x FY11F EPS, Axiata is the cheapest Malaysian telco in our coverage. The market has yet to recognize the full potential of Axiata as the country’s fastest growing major telco. Maintain Buy with SOP-derived TP of RM5.60.

Industry Focus

Axiata Group

Income Statement (RM m) Balance Sheet (RM m) FY Dec 2010A 2011F 2012F 2013F FY Dec 2010A 2011F 2012F 2013F

Turnover 15,621 17,179 18,463 19,702 Net Fixed Assets 15,130 15,412 15,561 15,578 Cost of Goods Sold (12,509) (12,435) (13,209) (14,029) Invts in Associates & JVs 6,698 6,694 6,690 6,685 Gross Profit 3,112 4,744 5,254 5,674 Other LT Assets 7,852 7,852 7,852 7,852 Other Opng (Exp)/Inc 589 667 750 798 Cash & ST Invts 6,277 7,442 9,064 11,207 Operating Profit 3,701 5,411 6,004 6,472 Inventory 85 93 100 107 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 1,704 1,874 2,014 2,149 Associates & JV Inc (4) (4) (5) (5) Other Current Assets 354 354 354 354 Net Interest (Exp)/Inc (671) (581) (527) (479) Total Assets 38,101 39,721 41,634 43,931 Exceptional Gain/(Loss) 180 0 0 0 Pre-tax Profit 3,206 4,826 5,472 5,988 ST Debt 700 700 700 700 Tax (1,089) (1,448) (1,642) (1,796) Other Current Liab 5,364 5,652 5,820 6,033 Minority Interest (346) (386) (438) (479) LT Debt 9,984 8,986 8,087 7,278 Preference Dividend 0 0 0 0 Other LT Liabilities 1,775 1,775 1,775 1,775 Net Profit 1,770 2,992 3,393 3,713 Shareholder’s Equity 18,725 20,670 22,875 25,288 Net Profit before Except. 2,611 2,992 3,393 3,713 Minority Interests 1,553 1,939 2,377 2,856 EBITDA 7,642 8,429 9,154 9,755 Total Cap. & Liab. 38,101 39,721 41,634 43,931 Sales Gth (%) 19.2 10.0 7.5 6.7 Non-Cash Wkg. Capital (3,221) (3,331) (3,353) (3,424) EBITDA Gth (%) 35.9 10.3 8.6 6.6 Net Cash/(Debt) (4,406) (2,243) 277 3,229 Opg Profit Gth (%) 33.9 46.2 11.0 7.8 Net Profit Gth (%) 14.8 69.0 13.4 9.4 Effective Tax Rate (%) 34.0 30.0 30.0 30.0 Cash Flow Statement (RM m) Rates & Ratio FY Dec 2010A 2011F 2012F 2013F FY Dec 2010A 2011F 2012F 2013F

Pre-Tax Profit 3,206 4,826 5,472 5,988 Gross Margins (%) 19.9 27.6 28.5 28.8 Dep. & Amort. 3,942 3,018 3,151 3,283 Opg Profit Margin (%) 23.7 31.5 32.5 32.8 Tax Paid (793) (1,448) (1,642) (1,796) Net Profit Margin (%) 11.3 17.4 18.4 18.8 Assoc. & JV Inc/(loss) 4 4 5 5 ROAE (%) 9.6 15.2 15.6 15.4 Chg in Wkg.Cap. 110 274 196 224 ROA (%) 4.7 7.7 8.3 8.7 Other Operating CF (545) (458) (404) (355) ROCE (%) 7.8 11.6 12.3 12.5 Net Operating CF 5,923 6,217 6,778 7,349 Div Payout Ratio (%) 32.3 35.0 35.0 35.0 Capital Exp.(net) (2,946) (3,300) (3,300) (3,300) Net Interest Cover (x) 5.5 9.3 11.4 13.5 Other Invts.(net) 0 0 0 0 Asset Turnover (x) 0.4 0.4 0.5 0.5 Invts in Assoc. & JV 2,051 0 0 0 Debtors Turn (avg days) 38.1 38.0 38.4 38.6 Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 188.1 185.8 188.4 188.4 Other Investing CF 153 0 0 0 Inventory Turn (avg days) 2.6 3.5 3.5 3.5 Net Investing CF (742) (3,300) (3,300) (3,300) Current Ratio (x) 1.4 1.5 1.8 2.1 Div Paid 0 (845) (1,047) (1,187) Quick Ratio (x) 1.3 1.5 1.7 2.0 Chg in Gross Debt (944) (998) (899) (809) Net Debt/Equity (X) 0.2 0.1 CASH CASH Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) 0.2 0.1 0.0 (0.1) Other Financing CF 34 90 90 90 Capex to Debt (%) 27.6 34.1 37.6 41.4 Net Financing CF (910) (1,753) (1,856) (1,906) Z-Score (X) 0.6 0.7 NA NA Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (sen) (52.2) (26.6) 3.3 38.2 Chg in Cash 4,271 1,164 1,622 2,143 Opg CFPS (sen) 68.8 70.4 77.9 84.4 Free CFPS (sen) 35.3 34.5 41.2 47.9 Quarterly / Interim Income Statement (RM m) Segmental Breakdown / Key Assumptions FY Dec 1Q2010 2Q2010 3Q2010 4Q2010 FY Dec 2010A 2011F 2012F 2013F

