how we think about thinking about telcos. mon mar 20...
TRANSCRIPT
H O W W E T H I N K A B O U T T H I N K I N G A B O U T T E L C O S
Asian Telecommunications
James R. Sullivan, CFA AC
+65 6882-2374
Bloomberg JPMA SULLIVAN <GO>
J.P. Morgan Securities Singapore Private Limited
Asia Pacific Equity ResearchMarch 2017
See the end pages of this presentation for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Top picks and stocks to avoid
Source: Bloomberg, J.P. Morgan estimates. Prices as of March 16, 2017.
Mkt cap Div. yield ROE
Price (LC) Code Rating (US$MM) 17E 18E 17E 18E 17E (%) 17E (%)
Top picks
LG Uplus 14,750 032640 KS OW 5,627 10.9 8.7 1,356.9 1,702.6 3.08% 11.74%
KT Corp 32,650 030200 KS OW 7,446 9.4 7.6 3,490.0 4,306.0 3.72% 7.20%
Telekomunikasi 4,140.0 TLKM IJ OW 30,992 17.9 16.1 231.11 257.82 3.38% 27.71%
BHARTI AIRTEL 360.7 BHARTI IN UW 21,606 41.4 39.0 8.7 9.2 0.83% 5.20%
AIS 175.0 ADVANC TB UW 14,925 20.1 19.3 8.7 9.1 3.47% 59.68%
P/E (x) EPS (LC)
Stocks to avoid
Completed 17 Mar 2017 02:56 PM HKTDisseminated 17 Mar 2017 03:55 PM HKT
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
2
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Investment Summary: Year Ahead 2017
3
Earnings 2017: Drivers and Risks We believe Telco spending now mirrors Consumer Staples trends i.e. growth will be
slightly less than GDP. Wireless data has not served to reaccelerate top line trend.
OpEx is largely driven by incremental base station builds (due to incremental power/backhaul/site leasing etc.) and is
therefore driven by data volumes. Rising volumes on falling pricing will drive margin compression
Rising capital requirements paired with margin compression driven by ramping data volumes are providing for a double hit
to FCF, driving leverage levels higher than expected. This is not only driving higher interest expenses, but is beginning to
trigger DPS cuts and assets sales.
Drivers, trends and data points we are tracking:
• Network Quality: Relative levels of network quality on a city by city basis drive market share trends, pricing
capabilities and CAPEX forecasts.
• Pricing Trends: Data pricing trends are driven by network quality differentials combined competitive intensity and
are the number 1 driver of incremental ROIC trends.
We look for broad telecom sector
underperformance as Asia earnings growth outlook
improves and investors shift from defensive yield
strategies towards value beta plays. We look for
exposure to stable DM integrated players within
defendable FCF (KT/LGU+), carriers with a
significant network quality gap to peers enabling
pricing power (TLKM) or EM players where
industry asset restructuring (network
nationalization, significant network sharing) is
driving ROIC improvement (China Telecom).
Asia Telecom Top picks and stocks to avoid
Source: Bloomberg, J.P. Morgan estimates. Prices as of March 16, 2017.
Mkt cap Div. yield ROE
Price (LC) Code Rating (US$MM) 17E 18E 17E 18E 17E (%) 17E (%)
Top picks
LG Uplus 14,750 032640 KS OW 5,627 10.9 8.7 1,356.9 1,702.6 3.08% 11.74%
KT Corp 32,650 030200 KS OW 7,446 9.4 7.6 3,490.0 4,306.0 3.72% 7.20%
Telekomunikasi 4,140.0 TLKM IJ OW 30,992 17.9 16.1 231.11 257.82 3.38% 27.71%
BHARTI AIRTEL 360.7 BHARTI IN UW 21,606 41.4 39.0 8.7 9.2 0.83% 5.20%
AIS 175.0 ADVANC TB UW 14,925 20.1 19.3 8.7 9.1 3.47% 59.68%
P/E (x) EPS (LC)
Stocks to avoid
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Summary: A new era for Emerging Market wireless?
EMs are finally showing positive signs of implementing the significant asset restructuring that is required by the
industry
A broader recovery of EMs should benefit highly volatility EM wireless stocks over low volatility DM integrated
stocks
High yield, low volatility stocks are currently at their most expensive since the 1980’s
However, recent developments could change the way we look at EM Telcos
For 5 years, we have been arguing for DM integrated over EM wireless as:
Incremental wireless revenues available in Emerging Markets simply couldn’t support the CAPEX and OpEx
commitments necessary to achieve them, due to:
Wireless revenues growing at a “GDP minus” rate
The growth of data has cannibalized voice revenues, resulting in depressed revenue growth
Network providers are spending incrementally more on content to maintain market share
Data growth is increasing operators’ BTS requirements and hence capex requirements
Rising BTS requirements are increasing operating expenses faster than revenue is growing
Given that solutions to increase revenues were limited, we argued that the only way for EM wireless to solve
their predicament was to implement significant asset restructuring where network assets were held in a
centralized trust and hence increasing capital efficiency across Emerging Market Telcos.
4This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
5
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Historical view of Emerging Market wireless vs Developed Market integrated While Emerging Market wireless has outperformed over a 20-year period, Developed Markets have outperformed over the last 5 years
Source: Bloomberg. As of 15-March-17
1
21998-2011: EM outperformed DM by 82%
Increasing usage of average
minutes per user (voice)
Increasing monetization of voice
Telco revenues growing faster
than GDP
1
2
2011-2016: DM outperformed EM by 14%
Data increasing as % of revenues
Declining Telco spending as % of GDP
Data Cannibalization of voice revenues
Increasing CAPEX and subsequently
OPEX requirements to sustain data
growth
3
3 YTD 2017: EM outperformed DM by 5%
Significant news flow
on industry asset
restructuring and
consolidation
Global Telcos vs GEM Telcos stock performance 1998-Feb 2017
6
020406080100120140160180
020406080
100120140160180
MSCI AC AP Ex Japan Telecom services index MSCI World telecom service index
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
5 years of Developed Markets’ integrated success
For the last 5 years, we have preferred DM over EM. Analysis shows our portfolio return of 256.72% since 27 July 2010 vs benchmark return of 61.39%
JPM Asia Telco Investing Recommendations since inception Global Telcos vs GEM Telcos stock performance 2011-Feb 2017
Source: BloombergSource: Bloomberg
7
0
10
20
30
40
50
60
70
80
0
20
40
60
80
100
120
140
160
MSCI AC AP Ex Japan Telecom services index
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
8
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
How do Telcos TradeTelcos trade aggressively off ROIC
Source: J.P. Morgan estimates, Bloomberg.
0.97 0.98 0.98 0.95 0.95 0.96
-
0.20
0.40
0.60
0.80
1.00
1.20
2013 2014 2015
Correlation
R2
Source: J.P. Morgan estimates, Bloomberg
BHARTI IN
RCOM IN
IDEA IN
941 HK
728 HK
762 HK
ISAT IJ
TLKM IJ
EXCL IJ
AXIATA MK
MAXIS MK
T MK
GLO PM
TEL PM
030200 KS032640 KS
017670 KS
2412 TT
4904 TT
3045 TT
ADVANC TB
TRUE TB
DTAC TB
VOD SJ
MTN SJ
MFON LIMBT US
VIP USTCELL TI
VIVT4 BZ
TIMP3 BZ
AMX US
OIBR4 BZ
-
1
2
3
4
5
6
7
8
9
-10% 0% 10% 20% 30% 40% 50%
EV/
IC
ROIC
EV/IC vs ROIC (2015)
y = 16.82x + 0.1888R2 = 0.9623
Y=16.82x +0.1888
R² = 0.9623
Telcos show a very high consistent correlation with ROIC (97-98% with an R2 of .95-.96).
Telcos trade like banks, not like tech stocks. A future view of ROIC returns is a future view of sector performance
We can leverage this relationship between EV/IC and ROIC to quantify the future level of capital returns implied by current share prices.
Correlation and R2 stats for EV/IC vs ROIC: GEM Telcos EV/IC vs ROIC GEM Telcos 2015
Background Research- Magic Multiples & Telcos: Return on capital based valuation methodologies February 2015- An Analytical Framework for Telcos September 2014
9
This slide includes excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please contact your salesperson or the covering analyst’s team or visit www.jpmorganmarkets.com
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
10
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Why has EM wireless underperformedIncremental revenues can’t support increasing CAPEX and OpEx demands
Lack of
incremental
revenues
Increasing
CAPEX
requirements
As Telcos have become a consumer staple, revenue growth has been reduced to a “GDP minus” equation, limiting revenue upside
EM providers aggressively grew data revenues, cannibalizing voice revenues, resulting in a depressed revenue growth
EM providers have become incremental spenders on content as they seek to retain subscribers
A lack of incremental revenues, combined with rapidly increasing CAPEX & OpEx requirements meant that EM wireless operators saw declining EBITDA margins and therefore ROIC.
