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Asia Pacific Equity Research15 February 2011

Fishing Poles for Telcos

What to buy during the correction....and the rally

Alternative Carriers/EmergingWireline, Broadband, Internet,Wireless Services, WirelineServices/Incumbents

James R. Sullivan, CFAAC

(65) 6882-2374

[email protected]

J.P. Morgan Securities Singapore PrivateLimited

Malvika GuptaAC

(91-22) 6157 3595

[email protected]

J.P. Morgan India Private Limited

Lucy LiuAC

(852) 2800-8566

[email protected]

J.P. Morgan Securities (Asia Pacific) Limite

Vishesh Gupta

(65) 6882 2367

[email protected]

J.P. Morgan Securities Singapore PrivateLimited

See page 24 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm m

have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making th

investment decision.

EM-benchmarked investors should increase weightings in Telcos asmarkets roll over, and as Asia ex-Japan Telcos have traced only 66% ofthe worst 10 EM market corrections. Key stock calls for this phase areChina Telecom and Axiata.

The next phase will require different stocks to outperform EMindices as Asia Telcos only produce 65% of the ensuing median EMmarket rally. We believe stock selection will be critical. Beaten-downopportunity stocks include Tulip Telecom, Indosat, AIS and DTAC,and Unicom. The strongest earnings revisions stories include ISAT andDTAC.

DM vs. EM: Japan, the US, and Developed Europe are the clearoutperforming regions within global Telcos (all close to their highs),with EMEA having he worst hit (-12% peak to trough, driven by eventsin Egypt), followed closely by Asia ex-Japan (-5%) and Latin America(-4%). Wed note that EMEA has also seen the largest earningsdowngrades (so therefore little P/E compression), but it has seen themost EV/EBITDA and P/BV compression within Global Telcos.

For more detail on our thoughts regarding Telecom factor exposures,please see our recent report Whats Working in Asian Telcos. For moredetails regarding Asia vs. EM corrections, please see Adrian Mowatsrecent report The Fastest Fall 3rd Encore.

Asia Telecom: Peak to trough pr ice moves, earnings multiple compr ession, and EPS revision tr ends.

P PE EV/EBITDA P/B EPS revisi ons YTD JPM Rat

RELIANCE COMMUNICATIONS LTD -43% (6.2) (2.6) (0.4) 1% NGLOBE TELECOM INC -26% (1.1) (0.8) (0.8) 3% UWTULIP TELECOM LTD -25% (1.9) (3.3) (2.0) -6% OWTELEKOMUNIKASI INDONESIA TBK -23% (2.8) (1.2) (1.4) 1% NINDOSAT TBK PT -23% (2.8) (1.5) (0.4) -52% OWCHINA UNITED NETWORK-A -21% (5.1) NA (0.5) 5% OWKT CORP -19% (1.8) (0.8) (0.1) 7% NTOTAL ACCESS COMMUNICATION -17% (4.0) (1.4) (0.4) -2% OWTELSTRA CORP LTD -15% - (0.6) (0.4) 5% OWPHILIPPINE LONG DISTANCE TEL -14% (1.5) (0.8) (0.9) 1% NSK TELECOM -14% (0.8) (0.5) (0.1) 1% OWCHINA MOBILE LTD -13% (2.0) (1.1) (0.5) 0% NADVANCED INFO SERVICE PCL -12% (2.7) (1.2) (0.5) -2% OW

BHARTI AIRTEL LTD -11% (0.6) (0.9) (1.2) 5% NIDEA CELLULAR LTD -10% (8.4) (0.7) (0.2) -15% UWXL AXIATA TBK PT -9% (3.9) (1.5) (1.0) -3% OW

Source: Bloomberg and J.P. Morgan estimates.
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James R. Sullivan, CFA(65) [email protected]

Table of ContentsInvestment Summary ...............................................................3

Increase weightings in Telcos during the market correction, stock picking during therebound ........................................................................................................................3

Tulip Telecom Malvika Gupta ...............................................6

Indosat - James Sullivan.........................................................7

DTAC James Sullivan............................................................8

Advanced Info Services James Sullivan ................................9

China Unicom Lucy Liu.......................................................10

State of Global Telcos DM vs. EM story ............................13

Global Telco P/E Peak to Current.......................................15

Global Telco EV/EBITDA Peak to Current .........................17

Global Telco Price to Book Peak to Current .....................18

Asia Telecom Investment Summary .....................................19

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Investment SummaryIncrease weightings in Telcos during the market correction,stock picking during the rebound

Per our recent report Whats Working in Asian Telcos, investors generally appear to

be underweight the Asian Telecom sector, happily holding 1-3 names that are

performing, with little interest in bottom ticking underperforming stocks. We

suggest an increase in Telcos weighting during the current market correction, with a

move to a more aggressive stock picking stance required to outperform once markets

turn.

