singapore industry focus singapore telecom entertainment company, providing a broad range of mobile,...

Ed: JS / sa: YM, PY

One more leg down

TPG outbids our favourite player MyRepublic in a

surprise move to become the 4th mobile player

TPG bid aggressively -3x the reserve price and its

strong balance sheet could result in higher-than-

expected revenue share changes

Despite recent weakness, we maintain FULLY

VALUED on M1 and StarHub with lower TPs. M1

and StarHub offer limited upside even under our

bull-case scenario

TPG bid aggressively -3x the reserve price of the spectrum. TPG Telecom Pte Ltd (TPG) made the winning bid of S$105m, and will be allocated 60MHz of spectrum, comprising 20MHz in the 900MHz band and 40MHz in the 2.3GHz band. The new spectrum rights will commence on 1 April 2017. TPG will be required to provide nationwide street level coverage for 4G within 18 months from the start of the new spectrum rights; road tunnels and in-building service coverage within 30 months; and coverage for MRT underground stations/lines within 54 months from the start of the new spectrum rights. The regulator will proceed with the second stage of the auction in 3Q17 – open to M1, Singtel, StarHub and TPG. We project the 4th player to gain 8.5% mobile revenue share by 2022 versus 7% earlier. MyRepublic had budgeted S$300m capex plan for the mobile network and we had estimated MyRepublic to secure 7% revenue share by 2022 just like U-Mobile in Malaysia. But TPG has enough capacity to install a nationwide mobile network. TPG with an annual EBITDA of A$770-775m and FY16 (July year-end) net debt-to-EBITDA at 1.6x, has enough room to raise over S$500m to S$1bn required to roll out a mobile network. We project TPG to secure 8.5% revenue share by 2022 (see side chart).

Maintain FULLY VALUED on StarHub & M1 with TPs of

S$2.65 (prev S$2.80) & S$1.78 (prev S$1.97) respectively.

We project StarHub’s & M1’s earnings to contract by 25% & 41% respectively in FY22 versus FY15 due to higher revenue share loss. Previously we had projected 20% & 31% earnings contraction respectively. Under our bull-case and bear case scenarios for the existing telcos, we project TPG to secure 6% and 10% revenue share respectively. Even under our bull-case TP of S$3.02 for StarHub and S$2.10 for M1, the stocks offer limited upside potential. Our bear case TP is S$2.56 for StarHub and S$1.65 for M1.

STI : 2,954.06 Analyst Sachin MITTAL +65 6682 3699 [email protected]

Source: DBS Bank, Bloomberg Finance L.P. Closing price as of 14 Dec 2016 M1 : MobileOne is one of the main telecommunication operators in Singapore.

StarHub : Spore-based integrated information, communications and entertainment company, providing a broad range of mobile, cable TV, broadband and fixed network services.

Singapore mobile revenue share forecasts

Source: DBS Bank

DBS Group Research . Equity 15 Dec 2016

Singapore Industry Focus

Singapore Telecom

Refer to important disclosures at the end of this report

STOCKS

Price Mkt Cap Target Price Performance (%)

S$ US$m S$ 3 mth 12 mth Rating

M1 2.02 1,307 1.78 (17.2) (24.6)

FV

StarHub 2.90 3,487 2.65 (14.2) (19.2)

FV

ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa:YM, PY

FULLY VALUED Last Traded Price ( 14 Dec 2016): S$2.02 (STI : 2,954.06) Price Target 12-mth: S$1.78 (-12% downside) (Prev S$1.97) Potential Catalyst: Announcement of TPG’s roll out plans Where we differ: FY17F EPS in line Analyst Sachin MITTAL +65 6682 3699 [email protected]

What’s New TPG wins the fourth player spectrum auction at 3x

the reserve price Expect TPG to capture 8.5% revenue share by 2022 M1 most impacted by TPG’s entry, expect earnings

to drop by 38% by 2022 from 2015 levels Maintain FULLY VALUED with a lower TP of S$

1.78

Price Relative

Forecasts and Valuation FY Dec (S$ m) 2015A 2016F 2017F 2018F Revenue 1,157 1,115 1,100 1,077 EBITDA 342 322 323 316 Pre-tax Profit 218 186 178 168 Net Profit 179 153 147 139 Net Pft (Pre Ex.) 179 153 147 139 Net Pft Gth (Pre-ex) (%) 1.5 (14.1) (4.3) (5.5) EPS (S cts) 19.1 16.4 15.7 14.8 EPS Pre Ex. (S cts) 19.1 16.4 15.7 14.8 EPS Gth Pre Ex (%) 0 (14) (4) (6) Diluted EPS (S cts) 19.1 16.4 15.7 14.8 Net DPS (S cts) 15.4 13.1 12.6 11.9 BV Per Share (S cts) 44.2 45.3 47.8 50.1 PE (X) 10.6 12.3 12.9 13.6 PE Pre Ex. (X) 10.6 12.3 12.9 13.6 P/Cash Flow (X) 7.9 5.3 6.6 6.8 EV/EBITDA (X) 6.5 6.7 6.8 6.8 Net Div Yield (%) 7.6 6.5 6.2 5.9 P/Book Value (X) 4.6 4.5 4.2 4.0 Net Debt/Equity (X) 0.8 0.6 0.7 0.6 ROAE (%) 44.2 36.7 33.8 30.3 Earnings Rev (%): - - Consensus EPS (S cts): 15.9 14.7 Other Broker Recs: B: 3 S: 10 H: 8