As data usage grows, incremental Base Transceiver Station (BTS) requirements increase rapidly
Incremental BTS requirements meant that OpEx grew significantly faster than revenue
A
D
B
C
E
11This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Revenues: Telcos as a consumer staple Telco revenues as a % of GDP are declining
1Fully penetrated markets fall to “GDP minus” revenue growth
3 While five Asian markets out of 11 had revenue growth in excess of GDP over 2010-2013, only two are forecast to replicate the feat over 2014-20172
Industry revenue growth is now relatively fixed, with price now controlling ROIC through usage growth
Source: J.P. Morgan estimates, Bloomberg.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
2010
2011
2012
2013
2014
2015E
2016E
2017E
Source: J.P. Morgan estimates, Bloomberg.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2010
2011
2012
2013
2014
A
Background research-- Telcos are like rice July 2015
Telco spend as a % of GDP: GEM Telco spend as a % of household expenditure
12
This slide includes excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please contact your salesperson or the covering analyst’s team or visit www.jpmorganmarkets.com
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Revenues: Data leads to voice cannibalizationData growth has severely cannibalized voice revenues, resulting in depressed revenue growth
Above the 20-40% sweet spot, we appear to
begin seeing dilution due to more marginal users,
and we suggest a likely acceleration of
cannibalistic user behavior surrounding both voice
and messaging services
As data as a % of revenues grows, ARPU
attributable to voice show a significant decline
B
Source: Company reports and J.P. Morgan estimates.
y = -0.4716x + 0.1255R² = 0.8639
-10%
-5%
0%
5%
10%
15%
0% 10% 20% 30% 40% 50%
Y = -0.4716x + 0.1255
R² = 0.8639
As markets pass through a smartphone penetration
range of 20-40%, overall data revenue growth
peaks
Source: Company reports and J.P. Morgan estimates.Source: Company reports and J.P. Morgan estimates.
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016E
AR
PU
(R
p 0
00)
Average ARPU - Voice (Rp 000) Data as % of revenue
Data as a % of total (X axis) vs. Voice revenue growth (Y axis): North America
Indonesia: Data as % of revenues & Voice ARPU's: 2008-16 Indonesia: Data as a % of revenue and revenue growth: % 2006-16
Source: Company reports and J.P. Morgan estimates.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Data as % revenues industry Wireless revenue growth
13This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Revenues: Providers are overpaying for content to maintain market shareProviders continue to incrementally spend on content in order to retain subscribers and therefore revenues
Source: Ericsson ConsumerLab TV & Media 2010-2015.
C
Source: J.P. Morgan estimates, Bloomberg. Note: 2013-2016 numbers are consensus forecasts according to Bloomberg.
Content producers are capturing a greater % of content created value (2016: 98% vs 2004: 92%) to the detriment of providers, the major reasons are:
Premium content goes direct to consumer
With a greater proportion of content being consumed through mobile , content providers are able to go ‘direct to customer’
Introduction of HBONow
US sports leagues and EPL have or are
looking to launch direct to fan streaming
products
1
OTT aggregators are the new drivers of content pricing
1. Pay and FTA operators risk either losing
content entirely to direct models, or
paying up significantly higher than
expected to counter new OTT bidders
LeTV paid 100% more than the prior
contract for EPL
2
61% of consumers watch TV and video on mobile devices
Emerging Markets content value creation
14This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Revenues: Decline in Telco value capture even worse than expected
We refresh our 2013 Global Ecosystem Value Capture analysis (here) with 2004-2019 trends for 644 companies:
Loss of value capture for network owners: We compared our 2013 estimates against actual results and find that
Telcos lost more value share than originally anticipated between 2013-16; .
We expect this trend to continue in 2016-19 with increase in data usage and thus reiterate our preference for content
providers.
The trend is even more pronounced in Asia
15
40%
45%
50%
55%
60%
65%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Equipment -LHS Content -LHS Network Owners-RHS 2013 estimates
65%
70%
75%
80%
85%
90%
10%
15%
20%
25%
30%
35%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Content -LHS Network Owners-RHS 2013 estimates
Global Sector Value Capture - Sales Asia Sector Value Capture - Sales
Source: Bloomberg, J.P. Morgan estimates. 2016-2019 Bloomberg consensus estimates. Source: Bloomberg, J.P. Morgan estimates. 2016-2019 Bloomberg consensus estimates.
We reiterate: Don’t own Telcos as we expect the impact of data to accelerate the decline in value capture by Telcos.
C
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Revenues: Own Content, specifically internet software/services and internet retail
Strong value capture growth of content is being driven by internet software/services and internet retail.
We believe that an overall preference for content is insufficient and a more specific recommendation for internet
software/services and Internet retail is required
In Asia, we see an even larger shift of value towards Internet Retail and Internet software/services, particularly
Internet retail.
16
1.00%
6.00%
11.00%
16.00%
21.00%
26.00%
31.00%
36.00%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Internet Retail Internet Software & Services
Advertising Movies & Entertainment
2013 estimates 2013 estimates
0%
10%
20%
30%
40%
50%
60%
70%
80%
0%
5%
10%
15%
20%
25%
30%
35%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Internet Retail Movies & Entertainment
Publishing 2013 estimates
Advertising: RHS Internet Software & Services: RHS
Global Content Owner Value Capture - Sales Asia Content owner Value Capture - Sales
Source: Bloomberg, J.P. Morgan estimates. 2016-2019 Bloomberg consensus estimates. Source: Bloomberg, J.P. Morgan estimates. 2016-2019 Bloomberg consensus estimates. Note: Internet software/services an publishing are in line with actuals
Own content, specifically Internet software/services and Internet retail
C
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Revenues: We expect current value capture trends to continue
Current forecasts expect trend reversal for cable and satellite,
wireless and integrated telcos, equipment makers and content
owners. Similar forecasts were also expected in 2013 but never
materialized. We believe that the current trends are likely to
continue for the foreseeable future given the structural changes
taking place across the industry. We conclude:
We prefer cable and satellite of all network owners
We prefer equipment makers to electronic retailers
We prefer internet retail and internet software/services of all
content providers
17
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Alternative Carriers Broadcasting
Cable & Satellite Integrated Telecommunication S
Wireless Telecommunication Ser 2013 estimates
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Communications Equipment Technology DistributorsComputer & Electronics Retail 2013 estiamtes
-12%
-7%
-2%
3%
8%
13%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Advertising Internet Retail
Internet Software & Services Movies & Entertainment
Publishing 2013 estiamtes
Global Equipment Value Capture – Sales 5Y Trend Global Content Owner Value Capture – Sales 5Y Trend
Global Network Owner Value Capture – Sales 5Y Trend
Source: Bloomberg, J.P. Morgan estimates. 2016-2019 Bloomberg consensus estimates.
We expect current trends to continue for the foreseeable future
Source: Bloomberg, J.P. Morgan estimates. 2016-2019 Bloomberg consensus estimates.
C
Source: Bloomberg, J.P. Morgan estimates. 2016-2019 Bloomberg consensus estimates.
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
CAPEX: Data growth driving incremental BTS requirementsAs data grows rapidly so does the required BTS’s
186%154% 146%
96% 86% 86% 84% 74%58%
42% 38% 37%
232%198%
214%
296%
108% 117% 102%
209%
118%
50% 53% 52%
0%
50%
100%
150%
200%
250%
300%
350%
% change in BTS (2019E) % change in BTS (2024E)
45% 44%
35%
30% 29% 29%
25%24%
31%
17% 17% 16% 17%14%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Indonesia China Philippines Malaysia India SouthAfrica
Nigeria
5 year CAGR (%) 10 year CAGR (%)
Strong data usage growth will lead to significant increases in 2024 BTS requirements and hence significant CAPEX
additions
Annual data usage growth estimates range from 14-24% over a 10y period, resulting in an 52%-296% increase in
required BTS used by operators.
Source: J.P. Morgan estimates,. Source: Company data and J.P. Morgan estimates.
D
Background research- The “right price” for data? Defining V and R to solve P 1 Nov 2013- Economics of Wireless Data Part One: The Importance of Population Density and Spectrum 4 May 2011- Economics of Wireless Data Part Two: Valuing Air 7 Dec 2011- Economics of Wireless Data Part Three: What LTE means for Asia 26 March 2012- Economics of Wireless Data Part 4 Japan Country View 21 Jan 013
Estimated data usage CAGR (%) Estimated BTS build percentage change
18
This slide includes excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please contact your salesperson or the covering analyst’s team or visit www.jpmorganmarkets.com
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
CAPEX driving incremental OpEx
5%4% 4% 5%
7%6% 6%
8%7%
9%
4%5%
13%
6%7%
9%10%
9% 9%
12%
11%12%
5%
7%
0%
2%
4%
6%
8%
10%
12%
14%
10 year Revenue CAGR (%) 10 year OpEx CAGR (%)
-23%
-18%-16%
-15%-14%
-13% -12% -12%-10% -10%
-7%
-5%
-25%
-20%
-15%
-10%
-5%
0%
Source: J.P. Morgan estimates. Source: J.P. Morgan estimates.
Data growsand cannibalizes
voice
Increasing CAPEX required to
Maintain network quality
Additional BTS’s lead to High OpEx
growth
EBITDA MarginCompression
Excessive CAPEX growth leads to a significant increase in BTS requirements and therefore high OpEx growth
E
Revenue CAGR vs CAGR: 2024E EBITDA margin impact: 2024E
We estimate EM carrier OpEx will grow at an average of 9% per annum vs forecast revenue growth of 6%, leading to significant margin compression.