Not surprisingly, Asian Telcos have generally outperformed Emerging Market

corrections over the past 20 years. Below we list the 10 worst EM corrections aswell as statistics for the current correction to show Asian Telco performance relative

to MSCI EM. In general, Asia ex Japan Telecoms have avoided around 1/3 of the

retrenchment suffered by the broader EM index.

Table 1: EM Market corrections/rallys vs. Asia Telco correcti ons/rallys

Correction 12M forward returnHigh Date Low Date EM AxJpn

TelcosAXJ Telcos / EM EM AxJpn Telcos AXJ Telcos / EM

10-Jul-97 5-Oct-98 -58% -38% 66% 63% 32% 50%18-Apr-02 10-Oct-02 -30% -20% 66% 60% 27% 45%12-Apr-04 17-May-04 -20% -14% 70% 35% 24% 68%11-Mar-05 28-Apr-05 -9% -5% 50% 58% 21% 36%

4-Oct-05 28-Oct-05 -9% -7% 85% 34% 30% 89%10-May-06 13-Jun-06 -24% -15% 62% 53% 50% 94%26-Feb-07 5-Mar-07 -10% -8% 79% 36% 39% 110%31-Oct-07 27-Oct-08 -66% -57% 86% 113% 37% 33%12-Jan-10 8-Feb-10 -12% -5% 41% 26% 11% 42%15-Apr-10 25-May-10 -18% -12% 66% 27% 15% 56%4-Jan-11 10-Feb-11 -7% -2% 36%

Average -24% -17% 70% 50% 29% 57%Median -18% -12% 66% 44% 28% 65%

Source: Bloomberg.

We have profiled in recent reports the fact that nvestors appear to be riding their

winners in the Telco space YTD, with price momentum the only meaningful positive

factor exposure in January, per the chart below.
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Figure 1: January 2011 Factor Drivers: Asia TelcosPrice Momentum (12mth) 7.90%

Price Momentum (1mth) 5.00%

JPMQ Price 3.90%Market Cap 3.30%

Earnings Momentum (Risk Adjusted) 2.80%

ROE (1 year change) -2.20%

EPS Growth -2.30%

P/E Relative to Sector -3.00%

Dividend Yield (12mth forward) -3.10%

Dividend Yield -3.10%

P/E (12mth forward) -3.50%

JPMQ Value -3.50%

P/E -3.80%

Source: MSCI, Factset, Reuters Thomson, Bloomberg, J.P. Morgan

Figure 2: January 2011 Factor Drivers: Asia ex-JapanEPSFY2REVS 6.4%

Earnings Momentum (1 & 3mth average) 5.1%

Risk Adjusted Earnings Momentum 4.5%3mth Earnings Momentum 4.4%

JPM GROWTH (forecast upgrades) 4.4%

1mth Earnings Momentum 4.3%

Beta 4.1%

Market Cap 2.9%

1mth Change in Consensus Recommendation 2.7%

12mth Price Momentum 2.4%

Source: MSCI, Factset, Reuters Thomson, Bloomberg, J.P. Morgan

These facts taken together argue for an increase in weighting in Asia ex Japan Telcos

for investors following EM benchmarks. The current trading environment (riding the

winners with little incremental new exposure, no bottom ticking at all) suggests that

PCCW, China Telecom, and Axiata are the stocks best positioned to allow

outperformance for EM-based investors during the current market correction.

Table 2: Stocks most aligned with cur rent Factor dri vers within As ia Telcos

Month End Company CTY Pmom12 Size EPS Certainty Compos ite

31-Jan-11 PCCW HK 2.49 (0.93) (0.53) 0.7031-Jan-11 CHINA TELECOM CORP H CN 0.85 0.60 (0.08) 0.5131-Jan-11 AXIATA GROUP MY 0.86 0.56 (0.09) 0.5131-Jan-11 SINGAPORE TELECOM SG (0.47) 1.15 (0.63) 0.4431-Jan-11 PHIL LONG DISTANCE TEL PH (0.74) 1.14 (0.83) 0.41