Turnover 3,813 3,854 3,937 4,017 Key Assumptions Cost of Goods Sold (2,134) (2,042) (2,104) (2,287) Celcom's subscribers (k) 10,336.0 12,450.8 13,832.4 15,221.8 Gross Profit 1,678 1,812 1,833 1,730 Celcom's blended ARPU 48.7 40.6 36.3 32.4 Other Oper. (Exp)/Inc (383) (715) (651) (1,751) Group EBITDA margin (%) 45.2 45.2 45.5 45.5 Operating Profit 1,296 1,098 1,182 (21) Group capex (RMm) 2,945.5 3,300.0 3,300.0 3,300.0 Other Non Opg (Exp)/Inc 0 0 0 0 Associates & JV Inc 54 23 35 52 Net Interest (Exp)/Inc (156) (128) (117) (116) Exceptional Gain/(Loss) 24 (21) (56) 58 Pre-tax Profit 1,217 971 1,044 (27) Tax (261) (295) (299) (234) Minority Interest (35) (99) (106) (106) Net Profit 921 577 639 (367) Net profit bef Except. 594 670 680 667 EBITDA 1,974 1,883 1,863 1,775 Sales Gth (%) 3.2 1.1 2.2 2.0 EBITDA Gth (%) 22.5 (4.6) (1.1) (4.7) Opg Profit Gth (%) 49.5 (15.3) 7.7 (101.8) Net Profit Gth (%) 65.1 (37.4) 10.8 (157.4) Gross Margins (%) 44.0 47.0 46.6 43.1 Opg Profit Margins (%) 34.0 28.5 30.0 (0.5) Net Profit Margins (%) 24.2 15.0 16.2 (9.1) Source: Company, DBS Vickers

Industry Focus

Singapore Telecom

www.dbsvickers.com Refer to important disclosures at the end of this report ed: JS / sa: JC

Bloomberg: ST SP | Reuters: STEL.SI

BUY S$2.85 STI : 2,935.78 Price Target : 12-month S$ 3.55 Potential Catalyst: Capital management . Analyst Sachin MITTAL +65 6398 7950 [email protected]

Price Relative

1 .9 0

2 .4 0

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2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1

S $

8 1

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1 4 1

1 6 1

1 8 1

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S in g a p o r e T e le c o m ( L H S ) R e la t iv e S T I IN D E X ( R H S ) Forecasts and Valuation FY Mar (S$ m) 2009A 2010A 2011F 2012F

Turnover 14,933 16,871 17,669 18,211 EBITDA 6,458 7,275 7,229 7,637 Pre-tax Profit 4,429 5,043 4,960 5,285 Net Profit 3,448 3,907 3,862 4,122 Net Pft (Pre Ex.) 3,454 3,907 3,862 4,122 EPS (S cts) 21.7 24.6 24.3 25.9 EPS Pre Ex. (S cts) 21.7 24.6 24.3 25.9 EPS Gth Pre Ex (%) (6) 13 (1) 7 Diluted EPS (S cts) 21.7 24.6 24.3 25.9 Net DPS (S cts) 12.6 14.3 17.0 18.2 BV Per Share (S cts) 128.8 140.8 150.9 159.8 PE (X) 13.1 11.6 11.7 11.0 PE Pre Ex. (X) 13.1 11.6 11.7 11.0 P/Cash Flow (X) 14.5 13.3 12.4 12.1 EV/EBITDA (X) 7.9 7.0 7.0 6.6 Net Div Yield (%) 4.4 5.0 6.0 6.4 P/Book Value (X) 2.2 2.0 1.9 1.8 Net Debt/Equity (X) 0.3 0.2 0.2 0.2 ROAE (%) 16.6 18.2 16.7 16.7 Earnings Rev (%): - - Consensus EPS (S cts): 23.9 25.6 Other Broker Recs: B: 11 S: 2 H: 10 ICB Industry : Telecommunications ICB Sector: Telecommunications Principal Business: SingTel operates and provides telecommunication systems and services and engages in investment holdings. Source of all data: Company, DBS Vickers, Bloomberg

At A Glance Issued Capital (m shrs) 15,935 Mkt. Cap (S$m/US$m) 45,416 / 35,676 Major Shareholders Temasek Holdings Pte Ltd (%) 54.1 Capital Group Companies (%) 4.9 Free Float (%) 41.0 Avg. Daily Vol.(‘000) 16,276

Proxy to Bharti with 6% yield. • Markets possibly overly concerned about Optus

• Additional 10-18% yield potential through capital management

• Trading at only 11x PE versus historical 13x

Key associate Bharti set to grow in FYMar12F. Bharti is likely to be the key growth driver for SingTel with concrete signs of turnaround in African operations and recovery in Indian operations. Indian operations to benefit from 3G launch while African operations to benefit from cost-cutting. SingTel’s sustainable yield of ~6% supports our call for indirect exposure to Bharti through SingTel.

Markets are perharps overly concerned about Optus. The number 3 mobile operator in Australia, VHA, is grappling with network problems subsequent to the merger between Vodafone and Hutch. This is benefiting other telcos including Optus. While Telstra continues to be aggressive, VHA is bearing most of the brunt.

Potential capital management could lead to additional 10-18% yield. With net debt-to-EBITDA ratio of 0.8x, SingTel is well positioned to execute further capital management. SingTel targets a net debt/EBITDA of between 1.5x and 2.0x. This would imply a cash distribution of around S$5-8.7 bn (or S$0.30-S$0.55 per share). We expect SingTel to raise its gearing level in a steady manner rather than in one go, allowing it to maintain financing flexibility for potential acquisitions.