19This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Quantifying Capex and Opex relationship – US$ 100 capex = US$ 7 OpexE
20
Opex revisions lag capex revisions on 9 month average across all Asian markets1
PLDT FY16 consensus capex and opex estimates AIS FY13 consensus capex and opex estimates
-2%
0%
2%
4%
6%
8%
10%
12%
-10%
0%
10%
20%
30%
40%
50%
Capex revision from base opex revision from base (RHS)
0%
5%
10%
15%
20%
25%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Capex revision from base opex revision from base (RHS)
On average – US$ 100 of capex leads to US$ 7 of additional opex2
Source: Bloomberg
Source: J.P. Morgan estimates, company data
Source: Bloomberg
X variable Y intercept R2
Indonesia 0.079 0.0 0.86
Thailand 0.042 0.0 0.65
Singapore
(StarHub)
0.104 0.0 0.79
Philippines 0.063 0.0 0.97
Malaysia (Digi) 0.055 0.0 0.93
Hong Kong 0.111 0.0 0.94
China 0.039 0.0 0.82
Average 0.071 0.0 0.85
Median 0.063 0.0 0.86
Philippines Gross Fixed Assets vs Network costs Country level capex vs opex relationship – Y intercept 0,0
Source: J.P. Morgan estimates, company data
15 month lag 4 month lag
X variable Y Intercept R2 Correlation
Indonesia 0.104 -270.9 0.93 0.96
Thailand 0.042 -3.3 0.66 0.81
Singapore
(StarHub) 0.097 20.1 0.80 0.89
Philippines 0.063 -26.3 0.97 0.98
Malaysia (Digi) 0.051 6.2 0.94 0.97
Hong Kong 0.104 45.8 0.95 0.97
China 0.045 -1982.5 0.87 0.93
Average 0.072 -315.8 0.87 0.93
Median 0.063 -3.3 0.93 0.96
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Quantifying Capex and Opex relationship – US$100 capex = US$ 7 OpexE
21
Strong Capex to Opex relationship holds on a operator level, country level and regional level3
TLKM – Gross Fixed Assets vs Network costs
Source: J.P. Morgan estimates, company data *including China, R2 = 0.9719. We have removed china as its disproportionate size leads to excess skew
Regional Gross Fixed Assets vs Network Costs (Excluding China)
y = 0.1256x - 532.33R² = 0.9937
-
500
1,000
1,500
2,000
2,500
4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000
Ne
two
rk A
sset
s (U
SD
)
Gross Fixed Assets (USD)
Source: J.P. Morgan estimates, company data
y = 0.0631x - 26.281R² = 0.9701
-
100
200
300
400
500
600
700
800
900
- 2,000 4,000 6,000 8,000 10,000 12,000 14,000
Netw
ork
opex
(USD
)
Gross Fixed Assets (USD)
Philippines Gross Fixed Assets vs Network costs
Source: J.P. Morgan estimates, company data
y = 0.072xR² = 0.7291
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
- 5,000 10,000 15,000 20,000 25,000
Netw
ork c
osts
(USD
)
Gross Fixed Assets (USD)
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Quantifying Capex and Opex relationship – US$ 100 capex = US$ 7 OpexE
22
Who’s at risk? We have identified operators who have seen a meaningful upward revision in capex estimates without a meaningful upward revision in opex estimates. We expect street to revise up their opex revisions on an average 9 month lag
4
AIS (UW) StarHub (UW)
Source: Bloomberg
Source: Bloomberg
Source: Bloomberg
Digi (UW) M1 (UW)
-10%
-5%
0%
5%
10%
15%
Capex revision from base opex revision from base
-5%
0%
5%
10%
15%
20%
Capex revision from base opex revision from base
-10%
-5%
0%
5%
10%
15%
Capex revision from base opex revision from base
-20%
-10%
0%
10%
20%
30%
40%
Capex revision from base opex revision from base
Source: Bloomberg
Source: Bloomberg Source: Bloomberg
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
23
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Data and the unbalanced balance sheet
24
Data is a capital intensive business which is expanding balance sheets among EM telcos
The CAPEX and opex requirements of data growth are leading to increasing assets and leverage among Asian telcos
For the markets analyzed, 74% of EBITDA revisions were negative over the last 5 years. This suggests a routine failure
to recognize increasing opex trends across the industry, especially among emerging market telcos.
78%
62%
57%
49%
41%
37%
15%
13%
11%
-13%
-20% 0% 20% 40% 60% 80% 100%
India
Indonesia
Philippines
Thailand
Taiwan
China
Malaysia
Korea
Singapore
Hong Kong
1.07
0.93
0.63
0.55
0.28
0.27
0.25
-0.06
-0.84
-1.14
-1.50 -1.00 -0.50 0.00 0.50 1.00 1.50
Taiwan
Thailand
Malaysia
Philippines
Singapore
Indonesia
India
China
Korea
Hong Kong
Change in total assets: 2010-2015 Change in net debt to EBITDA: 2010-2015
Source: Bloomberg Source: Bloomberg
Background research- Data and the unbalanced balance sheet September 2015
This slide includes excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please contact your salesperson or the covering analyst’s team or visit www.jpmorganmarkets.com
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Stressing the balance sheet: ASEAN Case studies
25
From our case studies of ASEAN telcos, downside dividend risk begins when net debt to EBITDA reaches 1.5x and
asset sales become a realistic policy above 2.3x
Net debt to EBITDA
Dividend cuts Asset sales New equity
issued
Indosat 2.0 x 2.3 x NA
XL Axiata 1.6 x 3.0 x 3.0 x
Maxis 1.5 x NA NA
Axiata 1.0 x 1.6 x NA
SingTel 1.5 x NA NA
M1 0.7 x NA NA
PLDT 1.4 x NA NA
Median 1.5 x 2.3 x 3.0 x
Summary: Leverage triggering policy change Indonesia: XL Axiata Net debt to EBITDA and dividend payout
Indonesia: Indosat Net debt to EBITDA and dividend payout Malaysia: Maxis Net debt to EBITDA and dividend payout
0
20
40
60
80
100
120
1
1.5
2
2.5
3
Net debt to EBITDA Asset sales
Dividend cuts Dividend payout ratio (%)
Source: J.P.Morgan estimates, Bloomberg
0
10
20
30
40
50
60
00.5
11.5
22.5
33.5
Net debt to EBITDA Asset sale
Dividend cuts Dividend payout ratio (%)
0
50
100
150
200
0
0.5
1
1.5
2
2.5
Net debt to EBITDA Dividend cuts Dividend payout ratio (%)
Source: J.P.Morgan estimates, Bloomberg Source: J.P.Morgan estimates, Bloomberg
Source: J.P.Morgan estimates, Bloomberg
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Stressing the balance sheet: Who’s next?
26
We analyzed leverage levels across Asian telcos and identified which
companies are most at risk from increasing balance sheet pressure.
We looked at 2 separate criteria and compared current leverage
levels against the levels at which we saw policy changes among
ASEAN telcos
Current net debt to EBITDA levels
Change in leverage levels over the past year
The company's that we identified as most at risk are Indian operators
Reliance Communications (RCOM, UW), Bharti Airtel (BHARTI,
UW) and Idea (IDEA, N), Phil operators Globe (GLO, N) and PLDT
(TEL, UW), Thai operators AIS (ADVANC, N) and Total Access
Communication (DTAC, UW) and China Unicom (762 HK, OW).
-3 -2 -1 0 1 2 3 4 5 6 7
XL Axiata
HKT
KT Corp
Indosat
SingTel
Hutchison
LG Uplus
Taiwan Mobile
Maxis
Chunghwa Telecom
SmarTone
SK Telecom
M1 Ltd
Telekomunikasi
China Mobile
DiGi
China Telecom
DTAC
Far EasTone
Telekom Malaysia
PLDT
China Unicom
Axiata
Globe
StarHub
Reliance Communications
AIS
Bharti Airtel
Idea
Y/Y change in net debtto EBITDA (x)
Current net debt toEBITDA
Current Leverage Year on year
change
5 year change
in
Net debt to
EBITDA
Total Debt to
EBITDA
net debt to
EBITDA
net debt to
EBITDA
RCOM 6.0 x 6.3 x 0.8 x 0.8 x
BHARTI 2.6 x 2.9 x 0.9 x (0.3)x
IDEA 2.9 x 3.2 x 1.3 x 0.1 x
PLDT 1.8 x 2.2 x 0.3 x 1.3 x
Globe 1.6 x 1.8 x 0.4 x 0.4 x
China Unicom 1.7 x 2.0 x 0.4 x 0.8 x
AIS 1.2 x 1.4 x 0.8 x 1.1 x
DTAC 1.1 x 1.8 x 0.2 x 1.6 x
ASIA: Balance sheet stress analysis
ASIA: Balance sheet stress analysis
Source: J.P.Morgan estimates, BloombergSource: J.P.Morgan estimates, Bloomberg
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
27
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Interconnect > Unit costs > Voice Strategies
28
The Wave of interconnect rate cuts seen in Europe and Africa 3-5 years ago led to significant compression in voice
unit costs
A reduction in unit costs is reflected in rising off-net margins, which triggers a move from unit pricing to access
pricing and accelerates the decline in voice revenues.
The wave of interconnect rate cuts is now washing against the shores of LatAm and Asia, which represents a
significant change from previous trends (see Size Matters for historical EM interconnect analysis).
Overall revenue growth is negatively correlated with data as % of revenue. Therefore increasing interconnect
margins increases risk of sales misses and forecasting error.
A reduction in voice unit costs can trigger a move from unit to access pricing
Voice revenues driven by off-net margin trends Service revenue growth negatively correlated to rising data as % of revenue
We see a changing interconnect environment leading to sales forecasting risk with Indonesia (EXCL), Philippines (PLDT) and India (Bharti) most at risk , in our view
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Falling voice = Rising Capex
29
The capital intensity of data is significantly higher than voice, therefore as incremental revenue drivers shift from voice to
data, overall capital intensity increases structurally.
There is a clear and measurable positive correlation (0.76) between data and capex to sales. Therefore a change in
interconnect environment can lead to increased data as % of overall revenues and therefore capex forecasting risk.
Data is more capital intensive than voice which is a sunk cost to may operators
Voice revenues driven by off-net margin trends
We see a changing interconnect environment leading to capex forecasting risk with Indonesia (EXCL/ISAT), Philippines (GLO) and Malaysia (TM, Axiata, Maxis) most at risk
JPM vs Street CAPEX forecasts 2017-19E
Source for both charts: Company, Bloomberg, J.P. Morgan estimates
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
30
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Asset Restructuring: The only option for EM wireless
Economic Argument
Core thesis: Given our previous estimations of EBITDA margin compression, EM telcos have no choice but to fundamentally change the structure of industry assets through the unification of networks via nationalization, centralization under a regulated return utility, or more aggressive commercial network sharing.