31-Jan-11 CHINA MOBILE CN (0.48) 0.86 (0.77) 0.3831-Jan-11 TAIWAN MOBILE TW (0.07) 0.92 (0.29) 0.3831-Jan-11 MAXIS BHD MY (0.56) 0.55 (0.83) 0.2831-Jan-11 FAR EASTONE TELECOM. CO TW (0.07) 0.30 (0.59) 0.2731-Jan-11 ADVANCED INFO SERVICE TH (0.15) 0.20 (0.69) 0.2531-Jan-11 CHUNGHWA TELECOM CO TW 0.08 0.97 0.38 0.2231-Jan-11 DIGI.COM MY 0.15 0.00 (0.48) 0.2131-Jan-11 CHINA UNICOM CN 0.95 0.43 0.82 0.1931-Jan-11 TELEKOMUNIKASI INDONESIA ID (1.31) 0.66 (0.55) (0.03)31-Jan-11 STARHUB SG 0.21 (0.74) (0.30) (0.08)31-Jan-11 CHINA COMM SERVI H CN 0.11 (1.22) (0.82) (0.10)31-Jan-11 SK TELECOM CO KR (0.92) 0.27 0.14 (0.26)31-Jan-11 GLOBE TELECOM PH (1.01) (0.50) (0.44) (0.36)31-Jan-11 KT CORP KR (1.18) 0.17 0.48 (0.50)31-Jan-11 TELEKOM MALAYSIA MY 0.14 (0.31) 1.42 31-Jan-11 LG UPLUS KR (1.58) (0.65) 0.46 (0.90)31-Jan-11 INDOSAT ID (1.11) (0.66) 1.62 (1.13)

31-Jan-11 SK BROADBAND CO KR (0.85) (1.22) 2.67 (1.58)31-Jan-11 RELIANCE COMMUNICATION IN (1.69) (0.37) 2.92 (1.66)

Source: J.P. Morgan estimates.

A very different strategy will be required once markets begin to turn, however, in our

view. Per the chart below, Asia ex Japan Telcos have only delivered 65% of the

ensuing market rebound post the worst 10 previous EM corrections. Investors will

likely need to move away from Correction Winners and take a more active stock

picking approach in order for their Telecom exposure to add to overall

outperformance of EM mandates.

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Table 3: EM Market corrections/rallys vs. Asia Telco correcti ons/rallys

Correction 12M forward return

High Date Low Date EM AxJpnTelcos AXJ Telcos / EM EM AxJpn Telcos AXJ Telcos / EM

10-Jul-97 5-Oct-98 -58% -38% 66% 63% 32% 50%18-Apr-02 10-Oct-02 -30% -20% 66% 60% 27% 45%12-Apr-04 17-May-04 -20% -14% 70% 35% 24% 68%11-Mar-05 28-Apr-05 -9% -5% 50% 58% 21% 36%

4-Oct-05 28-Oct-05 -9% -7% 85% 34% 30% 89%10-May-06 13-Jun-06 -24% -15% 62% 53% 50% 94%26-Feb-07 5-Mar-07 -10% -8% 79% 36% 39% 110%31-Oct-07 27-Oct-08 -66% -57% 86% 113% 37% 33%12-Jan-10 8-Feb-10 -12% -5% 41% 26% 11% 42%15-Apr-10 25-May-10 -18% -12% 66% 27% 15% 56%4-Jan-11 10-Feb-11 -7% -2% 36%

Average -24% -17% 70% 50% 29% 57%Median -18% -12% 66% 44% 28% 65%

Source: Bloomberg.

We suggest a two prong approach. First, take advantage of opportunities created by

the recent market drawdown. The figure below lists stocks that have a) fallen

significantly, b) also seen earnings multiple compression (i.e. the drawdown was not

negative EPS revision related), where c) we are fundamentally positive on the

companies in question. Our top picks in this category are Tulip Telecom, Indosat,

Unicom, and DTAC.