Industry Focus

Singapore Telecom

Income Statement (S$ m) Balance Sheet (S$ m) FY Mar 2009A 2010A 2011F 2012F FY Mar 2009A 2010A 2011F 2012F

Turnover 14,933 16,871 17,669 18,211 Net Fixed Assets 9,784 9,838 10,065 10,244 Other Opng (Exp)/Inc (1,641) (1,783) (1,892) (1,974) Invts in Associates & JVs 7,931 8,830 9,669 10,631 Operating Profit 2,697 2,969 3,043 3,126 Other LT Assets 11,746 11,971 12,586 12,398 Other Non Opg (Exp)/Inc (24) 0 0 0 Cash & ST Invts 1,076 1,613 1,618 1,903 Associates & JV Inc 2,051 2,410 2,200 2,442 Inventory 107 121 126 130 Net Interest (Exp)/Inc (288) (336) (283) (283) Debtors 2,575 2,909 3,046 3,140 Exceptional Gain/(Loss) (6) 0 0 0 Other Current Assets 37 37 37 37 Pre-tax Profit 4,429 5,043 4,960 5,285 Total Assets 33,255 35,317 37,147 38,483 Tax (982) (1,136) (1,097) (1,162) Minority Interest 0 0 0 0 ST Debt 1,427 1,427 1,427 1,427 Preference Dividend 0 0 0 0 Other Current Liab 3,676 4,043 4,279 4,403 Net Profit 3,448 3,907 3,862 4,122 LT Debt 5,668 5,668 5,668 5,668 Net Profit before Except. 3,454 3,907 3,862 4,122 Other LT Liabilities 1,984 1,784 1,784 1,577 EBITDA 6,458 7,275 7,229 7,637 Shareholder’s Equity 20,464 22,372 23,968 25,387 Minority Interests 24 24 24 24 Sales Gth (%) 0.6 13.0 4.7 3.1 Total Cap. & Liab. 33,243 35,318 37,150 38,485 EBITDA Gth (%) (7.6) 12.7 (0.6) 5.6 Opg Profit Gth (%) 1.9 10.1 2.5 2.7 Non-Cash Wkg. Capital (958) (977) (1,070) (1,096) Net Profit Gth (%) (13.0) 13.3 (1.2) 6.7 Net Cash/(Debt) (6,019) (5,482) (5,477) (5,192) Effective Tax Rate (%) 22.2 22.5 22.1 22.0 Cash Flow Statement (S$ m) Rates & Ratio FY Mar 2009A 2010A 2011F 2012F FY Mar 2009A 2010A 2011F 2012F

Pre-Tax Profit 4,429 5,043 4,960 5,285 Opg Profit Margin (%) 18.1 17.6 17.2 17.2 Dep. & Amort. 1,734 1,897 1,989 2,072 Net Profit Margin (%) 23.1 23.2 21.9 22.6 Tax Paid (335) (503) (483) (559) ROAE (%) 16.6 18.2 16.7 16.7 Assoc. & JV Inc/(loss) (2,051) (2,410) (2,200) (2,442) ROA (%) 10.1 11.4 10.7 10.9 Chg in Wkg.Cap. 441 602 16 11 ROCE (%) 7.0 7.6 7.4 7.3 Other Operating CF (124) (158) (192) (223) Div Payout Ratio (%) 58.0 58.0 70.0 70.0 Net Operating CF 4,094 4,470 4,090 4,144 Net Interest Cover (x) 9.4 8.8 10.8 11.1 Capital Exp.(net) (1,847) (1,807) (2,039) (2,044) Asset Turnover (x) 0.4 0.5 0.5 0.5 Other Invts.(net) 0 0 (600) 0 Debtors Turn (avg days) 62.7 59.3 61.5 62.0 Invts in Assoc. & JV (194) 0 0 0 Creditors Turn (avg days) 122.7 113.5 117.3 118.6 Div from Assoc & JV 1,068 858 822 892 Inventory Turn (avg days) 4.4 4.1 4.2 4.2 Other Investing CF (349) (372) 0 0 Current Ratio (x) 0.7 0.9 0.8 0.9 Net Investing CF (1,322) (1,321) (1,817) (1,153) Quick Ratio (x) 0.7 0.8 0.8 0.9 Div Paid (1,999) (2,000) (2,266) (2,703) Net Debt/Equity (X) 0.3 0.2 0.2 0.2 Chg in Gross Debt (466) 0 0 0 Net Debt/Equity ex MI (X) 0.3 0.2 0.2 0.2 Capital Issues 0 0 0 0 Capex to Debt (%) 26.0 25.5 28.7 28.8 Other Financing CF (553) (634) 0 0 Z-Score (X) 4.3 4.0 4.1 4.0 Net Financing CF (3,018) (2,634) (2,266) (2,703) N. Cash/(Debt)PS (S cts) (37.9) (34.5) (34.5) (32.7) Currency Adjustments (50) 23 0 0 Opg CFPS (S cts) 23.0 24.3 25.6 26.0 Chg in Cash (296) 538 7 288 Free CFPS (S cts) 14.1 16.8 12.9 13.2 Quarterly / Interim Income Statement (S$ m) FY Mar 3Q2010 4Q2010 1Q2011 2Q2011

Turnover 4,450 4,471 4,289 4,436 Other Oper. (Exp)/Inc (463) (460) (460) (455) Operating Profit 748 849 771 708 Other Non Opg (Exp)/Inc 0 0 0 0 Associates & JV Inc 592 565 541 567 Net Interest (Exp)/Inc (75) (107) (79) (88) Exceptional Gain/(Loss) 0 (7) 0 0 Pre-tax Profit 1,265 1,300 1,233 1,187 Tax (275) (285) (292) (296) Minority Interest 0 0 1 1 Net Profit 990 1,015 943 892 Net profit bef Except. 990 1,022 942 892 EBITDA 1,825 1,901 1,796 1,275 Sales Gth (%) 8.5 0.5 (4.1) 3.4 EBITDA Gth (%) 4.0 4.2 (5.5) (29.0) Opg Profit Gth (%) 9.2 13.5 (9.2) (8.2) Net Profit Gth (%) 3.7 2.5 (7.1) (5.4) Opg Profit Margins (%) 16.8 19.0 18.0 16.0 Net Profit Margins (%) 22.2 22.7 22.0 20.1 Source: Company, DBS Vickers