ROIC trending towards unsustainable levels
Asset restructuring is not only necessary to revive the fortunes of EM wireless Telcos but is also needed to promote economicgrowth in EM
Public Policy Argument
Core thesis: Communications infrastructure is critical to GDP growth, with the World Bank estimating 10ppts of
broadband penetration drives 1.4% GDP growth. The Digital Divide is far worse than many development
organizations capture, as they focus on subscriptions rather than download speeds. Governments will face a
choice between below potential GDP growth, or intervention in telecom markets.
A well developed communications infrastructure is necessary for optimal GDP growth
Past developments in communications infrastructure has led to significant productivity growth
Historic underinvestment in EMs have seen them left behind and revenue opportunities are insufficient to
bridge the gap under the current industry model
Background research- On nationalization of Networks -April 2016
31
This slide includes excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please contact your salesperson or the covering analyst’s team or visit www.jpmorganmarkets.com
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Economic Argument
Current forecast data growth results in CAPEX and OpEx inconsistent with available revenue growth, driving 12ppts EBITDA margin decline by 2024. Significant restructuring of the asset base is the only option
1
Operators need to change their strategies to specifically match incremental asset bases with the realistic incremental revenue opportunity, or face ongoing structural compression in returns on capital, as well as valuation multiples
Network owners continue to capture a falling
share of overall ecosystem value
This declining value capture is paired with a
significant, and ongoing, increase in capital
intensity
2
6.00
7.00
8.00
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
DM EM
Source: J.P. Morgan estimates, Bloomberg
3EMs’ ROIC will continue to trend lower to unsustainable levels without significant asset restructuring
Industry ROIC will trend lower to unsustainable levels without industry wide asset restructuring
Background research- Mommas, don’t let your babies grow up and buy telcos... June 2013
ROIC trends: DM vs. EM telcos, 2004-14
Source: J.P. Morgan estimates, Bloomberg
Revenue vs. capex growth trends: GEM telcos
32
This slide includes excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please contact your salesperson or the covering analyst’s team or visit www.jpmorganmarkets.com
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Governments will face a very clear decision between
inaction, and structurally lower levels of economic
growth; or significantly more regulatory intervention in
telecom markets, possibly through the introduction of
nationalized networks
Communication infrastructure is a key driver of GDP
growth: World Bank estimates that every 10% in
broadband penetration drives over 1.38% of GDP
growth
Source: IMF, McKinsey Global Institute, J.P. Morgan
Public Policy Argument: Asset Restructuring a requirement for optimal
GDP growth Government inaction could result in less than optimal GPD growth
Source: World Bank, J.P. Morgan.
1.1
1.15
1.2
1.25
1.3
1.35
1.4
EM DM
MGI connections Index vs Per Capita GDP Impact on GDP growth of a 10% increase in Broadband penetration
33This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Public Policy Argument: Connectivity driving productivity Communication services have driven significant productivity changes in the past
Source: Syverson 2013, Crafts 2015, J. P. Morgan
Labor productivity changes during the phase of
electrification in the US from 1890-1940 match
those seen from the rise in communication and
computing technologies during 1970-Present
Direct connection between particular
communication technologies, inclusive of
websites and ecommerce infrastructure, and
productivity gains
Source: Jenson, Oxford University, J.P. Morgan
When mobile phones were introduced in
Kerala, it resulted in a significant increase in
productivity, through better price discovery,
seen through price dispersion pre and post
mobile phone adoption
US labor productivity during electrification era vs. ICT era
Mobile Phone proliferation vs. price dispersion in local markets
34This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Public Policy Argument: EMs being left behind EMs’ digital adoption levels are significantly behind DM and available incremental revenues in EM’s are insufficient to support the required network investment
Source: World Bank Development Report / Oxford Internet Institute
1 Adoption rates of digital technologies are clearly
related to income levels
2
While EM wireless services look inexpensive on an
absolute basis relative to DM charge levels, they are
clearly still very dear relative to income levels
3The north/south divide in fixed line broadband pricing: Lack of competition, low levels of investment and the inertia of state owned incumbents in many markets leaves EM fiber services extremely expensive on an absolute basis
1 2
3
Digitization vs. Income levels
Price of fixed broadband services
DM vs. EM wireless pricing: absolute and relative to income
Source: World Bank, J.P. Morgan. Source: ITU Database
35This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Asset Restructuring: Quantifying historical underinvestment in EM
Source: J.P. Morgan estimates, Company data. Source: OpenSignal, J.P. Morgan
Rank
1
2
3
We can quantify the historic under investment across EM Asia first by looking at differential asset bases, and then at the impact
these differential asset bases have on network quality. There is a clear correlation between asset base and network quality
GFA/Sub averages over USD1,000 in markets like Korea, while markets like India struggle to break the USD100 barrier
Gross Fixed Assets per subscriber Average download speeds by country and network
EMs have a significantly lower asset base per subscriber than DM’s and it shows through network quality.
36
2.19
2.25
2.50
2.72
3.03
3.21
3.27
3.40
4.54
4.84
6.23
6.35
6.60
8.66
13.23
15.87
16.42
25.90
27.73
43.34
45.83
0.00 10.00 20.00 30.00 40.00 50.00
Philippines 3G
Thailand 3G
Laos 3G
Indonesia 3G
Malaysia 3G
Pakistan 3G
Sri Lanka 3G
Bangladesh 3G
Myanmar 3G
Vietnam 3G
Taiwan 3G
Singapore 3G
Indonesia 4G
Philippines 4G
Thailand 4G
Malaysia 4G
Hong Kong 4G
Japan 4G
Taiwan 4G
South Korea 4G
Singapore 4G
Nov-Jan17 oct-dec 16 sep-nov 16 aug-oct 16
Jul-sep 16 jun-aug 16 may-jun 16
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
M&A Primer: Asset vs. Cash Flow valuations?
Source: J.P. Morgan estimates, Company data.
Buy vs. Build Decisions explained (Malaysia / Singapore): The markets with the largest spread between JPMe replacement
value and current enterprise value are in Malaysia and Singapore, which supports a build rather than buy strategy for new
entrants, this is supported by the recent build strategies of Telekom Malaysia and Umobile in Malaysia and TPG in Singapore.
Potential M&A destination markets (Indonesia / Thailand / India): Large upside to replacement value from current
enterprise value may provide justification for an acquirer to pay more than current share price.
Indosat / XL (150%/101% upside to replacement value): M&A or network nationalization appears to be viable options to
break PT Telkom’s significant pricing power in the market.
DTAC (86% upside to replacement value): Our OW thesis is based on the argument that spectrum acquisition or network
sharing creates a terminal value for the shares. In our view, this is a clear example where purely focusing on analysis of
going concern structures misses the potential future state and asset value
Idea (70% upside to replacement value): Our colleague covering Vodafone calculated 40% upside to combined Vodafone
/ Idea merge. Our analysis is also supportive of this upside, showing 70% upside to replacement value.
We compare replacement values against current enterprise value and cash flow valuations to indicate which markets are ripe for M&A.
37
339%
213% 206%
150% 150%105% 101% 91% 86% 81% 70% 53% 40% 34% 32% 19% 17% 11%
-13% -17% -17% -21% -28% -32%-55% -75% -81%-150%
-100%-50%
0%50%
100%150%200%250%300%350%400%
Replacement value upside from current Enterprise value
“Build markets”“Buy markets”
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
38
1%
2%
2%
4%
6%
7%
8%
9%
10%
10%
10%
12%
16%
17%
17%
19%
21%
24%
30%
32%
45%
47%
54%
98%
0% 20% 40% 60% 80% 100% 120%
Maxis
Digi
PT Telkom
StarHub
HKT
Chunghwa Telecom
M1
SingTel
LGU+
Taiwan Mobile
SK Telecom
KT Corp
Globe
Indosat
Fareast tone
XL
PLDT
DTAC
AIS
Hutch
Bharti
Smartone
TRUE
Idea
Mark to market spectrum value as % of Enterprise value
Vodafone / Idea – a merger could offer >40% upside
M&A Primer: Asset vs. Cash Flow valuations?We compare replacement values against current enterprise value and cash flow valuations to indicate which markets are ripe for M&A.
1 2
1
2
Spectrum can account for high proportion of replacement
values: In India, Hong Kong and Thailand we find that
spectrum can make up >40% of an operators overall enterprise
value. In the case of Idea, spectrum accounts for ~100% of the
operators enterprise value.
Vodafone / idea merger could offer 40% upside: Akhil Dattani
argument for a Vodafone / Idea merger is supported by our
analysis as the majority of Idea’s value is held through
spectrum. Consolidation could repair fixed asset valuations.
Background researchM&A primer: Asset vs. Cash flow valuations- Jan 2017Vodafone – Jan 17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
39
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Asset Restructuring becoming a reality?
Recent developments within certain Emerging Markets has shown significant action / interest regarding Asset Restructuring.
Tower Co. has consolidated country wide
tower assets, saving on industry wide CAPEX.
A significant step towards broader restructuring
The Thai government has already indicated
that network assets will likely sit under a
National Telco Infrastructure Fund (NTIF),
exact format is yet to be disclosed
The Indonesian government has made
redrafting legislation on network sharing a key
priority, which could lead to a Multi-Operator
Core Network (MOCN)
Asset restructuring in EM wireless is gathering pace
Current developments Past developments
Introduction of the National Broadband Network
(NBN) and rollout of the HetNet will integrate
wireless, fixed and Wi-Fi networks
Background research- NBN Enhances Competitive Positioning June 2013- Smart Nation, HetNet, and potential implications for wireless June 2015
Background research- Build-A-Tower Co. April 2015
Tower Co
National Telco Infrastructure Fund
Multi-Operator Core Network
HetNet and National Broadband Network
Australian NBN
Also a NBN and designed to replace the previous
copper system. The NBN will help share the
capex burden among providers, a similar model
would be ideal in the wireless space
Background research- Coalition would accelerate NBN - and TLS cash flow April 2013
Background research- Travels with Sully June 2016
China
Thailand
Indonesia
Singapore
Australia
40
This slide includes excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please contact your salesperson or the covering analyst’s team or visit www.jpmorganmarkets.com
Multi-Operator Core Network
Mexico
Mexico could enact legislation to promote fixed
line unbundling (a.k.a: network sharing) in
2017. While 700MHz has been deployed for a
wholesale only 4G network to be built by Altan.