Figure 3: Asian Telco Fishing - Stocks for the next stageP PE EV/EBITDA P/B EPS revis ions YTD JPM Rating

RELIANCE COMMUNICATIONS LTD -43% (6.2) (2.6) (0.4) 1% NGLOBE TELECOM INC -26% (1.1) (0.8) (0.8) 3% UWTULIP TELECOM LTD -25% (1.9) (3.3) (2.0) -6% OWTELEKOMUNIKASI INDONESIA TBK -23% (2.8) (1.2) (1.4) 1% NINDOSAT TBK PT -23% (2.8) (1.5) (0.4) -52% OWCHINA UNITED NETWORK-A -21% (5.1) NA (0.5) 5% OWKT CORP -19% (1.8) (0.8) (0.1) 7% NTOTAL ACCESS COMMUNICATION -17% (4.0) (1.4) (0.4) -2% OWTELSTRA CORP LTD -15% - (0.6) (0.4) 5% OWPHILIPPINE LONG DISTANCE TEL -14% (1.5) (0.8) (0.9) 1% NSK TELECOM -14% (0.8) (0.5) (0.1) 1% OWCHINA MOBILE LTD -13% (2.0) (1.1) (0.5) 0% NADVANCED INFO SERVICE PCL -12% (2.7) (1.2) (0.5) -2% OWBHARTI AIRTEL LTD -11% (0.6) (0.9) (1.2) 5% NIDEA CELLULAR LTD -10% (8.4) (0.7) (0.2) -15% UWXL AXIATA TBK PT -9% (3.9) (1.5) (1.0) -3% OW

Source: J.P. Morgan estimates.

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Tulip Telecom Malvika Gupta

Latest published research:- Tulip Telecom: Improving revenue and margin trends

- Tulip Telecom: Data centre acquisition positive for diversification

Description of recent share price action - what has happened, whyThe share price has outperformed a weak Indian market over the past 3 months by

~6%. We believe improved international visibility and expansion of addressable

markets to services is helping here but misplaced concerns about competition from

BWA wireless players like Reliance Industries have gated further outperformance.

At 4.5 FY12E EV/EBITDA, a 15% discount to its one-year history and ~35% to the

rest of our coverage universe, we believe TTSL is attractive at current levels.

Catalyst for performance in the next 6-12 months, either events, earnings,

valuations, etc.We believe the below would act as positive catalysts for the stock:

Announcement of a strategic investor in Tulip's new data centre business

FY12 guidance from the management being ahead of estimates

An exit from the broadband wireless access JV at a profit

More aggressive business mix shift toward EDS and within that fibre

Table 4: Margin uplift from potential busin ess mix shif ts

5% 6% 7%

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Indosat James Sullivan

Latest published research:- Indonesian Telecom: 4Q10/Fy11 Preview: All about execution

- Indonesian Telecom Equity Strategy: Sifting through for opportunities

Description of recent share price action - what has happened, whyYTD the stock is down 9% while the JCI has declined by 8%. Over last three months

ISAT declined by 14%, underperforming the JCI index by 7%. Expected weakness in

4Q10 results, due to a combination of holiday timing and pricing issues, was the key

driver behind the underperformance. The market is well aware of weakness in ISAT's

4Q10 and we believe 2011 expectations to be the price driver from here on.

Catalyst for performance in the next 6-12 months, either events, earnings,valuations, etc1.Margin revisions in 2011: We forecast 189 bps margin upside to Street driving

6%/10% upside to EBITDA and EPS. ISAT's cost efficiency measures enabled it

to drastically reduce n/w OpEx/min in 2010 (down 35% in 3Q10), and we

forecast a 27% decline in 2011.

2.Potential Tower deal.Figure 5: ISAT EBITDA Margins vs. OpEx per Minute

Source: J.P. Morgan estimates, Company data.
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DTAC James Sullivan

Latest published research- Total Access Communication: 4Q10 net 42% ahead of street, expect 16%

upside to 2011 consensus

- Thai Telcos: 4Q10 Preview: Strong 4Q10, concession conversion claimsremain key overhang

Description of recent share price action - what has happened, whyYTD the stock is down 2.3% while the SET declined by 8.2%%. Over last three

months DTAC declined by 6%, performing largely in line with the SET. DTAC had

strong results in 2010 with a recurring income growth of 60%. But 3G delays and

news flow regarding concession damage claims remained to be an overhang on the

stock price.

Catalyst for performance in the next 6-12 months, either events, earnings,valuations, etc1.Continued improvement in the bottom line; we expect 16% upside to Streets

2011 EPS.

2.Special dividend: DTAC's debt covenants currently limit its payout ratio to 70%,

and with strong cash flows there is a possibility of a special dividend if the

company manages to increase its payout ratio.

3.3G clarity, MVNO with CAT: Clarity regarding 3G timeline would be a keystock price driver; positive news flow on MVNO with CAT's 3G would also be

key.

Figure 6: DTAC one year forward consensus P/ERatio

Source: Bloomberg.