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P

M1 most vulnerable to TPG TPG secures fourth player spectrum license. TPG snatched the spectrum license to become the fourth mobile operator in Singapore. The winning bid was a whopping S$105m, three times the minimum reserve price of S$35m. TPG will be allocated a total bandwidth of 60MHz (2x10MHz of 900MHz band and 40MHz of 2.3GHz TDD) with new spectrum rights commencing on 1 April 2017. TPG will be required to provide nationwide street level coverage for 4G within 18 months from the start of the new spectrum rights. We project TPG to gain 8.5% mobile revenue share by 2022 versus 7% earlier. With an annual EBITDA of A$775m and FY16 (July year-end) net debt-to-EBITDA at 1.6x, TPG has enough room to raise the S$500m to S$1bn required to roll out a nationwide mobile network. Hence, we believe the impact on the incumbents from the entry of TPG to be more acute, and we project TPG to secure 8.5% revenue share by 2022. In our bull-case and bear case scenario for the existing telcos, we project TPG to secure 6% and 10% revenue share respectively. M1 most impacted from the entry of a fourth operator. We believe the potential entry of a new player will be most felt by M1 due to its higher exposure to mobile revenue and a more price-sensitive subscriber base. We project M1’s mobile revenue share to contract from 18% at present to 14%, down from 15% in our previous estimates. Further, we expect M1’s earnings to contract by 38% by 2022 from 2015 levels, compared to the 31% drop we previously expected. Valuation: Maintain Fully Valued with a lower TP. Our revised DCF-based (WACC 7.1%, terminal growth 0%) TP is S$1.78 as we cut our earnings estimates after FY18F. Even under our bull-case TP of S$2.10, M1 offers limited upside potential. Our bear case TP for M1 is S$1.65.

Key Risks to Our View: Limited uptake of TPG’s services. As an inexperienced operator, TPG could struggle to deploy and maintain a network that could challenge the network quality of the incumbents. In this scenario, we expect TPG to only capture 6% of the revenue share from the incumbents leading to a relief rally for M1. Under this bull-case scenario, our TP is S$2.10 for M1. At A Glance Issued Capital (m shrs) 930 Mkt. Cap (S$m/US$m) 1,879 / 1,307 Major Shareholders (%) Axiata Investments 28.5 Keppel Corp Ltd 19.2 Singapore Press 13.4

Free Float (%) 38.9 3m Avg. Daily Val (US$m) 3.3 ICB Industry : Telecommunications / Mobile Telecommunications


Singapore Company Guide

M1 Version 8 | Bloomberg: M1 SP | Reuters: MONE.SI Refer to important disclosures at the end of this report

70

90

110

130

150

170

190

210

1.7

2.2

2.7

3.2

3.7

4.2

Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Relative IndexS$

M1 (LHS) Relative STI (RHS)

ASIAN INSIGHTS VICKERS SECURITIES Page 2

Company Guide

M1

WHAT’S NEW

TPG is the new kid on the block TPG secures the fourth player spectrum license. TPG, a fixed and mobile virtual network operator (MVNO) operator from Australia, snatched the spectrum license to become the fourth mobile operator in Singapore at the fourth player spectrum auction held on the 14 December 2016. The winning bid was a whopping S$105m, three times the reserve price of S$35m. Accordingly, TPG will be allocated a total bandwidth of 60MHz (2x10MHz of 900MHz band and 40MHz of 2.3GHz TDD) and will have an opportunity to expand its spectrum assets further at the general spectrum auction, expected to be held in 3Q17. New spectrum rights will commence on 1 April 2017. The new spectrum rights will commence on 1 April 2017 and TPG will be required to provide nationwide street level coverage for 4G within 18 months from the start of the new spectrum rights. Road tunnels and buildings would need to be covered within 30 months and coverage for MRT underground stations/lines would need to be achieved within 54 months from the start of the new spectrum rights. Singapore mobile market share trends

Source: DBS Bank

Gloomy days ahead for the mobile market. With FY16 net debt to EBITDA at 1.6x, TPG has enough balance sheet capacity to raise up to S$1bn that would be required to roll out a nationwide mobile network. The company also recorded FY16 underlying EBITDA of A$775m (~S$829m at the current exchange rate). Though exact details on TPG’s network expansion plans are unknown, we believe TPG is likely to resort to capturing subscribers through price competition as it has done in the fixed broadband segment in Australia. Hence, we believe the impact on the incumbents from the entry of TPG to be more acute with TPG gaining 8.5% of mobile revenue market share by 2022 compared to our earlier expectation of 7% for a new entrant. TPG lacks experience and has no bundling capabilities. Though TPG provides MVNO services in Australia, the company does not operate its own mobile network and may run into technical difficulties during early stages of operations. Furthermore, TPG will be a pure-play mobile operator with no bundling capabilities unlike incumbents, which could make it harder for the company to lure subscribers. TPG would also need to build the required infrastructure from the ground up, from retail networks, agents, service points, in addition to the mobile network itself. However, we believe these challenges could be overcome in the long-run and are unlikely to impact our long term outlook for the mobile sector.


Company Guide

M1

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

M1 will be most impacted from the entry of a fourth operator. We believe the entry of a new player will be most felt by M1 due to its higher exposure to cellular revenue (~68% in 3Q16 vs. 51% for Starhub) and a more price sensitive subscriber base. As a result, we expect the revenue share of M1 to drop from 18% in 2015 to 14% by 2022. We project M1’s total revenues will contract by 19% by 2022 from 2015 levels and earnings to drop by 38% during the same timeframe. Fair value accounting will exacerbate the impact on revenues. M1 is the only telco in Singapore to use fair value accounting for iPhones and hence its revenue will be more adversely impacted in the face of slowing iPhone sales. M1 had accrued handset revenue of S$67m in 3Q16, which will continue to adversely impact its service revenue over the next 2-3 years. This will be on top of declines in voice and SMS revenues due to cannibalisation from Over-the-top (OTT) players and increasing popularity of SIM-only plans pressuring postpaid average revenue per user (ARPU), which will continue to shrink service revenues of the industry. Growth from fixed broadband is encouraging but not material. M1 is seeing healthy growth in the sector at the expense of incumbents. We believe the company could see decent growth till its fixed broadband market share reaches 20%+. In addition, broadband pricing is seeing some stabilisation. However, broadband accounted for only 11% of M1's revenue in 9M16 and EBITDA margins tend to be lower than the mobile business. As such, the impact on M1’s bottomline is likely to be limited. Roaming revenue may take time to stabilise. Roaming revenue accounts for about 10% of M1’s mobile revenue but is falling with the substitution of OTT services for roaming calls. Roaming revenues has continuously declined on a q-o-q basis over the past eight quarters, with revenues dropping as much as S$7m (-31%) over this two-year period. Introduction of data passport plans by M1 in 2015, whereby customers can use their local data bundles when overseas by paying a monthly subscription fee of S$10 (S$50 in Europe) has had little impact on roaming revenues, indicating that the decline is likely to take time to stabilise. We anticipate roaming revenue to decline further but at a slower rate.