Background research- Unbundling is net chapter in Regulatory Headwinds: June 2016
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Tower Co. is consolidating network assets and helping to save on CAPEX for China Telcos.
Tower assets injected into Tower Co.
Tower Co. acquired Rmb231.4bn of tower assets from three Telcos on Oct 31, 2015, including RMB214bn from listco’s
Tower Co helping second tier players (China Unicom / China Telecom) catch up on coverage
Tower Co. built 220K new towers last year
Saved the need for 265K new towers
74% of new towers are shared
China Unicom potentially the largest beneficiary due to highest stake value to market cap ratio, followed by China
Telecom
Asset Restructuring becoming a reality? China TelcosTower Co. helping second tier players catch up on coverage
Source: Company data and J.P. Morgan estimates.
41This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Summary of our conversation with Dr. Uttama Savanayana, Thai Minister of Communications.
National Wireless Network?
It seems likely that a significant percentage of network assets will eventually sit in some form of National Telco
Infrastructure Fund (NTIF)
The Government will likely hold a stake (best assumption 25- 30%) in this fund, with private investors and
telecom operators owning the residual
Operators, inclusive of the TOT and CAT as well as private carriers, could sell their network assets into the fund
(towers for example) in return for cash that they could then reinvest in services
Spectrum policy
Spectrum sharing regulations have passed their second reading in parliament and are expected by year end, it
remains to be seen whether spectrum assets could be sold to the NTIF
Fiber NBN already underway
BT15bn of fiber asset rollouts and Bt5bn of submarine cable expansion will all sit with the Ministry rather than
within either TOT or CAT
Asset Restructuring becoming a reality? Thai TelcosNational Telco Infrastructure Fund (NTIF) could hold network assets
42This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Recent news reports have suggested that the Indonesian government is moving toward formalizing rules for
network sharing
Communication and Informatics Minister Rudiantara has made redrafting 2 government regulations on
telecommunications his main job in order to drive efficiencies in the industry, network sharing is a key part of the
revisions
Network sharing expected to reduce CAPEX
Reported that an Indonesian telecommunication operator has claimed that if network sharing was allowed by the
government it could reduce investment costs by 40%
Communications and Information Ministry preparing Multi-Operator Core Network (MOCN) Scheme to facilitate
network sharing
Source: Jakarta Post
Asset Restructuring becoming a reality? Indonesian TelcosMOCN Scheme could lead to network sharing
43This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
700MHz deployed for wholesale only LTE network
Altan wins deal to build and operate a nationwide wholesale mobile network. MVNO’s or current MNO’s can use
the network to expand their services and/or coverage.
Altan to build out a nationwide LTE network covering >90% of the population at an estimated cost of US$7bn. The
network will likely use 10,000 towers and use CFE fiber connections.
The wholesale network should support competition and reduce capex requirements for wireless service providers.
Source: The Wall Street Journal
Unbundling of fixed line would allow TV/SKY to use AMX/Telmex network for a fee
Mexican government likely to mandate fixed line network sharing in 2017.
SKY would be able to sell triple-play packages by adding voice and broadband to its pay TV products. While Other
players, such as Axtel or TotalPlay could expand to areas where they have no coverage.
Asset Restructuring becoming a reality? Mexico TelcosAltan to build wholesale LTE network and fixed line services to be unbundled
44This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Asset Restructuring: Winners and Losers 2nd-tier providers to benefit most as network speed and coverage gaps are eliminated
Winners
Losers
2nd Tier providers:
Elimination of network speed and coverage gaps reduces market leaders
competitive advantage
Providers now compete on service and not asset quality
Easier customer acquisition
Incremental CAPEX requirements significantly reduced
Less duplication of assets creates cost efficiencies among providers
As assets fall, significant ROIC increases
Market leaders:
Elimination of competitive advantage reduces ability to maintain/ grow
subscriber base
Uncertainty over asset pricing might means current assets under priced during
restructuring
Fails to see benefit of previous asset base build out
Comparative cost efficiencies reduced
Tower Companies
Reduced capex within industry leads to a smaller overall asset base
45This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
What does Asset Restructuring look like?Asset restructuring can take several forms, we believe a fully integrated model is optimal
TowersShelter and
generators Spectrum
Base
Transceiver
Station
1
Tower only
Model
China Model
(sup-optimal)
Local wireless providers Centralized entity
Service
TowersShelter and
generators Spectrum
Base
Transceiver
Station
2
PPE integrated
Model
US model
(sufficient)
Local wireless providers Centralized entity
Service
TowersShelter and
generators Spectrum
Base
Transceiver
Station
3
Fully integrated
Model
(Optimal)
Local wireless providers Centralized entity
Service
46This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
47
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
JPM Factor Analysis Model
48
JPMC Asia / EM QMI state cycle JPMC Asia / EM QMI state cycle
JPMC Asia / EM QMI state cycle – current position
The EM/Asia QMI is currently in the EXPANSION state. It recently also tested the Slowdown state – we have now been in Expansion for 6 months and it appears to now have 'late cycle' characteristics. This means we prefer blended yield and earnings based Value and Momentum
again.
Overall market conclusion
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Applying Factors to Telcos
Since December 2016, Value and Beta stocks have
outperformed the rest of the market.
Beta value spread now stands at 0.9x P/E as investors
continue to show preference for high beta stocks in last 4
months
Value spreads narrowed to 23x but is still above the
historical average of 19x
Solidly in Expansion state - Prefer blended yield and
earnings based Value, Momentum and high vol (beta)
High vs. Low Forward P/E Spreads between high and low beta stocks
Key factor performances for MSCI Asia ex-japan: 20167YTD
49
Summary
Cheapest vs. Expensive Forward P/E – MSCI Asia ex-japan
Background research- Quant manager monthly- ASIA: March 2017
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
50
We have applied our quant team’s current factor expectations to Telcos by applying the following weights to different factors
and screening Asian Telco’s for exposure to those factors
Telco Screen Rules
Applying Factors to Telcos
We screen Asian Telco’s for exposure to our quant teams favored factors
Factor Metric Weight Comment
Value
Earnings yield Inverted P/E 1 yr fwd 15% Solidly in expansion state, prefer equal weight of dividend yield and earnings yield as protection against slowdown. Value spread continuing to narrow, providing additional support to value
Value P/BV – current 0%
Dividend yield Dividend Yield 15%
Momentum Historical momentum 12 Mth return 20% Overweight momentum due to expansion state.
Forward momentum EPS FY2 3mth % Chg 20%
Growth Growth EPS FY1 to FY2 10%
Quality
Quality Returns ROE – current 0% Too soon for quality but will rotate into this factor (from growth) if signs of slow down materialize
Stable Returns EPS stability 0%
Volatility
Size Current market value -10% High beta stocks have been preferred over past 4 months. We continue to prefer high beta and small capsBeta Beta (BBG adjusted) 10%
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
51
Telco Screen Output
Applying Factors to Telcos
We screen Asian Telco’s for exposure to our quant teams favored factors
Name JPMe RatingPE 1-Yr
Fwd(Inverted)
P/BV FY0 (Inverted)
Div YldFY0
12 Mth Ret USD
EPS FY2 3mth %
CHG
EPS FY1 to FY2
ROE FY0EPS
Stability
Current Market Val
(US$M)
Beta (Bloomberg Adjusted)
FINAL RANK
LG Uplus Corp OW 9.1% 75.7% 1.9% 37.9% 5.0% 9.0% 8.1% 36.5% 5,079.3 0.04 96%SK Telecom Co Ltd N 9.7% 92.7% 4.3% 15.8% 13.3% 3.5% 10.2% 13.2% 14,229.9 0.29 93%KT Corp OW 10.5% 150.4% 2.6% 16.4% 1.4% 6.6% 7.2% 273.9% 6,579.1 0.21 89%HKT Trust OW 6.4% 49.7% 6.0% 1.9% 1.0% 5.2% 12.7% 10.4% 10,123.6 0.16 85%
Telekomunikasi Indonesia (Persor) Tbk PT OW 6.0% 19.9% 2.5% 16.7% -0.7% 14.8% 21.7% 9.3% 28,499.1 0.94 81%Advanced Info Service PCL UW 6.0% 8.4% 5.9% 1.9% -1.5% 6.5% 67.4% 12.0% 14,362.9 1.17 78%Globe Telecom, Inc. N 6.0% 24.4% 4.5% 1.6% -2.4% 4.1% 29.0% 12.9% 4,834.5 1.06 74%Singapore Telecommunications Limited N 6.6% 40.2% 4.5% 5.0% -1.9% 5.7% 15.6% 2.6% 44,979.0 0.89 70%Far EasTone Telecommunications Co., Ltd. N 4.8% 29.4% 5.1% 18.8% -4.0% 5.0% 15.9% 2.8% 7,772.8 0.25 67%China Mobile Ltd. OW 7.7% 59.2% 2.9% 2.8% -0.7% 7.5% 12.0% 6.8% 224,441.6 0.67 63%China Telecom Corporation Limited OW 8.4% 117.3% 3.0% -4.3% -3.0% 13.4% 6.8% 11.9% 37,528.8 0.81 59%MAXIS BERHAD UW 3.9% 9.9% 3.2% -2.2% 2.5% -0.8% 45.2% 4.5% 10,672.5 0.58 56%PLDT Inc UW 6.6% 36.2% 8.4% -20.6% -6.3% -14.0% 17.8% 13.4% 6,204.3 1.12 52%
PCCW Ltd N 6.8% 32.6% 5.9% 3.6% -12.9% -7.3% 17.8% 41.1% 4,753.0 0.33 48%XL Axiata Tbk PT N 2.1% 56.3% -27.4% -8.2% 144.2% -0.2% 149.8% 2,308.1 1.19 44%DiGi.Com Bhd UW 4.2% 1.3% 4.2% -3.5% -3.2% 0.5% 314.4% 12.5% 8,709.7 0.95 41%Taiwan Mobile Co Ltd N 5.2% 20.5% 15.9% -4.6% 5.7% 25.5% 4.2% 9,520.5 0.43 37%Chunghwa Telecom Co., Ltd N 5.1% 46.4% 5.4% 7.6% -6.6% 3.2% 11.7% 6.4% 25,631.4 0.24 33%Tower Bersama Infrastructure Tbk PT OW 6.2% 6.4% 1.1% -16.6% -9.0% 12.9% 79.3% 24.2% 1,792.1 0.67 30%China Unicom (Hong Kong) Limited OW 3.5% 116.6% 2.0% 5.6% -16.3% 274.6% 4.6% 135.6% 28,747.9 0.83 26%Bharti Infratel Ltd OW 5.3% 31.2% 1.0% -14.5% 0.7% 7.0% 12.7% 13.6% 8,534.8 0.35 22%Telekom Malaysia Berhad OW 3.7% 32.9% 3.5% -9.2% -6.8% 6.5% 10.0% 15.5% 5,255.9 0.55 19%Axiata Group Bhd N 4.2% 56.9% -25.0% -14.8% 9.8% 2.1% 23.2% 9,306.3 1.35 15%
True Corporation PCL N -0.6% 59.5% 0.0% -14.3% -33.3% 133.3% -2.7% 125.1% 6,277.0 1.77 11%StarHub Ltd. UW 5.6% 3.9% -12.3% -14.3% -3.1% 178.5% 7.7% 3,518.8 0.41 7%Idea Cellular Ltd N -3.4% 64.7% 0.5% 2.9% -777.5% -160.9% 12.6% 108.8% 5,965.2 0.76 4%Bharti Airtel Limited UW 2.6% 47.0% 0.4% 10.1% -29.3% -14.8% 8.9% 59.4% 21,275.6 0.63 0%
Overall market conclusion
When combining our bottom up analysis with factor analysis we conclude (1) Reiterate OW calls on LGU, KT, HKT, TLKM. (2) Reiterate UW calls on Bharti, STH
Source: J.P. Morgan estimates, Bloomberg – Purple Buy, Orange sell
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
52
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
What to buy? what to sell?