Figure 7: DTAC one year fo rward consensusEPS

Source: Bloomberg.
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Advanced Info Services James SullivanLatest published research

- Advanced Info Services: 4Q10 net 6% ahead of street, multiple re-rating tobe driver

- Thai Telcos: 4Q10 Preview: Strong 4Q10, concession conversion claims

remain key overhang

Description of recent share price action - what has happened, whyYTD the stock is down 4.7% while the SET declined by 8.2%. Over last three

months AIS declined by 11%, underperforming the SET by 6%. Concession damage

claims and investor neglect for the sector on the back of 3G delays have been the key

overhangs on stock price performance. AIS's recurring income grew by 24% in 2010;strong results are already in Street expectations and we see multiple re-rating to be

the stock price driver from here on. News flow regarding concession damage claims

should remain to be an overhang on the stock price.

Catalyst for performance in the next 6-12 months, either events, earnings,valuations, etc1.3G clarity, MVNO with TOT: Clarity regarding 3G timeline would be a key

stock price driver; positive news flow on MVNO with TOT's 3G would also be

key.2.Special dividend: AIS paid out Bt13/share in 2010 at a yield of 13%, and we

expect the company to continue to pay special dividends in case 3G is delayed

further.Figure 8: AIS one year for ward consensus P/ERatio

Source: Bloomberg.

Figure 9: AIS one year forward c onsensus EPSrevisions

Source: Bloomberg.
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China Unicom Lucy LiuLatest published research

- Asia Telecom/Internet Strategy: The iPhone impact: not what you think...

- China Unicom: Contract customer growth bolded well the LT revenueoutlook

Description of recent share price action - what has happened, whyChina Unicoms (CU) share price has risen by 20% YTD and outperformed HSI and

MSCI China by 23% and 26%, respectively. In our view, the recent share price rally

was mainly driven by (1) investors' improving sentiment on the growth prospect of

CU's 3G business in 2011 on the back of recent upbeat numbers of 3G monthly net

adds; (2) the speculated upbeat outlook for 2011; (3) fund inflows into defensiveplays amid growing concerns on macro uncertainty.

Catalyst for performance in the next 6-12 months, either events, earnings,valuations, etcDespite the recent outperformance, Unicom remains our top pick in the space in the

next 6-12 months, and we believe further upside would come from:

a) Expedited take-up of 3G with ARPU support.

We argue that one unique issue for the Chinese telcos which we will continue to

observe in 2011 is the high correlation of share price with the topline trend. We

believe the market has yet to fully factor in the 3G subs growth potential of CU while

the company is likely to give upbeat 3G subs guidance (likely to be 25-30mn netadds in 2011) during their March results, which should be positive for the share

price. As CU has the highest contribution from 3G handset users and CU's 3G ARPU

is 2-3x higher than 2G ARPU, we believe the stability of blended ARPU will be

further underpinned by the mix change towards 3G handset users. In 2011, we expect

CU to turn more aggressive in gaining 3G handset subs and 3G revenue market

share. Although this should inevitably come at the expense of higher opex cost and

thus erode EBITDA and net profit, the market will perceive any upside surprise for

3G subs growth as positive despite its resulting downward revision on earnings, in

our view. Moreover, we see high likelihood for CU to change the accounting policy

to match the revenue and handset subsidies better, and therefore ease the near-term

pressure on bottom line.

b) Data revenue should grow faster helped by better mass market smartphone sales

and content improvement in China. We believe CU's value chain advantage in terms

of both 'thousand RMB' smartphones and high-end smartphones (iPhone) positions

the company well to leverage on the trend of growing its VAS revenue.

c) Free cash flow (FCF) position of CU should improve thanks to more upfront cash

deposits paid on bucket plans. According to CU, contract customers made up almost

40% of 3G net adds in December, up from 5% in 1H2010, 19% in 3Q10 and 30% in

October. As we expect up to 50% of 3G net adds will be contract users in 2011, the

FCF position should be further strengthened.
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d) CU now trades at around 5x 2011E EV/EBITDA and 4.6x 2012E EV/EBITDA,

which we believe is reasonable vs. the regional telcos. Key positive catalysts in our

view include upbeat 2011 guidance in March and the improvement of monthly subs.