Post paid ARPU

Net Handset Subsidy

Postpaid subscribers (K)

Source: Company, DBS Bank

53.455.6 53.8

51.6 49.9

0.0

8.0

16.0

24.1

32.1

40.1

48.1

56.2

2013A 2014A 2015A 2016F 2017F

-95.93

-84.99 -84.2

-76.55

-105.5

-99.2

-92.9

-86.6

-80.3

-74.0

2013A 2014A 2015A 2016F 2017F

1130 11491195 1207 1195

0.00

246.22

492.44

738.65

984.87

1231.09

2013A 2014A 2015A 2016F 2017F


Company Guide

M1

Balance Sheet:

Capex spend to remain high. M1’s balance sheet has remained strong with the relatively consistent capital expenditure and dividend payments. The company expects to incur S$140m in capex in FY16 excluding possible spectrum payments. We believe M1’s cash generation will remain strong and be sufficient to support its future spectrum auction bids and network expansion plans. Share Price Drivers:

TP revised down due to higher revenue share gains by TPG. Being a well-funded new entrant, we expect TPG to capture up to 8.5% of revenue share by 2022, up from our previous expectation of 7% revenue share. We believe M1’s revenue share would drop from 18% at present to 14% by 2022, compared to 15% revenue share previously. As a result of the higher revenue share loss, we expect M1’s net profit to drop by 38% by 2022 from 2015 levels compared to 31% earlier. Hence we maintain Fully Valued call with a revised TP of S$ 1.78. Key Risks:

Limited uptake of TPG’s services could reduce threat to mobile market share. As an inexperienced operator, TPG could struggle to deploy and maintain a network that could challenge the network quality of the incumbents. Further, as the company has limited bundling capabilities, incumbents may be able to limit their revenue share losses. In this scenario, we expect TPG to only capture 6% of the revenue share from the incumbents leading to a relief rally for M1. Under this bull-case scenario, our TP is S$2.10 for M1. Company Background

M1 is the smallest of the three telecom operators in Singapore. M1 provides mobile services and has also started to provide fixed broadband services by riding on the National Broadband Network.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


0.9

1.0

1.0

1.1

1.1

0.00

0.20

0.40

0.60

0.80

1.00

2013A 2014A 2015A 2016F 2017F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

2013A 2014A 2015A 2016F 2017F

Capital Expenditure (-)

S$m

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

2013A 2014A 2015A 2016F 2017F

Avg: 17.3x

+1sd: 19x

+2sd: 20.8x

‐1sd: 15.5x

‐2sd: 13.8x

10.9

12.9

14.9

16.9

18.9

20.9

22.9


(x)

Avg: 7.32x

+1sd: 8.54x

+2sd: 9.76x

‐1sd: 6.09x

‐2sd: 4.87x

3.8

4.8

5.8

6.8

7.8

8.8

9.8

10.8


(x)


Company Guide

M1

Key Assumptions

FY Dec 2014A 2015A 2016F 2017F 2018F Post paid ARPU 55.6 53.8 51.6 49.9 48.4 Net Handset Subsidy (85.0) (84.2) (76.6) (72.5) (59.5) Postpaid subscribers (K) 1,149 1,195 1,207 1,195 1,183

Segmental Breakdown

FY Dec 2014A 2015A 2016F 2017F 2018F Revenues (S$m) Post Paid Cellular 591 591 580 572 553 Pre Paid Cellular 80.1 76.9 77.3 75.6 73.0 IDD Revenue 89.4 68.7 61.8 58.7 53.5 Fixed network services 70.6 85.9 92.8 104 114 Others 245 335 304 290 283 Total 1,076 1,157 1,115 1,100 1,077

Income Statement (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 1,076 1,157 1,115 1,100 1,077 Cost of Goods Sold (743) (822) (800) (783) (768) Gross Profit 334 336 315 317 309 Other Opng (Exp)/Inc (113) (112) (124) (133) (133) Operating Profit 221 223 191 185 177 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (4.0) (4.9) (5.3) (6.8) (8.6) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 217 218 186 178 168 Tax (41.3) (39.9) (32.5) (31.1) (29.4) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 176 179 153 147 139 Net Profit before Except. 176 179 153 147 139 EBITDA 336 342 322 323 316 Growth Revenue Gth (%) 6.8 7.5 (3.6) (1.3) (2.1) EBITDA Gth (%) 7.4 1.8 (5.9) 0.6 (2.4) Opg Profit Gth (%) 12.1 1.0 (14.3) (3.4) (4.4) Net Profit Gth (Pre-ex) (%) 9.8 1.5 (14.1) (4.3) (5.5) Margins & Ratio Gross Margins (%) 31.0 29.0 28.3 28.8 28.7 Opg Profit Margin (%) 20.5 19.3 17.2 16.8 16.4 Net Profit Margin (%) 16.3 15.4 13.8 13.3 12.9 ROAE (%) 44.5 44.2 36.7 33.8 30.3 ROA (%) 17.5 16.9 13.8 12.6 11.2 ROCE (%) 23.0 21.7 17.9 16.5 14.6 Div Payout Ratio (%) 100.0 80.5 80.0 80.0 80.0 Net Interest Cover (x) 55.3 45.6 36.0 27.1 20.6