Source: Bloomberg; J.P. Morgan estimates, prices as of March 16, 2017
53
• We look for broad telecom sector underperformance as Asia earnings growth outlook improves and investors
shift from defensive yield strategies towards value beta plays. We look for exposure to stable DM integrated
players within defendable FCF (KT/LGU+), carriers with a significant network quality gap to peers enabling
pricing power (TLKM) or EM players where industry asset restructuring (network nationalization, significant
network sharing) is driving ROIC improvement (China Telecom).
Asia telecom top picks and stocks to avoid
Mkt cap Div. yield ROE
Price (LC) Code Rating (US$MM) 17E 18E 17E 18E 17E (%) 17E (%)
Top picks
LG Uplus 14,750 032640 KS OW 5,627 10.9 8.7 1,356.9 1,702.6 3.08% 11.74%
KT Corp 32,650 030200 KS OW 7,446 9.4 7.6 3,490.0 4,306.0 3.72% 7.20%
Telekomunikasi 4,140.0 TLKM IJ OW 30,992 17.9 16.1 231.11 257.82 3.38% 27.71%
BHARTI AIRTEL 360.7 BHARTI IN UW 21,606 41.4 39.0 8.7 9.2 0.83% 5.20%
AIS 175.0 ADVANC TB UW 14,925 20.1 19.3 8.7 9.1 3.47% 59.68%
P/E (x) EPS (LC)
Stocks to avoid
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Page
Agenda
Summary: Year Ahead 2017 3
5 years of Developed Markets integrated success 6
How Telcos trade 9
Why have Emerging Markets underperformed 11
Data and the unbalanced balance sheet 24
Is Asset Restructuring becoming a reality? 40
Applying factor analysis to Telcos 48
What to Buy? What to Sell? 53
Appendix 55
54
Asset Restructuring: Only option for Emerging Market wireless 31
EM interconnect, voice and capex risks 28
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
AppendixNetwork quality statistics – Bangladesh, Hong Kong, Indonesia, Japan, Laos
Bangladesh 3G Hong Kong 4G
Indonesia 3G
All charts: Source: OpenSignal, J.P. Morgan
Indonesia 4G
Japan 4G Laos 3G
55
8.35
4.68
16.45
10.02
3.48
4.80
10.12
7.98
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
Indosat Smartfren Telkomsel XLMay-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.452.94
0.63
5.44
3.16
2.171.84
0.60
5.69
3.28
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
3 Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
23.06
9.28
26.64
16.9118.43
8.96
25.74
12.56
0.00
5.00
10.00
15.00
20.00
25.00
30.00
3 CMHK csl. SmarTone
May-Jun 16 Jun-Aug16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
24.42
20.63
27.2627.57
21.96
28.16
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
KDDI NTT DoCoMo SoftBank
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
1.89
2.96
2.14
2.85
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Lao Telecom Unitel
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
3.18 3.18
3.99
2.843.23
2.76
4.41
3.18
0.000.501.001.502.002.503.003.504.004.505.00
Airtel Banglalink Grameenphone Robi
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
AppendixNetwork quality statistics – Malaysia, Myanmar, Pakistan, Philippines
Malaysia 3G Malaysia 4G
Myanmar 3G
All charts: Source: OpenSignal, J.P. Morgan
Pakistan 3G
Philippines 3G Philippines 4G
56
7.00
9.23
7.43
9.89
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Globe Smart
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.161.99
2.252.13
0.00
0.50
1.00
1.50
2.00
2.50
Globe Smart
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
3.61
2.55
3.07 3.143.30
2.91 3.052.86
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Celcom DiGi Maxis U Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
4.173.64
4.824.48
3.31
5.82
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
MPT Ooredoo Telenor
May-Jun 2016 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
3.22
1.86
3.463.67
2.49
3.47
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Mobilink Telenor Zong
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
13.7915.31
19.38
14.3015.71 15.01
21.20
11.56
0.00
5.00
10.00
15.00
20.00
25.00
Celcom DiGi Maxis U Mobile
May-Jun 16 June-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Network quality statistics – Singapore, South Korea, Sri Lanka, Taiwan
Singapore 3G Singapore 4G
South Kora 4G
All charts: Source: OpenSignal, J.P. Morgan
Sri Lanka 3G
Taiwan3G Taiwan 4G
Appendix
57
39.1444.46
51.6047.51
37.42
52.55
0.00
10.00
20.00
30.00
40.00
50.00
60.00
M1 SingTel StarHub
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
5.20
6.175.48
6.64 6.89
5.51
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
M1 SingTel StarHub
May-July 2016 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
42.1343.09
47.46
44.86 44.96
40.19
36.00
38.00
40.00
42.00
44.00
46.00
48.00
50.00
LG U+ olleh SKTelecom
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
28.9425.32
23.24
28.3127.06
32.23
21.73
29.88
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Chunghwa FarEasTone T Star Taiwan Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
6.16
7.12
3.73
7.41
6.49
7.43
4.12
6.88
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Chunghwa FarEasTone T Star Taiwan Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.73 2.94
5.06
2.03
3.292.97 3.05
5.18
1.87
3.25
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Airtel Dialog Etisalat Hutch Mobitel
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Network quality statistics – Thailand, Vietnam
Thailand 3G Thailand4G
Vietnam 4G
All charts: Source: OpenSignal, J.P. Morgan
Appendix
58
20.18
14.40 13.6813.02 13.26 13.40
0.00
5.00
10.00
15.00
20.00
25.00
AIS DTAC TrueMove
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.582.88
1.912.03
2.472.25
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
AIS DTAC TrueMove
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
3.273.68 3.53
4.865.47
4.20
0.00
1.00
2.00
3.00
4.00
5.00
6.00
MobiFone Viettel Mobile Vinaphone
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Network quality statistics – Regional- India
India: Karnataka 3G
India: Maharashtra 3G
All charts: Source: OpenSignal, J.P. Morgan
India: Maharashtra 4G
India: Delhi 3G India: Delhi 4G
Appendix
59
2.462.75
1.94
4.32
2.76
3.68
2.18
4.74
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Aircel BSNL Mobile TATA DoCoMo VodafoneMay-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16
3.32 3.15
1.74
3.13
3.91
3.38
1.84
3.52
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Airtel Idea Reliance Vodafone
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16
17.55
8.549.57
16.10
8.57 8.00
0.002.004.006.008.00
10.0012.0014.0016.0018.0020.00
Airtel Idea Vodafone
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
4.09
2.36 2.502.16 2.01
4.26
4.90
2.813.12 2.91
2.43
4.34
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Airtel BSNL Mobile Idea Reliance TATA DoCoMo Vodafone
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16
10.50
4.46
12.07
8.79
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Airtel Vodafone
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Network quality statistics – Regional- Indonesia
Indonesia: Banten 3G
Indonesia: Jakarta Raya: 3G
All charts: Source: OpenSignal, J.P. Morgan
Indonesia: Jakarta Raya: 4G
Indonesia: Jawa Barat 3G Indonesia: Jawa Barat 4G
Indonesia : Banten 4G
Appendix
60
8.055.69
25.99
8.74
3.09
6.31
16.64
6.94
0.00
5.00
10.00
15.00
20.00
25.00
30.00
Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.26
3.87
0.67
6.61
3.24
1.84 2.15
0.56
6.98
3.58
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
3 Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
10.19
7.43
18.35
9.42
3.30
6.65
13.02
7.24
0.002.004.006.008.00
10.0012.0014.0016.0018.0020.00
Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.46
3.83
0.68
6.70
3.51
2.52 2.27
0.68
7.37
3.82
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
3 Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
7.94
4.51
17.83
9.87
3.29 3.85
10.75
6.77
0.002.004.006.008.00
10.0012.0014.0016.0018.0020.00
Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.20
3.17
0.60
5.92
2.89
2.03 1.85
0.54
5.93
3.08
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
3 Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Network quality statistics – Regional- Indonesia, Malaysia
Indonesia: Jawa Tengah 3G
Indonesia: Jawa Timur 3G
All charts: Source: OpenSignal, J.P. Morgan
Indonesia: Jawa Timur 4G
Malaysia: Central region 3G Malaysia: Central region 4G
Indonesia: Jawa Tengah 4G
Appendix
61
7.69
3.44
15.1813.16
4.004.87
17.17
11.76
0.002.004.006.008.00
10.0012.0014.0016.0018.0020.00
Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.48 2.63
0.54
4.93
2.572.08
1.68
0.57
5.72
2.99
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
3 Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
9.26
4.28
16.86
12.71
4.285.79
13.98
11.27
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.67 2.70
0.61
4.84
3.50
2.311.81
0.68
5.79
3.47