Industry Focus

PT Sarana Menara Nusantara



Bloomberg: TOWR IJ EQUITY | Reuters: TOWR.JK

BUY Rp9,650 JCI : 3,494.07 Price Target : 12-Month Rp 15,000 () Potential Catalyst: Acquiring more towers, increase in free float Analyst Sachin MITTAL +65 6398 7950 [email protected]

Price Relative

9 4 5

2 ,9 4 5

4 ,9 4 5

6 ,9 4 5

8 ,9 4 5

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M a r -1 0 A u g - 1 0 J a n -1 1

R p

1 9

2 1 9

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P T S a r a n a M e n a r a N u s a n t a r a ( L H S ) R e la t iv e J C I IN D E X ( R H S )

Forecasts and Valuation FY Dec (Rp bn) 2009A 2010A 2011F 2012F

Turnover 1,082 1,356 1,673 2,048 EBITDA 933 1,127 1,389 1,700 Pre-tax Profit 676 134 215 524 Net Profit 589 100 162 393 Net Pft (Pre Ex.) 25 (95) 162 393 EPS (Rp) 578 98 158 385 EPS Pre Ex. (Rp) 25 (93) 158 385 EPS Gth Pre Ex (%) 20 (479) (270) 143 Diluted EPS (Rp) 578 98 158 385 Net DPS (Rp) 0 0 0 0 BV Per Share (Rp) 1,094 1,270 1,428 1,814 PE (X) 16.7 98.3 60.9 25.0 PE Pre Ex. (X) 393.6 nm 60.9 25.0 P/Cash Flow (X) 10.3 19.3 15.7 10.6 EV/EBITDA (X) 15.6 12.8 10.6 8.7 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 8.8 7.6 6.8 5.3 Net Debt/Equity (X) 4.2 3.5 3.4 2.7 ROAE (%) 72.3 8.3 11.7 23.8 Earnings Rev (%): - - Consensus EPS (Rp): 328 516 Other Broker Recs: B: 5 S: 0 H: 0 ICB Industry : Telecommunications ICB Sector: Mobile Telecommunications Principal Business: Sarana Menara Nusantara PT, through a subsidiary, builds telecommunications towers. The Company constructs, operates and rents the towers to mobile telecommunications services providers Source of all data: Company, DBS Vickers, Bloomberg

At A Glance Issued Capital (m shrs) 1,020 Mkt. Cap (Rpbn/US$m) 9,846 / 1,123 Major Shareholders Tricipta Mandhala Gumilang

25.6

Caturguwirantna Sumapala

24.6 Free Float (%) 49.8 Avg. Daily Vol.(‘000) 111

Cheap tower operator • Market leader with experienced management

team

• Strong revenue pipeline implies upside potential for FY11F EBITDA

• Over 50% potential upside because it is trading at over 40% discount to US peers

Market leader and experienced management team. Protelindo is the largest independent tower operator in Indonesia. Its experienced management team (10-20 years experience at (former) American Tower Corporation) has elevated SMN to market leader. Tenancy ratio is currently 1.66x, implying more room to grow over the next 6-7 years. Strong revenue pipeline implies upside potential for FY11F EBITDA. TOWR has USD37m (Rp333 billion) worth of new revenue in the pipeline, on top of its recurring revenue base, indicating upside risk to FY11F revenue and EBITDA. The acquisition of the remaining 820 towers (out of 1,000) from Hutch over 2010-12F, coupled with rising tenancy ratios, should drive the estimated >23% FY10-12F EBITDA CAGR. Over 50% upside potential to our DCF-based TP (WACC 11.5%, terminal growth 4%). TOWR is trading at over 40% discount to US peers, which are trading at 15x FY11F EV/EBITDA. But TOWR offers much stronger growth than the estimated 10%-16% EBITDA CAGR (Bloomberg) for its US peers (FY10-12F). TOWR’s thin trading liquidity could be a key reason why the stock has been overlooked by the market.

Industry Focus

PT Sarana Menara Nusantara

Income Statement (Rp bn) Balance Sheet (Rp bn FY Dec 2009A 2010A 2011F 2012F FY Dec 2009A 2010A 2011F 2012F