Fourth player snatching subscribers from FY17

Revenues to contract with declines in industry revenues


Company Guide

M1

Quarterly / Interim Income Statement (S$m)

FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 Revenue 278 308 258 240 249 Cost of Goods Sold (192) (223) (175) (160) (176) Gross Profit 85.2 85.0 82.6 80.4 73.2 Other Oper. (Exp)/Inc (29.1) (29.2) (29.7) (29.2) (30.5) Operating Profit 56.1 55.9 52.9 51.2 42.7 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (1.3) (1.3) (1.3) (1.6) (1.9) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 54.8 54.6 51.6 49.6 40.8 Tax (9.9) (11.0) (9.1) (8.5) (6.4) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 44.9 43.6 42.5 41.0 34.4 Net profit bef Except. 44.9 43.6 42.5 41.0 34.4 EBITDA 86.7 88.2 83.2 82.3 74.6 Growth Revenue Gth (%) 0.3 10.9 (16.3) (6.7) 3.6 EBITDA Gth (%) 3.7 1.7 (5.7) (1.1) (9.4) Opg Profit Gth (%) 2.0 (0.4) (5.4) (3.2) (16.6) Net Profit Gth (Pre-ex) (%) 1.4 (2.9) (2.5) (3.5) (16.1) Margins Gross Margins (%) 30.7 27.6 32.1 33.4 29.4 Opg Profit Margins (%) 20.2 18.2 20.5 21.3 17.1 Net Profit Margins (%) 16.2 14.2 16.5 17.1 13.8

Balance Sheet (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 686 714 730 743 752 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 116 112 84.7 155 136 Cash & ST Invts 22.8 10.0 91.7 102 181 Inventory 30.3 51.5 32.2 31.8 31.1 Debtors 150 166 160 158 155 Other Current Assets 23.1 33.1 33.1 13.1 13.1 Total Assets 1,028 1,086 1,132 1,202 1,268 ST Debt 52.0 354 354 354 354 Creditor 157 146 200 198 193 Other Current Liab 65.2 62.5 44.4 43.0 41.3 LT Debt 250 0.0 0.0 50.0 100 Other LT Liabilities 109 111 111 111 111 Shareholder’s Equity 395 413 423 447 468 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 1,028 1,086 1,132 1,202 1,268 Non-Cash Wkg. Capital (19.4) 42.5 (19.2) (37.7) (35.8) Net Cash/(Debt) (279) (344) (262) (302) (273) Debtors Turn (avg days) 49.9 49.8 53.4 52.8 53.0 Creditors Turn (avg days) 98.3 78.6 94.3 112.7 113.5 Inventory Turn (avg days) 17.3 21.2 22.8 18.1 18.2 Asset Turnover (x) 1.1 1.1 1.0 0.9 0.9 Current Ratio (x) 0.8 0.5 0.5 0.5 0.6 Quick Ratio (x) 0.6 0.3 0.4 0.4 0.6 Net Debt/Equity (X) 0.7 0.8 0.6 0.7 0.6 Net Debt/Equity ex MI (X) 0.7 0.8 0.6 0.7 0.6 Capex to Debt (%) 59.1 40.1 37.8 32.7 28.5 Z-Score (X) 3.7 3.3 3.0 2.8 2.7


Escalating depreciation cost

Increasing capex


Company Guide

M1

Cash Flow Statement (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 217 218 186 178 168 Dep. & Amort. 114 118 130 139 139 Tax Paid (29.0) 39.6 (36.8) (32.5) (31.1) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (29.6) (137) 79.8 (0.1) (0.2) Other Operating CF 0.0 0.0 0.0 0.0 0.0 Net Operating CF 273 239 359 284 276 Capital Exp.(net) (178) (142) (134) (132) (129) Other Invts.(net) 0.0 0.0 0.0 (69.0) 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (178) (142) (134) (201) (129) Div Paid (197) (177) (144) (123) (117) Chg in Gross Debt 52.0 51.8 0.0 50.0 50.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 18.8 15.1 0.0 0.0 0.0 Net Financing CF (126) (110) (144) (72.7) (67.4) Currency Adjustments (0.1) 0.0 0.0 0.0 0.0 Chg in Cash (31.7) (12.8) 81.7 10.2 79.1 Opg CFPS (S cts) 32.9 40.3 29.9 30.4 29.5 Free CFPS (S cts) 10.3 10.4 24.1 16.3 15.7


Target Price & Ratings History

Source: DBS Bank

Analyst: Sachin MITTAL

S .No.Date of Repor t

Clos ing P r ice

12-m th Targe t P r ice

Rating

1: 19 J an 16 2.50 2.60 HOLD

2: 19 Feb 16 2.54 2.60 HOLD

3: 29 Mar 16 2.59 2.60 HOLD

4: 14 Apr 16 2.44 2.56 HOLD

5: 03 Jun 16 2.42 2.60 BUY

6: 05 Jul 16 2.74 3.30 BUY

7: 18 Jul 16 2.71 3.30 BUY

8: 22 Aug 16 2.71 2.85 HOLD

9: 29 Aug 16 2.65 2.85 HOLD

10: 21 S ep 16 2.39 2.15 FULLY VALUED

11: 26 S ep 16 2.37 2.15 FULLY VALUE D12: 19 Oct 16 2.21 1.97 FULLY VALUE D13: 02 Nov 16 2.10 1.97 FULLY VALUE D14: 17 Nov 16 2.00 1.97 FULLY VALUE D

Note : S hare price and Target price are adjus ted for corporate actions .