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
3 Indosat Smartfren Telkomsel XL
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
15.80 15.85
19.89
14.44
19.10
14.96
20.36
11.26
0.00
5.00
10.00
15.00
20.00
25.00
Celcom DiGi Maxis U Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
4.13
2.84
3.432.96
3.82
3.083.52
2.52
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Celcom DiGi Maxis U Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Network quality statistics – Regional- Malaysia, Pakistan, Philippines
Malaysia: Southern region 3G
Pakistan: Punjab 3G
All charts: Source: OpenSignal, J.P. Morgan
Pakistan: Sind 3G
Philippines: NCR 3G Philippines: NCR 4G
Malaysia: Southern region 4G
Appendix
62
7.50
11.04
7.88
10.77
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Globe Smart
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.73
2.94
2.80
3.07
2.30
2.40
2.50
2.60
2.70
2.80
2.90
3.00
3.10
Globe Smart
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
13.4014.75
20.37
15.2115.48 15.52
24.10
11.12
0.00
5.00
10.00
15.00
20.00
25.00
30.00
Celcom DiGi Maxis U Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
3.14
2.572.97
3.223.242.93 3.03
3.21
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Celcom DiGi Maxis U Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
3.05
1.54
2.87
3.443.17
2.36
3.323.57
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Mobilink Telenor Ufone Zong
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
3.72
2.642.37
3.67
4.98
3.21
2.26
3.53
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Mobilink Telenor Ufone Zong
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Network quality statistics – Regional- Philippines, South Korea
Philippines: South Luzon 3G
Philippines: Visayas 3G
All charts: Source: OpenSignal, J.P. Morgan
Philippines: Visayas 4G
South Korea: Gyeonggi-do 4G South Korea: Seoul 4G
Philippines: South Luzon 4G
Appendix
63
8.93
5.99
7.89 7.52
0.001.002.003.004.005.006.007.008.009.00
10.00
Globe Smart
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
2.00
1.37
2.21
1.87
0.00
0.50
1.00
1.50
2.00
2.50
Globe Smart
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
3.84
7.70
6.46
8.37
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Globe Smart
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
1.95
1.46
2.02
1.58
0.00
0.50
1.00
1.50
2.00
2.50
Globe Smart
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
42.7746.99 49.37
42.75 44.7340.58
0.00
10.00
20.00
30.00
40.00
50.00
60.00
LG U+ olleh SKTelecom
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
50.95
42.0845.6748.02
39.6636.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
LG U+ olleh SKTelecom
May-June 2016 June-August 2016 Oct-Dec 16 Nov'16-Jan'17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Network quality statistics – Regional- Taiwan
Taiwan: Kaohsiung 3G
Taiwan: New Taipei 3G
All charts: Source: OpenSignal, J.P. Morgan
Taiwan: New Taipei 4G
Taiwan: Taichung 3G Taiwan: Taichung 4G
Taiwan: Kaohsiung 4G
Appendix
64
25.6521.86
28.6524.78
26.56
34.55
23.83
30.40
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
Chunghwa FarEasTone T Star Taiwan Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
7.17 7.24
3.72
7.837.37
8.62
4.42
6.85
0.001.002.003.004.005.006.007.008.009.00
10.00
Chunghwa FarEasTone T Star Taiwan Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16
29.15
23.3120.21
26.4927.55
31.90
20.92
29.99
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Chunghwa FarEasTone T Star Taiwan Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
6.917.45
4.18
7.997.16
7.73
3.86
7.48
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Chunghwa FarEasTone T Star Taiwan Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
29.97 30.57
22.0126.17
31.12
36.27
22.74
30.19
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
Chunghwa FarEasTone T Star Taiwan Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
7.216.64
3.35
7.97
5.946.39
2.96
7.89
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Chunghwa FarEasTone T Star Taiwan Mobile
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Network quality statistics – Regional- Thailand
Thailand: Central 3G
Thailand: North 3G
All charts: Source: OpenSignal, J.P. Morgan
Thailand: North 4G
Thailand: Northeast 3G Thailand: Northeast 4G
Thailand: Central 4G
Appendix
65
20.24
14.72 14.1014.6313.33
16.24
0.00
5.00
10.00
15.00
20.00
25.00
AIS DTAC TrueMove
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
3.393.07
2.152.50
2.782.58
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
AIS DTAC TrueMove
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
23.53
16.9015.82
18.27
13.8712.64
0.00
5.00
10.00
15.00
20.00
25.00
AIS DTAC TrueMove
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
3.13
3.74
2.252.57
2.792.36
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
AIS DTAC TrueMove
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
20.74
14.61 15.0212.52 12.00 11.16
0.00
5.00
10.00
15.00
20.00
25.00
AIS DTAC TrueMove
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16
2.37
2.72
1.651.82
2.32 2.21
0.00
0.50
1.00
1.50
2.00
2.50
3.00
AIS DTAC TrueMove
May-Jun 16 Jun-Aug 16 Jul-Sep 16 Aug-Oct 16 Sep-Nov 16 Oct-Dec 16 Nov'16-Jan'17
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Disclosures
Companies Discussed in This Report (all prices in this report as of market close on 16 March 2017)China Telecom (0728.HK/HK$3.66/Overweight), KT Corp. (030200.KS/W32650/Overweight), LG Uplus (032640.KS/W14750/Overweight)
Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.
Research excerpts: This note includes excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please contact your salesperson or the covering analyst’s team or visit www.jpmorganmarkets.com.
Important Disclosures
Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in securities issued by LG Uplus, KT Corp.. Market Maker/ Liquidity Provider (Hong Kong): J.P. Morgan Securities (Asia Pacific) Limited and/or J.P. Morgan Broking (Hong Kong) Limited and/or an affiliate is a market maker and/or liquidity provider in the securities of China Telecom and/or warrants or options thereon, which are listed or traded on The Stock Exchange of Hong Kong Limited. Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of China Telecom. Client: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients: China Telecom, KT Corp.. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients, and the services provided were non-investment-banking, securities-related: KT Corp.. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from KT Corp.. Other Significant Financial Interests: J.P. Morgan owns a position of 1 million USD or more in the debt securities of LG Uplus, China Telecom, KT Corp..
Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected].
66This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Disclosures
67
0
3,562
7,124
10,686
14,248
17,810
21,372
24,934
Price(W)
Aug07
Feb09
Aug10
Feb12
Aug13
Feb15
Aug16
LG Uplus (032640.KS, 032640 KS) Price Chart
N W9,500 N W6,500 OW W13,500OW W14,000OW W14,800OW W14,000OW W19,000
OW W10,500 N W8,000UW W5,300 OW W13,000OW W13,800OW W11,200OW W17,000OW W13,500OW W15,000
OW W12,000OW W10,000N W10,000N W9,400 N W8,800 N W5,300N W6,500N W8,000N W9,000NR OW W13,000OW W16,000OW W16,000OW W12,000OW W14,500
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Break in coverage Sep 19, 2013 - Nov 15, 2013.
Date Rating Share Price (W)
Price Target (W)
10-Oct-07 OW 9450 12000
31-Jan-08 OW 8430 10000
29-Apr-08 OW 8230 10500
30-Jul-08 N 8450 9500
01-Oct-08 N 9910 10000
02-Aug-09 N 8480 9400
12-Aug-10 N 7680 8800
05-Nov-10 N 7250 8000
01-Feb-11 N 6670 6500
31-Jul-11 N 5390 5300
28-Oct-11 UW 7110 5300
29-Mar-12 N 6460 6500
27-Sep-12 N 7220 8000
31-Jan-13 N 8070 9000
01-May-13 OW 9830 13000
19-Sep-13 NR 12000 --
15-Nov-13 OW 11150 13800
29-Jan-14 OW 10500 13500
28-Apr-14 OW 10050 13000
01-Aug-14 OW 9520 11200
27-Oct-14 OW 10850 14000
14-Jan-15 OW 12350 16000
23-Jan-15 OW 12750 17000
28-Apr-15 OW 10600 14800
31-Jul-15 OW 10850 16000
02-Feb-16 OW 9570 12000
27-Apr-16 OW 10950 13500
01-Aug-16 OW 11400 14000
31-Oct-16 OW 11800 14500
03-Feb-17 OW 11550 15000
08-Mar-17 OW 13850 19000
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Disclosures
68
0
1
2
3
4
5
6
7
8
9
10
11
12
Price(HK$)
Oct06
Apr08
Oct09
Apr11
Oct12
Apr14
Oct15
Apr17
China Telecom (0728.HK, 728 HK) Price Chart
N HK$4 N HK$4 OW HK$5.3
N HK$3.6N HK$6N HK$6.5N HK$4.5N HK$4N HK$4.1OW HK$4.7OW HK$5.6 N HK$3.6OW HK$5.4OW HK$5.6
N HK$3N HK$5.7N HK$5.8N HK$5N HK$3.5N HK$4.1N HK$4OW HK$4.6OW HK$5.2N HK$4.6OW HK$5.4N HK$4.5N HK$4.2OW HK$5.1OW HK$6.5OW HK$6.1OW HK$5.1OW HK$4.9
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Nov 08, 2006.