Figure 10: Chinese Telecom Sector 3G Net additions

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

Figure 11: Chinese Telecom Sector 3G ARPU trends


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Figure 12: Unicom gaining share of 3Gsubscribers


Figure 13: Unicom g aining market share of 3Grevenue


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State of Global Telcos DM vs. EM story

Figure 14: Performance of global Telecom indices 1st Jan 2010 - Present

80%

85%

90%

95%

100%

105%

110%

115%

120%

1/1/2

010

1/15/2010

1/29/2010

2/12/2010

2/26/2010

3/12/2010

3/26/2010

4/9/2

010

4/23/2010

5/7/2

010

5/21/2010

6/4/2

010

6/18/2010

7/2/2

010

7/16/2010

7/30/2010

8/13/2010

8/27/2010

9/10/2010

9/24/2010

10/8/2010

10/22/2010

11/5/2010

11/19/2010

12/3/2010

12/17/2010

12/31/2010

1/14/2011

1/28/2011

2/11/2011

World US Europe EMEA LatAm APxJ Japan

Source: Bloomberg.

Figure 15: Peak to Trough change, global Telco indices Jan 2010 - Present

0%

-3%

-1%

-12%

-4%-5%

0%

-14%

-12%-10%

-8%

-6%

-4%

-2%

0%


Source: Bloomberg.

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Table 5: Peak to tr ough moves, Global Telco Indices


Index 0% -3% -1% -12% -4% -5% 0%P/E (2.57) (1.08) (5.17) -

EV/EBITDA (0.13) (0.32) (0.14) (0.93)

P/BV (0.01) (0.11) (0.17) (0.46)

Source: Bloomberg.

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Global Telco P/E Peak to Current

Figure 16: Global Telco Index P/E Ratios

8.00

10.00

12.00

14.00

16.00

18.00

20.00

1/1/2010

1/15/2010

1/29/2010

2/12/2010

2/26/2010

3/12/2010

3/26/2010

4/9/2010

4/23/2010

5/7/2010

5/21/2010

6/4/2010

6/18/2010

7/2/2010

7/16/2010

7/30/2010

8/13/2010

8/27/2010

9/10/2010

9/24/2010

10/8/2010

10/22/2010

11/5/2010

11/19/2010

12/3/2010

12/17/2010

12/31/2010

1/14/2011

1/28/2011

2/11/2011


USA

Japan

World

Asia x Jpn

LatAm

EMEA

Europe

Source: Bloomberg.

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Figure 17: Global Telco index EPS estimates Change YTD

94%

95%

96%

97%

98%

99%

100%

101%

102%

103%

1/3/2011

1/5/2011

1/7/2011

1/9/2011

1/11/2011

1/13/2011

1/15/2011

1/17/2011

1/19/2011

1/21/2011

1/23/2011

1/25/2011

1/27/2011

1/29/2011

1/31/2011

2/2/2011

2/4/2011

2/6/2011

2/8/2011

2/10/2011

2/12/2011

2/14/2011


Japan

Europe

LatAm

Asia x Jpn

World

USA

EMEA

Source: Bloomberg.

Figure 18: P/E Compression peak to current - Global Telco indices

(2.57)

(1.08)

(5.17)

-

(5.92)

(0.87)(1.39)

(7.00)

(6.00)

(5.00)

(4.00)

(3.00)

(2.00)

(1.00)

-


Source: Bloomberg.

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Global Telco EV/EBITDA Peak to

CurrentFigure 19: Global Telco EV/EBITDA ratios

3.50

4.00

4.50

5.00

5.50

6.00

6.50

1/1/2

010

1/15/20

10

1/29/2010

2/12/2010

2/26/2010

3/12/2010

3/26/2010

4/9/2010

4/23/2010

5/7/2010

5/21/2010

6/4/2010

6/18/2010

7/2/2010

7/16/20

10

7/30/20

10

8/13/20

10

8/27/20

10

9/10/2010

9/24/2010

10/8/2010

10/22/2010

11/5/2010

11/19/2010

12/3/2010

12/17/2

010

12/31/2

010

1/14/2011

1/28/20

11

2/11/20

11


Europe

World

USA

LatAm

EMEA

Asia x Jpn

Japan

Source: Bloomberg.

Figure 20: EV/EBITDA ratio compression - Global Telco Indices

(0.13)

(0.32)

(0.14)

(0.93)

(0.53)(0.44)

(0.11)

(1.00)

(0.80)

(0.60)

(0.40)

(0.20)

-


Source: Bloomberg

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Global Telco Price to Book Peak to

CurrentFigure 21: Price to Book - Global Telco Indices

1.00

1.50

2.00

2.50

3.00

3.50

1/1/2

010

1/15/2

010

1/29/2

010

2/12/2

010

2/26/2

010

3/12/2

010

3/26/2

010

4/9/2

010

4/23/2

010

5/7/2

010

5/21/2

010

6/4/2

010

6/18/2

010

7/2/2

010

7/16/2

010

7/30/2

010

8/13/2

010

8/27/2

010

9/10/2

010

9/24/2

010

10/8/2

010

10/22/2

010

11/5/2

010

11/19/2

010

12/3/2

010

12/17/2

010

12/31/2

010

1/14/2

011

1/28/2

011

2/11/2

011


LatAm

EMEA

Asia x Jpn

USA

World

Europe

Japan

Source: Bloomberg.