1

2

3 4

5

6

7

8

9

10

11 12

1314

1.82

2.02

2.22

2.42

2.62

2.82

3.02

Dec-15 Apr-16 Aug-16 Dec-16

S$

Declining operating cash flows

ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa:YM, PY

FULLY VALUEDLast Traded Price ( 14 Dec 2016): S$2.90 (STI : 2,954.06) Price Target 12-mth: S$2.65 (-9% downside) (Prev S$2.80)

Potential Catalyst: Announcement of TPG’s roll out plans Where we differ: FY17F EPS in line Analyst Sachin MITTAL +65 6682 3699 [email protected]

What’s New TPG wins new entrant auction at 3x the reserve price

Well-funded TPG could capture 8.5% mobile revenue

share

Expect 25% decline in earnings by 2022 vs. 2015, from

21% earlier

Maintain Fully Valued with lower TP of S$2.65

Price Relative

Forecasts and Valuation FY Dec (S$ m) 2015A 2016F 2017F 2018F Revenue 2,444 2,423 2,418 2,405 EBITDA 712 723 709 700 Pre-tax Profit 440 439 409 395 Net Profit 372 374 348 336 Net Pft (Pre Ex.) 357 364 348 336 Net Pft Gth (Pre-ex) (%) (3.6) 1.7 (4.3) (3.4) EPS (S cts) 21.5 21.6 20.1 19.4 EPS Pre Ex. (S cts) 20.7 21.0 20.1 19.4 EPS Gth Pre Ex (%) (4) 2 (4) (3) Diluted EPS (S cts) 21.5 21.6 20.1 19.4 Net DPS (S cts) 19.9 19.9 19.9 19.9 BV Per Share (S cts) 10.8 12.5 12.8 12.3 PE (X) 13.5 13.4 14.4 14.9 PE Pre Ex. (X) 14.0 13.8 14.4 14.9 P/Cash Flow (X) 9.2 8.1 8.2 8.3 EV/EBITDA (X) 7.8 7.8 8.0 8.1 Net Div Yield (%) 6.9 6.9 6.9 6.9 P/Book Value (X) 26.7 23.1 22.7 23.6 Net Debt/Equity (X) 2.7 2.8 2.9 3.1 ROAE (%) 221.2 184.6 158.8 154.9 Earnings Rev (%): - - - Consensus EPS (S cts): 20.6 19.6 18.4 Other Broker Recs: B: 1 S: 10 H: 10

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P

TPG a potent threat

TPG secures the fourth player spectrum license. TPG snatched the spectrum license to become the fourth mobile operator in Singapore. The winning bid was a whopping S$105m, three times the minimum reserve price of S$35m. TPG will be allocated a total bandwidth of 60MHz (2x10MHz of 900MHz band and 40MHz of 2.3GHz TDD) with new spectrum rights commencing on 1 April 2017. TPG will be required to provide nationwide street level coverage for 4G within 18 months from the start of the new spectrum rights.

We project TPG to gain 8.5% mobile revenue share by 2022 versus 7% earlier. With an annual EBITDA of A$775m and FY16 (July year-end) net debt-to-EBITDA at 1.6x, TPG has enough room to raise over S$500m to S$1bn required to roll out a nationwide mobile network. Hence, we believe the impact on the incumbents from TPG’s entry to be more acute and we project TPG to secure 8.5% revenue share by 2022. In our bull-case and bear case scenario for the existing telcos, we project TPG to secure 6% and 10% revenue share respectively.

StarHub to fare better than its local peer M1. StarHub has a lower reliance on mobile revenue (~51% in 3Q16 vs. 68% for M1) and stickier, less price sensitive customer base. StarHub has also introduced more fixed-mobile bundling offers to reduce the loss of revenue share to a new entrant. We expect StarHub’s revenue share to drop from 30% in 2015 to 27% by 2022. As a result, we expect group earnings to drop by 25% from 2015 level by 2022.

Valuation: Recommend FULLY VALUED with lower TP of S$2.65. Our revised DCF-based (WACC 6.5%, terminal growth 0%) TP is S$2.65 as we factor in the impact of higher revenue share loss. Even under our bull-case TP of S$3.02, StarHub offers limited upside potential. Our bear case TP for StarHub is S$2.56. Key Risks to Our View: Sharper-than-expected decline in adoption grant. StarHub has guided that the adoption grant for fibre is likely to decline going forward. We project StarHub’s “Other Income” to decline from S$46m in 2015 to S$41m in 2016F and S$20m in 2017F due to this. However, the drop could be sharper than expected, depending on the fibre adoption rate.

At A Glance

Issued Capital (m shrs) 1,728 Mkt. Cap (S$m/US$m) 5,011 / 3,487 Major Shareholders (%) Asia Mobile Holdings Pte Ltd 55.8 Nippon Telegraph & Telephone Co 9.9 Mediacorp 10.0

Free Float (%) 34.3 3m Avg. Daily Val (US$m) 8.9 ICB Industry : Telecommunications / Mobile Telecommunications


Singapore Company Guide

StarHub Version 7 | Bloomberg: STH SP | Reuters: STAR.SI Refer to important disclosures at the end of this report

72

92

112

132

152

172

192

212

2.5

3.0

3.5

4.0

4.5

5.0


Relative IndexS$

StarHub (LHS) Relative STI (RHS)