Turnover 1,082 1,356 1,673 2,048 Net Fixed Assets 5,402 5,657 6,372 6,949 Cost of Goods Sold (416) (488) (566) (662) Invts in Associates & JVs 0 0 0 0 Gross Profit 666 868 1,107 1,386 Other LT Assets 475 320 131 77 Other Opng (Exp)/Inc (99) (149) (184) (225) Cash & ST Invts 474 354 224 169 Operating Profit 568 719 923 1,160 Inventory 1 1 1 2 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 53 67 115 140 Associates & JV Inc 0 0 0 0 Other Current Assets 473 473 473 473 Net Interest (Exp)/Inc (456) (780) (708) (636) Total Assets 6,877 6,872 7,316 7,810 Exceptional Gain/(Loss) 564 195 0 0 Pre-tax Profit 676 134 215 524 ST Debt 589 374 589 589 Tax (86) (34) (54) (131) Other Current Liab 249 309 347 448 Minority Interest 0 0 0 0 LT Debt 4,573 4,543 4,573 4,573 Preference Dividend 0 0 0 0 Other LT Liabilities 350 350 350 350 Net Profit 589 100 162 393 Shareholder’s Equity 1,115 1,296 1,457 1,850 Net Profit before Except. 25 (95) 162 393 Minority Interests 0 0 0 0 EBITDA 933 1,127 1,389 1,700 Total Cap. & Liab. 6,877 6,872 7,317 7,810 Sales Gth (%) 295.5 25.2 23.4 22.4 Non-Cash Wkg. Capital 277 232 241 167 EBITDA Gth (%) 310.6 20.8 23.2 22.4 Net Cash/(Debt) (4,688) (4,563) (4,938) (4,993) Opg Profit Gth (%) 316.5 26.6 28.5 25.7 Net Profit Gth (%) (225.1) (83.0) 61.4 143.4 Effective Tax Rate (%) 12.7 25.3 25.0 25.0 Cash Flow Statement (Rp bn) Rates & Ratio FY Dec 2009A 2010A 2011F 2012F FY Dec 2009A 2010A 2011F 2012F Pre-Tax Profit 676 134 215 524 Gross Margins (%) 61.6 64.0 66.2 67.7 Dep. & Amort. 365 409 466 539 Opg Profit Margin (%) 52.4 53.0 55.2 56.7 Tax Paid (201) 0 0 0 Net Profit Margin (%) 54.5 7.4 9.7 19.2 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 72.3 8.3 11.7 23.8 Chg in Wkg.Cap. (136) 18 (30) (3) ROA (%) 9.3 1.5 2.3 5.2 Other Operating CF (488) 314 0 0 ROCE (%) 8.1 8.1 10.2 12.1 Net Operating CF 216 875 651 1,061 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 Capital Exp.(net) (1,501) (664) (1,181) (1,117) Net Interest Cover (x) 1.2 0.9 1.3 1.8 Other Invts.(net) 1 0 0 0 Asset Turnover (x) 0.2 0.2 0.2 0.3 Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 25.2 16.1 19.8 22.7 Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 986.2 491.5 480.2 454.4 Other Investing CF 0 (10) 0 0 Inventory Turn (avg days) 7.1 4.9 4.8 4.8 Net Investing CF (1,501) (675) (1,181) (1,117) Current Ratio (x) 1.2 1.3 0.9 0.8 Div Paid 0 0 0 0 Quick Ratio (x) 0.6 0.6 0.4 0.3 Chg in Gross Debt 833 (165) 400 0 Net Debt/Equity (X) 4.2 3.5 3.4 2.7 Capital Issues 0 40 0 0 Net Debt/Equity ex MI (X) 4.2 3.5 3.4 2.7 Other Financing CF 0 (195) 0 0 Capex to Debt (%) 29.1 13.5 22.9 21.6 Net Financing CF 833 (320) 400 0 Z-Score (X) NA NA NA NA Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (Rp) (4,596) (4,474) (4,841) (4,895) Chg in Cash (452) (120) (129) (56) Opg CFPS (Rp) 345 840 668 1,043 Free CFPS (Rp) (1,261) 206 (519) (54) Quarterly / Interim Income Statement (Rp bn) FY Dec 1Q2010 2Q2010 3Q2010 4Q2010

Turnover 326 338 343 348 Cost of Goods Sold (135) (111) (124) (118) Gross Profit 191 227 219 230 Other Oper. (Exp)/Inc (36) (33) (35) (45) Operating Profit 156 194 184 185 Other Non Opg (Exp)/Inc 0 0 0 0 Associates & JV Inc 0 0 0 0 Net Interest (Exp)/Inc (142) (409) (105) (123) Exceptional Gain/(Loss) 132 22 68 (27) Pre-tax Profit 146 (193) 147 34 Tax (39) 48 (38) (5) Minority Interest 0 0 0 0 Net Profit 107 (145) 109 29 Net profit bef Except. (26) (167) 41 57 EBITDA 156 194 184 185 Sales Gth (%) 9.0 3.6 1.5 1.2 EBITDA Gth (%) 21.4 24.7 (5.2) 0.4 Opg Profit Gth (%) 21.4 24.7 (5.2) 0.4 Net Profit Gth (%) 25.5 (236.3) (175.4) (73.2) Gross Margins (%) 58.6 67.2 63.8 66.1 Opg Profit Margins (%) 47.7 57.4 53.6 53.1 Net Profit Margins (%) 32.6 (42.9) 31.9 8.4 Source: Company, DBS Vickers

Industry Focus

Tower Bersama Infrastructure


”www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: JC

Bloomberg: TBIG IJ EQUITY | Reuters: TBIG.JK

BUY Rp2,225 JCI : 3,494.07 Price Target : 12-Month Rp 3,200 Potential Catalyst: Acquistion of towers Analyst Sachin MITTAL +65 6398 7950 [email protected]

Price Relative

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T o w e r B e r s a m a In f r a s t r u c t u r e ( L H S ) R e la t iv e J C I IN D E X ( R H S )

Forecasts and Valuation FY Dec (Rp bn) 2009A 2010F 2011F 2012F

Turnover 341 682 1,111 1,418 EBITDA 251 531 874 1,100 Pre-tax Profit 268 401 712 937 Net Profit 241 328 582 762 Net Pft (Pre Ex.) 124 328 582 762 EPS (Rp) 53 72 128 167 EPS Pre Ex. (Rp) 27 72 128 167 EPS Gth Pre Ex (%) 144 164 78 31 Diluted EPS (Rp) 53 72 128 167 Net DPS (Rp) 0 0 0 0 BV Per Share (Rp) 115 424 552 719 PE (X) 42.1 30.9 17.4 13.3 PE Pre Ex. (X) 81.6 30.9 17.4 13.3 P/Cash Flow (X) 41.7 30.3 17.0 13.1 EV/EBITDA (X) 44.2 21.8 13.6 10.8 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 19.3 5.2 4.0 3.1 Net Debt/Equity (X) 1.8 0.7 0.6 0.5 ROAE (%) 68.2 26.7 26.2 26.3 Earnings Rev (%): 77 137 182 Consensus EPS (Rp): 62 119 157 Other Broker Recs: B: 2 S: 0 H:1 ICB Industry : Technology ICB Sector: Technology Hardware & Equipmen Principal Business: Tower Bersama Infrastructure Tbk PT provides telecommunication infrastructure services to Indonesian wireless carriers. The Company develops and operates telecommunication supporting infrastructure including tower and in-building systems across Indonesia. Source of all data: Company, DBS Vickers, Bloomberg