Figure 22: Price to Book Compression

(0.01)

(0.11)

(0.17)

(0.46)

(0.10) (0.12)

(0.03)

(0.50)

(0.40)

(0.30)

(0.20)

(0.10)

-


Source: Bloomberg.

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Asia Telecom Investment Summary

Figure 23: Peak to trough mo ves-Price

-50%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

RELIANCECOMMUNICATIONSLTD

GLOBETELECOMINC

TULIPTELECOMLTD

TELEKOMUNIKASIINDONESIATBK

INDOSATTBKPT

CHINAUNITEDNETWORK-A

KTCORP

TOTALACCESSCOMMUNICATION

TELSTRACORPLTD

PHILIPPINELONGDISTANCETEL

SKTELECOM

CHINAMOBILELTD

ADVANCEDINFOSERVICEPCL

BHARTIAIRTELLTD

IDEACELLULARLTD

XLAXIATATBKPT

SINGAPORETELECOMLTD

CHUNGHWATELECOMCOLTD

STARHUBLTD

CHINATELECOMCORPLTD-H

TAIWANMOBILECOLTD

KDDICORP

NIPPONTELEGRAPH&TELEPHONE

AXIATAGROUPBERHAD

MAXISBHD

NTTDOCOMOINC

CHINAUNICOMHONGKONGLTD

SOFTBANKCORP

TELEKOMMALAYSIABHD

DIGI.COMBHD

Source: Bloomberg.

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Figure 24: Peak to trough moves-P/E

(9.0)

(8.0)

(7.0)

(6.0)

(5.0)

(4.0)

(3.0)

(2.0)

(1.0)

-

IDEACELLULARLTD



TOTALACCESSCOMMUNICAT

ION

XLAXIATATBKPT

INDOSATTBKPT




CHINAMOBILELTD

TULIPTELECOMLTD

KTCORP

AXIATAGROUPBERHAD

PHILIPPINELONGDISTANCET

EL

STARHUBLTD

TELEKOMMALAYSIABHD

GLOBETELECOMINC


SOFTBANKCORP

SKTELECOM

NIPPONTELEGRAPH&TELEPH

ONE

DIGI.COMBHD

BHARTIAIRTELLTD

SINGAPORETELECOMLTD

TAIWANMOBILECOLTD

NTTDOCOMOINC

MAXISBHD

TELSTRACORPLTD

KDDICORP

CHINAUNICOMHONGKONGL

TD

Source: Bloomberg.

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Figure 25: Peak to trough moves-EV/EBITDA

(3.5)

(3.0)

(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

-

TULIPTELECOMLTD


SINGAPORETELECOMLTD

XLAXIATATBKPT

INDOSATTBKPT

AXIATAGROUPBERHAD


ION



CHINAMOBILELTD

BHARTIAIRTELLTD

GLOBETELECOMINC


EL

STARHUBLTD

SOFTBANKCORP

KTCORP


IDEACELLULARLTD

TELSTRACORPLTD

DIGI.COMBHD

SKTELECOM

TAIWANMOBILECOLTD


ONE

MAXISBHD


NTTDOCOMOINC

TELEKOMMALAYSIABHD

KDDICORP


TD


Source: Bloomberg.

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Figure 26: Peak to trough moves-P/B

(7.0)

(6.0)

(5.0)

(4.0)

(3.0)

(2.0)

(1.0)

-

STARHUBLTD

TULIPTELECOMLTD


BHARTIAIRTELLTD

XLAXIATATBKPT


EL

GLOBETELECOMINC


CHINAMOBILELTD


INDOSATTBKPT



ION

TELSTRACORPLTD

SINGAPORETELECOMLTD

IDEACELLULARLTD

TAIWANMOBILECOLTD

KDDICORP

SKTELECOM

KTCORP


AXIATAGROUPBERHAD


ONE


MAXISBHD

NTTDOCOMOINC

SOFTBANKCORP

DIGI.COMBHD

TELEKOMMALAYSIABHD


TD

Source: Bloomberg.