Company Guide

StarHub

WHAT’S NEW

TPG the new kid on the block TPG secures the fourth player spectrum license. TPG, a fixed and mobile virtual network operator (MVNO) operator from Australia, snatched the spectrum licenses to become the fourth mobile operator in Singapore at the fourth player spectrum auction held on 14 December 2016. The winning bid was a whopping S$105m, three times the reserve price of S$35m. Accordingly, TPG will be allocated a total bandwidth of 60MHz (2x10MHz of 900MHz band and 40MHz of 2.3GHz TDD) and will have an opportunity to expand its spectrum assets further at the general spectrum auction, expected to be held in 3Q17. New spectrum rights will commence on 1 April 2017. The new spectrum rights will commence on 1 April 2017 and TPG will be required to provide nationwide street level coverage for 4G within 18 months from the start of the new spectrum rights. Road tunnels and buildings would need to be covered within 30 months and coverage for MRT underground stations/lines to be achieved within 54 months from the start of the new spectrum rights. Gloomy days ahead for the mobile market. With FY16 net debt to EBITDA at 1.6x, TPG has enough balance sheet capacity to raise up to S$1b that would be required to roll out a nationwide mobile network. The company also recorded FY16 underlying EBITDA of A$ 775m (~S$829m at the current exchange rate). Though exact plans on TPG’s network expansion plans are unknown at this stage, we believe TPG is likely to resort to capturing subscribers through price competition as it has done in the fixed broadband segment in Australia. Hence, we believe the impact on the incumbents from the entry of TPG to be more acute with TPG gaining 8.5% of mobile revenue market share by 2022 compared to our earlier expectation of 7% for a new entrant.

Singapore mobile revenue share trends

Source: DBS Bank TPG lacks experience and bundling capabilities. Though TPG provides MVNO services in Australia, the company does not operate its own mobile network and may run-in to technical difficulties during early stages of operations. Furthermore, TPG will be a pure-play mobile operator with no bundling capabilities, which could make it harder for the company to lure subscribers using bundled services of the incumbents. TPG would also need to build the required infrastructure from the ground up, from retail networks, agents, service points, in addition to the mobile network itself. However, we believe these challenges could be overcome in the long-run and are unlikely to impact our long term outlook for the mobile sector.


Company Guide

StarHub

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Mobile business to perform better than its local peer M1. StarHub has a lower reliance on mobile revenue (~51% in 3Q16 vs. 68% for M1) and stickier, less price sensitive customer base. StarHub has also introduced more fixed-mobile bundling offers to reduce revenue share loss to a new entrant. As a result, we expect StarHub to be less affected by the entry of a fourth player compared to its local peer M1. We expect StarHub’s revenue share to drop from 30% in 2015 to 27% by 2022. As a result, we expect group earnings to drop by 25% from 2015 level by 2022. This is higher than our earlier expectation of 21% from 2015 level due to higher revenue share gain expected by TPG. Stabilising Fixed Broadband business (10% of service revenue) is positive. Broadband revenue is showing encouraging signs of recovery with improvements in average revenue per user (ARPU) and subscribers. Though ARPU is still 20%+ below FY12 levels, it has improved ~9% since 1Q15. The recovery in broadband revenue and ARPU will provide much needed support for StarHub’s top line with broadband currently contributing c.10% of service revenue. Enterprise Fixed business (18% of service revenue) continues to grow. This segment encompassing managed services, cloud and other enterprise services, is seeing encouraging growth. Management is intent on developing the segment as an alternative revenue generator to the traditional telco business and is likely to maintain investments in the segment. The segment also offers superior margins compared to the other segments, and thus could provide better bottom-line performance. Pay TV business (18% of service revenue) faces limited threat in the medium term. Netflix entered the Singapore market in early 2016. StarHub saw its pay TV subscribers drop 1.5% q-o-q in 1Q16 due to Netflix’s entry and StarHub ending its “TV lite” promotion. Netflix has a price tag of S$11 per month, at c.60% discount to Starhub’s entry level of S$27. However, Netflix does not offer comprehensive local language and sports content, which is a key driver in the Singapore pay TV market. As a result, we may see only a marginal impact (2-3%) on Pay TV revenue going forward.

Mobile EBITDA Margins

CATV & Broadband EBITDA Margins

Fixed Network EBITDA Margins


35.6 36.333.8 34.5 35.1

0.0

5.2

10.5

15.7

21.0

26.2

31.4

36.7

2013A 2014A 2015A 2016F 2017F

18.8 18.4 18 18 17.9

0.0

3.8

7.7

11.5

15.3

19.2

2013A 2014A 2015A 2016F 2017F

36 36.8 36.8 36.6 36.5

0.00

7.51

15.01

22.52

30.03

37.54

2013A 2014A 2015A 2016F 2017F


Company Guide

StarHub

Balance Sheet:

Balance sheet remains strong. StarHub raised S$300m through medium-term notes in 2Q16. This and the strong cash flows will enable StarHub to comfortably maintain its current dividend payment and the increased capex (due to the impending spectrum auction). Even with the additional debt, Starhub’s gearing remains at a comfortable level. Share Price Drivers:

Higher revenue share gain by TPG results in TP revision. Being a well-funded new entrant, we expect TPG to capture up to 8.5% of revenue share by 2022, up from our previous expectation of 7% revenue share. StarHub’s revenue share is expected to drop from 30% at present to 27% by 2022, compared to 28% revenue share previously. As a result of the higher revenue share loss, we expect StarHub’s net profits to drop by 25% by 2022 from the 2015 level compared to 21% earlier. Hence we maintain Fully Valued call with a revised TP of S$ 2.65. Key Risks:

Limited uptake of TPG’s services could reduce the threat to mobile market share. As an inexperienced operator, TPG could struggle to deploy and maintain a network that could challenge the network quality of the incumbents. Further, as the company has limited bundling capabilities, incumbents may be able to limit their revenue share losses. In this scenario, we expect TPG to only capture 6% of the revenue share from the incumbents. Under this bull-case scenario, our TP is S$ 3.02 for StarHub. Sharper-than-expected decline in adoption grant. StarHub has guided that the adoption grant for fibre is likely to decline going forward. We project StarHub’s “Other Income” to decline from S$46m in 2015 to S$41m in 2016F and S$20m in 2017F due to this. However, the drop could be sharper than expected, depending on the fibre adoption rate. Company Background