At A Glance Issued Capital (m shrs) 4,557 Mkt. Cap (Rpbn/US$m) 10,139 / 1,156 Major Shareholders Saratoga Infrastructure (%) 25.8 Provident Capital (%) 20.9 Wahana Anugerah (%) 20.9 Free Float (%) 32.3 Avg. Daily Vol.(‘000) 2,514

Proxy to data growth in Indonesia • Prime locations allow Tower Bersama (TBI) to secure

premium tower rentals from top-tier clients

• Low gearing should enable TBI to expand tower portfolio when opportunities arise

• Offers highest EBITDA growth in the sector; BUY with Rp3200 TP, implying >35% upside potential

Indonesia is perfect for tower business to thrive. 2011 should be a record year in terms of new tenancies secured by independent tower operators, as mobile operators in Indonesia finally embrace the tower-leasing model. Tower operators enjoy high operating leverage by leasing one tower to multiple tenants without large increases in costs. Another key attraction is predictable future income, as mobile operators lock-in leases for 10-20 years to avoid network disruptions. Indonesia’s tower sector offers higher ROI than in the US and India, because it is closed to foreign players. Tier-1 clientele and low gearing differentiate TBI. As the second largest independent tower operator, TBI has been able to fetch premium rentals (10-15% higher) and higher tenant ratio by leveraging on its early-mover advantage. With over 62% of its revenue from Tier-1 mobile operators, TBI has a premium clientele. FY10F net debt/EBITDA of only 2.5x is lowest among listed tower operators globally, and leaves ample room to borrow to grow its tower portfolio. DCF-based Rp3,200 TP (WACC 11.5%, terminal growth 4%). Our TP translates into 16x FY11F EBITDA, the average valuation for its US peers. This is justified by TBI’s higher EBITDA growth (FY10F-12F CAGR of 42% versus 14% for US peers) and lower gearing (FY10 net-debt/EBITDA of 2.5x versus 5x for US peers). This might also explain TBI’s 10-20% valuation-premium over its local peers.

Industry Focus


Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012F

Turnover 341 682 1,111 1,418 Net Fixed Assets 67 275 1,138 1,972 Cost of Goods Sold (43) (75) (118) (159) Invts in Associates & JVs 0 0 0 0 Gross Profit 298 606 992 1,259 Other LT Assets 1,333 2,889 2,837 2,751 Other Opng (Exp)/Inc (49) (82) (133) (170) Cash & ST Invts 110 293 37 69 Operating Profit 249 524 859 1,089 Inventory 1 1 2 3 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 91 181 295 377 Associates & JV Inc 0 0 0 0 Other Current Assets 259 259 259 259 Net Interest (Exp)/Inc (98) (123) (147) (152) Total Assets 1,860 3,899 4,568 5,430 Exceptional Gain/(Loss) 116 0 0 0 Pre-tax Profit 268 401 712 937 ST Debt 77 77 77 77 Tax (16) (52) (86) (109) Other Current Liab 236 246 288 323 Minority Interest (11) (21) (44) (66) LT Debt 985 1,585 1,585 1,585 Preference Dividend 0 0 0 0 Other LT Liabilities 20 20 20 20 Net Profit 241 328 582 762 Shareholder’s Equity 525 1,933 2,515 3,277 Net Profit before Except. 124 328 582 762 Minority Interests 17 38 82 148 EBITDA 251 531 874 1,100 Total Cap. & Liab. 1,860 3,899 4,568 5,430 Sales Gth (%) 50.0 99.7 63.0 27.7 Non-Cash Wkg. Capital 115 195 268 315 EBITDA Gth (%) 46.8 111.3 64.7 25.9 Net Cash/(Debt) (952) (1,369) (1,625) (1,594) Opg Profit Gth (%) 47.1 110.9 63.8 26.8 Net Profit Gth (%) 24.6 36.3 77.6 30.8 Effective Tax Rate (%) 6.1 13.1 12.1 11.6 Cash Flow Statement (Rp bn) Rates & Ratio FY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012F Pre-Tax Profit 268 401 712 937 Gross Margins (%) 87.3 88.9 89.3 88.8 Dep. & Amort. 2 (6) (15) (11) Opg Profit Margin (%) 72.9 76.9 77.3 76.8 Tax Paid (16) 0 0 0 Net Profit Margin (%) 70.5 48.1 52.4 53.7 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 68.2 26.7 26.2 26.3 Chg in Wkg.Cap. (252) (85) (106) (71) ROA (%) 16.4 11.4 13.8 15.2 Other Operating CF 191 0 0 0 ROCE (%) 19.1 17.3 19.0 20.5 Net Operating CF 193 310 591 855 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 Capital Exp.(net) (140) (202) (848) (823) Net Interest Cover (x) 2.6 4.3 5.8 7.2 Other Invts.(net) (398) (1,605) 0 0 Asset Turnover (x) 0.2 0.2 0.3 0.3 Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 70.3 72.7 78.2 86.4 Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 158.5 80.2 80.2 81.9 Other Investing CF 0 0 0 0 Inventory Turn (avg days) 7.7 5.4 6.3 6.2 Net Investing CF (538) (1,807) (848) (823) Current Ratio (x) 1.5 2.3 1.6 1.8 Div Paid 0 0 0 0 Quick Ratio (x) 0.6 1.5 0.9 1.1 Chg in Gross Debt 306 600 0 0 Net Debt/Equity (X) 1.8 0.7 0.6 0.5 Capital Issues 103 1,080 0 0 Net Debt/Equity ex MI (X) 1.8 0.7 0.6 0.5 Other Financing CF 0 0 0 0 Capex to Debt (%) 13.2 12.1 51.0 49.5 Net Financing CF 409 1,680 0 0 Z-Score (X) NA NA NA NA Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (Rp) (209) (300) (357) (350) Chg in Cash 64 183 (257) 32 Opg CFPS (Rp) 98 87 153 203 Free CFPS (Rp) 12 24 (56) 7 Source: Company, DBS Vickers