Figure 27: EPS revisions 2011 YTD

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

KTCORP


TAIWANMOBILECOLTD

CHINAUNICOMHONGKONGLTD

TELSTRACORPLTD

BHARTIAIRTELLTD

GLOBETELECOMINC


SINGAPORETELECOMLTD

PHILIPPINELONGDISTANCETEL


SKTELECOM

NIPPONTELEGRAPH&TELEPHONE

STARHUBLTD

CHINAMOBILELTD


TELEKOMMALAYSIABHD

NTTDOCOMOINC

AXIATAGROUPBERHAD

MAXISBHD

KDDICORP


TOTALACCESSCOMMUNICATION

XLAXIATATBKPT

SOFTBANKCORP

DIGI.COMBHD

TULIPTELECOMLTD


IDEACELLULARLTD

INDOSATTBKPT

Source: Bloomberg.

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Companies Recommended in This Report (all prices in this report as of market close on 14 February 2011)Advanced Info Services (ADVA.BK/Bt82.00/Overweight), AXIATA Group Berhad (AXIA.KL/M$4.95/Overweight),

China Unicom (Hong Kong) Limited (0762.HK/HK$13.50/Overweight), China United Network Communications(600050.SS/Rmb6.17/Neutral), PT Indosat Tbk (ISAT.JK/Rp4,900/Overweight), PT Indosat Tbk (IIT/$27.54/Overweight),Total Access Communication (DTAC.BK/Bt41.75/Overweight), Tulip Telecom Limited (TULP.BO/Rs175.20/Overweight)

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarilyresponsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, withrespect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this reportaccurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the researchanalysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by theresearch analyst(s) in this report.

Important Disclosures

Market Maker: JPMS makes a market in the stock of PT Indosat Tbk.

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for AXIATAGroup Berhad within the past 12 months.

Client of the Firm: AXIATA Group Berhad is or was in the past 12 months a client of JPM; during the past 12 months, JPMprovided to the company investment banking services, non-investment banking securities-related service and non-securities-relatedservices. China Unicom (Hong Kong) Limited is or was in the past 12 months a client of JPM. China United NetworkCommunications is or was in the past 12 months a client of JPM. PT Indosat Tbk is or was in the past 12 months a client of JPM.Total Access Communication is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to thecompany non-investment banking securities-related service.

Investment Banking (past 12 months): J.P. Morgan received, in the past 12 months, compensation for investment banking servicesfrom AXIATA Group Berhad.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment bankingservices in the next three months from AXIATA Group Berhad.

Non-Investment Banking Compensation: JPMS has received compensation in the past 12 months for products or services otherthan investment banking from AXIATA Group Berhad, Total Access Communication. An affiliate of JPMS has receivedcompensation in the past 12 months for products or services other than investment banking from China United Network

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Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the

average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelvemonths, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return ofthe stocks in the analysts (or the analysts teams) coverage universe.] J.P. Morgan Cazenoves UK Small/Mid-Cap dedicated researchanalysts use the same rating categories; however, each stocks expected total return is compared to the expected total return of the FTSEAll Share Index, not to those analysts coverage universe. A list of these analysts is available on request. The analyst or analysts teamscoverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifyinganalyst(s) coverage universe.
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Coverage Universe: James R. Sullivan, CFA: AXIATA Group Berhad (AXIA.KL), Advanced Info Services (ADVA.BK),Digi (DSOM.KL), Globe Telecom (GLO.PS), Maxis Berhad (MXSC.KL), PT Indosat Tbk (ISAT.JK), PT Telekomunikasi

Indonesia Tbk (TLKM.JK), PT XL Axiata Tbk (EXCL.JK), Philippine Long Distance Telephone Company (TEL.PS),Singapore Telecom (STEL.SI), Telekom Malaysia (TLMM.KL), Total Access Communication (DTAC.BK)

J.P. Morgan Equity Research Ratings Distribution, as of December 31, 2010

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 46% 42% 12%IB clients* 53% 50% 38%

JPMS Equity Research Coverage 43% 49% 8%IB clients* 71% 63% 59%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating fal ls into a holdrating category; and our Underweight rating falls into a sell rating category.

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updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any otherpublicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their homejurisdiction unless governing law permits otherwise.

Other Disclosures last revised January 8, 2011.

Copyright 2011 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold orredistributed without the written consent of J.P. Morgan.#$J&098$#*P

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