StarHub is the second largest of the three telecom operators in Singapore. The company provides mobile services, pay TV, fixed broadband and fixed voice services, popularly known as quadruple play services.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


1.2

1.2

1.2

1.3

1.3

1.3

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

2013A 2014A 2015A 2016F 2017F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

2013A 2014A 2015A 2016F 2017F

Capital Expenditure (-)

S$m

0.0%

100.0%

200.0%

300.0%

400.0%

500.0%

600.0%

2013A 2014A 2015A 2016F 2017F

Avg: 18.7x

+1sd: 20.3x

+2sd: 21.8x

‐1sd: 17.1x

‐2sd: 15.6x

12.3

14.3

16.3

18.3

20.3

22.3


(x)

Avg: 63.96x

+1sd: 100.04x

+2sd: 136.12x

‐1sd: 27.88x

-7.3

12.7

32.7

52.7

72.7

92.7

112.7

132.7

152.7


(x)


Company Guide

StarHub

Key Assumptions

FY Dec 2014A 2015A 2016F 2017F 2018F Mobile EBITDA Margins 36.3 33.8 34.5 35.1 35.1 CATV & Broadband 18.4 18.0 18.0 17.9 17.9 Fixed Network EBITDA 36.8 36.8 36.6 36.5 36.5

Segmental Breakdown

FY Dec 2014A 2015A 2016F 2017F 2018F Revenues (S$m) Mobile 1,248 1,240 1,241 1,223 1,196 Cable TV & Broadband 592 591 589 588 586 Fixed Network 378 385 406 422 443 Equipment sale 170 228 187 185 180 Total 2,387 2,444 2,423 2,418 2,405 EBITDA (S$m)

Mobile 453 419 428 430 419 Cable TV & Broadband 109 106 106 105 105 Fixed Network 139 142 148 154 162 Equipment sale 46.6 45.6 41.0 20.5 14.4 Total 748 713 724 709 700 EBITDA Margins (%) Mobile 36.3 33.8 34.5 35.1 35.1 Cable TV & Broadband 18.4 18.0 18.0 17.9 17.9 Fixed Network 36.8 36.8 36.6 36.5 36.5 Equipment sale 27.5 20.0 21.9 11.1 8.0 Total 31.3 29.2 29.9 29.3 29.1

Income Statement (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 2,387 2,444 2,423 2,418 2,405 Cost of Goods Sold (1,957) (2,049) (2,015) (2,009) (2,004) Gross Profit 430 396 408 409 401 Other Opng (Exp)/Inc 46.6 45.6 41.0 20.5 14.4 Operating Profit 477 441 449 429 416 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 (0.3) (0.3) (0.3) (0.3) Net Interest (Exp)/Inc (20.6) (15.8) (18.9) (19.9) (19.9) Exceptional Gain/(Loss) 0.0 15.0 10.0 0.0 0.0 Pre-tax Profit 456 440 439 409 395 Tax (85.6) (67.9) (65.9) (61.4) (59.3) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 371 372 374 348 336 Net Profit before Except. 371 357 364 348 336 EBITDA 748 712 723 709 700 Growth Revenue Gth (%) 0.7 2.4 (0.9) (0.2) (0.5) EBITDA Gth (%) 0.7 (4.7) 1.5 (2.0) (1.3) Opg Profit Gth (%) 0.7 (7.4) 1.7 (4.3) (3.2) Net Profit Gth (Pre-ex) (%) (2.8) (3.6) 1.7 (4.3) (3.4) Margins & Ratio Gross Margins (%) 18.0 16.2 16.8 16.9 16.7 Opg Profit Margin (%) 20.0 18.1 18.5 17.8 17.3 Net Profit Margin (%) 15.5 15.2 15.4 14.4 14.0 ROAE (%) 319.8 221.2 184.6 158.8 154.9 ROA (%) 19.3 19.1 19.5 18.1 17.6 ROCE (%) 39.9 37.1 36.9 34.8 33.7 Div Payout Ratio (%) 92.9 92.4 92.1 98.9 102.4 Net Interest Cover (x) 23.1 27.9 23.7 21.6 20.9


Declining mobile revenues

Fixed network services continue to grow, Segmental EBITDA and EBITDA margins are estimated figures as StarHub does not disclose them


Company Guide

StarHub

Quarterly / Interim Income Statement (S$m)

FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 Revenue 603 634 591 586 585 Cost of Goods Sold (416) (491) (420) (402) (413) Gross Profit 187 143 171 184 172 Other Oper. (Exp)/Inc (56.3) (51.3) (53.1) (58.0) (59.3) Operating Profit 131 91.9 118 126 113 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (0.2) (0.1) (0.2) (0.3) (0.9) Net Interest (Exp)/Inc (3.7) (4.5) (4.7) (5.1) (6.3) Exceptional Gain/(Loss) 15.0 0.0 0.0 9.50 0.0 Pre-tax Profit 142 87.3 113 130 106 Tax (23.4) (6.5) (19.9) (21.6) (19.5) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 119 80.8 92.8 109 86.0 Net profit bef Except. 104 80.8 92.8 99.1 86.0 EBITDA 199 157 183 192 178 Growth Revenue Gth (%) 2.3 5.1 (6.8) (0.9) (0.1) EBITDA Gth (%) 2.2 (21.1) 16.7 4.7 (7.0) Opg Profit Gth (%) 5.2 (29.8) 28.0 7.2 (10.6) Net Profit Gth (Pre-ex) (%) 4.6 (22.1) 14.9 6.8 (13.2) Margins Gross Margins (%) 31.1 22.6 28.9 31.4 29.4 Opg Profit Margins (%) 21.7 14.5 19.9 21.5 19.3 Net Profit Margins (%) 19.7 12.7 15.7 18.5 14.7