Industry Focus


Page 34 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.

”www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: JC

Bloomberg: TBIG IJ EQUITY | Reuters: TBIG.JK

BUY Rp2,225 JCI : 3,494.07 Price Target : 12-Month Rp 3,200 Potential Catalyst: Acquistion of towers Analyst Sachin MITTAL +65 6398 7950 [email protected]

Price Relative

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T o w e r B e r s a m a In f r a s t r u c t u r e ( L H S ) R e la t iv e J C I IN D E X ( R H S )

Forecasts and Valuation FY Dec (Rp bn) 2009A 2010F 2011F 2012F

Turnover 341 682 1,111 1,418 EBITDA 251 531 874 1,100 Pre-tax Profit 268 401 712 937 Net Profit 241 328 582 762 Net Pft (Pre Ex.) 124 328 582 762 EPS (Rp) 53 72 128 167 EPS Pre Ex. (Rp) 27 72 128 167 EPS Gth Pre Ex (%) 144 164 78 31 Diluted EPS (Rp) 53 72 128 167 Net DPS (Rp) 0 0 0 0 BV Per Share (Rp) 115 424 552 719 PE (X) 42.1 30.9 17.4 13.3 PE Pre Ex. (X) 81.6 30.9 17.4 13.3 P/Cash Flow (X) 41.7 30.3 17.0 13.1 EV/EBITDA (X) 44.2 21.8 13.6 10.8 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 19.3 5.2 4.0 3.1 Net Debt/Equity (X) 1.8 0.7 0.6 0.5 ROAE (%) 68.2 26.7 26.2 26.3 Earnings Rev (%): 77 137 182 Consensus EPS (Rp): 62 119 157 Other Broker Recs: B: 2 S: 0 H:1 ICB Industry : Technology ICB Sector: Technology Hardware & Equipmen Principal Business: 0


At A Glance Issued Capital (m shrs) 4,557 Mkt. Cap (Rpbn/US$m) 10,139 / 1,156 Major Shareholders Saratoga Infrastructure (%) 25.8 Provident Capital (%) 20.9 Wahana Anugerah (%) 20.9 Free Float (%) 32.3 Avg. Daily Vol.(‘000) 2,514

Proxy to data growth in Indonesia • Prime locations allow Tower Bersama (TBI) to secure

premium tower rentals from top-tier clients

• Low gearing should enable TBI to expand tower portfolio when opportunities arise

• Offers highest EBITDA growth in the sector; BUY with Rp3200 TP, implying >35% upside potential

Indonesia is perfect for tower business to thrive. 2011 should be a record year in terms of new tenancies secured by independent tower operators, as mobile operators in Indonesia finally embrace the tower-leasing model. Tower operators enjoy high operating leverage by leasing one tower to multiple tenants without large increases in costs. Another key attraction is predictable future income, as mobile operators lock-in leases for 10-20 years to avoid network disruptions. Indonesia’s tower sector offers higher ROI than in the US and India, because it is closed to foreign players. Tier-1 clientele and low gearing differentiate TBI. As the second largest independent tower operator, TBI has been able to fetch premium rentals (10-15% higher) and higher tenant ratio by leveraging on its early-mover advantage. With over 62% of its revenue from Tier-1 mobile operators, TBI has a premium clientele. FY10F net debt/EBITDA of only 2.5x is lowest among listed tower operators globally, and leaves ample room to borrow to grow its tower portfolio. DCF-based Rp3,200 TP (WACC 11.5%, terminal growth 4%). Our TP translates into 16x FY11F EBITDA, the average valuation for its US peers. This is justified by TBI’s higher EBITDA growth (FY10F-12F CAGR of 42% versus 14% for US peers) and lower gearing (FY10 net-debt/EBITDA of 2.5x versus 5x for US peers). This might also explain TBI’s 10-20% valuation-premium over its local peers.