Date Rating Share Price (HK$)
Price Target (HK$)
08-Nov-06 N 3.29 3.00
15-Jan-07 N 3.80 3.60
18-Jan-07 N 3.90 4.00
03-Oct-07 N 6.50 5.70
24-Oct-07 N 6.65 6.00
22-Feb-08 N 5.97 5.80
28-Feb-08 N 6.05 6.50
29-Jun-08 N 4.21 5.00
28-Aug-08 N 4.09 4.50
21-Oct-08 N 2.86 4.00
25-Mar-09 N 3.08 3.50
20-Apr-09 N 3.58 4.00
27-Aug-09 N 3.87 4.10
21-Oct-09 N 3.82 4.10
22-Mar-10 N 3.56 4.00
02-Aug-10 OW 3.95 4.60
24-Sep-10 OW 4.19 4.70
20-Feb-11 OW 4.51 5.20
24-Mar-11 OW 4.63 5.60
21-Mar-12 N 4.50 4.60
23-Aug-12 OW 4.17 5.40
21-Mar-13 N 3.90 4.50
10-Jan-14 N 3.66 4.20
20-Mar-14 N 3.15 3.60
28-Aug-14 OW 4.34 5.10
28-Oct-14 OW 4.91 5.40
28-Apr-15 OW 5.91 6.50
10-Aug-15 OW 4.33 6.10
12-Oct-15 OW 4.00 5.60
24-Nov-15 OW 3.97 5.30
08-Mar-16 OW 3.86 5.10
24-Aug-16 OW 4.05 4.90
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Disclosures
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations 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 analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark
69
0
11,564
23,128
34,692
46,256
57,820
69,384
80,948
92,512
Price(W)
Jun07
Dec08
Jun10
Dec11
Jun13
Dec14
Jun16
KT Corp. (030200.KS, 030200 KS) Price Chart
N W35,000 OW W57,000 UW W26,000 OW W42,000
N W46,000 OW W53,000OW W55,000 N W29,000UW W28,000N W33,000 OW W40,000
N W44,000 N W38,000N W39,000N W44,000N W43,500N W39,000N W35,000N W39,000N W42,000NR UW W30,000N W34,000N W34,000OW W35,000OW W40,000
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Break in coverage Sep 19, 2013 - Nov 15, 2013.
Date Rating Share Price (W)
Price Target (W)
26-Apr-08 N 46300 44000
27-Jul-08 N 42200 46000
02-Nov-08 N 32000 35000
20-Jun-09 N 37300 38000
03-Nov-09 N 38700 39000
21-Jan-10 OW 48700 53000
29-Jan-10 OW 49800 57000
27-Jul-10 N 42100 44000
06-Oct-10 OW 46500 55000
31-Jan-11 N 42150 43500
05-Aug-11 N 40200 39000
10-Jan-12 N 33150 35000
27-Sep-12 N 35450 39000
04-May-13 N 38750 42000
19-Sep-13 NR 36250 --
15-Nov-13 N 33000 29000
24-Jan-14 UW 30400 26000
01-May-14 UW 32800 30000
30-Jul-14 UW 31300 28000
13-Nov-14 N 32450 34000
14-Jan-15 N 29950 33000
01-Aug-15 N 30600 34000
31-Jan-16 OW 27750 35000
29-Apr-16 OW 30700 40000
29-Jul-16 OW 31500 42000
02-Feb-17 OW 29450 40000
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Disclosures
country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com.
Coverage Universe: Sullivan, James: Astro Malaysia Holdings Bhd (ASTR.KL), Cheetah Mobile Inc (CMCM), Kingsoft Corporation Limited (3888.HK), NetEase (NTES), PT Media Nusantara Citra Tbk (MNCN.JK)
J.P. Morgan Equity Research Ratings Distribution, as of January 02, 2017
*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 falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email [email protected].
Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.
Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
Other Disclosures
J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.
All research reports made available to clients are simultaneously available on our client website, J.P. Morgan Markets. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your sales representative.
Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf
70
Overweight(buy)
Neutral(hold)
Underweight(sell)
J.P. Morgan Global Equity Research Coverage 43% 45% 12% IB clients* 52% 48% 34%JPMS Equity Research Coverage 43% 50% 7% IB clients* 67% 61% 43%
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Disclosures
Legal Entities Disclosures U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC. U.K.: JPMorgan Chase N.A., London Branch, is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by
the Prudential Regulation Authority are available from J.P. Morgan on request. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England & Wales No. 2711006. Registered Office 25 Bank Street, London, E14 5JP. South Africa: J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities Exchange and is regulated by the Financial Services Board. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong and/or J.P. Morgan Broking (Hong Kong) Limited (CE number AAB027) is regulated by the Securities and Futures Commission in Hong Kong. Korea: This material is issued and distributed in Korea by or through J.P. Morgan Securities (Far East) Limited, Seoul Branch, which is a member of the Korea Exchange(KRX) and is regulated by the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS). Australia: J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited (Corporate Identity Number - U67120MH1992FTC068724), having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz - East, Mumbai – 400098, is registered with Securities and Exchange Board of India (SEBI) as a ‘Research Analyst’ having registration number INH000001873. J.P. Morgan India Private Limited is also registered with SEBI as a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 010675237/INF 010675237). Telephone: 91-22-6157 3000, Facsimile: 91-22-6157 3990 and Website: www.jpmipl.com. For non local research reports, this material is not distributed in India by J.P. Morgan India Private Limited. Thailand: This material is issued and distributed in Thailand by JPMorgan Securities (Thailand) Ltd., which is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission and its registered address is 3rd Floor, 20 North Sathorn Road, Silom, Bangrak, Bangkok 10500. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the OJK a.k.a. BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the Philippines and the Securities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by or through J.P. Morgan Securities Singapore Private Limited (JPMSS) [MCI (P) 193/03/2016 and Co. Reg. No.: 199405335R], which is a member of the Singapore Exchange Securities Trading Limited and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) [MCI (P) 089/09/2016], both of which are regulated by the Monetary Authority of Singapore. This material is issued and distributed in Singapore only to accredited investors, expert investors and institutional investors, as defined in Section 4A of the Securities and Futures Act, Cap. 289 (SFA). This material is not intended to be issued or distributed to any retail investors or any other investors that do not fall into the classes of “accredited investors,” “expert investors” or “institutional investors,” as defined under Section 4A of the SFA. Recipients of this document are to contact JPMSS or JPMCB Singapore in respect of any matters arising from, or in connection with, the document. Japan: JPMorgan Securities Japan Co., Ltd. and JPMorgan Chase Bank, N.A., Tokyo Branch are regulated by the Financial Services Agency in Japan. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.
Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc. Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. Further information about J.P. Morgan's conflict of interest policy and a description of the effective internal organisations and administrative arrangements set up for the prevention and avoidance of conflicts of interest is set out at the following link https://www.jpmorgan.com/jpmpdf/1320678075935.pdf. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such personsbeing referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (orequivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. This material does not take into account the specific
71This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to any third party or outside Australia without the prior writtenconsent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has the meaning given in section 761G of the Corporations Act 2001. Germany: This material is distributed inGermany by J.P. Morgan Securities plc, Frankfurt Branch which is regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Limited, Seoul Branch. Singapore: As at the date of this report, JPMSS is a designated market maker for certain structured warrants listed on the Singapore Exchange where the underlying securities may be the securities discussed in this report. Arising from its role as designated market maker for such structured warrants, JPMSS may conduct hedging activities in respect of such underlying securities and hold or have an interest in such underlying securities as a result. The updated list of structured warrants for which JPMSS acts as designated market maker may be found on the website of the Singapore Exchange Limited: http://www.sgx.com.sg. In addition, JPMSS and/or its affiliates may also have an interest or holding in any of the securities discussed in this report –please see the Important Disclosures section above. For securities where the holding is 1% or greater, the holding may be found in the Important Disclosures section above. For all other securities mentioned in this report, JPMSS and/or its affiliates may have a holding of less than 1% in such securities and may trade them in ways different from those discussed in this report. Employees of JPMSS and/or its affiliates not involved in the preparation of this report may have investments in the securities (or derivatives of such securities) mentioned in this report and may trade them in ways different from those discussed in this report. Taiwan: This material is issued and distributed in Taiwan by J.P. Morgan Securities (Taiwan) Limited. According to Paragraph 2, Article 7-1 of Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers (as amended or supplemented) and/or other applicable laws or regulations, please note that the recipient of this material is not permitted to engage in any activities in connection with the material which may give rise to conflicts of interests, unless otherwise disclosed in the “Important Disclosures” in this material. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / [email protected].
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.
72
Disclosures
This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}
Disclosures
"Other Disclosures" last revised January 07, 2017.
Copyright 2017 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P
73This document is being provided for the exclusive use of JAMES ROBERT SULLIVAN at JPMorgan Chase & Co. and clients of J.P. Morgan.
{[{TKWO]*\YLO\^*]_VVS`KX*TKWO]8\8]_VVS`KXJTZWY\QKX8MYW*;A9:C9<:;A}]}