Balance Sheet (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 911 890 1,000 1,025 1,035 Invts in Associates & JVs 0.0 27.5 27.2 26.9 26.6 Other LT Assets 405 388 388 388 388 Cash & ST Invts 264 173 74.1 48.2 26.0 Inventory 42.4 54.3 53.8 53.7 53.4 Debtors 162 153 152 152 151 Other Current Assets 203 223 223 223 223 Total Assets 1,987 1,909 1,918 1,916 1,902 ST Debt 200 138 138 138 138 Creditor 796 687 681 680 676 Other Current Liab 197 203 188 184 182 LT Debt 488 550 550 550 550 Other LT Liabilities 158 144 144 144 144 Shareholder’s Equity 149 188 217 221 213 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 1,987 1,909 1,918 1,916 1,902 Non-Cash Wkg. Capital (586) (460) (441) (436) (431) Net Cash/(Debt) (423) (514) (613) (639) (662) Debtors Turn (avg days) 21.8 23.5 23.0 22.9 23.0 Creditors Turn (avg days) 167.7 152.3 143.5 143.7 144.0 Inventory Turn (avg days) 9.3 9.9 11.3 11.4 11.4 Asset Turnover (x) 1.2 1.3 1.3 1.3 1.3 Current Ratio (x) 0.6 0.6 0.5 0.5 0.5 Quick Ratio (x) 0.4 0.3 0.2 0.2 0.2 Net Debt/Equity (X) 2.8 2.7 2.8 2.9 3.1 Net Debt/Equity ex MI (X) 2.8 2.7 2.8 2.9 3.1 Capex to Debt (%) 46.8 47.6 56.0 44.3 42.8 Z-Score (X) 3.2 3.4 3.4 3.4 3.3


Rising capex


Company Guide

StarHub

Cash Flow Statement (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 456 440 439 409 395 Dep. & Amort. 271 271 275 280 285 Tax Paid (65.3) (92.7) (80.6) (65.9) (61.4) Assoc. & JV Inc/(loss) 0.0 0.30 0.30 0.30 0.30 Chg in Wkg.Cap. 2.50 (108) (4.2) (1.0) (2.6) Other Operating CF (9.6) 33.5 (10.0) (10.0) (10.0) Net Operating CF 655 545 620 613 606 Capital Exp.(net) (322) (327) (385) (305) (295) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 (12.0) 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 2.80 38.9 0.0 0.0 0.0 Net Investing CF (319) (300) (385) (305) (295) Div Paid (345) (346) (344) (344) (344) Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 6.20 10.6 10.0 10.0 10.0 Net Financing CF (339) (335) (334) (334) (334) Currency Adjustments 0.20 0.30 0.0 0.0 0.0 Chg in Cash (2.7) (90.8) (99.3) (25.9) (22.2) Opg CFPS (S cts) 37.9 37.7 36.0 35.4 35.2 Free CFPS (S cts) 19.4 12.6 13.6 17.8 18.0


Target Price & Ratings History

Source: DBS Bank

Analyst: Sachin MITTAL

S .No.Date of Repor t

Clos ing P r ice

12-m th Targe t P r ice

Rating

1: 17 Feb 16 3.56 3.30 FULLY VALUED

2: 19 Feb 16 3.46 3.30 FULLY VALUED

3: 29 Mar 16 3.31 3.30 FULLY VALUED

4: 06 May 16 3.32 3.30 FULLY VALUED

5: 16 May 16 3.39 3.30 HOLD

6: 04 Aug 16 3.92 4.10 BUY

7: 22 Aug 16 3.75 3.65 HOLD

8: 21 S ep 16 3.40 3.00 FULLY VALUED

9: 26 S ep 16 3.39 3.00 FULLY VALUED

10: 02 Nov 16 3.38 2.80 FULLY VALUED

11: 03 Nov 16 3.27 2.80 FULLY VALUE D12: 17 Nov 16 2.96 2.80 FULLY VALUE D

Note : S hare price and Target price are adjus ted for corporate actions .

1

2

3

45

6

7

8

9

10

1112

2.63

2.83

3.03

3.23

3.43

3.63

3.83

4.03

Dec-15 Apr-16 Aug-16 Dec-16

S$

Fixed dividend commitment not tied to earnings

Industry Focus

Singapore Telecom

Page 2

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

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

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

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

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

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

Share price appreciation + dividends

Completed Date: 15 Dec 2016 08:25:19 (SGT) Dissemination Date: 15 Dec 2016 08:40:58 (SGT)

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,

its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated

in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to

change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard

to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of

addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal

or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of

profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This

document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or

persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Industry Focus

Singapore Telecom

Page 3

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research

department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction

in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 15 Dec 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in M1,

StarHub recommended in this report as of 30 Nov 2016.

2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a net long position

exceeding 0.5% of the total issued share capital in M1 recommended in this report as of 30 Nov 2016.

4. DBS Bank Ltd, DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity

securities of M1 as of 30 Nov 2016.

Compensation for investment banking services:

5. DBS Bank Ltd, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for

investment banking services from StarHub as of 31 Nov 2016. 6. DBS Bank Ltd, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for

StarHub in the past 12 months, as of 30 Nov 2016.

7. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

Directorship/trustee interests:

8. Peter Seah Lim Huat, Chairman of DBS Group Holdings, is a Director of Starhub as of 3 Aug 2016. Nihal Vijaya Devadas Kaviratne CBE, a

member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 3 Aug 2016.

Disclosure of previous investment recommendation produced:

9. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Industry Focus

Singapore Telecom

Page 4

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Industry Focus

Singapore Telecom

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

DBS Bank Ltd

12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888

e-mail: [email protected] Company Regn. No. 196800306E

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