Industry Focus


Page 35

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012F

Turnover 341 682 1,111 1,418 Net Fixed Assets 67 275 1,138 1,972 Cost of Goods Sold (43) (75) (118) (159) Invts in Associates & JVs 0 0 0 0 Gross Profit 298 606 992 1,259 Other LT Assets 1,333 2,889 2,837 2,751 Other Opng (Exp)/Inc (49) (82) (133) (170) Cash & ST Invts 110 293 37 69 Operating Profit 249 524 859 1,089 Inventory 1 1 2 3 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 91 181 295 377 Associates & JV Inc 0 0 0 0 Other Current Assets 259 259 259 259 Net Interest (Exp)/Inc (98) (123) (147) (152) Total Assets 1,860 3,899 4,568 5,430 Exceptional Gain/(Loss) 116 0 0 0 Pre-tax Profit 268 401 712 937 ST Debt 77 77 77 77 Tax (16) (52) (86) (109) Other Current Liab 236 246 288 323 Minority Interest (11) (21) (44) (66) LT Debt 985 1,585 1,585 1,585 Preference Dividend 0 0 0 0 Other LT Liabilities 20 20 20 20 Net Profit 241 328 582 762 Shareholder’s Equity 525 1,933 2,515 3,277 Net Profit before Except. 124 328 582 762 Minority Interests 17 38 82 148 EBITDA 251 531 874 1,100 Total Cap. & Liab. 1,860 3,899 4,568 5,430 Sales Gth (%) 50.0 99.7 63.0 27.7 Non-Cash Wkg. Capital 115 195 268 315 EBITDA Gth (%) 46.8 111.3 64.7 25.9 Net Cash/(Debt) (952) (1,369) (1,625) (1,594) Opg Profit Gth (%) 47.1 110.9 63.8 26.8 Net Profit Gth (%) 24.6 36.3 77.6 30.8 Effective Tax Rate (%) 6.1 13.1 12.1 11.6 Cash Flow Statement (Rp bn) Rates & Ratio FY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012F Pre-Tax Profit 268 401 712 937 Gross Margins (%) 87.3 88.9 89.3 88.8 Dep. & Amort. 2 (6) (15) (11) Opg Profit Margin (%) 72.9 76.9 77.3 76.8 Tax Paid (16) 0 0 0 Net Profit Margin (%) 70.5 48.1 52.4 53.7 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 68.2 26.7 26.2 26.3 Chg in Wkg.Cap. (252) (85) (106) (71) ROA (%) 16.4 11.4 13.8 15.2 Other Operating CF 191 0 0 0 ROCE (%) 19.1 17.3 19.0 20.5 Net Operating CF 193 310 591 855 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 Capital Exp.(net) (140) (202) (848) (823) Net Interest Cover (x) 2.6 4.3 5.8 7.2 Other Invts.(net) (398) (1,605) 0 0 Asset Turnover (x) 0.2 0.2 0.3 0.3 Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 70.3 72.7 78.2 86.4 Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 158.5 80.2 80.2 81.9 Other Investing CF 0 0 0 0 Inventory Turn (avg days) 7.7 5.4 6.3 6.2 Net Investing CF (538) (1,807) (848) (823) Current Ratio (x) 1.5 2.3 1.6 1.8 Div Paid 0 0 0 0 Quick Ratio (x) 0.6 1.5 0.9 1.1 Chg in Gross Debt 306 600 0 0 Net Debt/Equity (X) 1.8 0.7 0.6 0.5 Capital Issues 103 1,080 0 0 Net Debt/Equity ex MI (X) 1.8 0.7 0.6 0.5 Other Financing CF 0 0 0 0 Capex to Debt (%) 13.2 12.1 51.0 49.5 Net Financing CF 409 1,680 0 0 Z-Score (X) NA NA NA NA Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (Rp) (209) (300) (357) (350) Chg in Cash 64 183 (257) 32 Opg CFPS (Rp) 98 87 153 203 Free CFPS (Rp) 12 24 (56) 7 Source: Company, DBS Vickers

Industry Focus


Page 36

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10 to +15% total return over the next 12 months for small caps, -10 to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson (www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg (DBSR GO). For access, please contact your DBSV salesperson. GENERAL DISCLOSURE/DISCLAIMER This document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). [This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of DBSVR.] The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. DBSVR accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. The assumptions for commodities in this report are for the purpose of forecasting earnings of the companies mentioned herein. They are not to be construed as recommendations to trade in the physical commodities or in futures contracts relating to the commodities mentioned in this report. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 22 Mar 2011, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions). COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the mentioned company as of 18 Mar 2011 PT. DBS Vickers Securities Indonesia ("DBSVI") has a proprietary position in TLKM, ISAT and EXCL recommended in this report as of 18 Mar 2011.

2. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of the mentioned company as of 22 Mar 2011.

3. Compensation for investment banking services:

(i) DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the SingTel.

(ii) DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.



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RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or

located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to hold an Australian financial services licence under the Corporation Act 2001 [“CA] in respect of financial services provided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [“MAS”] under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Singapore This report is being distributed in Singapore by DBSVR, which holds a Financial Adviser’s licence and is regulated by the MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No. 198600294G), which is an Exempt Financial Adviser as defined under the Financial Advisers Act. Any research report produced by a foreign DBS Vickers entity, analyst or affiliate is distributed in Singapore only to “Institutional Investors”, “Expert Investors” or “Accredited Investors” as defined in the Securities and Futures Act, Chap. 289 of Singapore. Any distribution of research reports published by a foreign-related corporation of DBSVR/DBSVS to “Accredited Investors” is provided pursuant to the approval by MAS of research distribution arrangements under Paragraph 11 of the First Schedule to the FAA.

United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research distributed in the UK is intended only for institutional clients.

Dubai/ United Arab Emirates

This report is being distributed in Dubai/United Arab Emirates by DBS Bank Ltd, Dubai (PO Box 506538, 3rd Floor, Building 3, Gate Precinct, DIFC, Dubai, United Arab Emirates) and is intended only for clients who meet the DFSA regulatory criteria to be a Professional Client. It should not be relied upon by or distributed to Retail Clients. DBS Bank Ltd, Dubai is regulated by the Dubai Financial Services Authority.

United States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations.

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

DBS Vickers Research (Singapore) Pte Ltd – 8 Cross Street, #02-01 PWC Building, Singapore 048424 Tel. 65-6533 9688

Company Regn. No. 198600295W

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