25 August 2016

Asia Pacific/Singapore
Equity Research
Telecommunication Services

Singapore Telecoms Sector

Research Analysts
Varun Ahuja, CFA
65 6212 3017
varun.ahuja@credit-suisse.com

COMMENT

Reminder: Fourth operator risk pretty much

existing; risk reward appears unfavourable
Figure 1: Upside/downside potential with absence/presence of fourth
mobile operator in Singapore
40%

StarHub

30%

Valuation with no 4th operator: S$3.95/sh

Valuation with 4th operator: S$3.00/sh

M1
Valuation with no 4th operator: S$3.30/sh
Valuation with 4th operator: S$2.05/sh
20.9%

20%
10%

3.9%

0%
-10%

-20%
-21.1%

-24.9%

-30%
Upside potential with
no 4th operator

Downside potential
with 4th operator

StarHub

Upside potential with

no 4th operator

Downside potential
with 4th operator

M1

Source: Company data, Credit Suisse estimates

Stocks factoring in no fourth mobile operator scenario. StarHubs and

M1s stock prices have risen by c.15% since mid-May 2016 and the stocks
are trading close to their historical mean valuation, suggesting that stock
prices are factoring in no fourth mobile operator scenario. With the end to
the fourth mobile operator saga approaching near (1 September 2016), we
would like to caution investors that the threat of the fourth mobile operator
in Singapore is pretty much alive.
We reiterate our UNDERWEIGHT stance on the sector. We see strong
probability of a new mobile operator surfacing in Singapore, given: (1)
IDAs keenness to encourage competition in Singapore's mobile market; (2)
the availability of low band spectrum (900MHz) at attractive valuations; (3)
attractive return profile of the sector; and (4) interest shown by two new
players, My Republic and Consistel, in being the fourth operator.
SingTel is our top pick. We recommend SingTel as our top pick in the sector,
given that the risk-reward appears favourable for the company vs M1 and
StarHub. We believe StarHubs and M1s stock prices can correct meaningfully
in the event any player files an expression of interest with IDA on 1 September
2016. SingTel is the least exposed to the potentially intensifying competitive
scenario in Singapore's mobile market as ~5% of our target price comes from
the mobile market. Key upside risk to our forecasts/valuations arises from the
absence of a fourth mobile operator in Singapore.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse 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.

25 August 2016

Focus charts and table

Figure 3: suggesting that stock prices are
factoring in no fourth mobile operator scenario

Figure 2: StarHub's and M1's stock prices are

trading close to their historical mean valuations
12x

12x

+2 STDV

+2 STDV
11x

11x
+1 STDV

+1 STDV
10x

10x
Mean

9x

9x
8x

Mean

8x

-1 STDV

-1 STDV

7x

7x

-2 STDV

-2 STDV

6x
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

6x
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Note: StarHub: 12M FWD EV/EBITDA trend; Source: Company data, Credit Suisse estimates

Note: M1: 12M FWD EV/EBITDA trend; Source: Company data, Credit Suisse estimates

Figure 4: However, we see strong probability of a

new mobile operator given IDA's attractive terms

Figure 5: We see downside risk to consensus

estimates for 2017E net profit

Amount of spectrum to be allocated

700MHz

900MHz

2x45MHz

2x30MHz

2300MHz 2500MHz
40MHz

100

45MHz

95
Expected start date

1 Jan'18

1-Apr-17

1-Apr-17

1-Apr-17

Duration of spectrum

15 years

16 years

16 years

16 years

Spectrum reserved for new operator

2x10MHz

40MHz

Proposed reserve price for new operator

S$35m for the entire block

SingTel - Current CS e

90
85

StarHub - Current CSe

80
Spectrum put for general auction
Lot Size

2x45MHz

2x20MHz

2x5MHz

2x5MHz

5MHz

75

5MHz

M1 - Current CSe

S$20m per S$20m per S$3m per S$3m per

2x5MHz
2x5MHz
5MHz
5MHz

Reserve price in general auction

M1 Consensus
STH Consensus
STEL Consensus

45MHz

Source: IDA, Credit Suisse

70
Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Note: 2017E net profit estimates have been rebased to 100 as of 30-Jun-15. Source: IBES,
Credit Suisse estimates

Figure 6: Singapore telecoms valuations

Rating
SingTel
StarHub
M1 Ltd

O
U
U

CP
(S$)

TP
(S$)

% Up/ Mkt cap

down (US$ mn)

4.27
3.80
2.73

4.75 11.2%
3.00 -21.0%
2.05 -24.9%

50,335
4,848
1,892

2016E

P/E (x)
2017E

2018E

18.0x
17.2x
14.8x

16.7x
20.1x
17.3x

15.7x
20.8x
19.4x

EV/EBITDA (x)
2016E 2017E 2018E
8.0x
9.7x
8.6x

7.5x
10.3x
9.1x

7.2x
10.6x
9.5x

FCF yield (%)

2016E 2017E 2018E
4.1%
5.4%
6.2%

5.5%
4.9%
5.5%

5.7%
4.8%
5.1%

Div. yield (%)

2016E 2017E 2017E
4.1%
5.3%
5.4%

4.4%
5.3%
4.6%

4.7%
5.3%
4.1%

Note: Prices as on 25 August 2016; O = OUTPERFORM, U = UNDERPERFORM. Source: Company data, Credit Suisse estimates

Singapore Telecoms Sector

25 August 2016

Stock prices baking in no fourth operator scenario

StarHubs and M1s stock prices have risen by c.15% since mid-May 2016 and the stocks
are trading close to their historical mean valuation, suggesting that stock prices are
factoring in no fourth mobile operator scenario in Singapore.

Figure 7: StarHub12M FWD EV/EBITDA trend

12x

Figure 8: M112M FWD EV/EBITDA trend

12x

+2 STDV

+2 STDV
11x

11x
+1 STDV

+1 STDV

10x

10x
Mean

9x
8x

9x

Mean

8x

-1 STDV

7x

-1 STDV

7x

-2 STDV

-2 STDV

6x
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Source: Company data, Credit Suisse estimates

6x
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Source: Company data, Credit Suisse estimates

With the end to the fourth mobile operator saga approaching near (last date for filling of
expression of interest with IDA is 1 September 2016), we would like to caution investors
that the threat of the fourth mobile operator in Singapore is pretty much alive. We reiterate
our Underweight stance on the sector as we see strong probability of a new mobile
operator in Singapore. We believe StarHubs and M1s stock prices can correct
meaningfully in case any operator (My Republic, Consistel or any other new player) files
an expression of interest with IDA on 1 September 2016. The impact on SingTel is minimal
as Singapore's mobile business only contributes c. 5% of our SingTel valuation.
Also, we see downside to consensus estimates as it is not fully factoring in the fourth
mobile operator in Singapore.

Figure 9: StarHubCS vs consensus estimates

Figure 10: M1CS vs consensus estimates

Revenue - CS
Revenue - Consensus
- % difference

2016E
2,424
2,449
-1.0%

2017E
2,430
2,493
-2.5%

2018E
2,414
2,519
-4.2%

Revenue - CS
Revenue - Consensus
- % difference

2016E
1,114
1,108
0.6%

2017E
1,119
1,130
-0.9%

2018E
1,123
1,142
-1.6%

EBITDA - CS
EBITDA - Consensus
- % difference

733
718
2.0%

684
728
-5.9%

666
729
-8.7%

EBITDA - CS
EBITDA - Consensus
- % difference

339
336
1.1%

320
338
-5.4%

304
334
-8.9%

PAT - CS
PAT - Consensus
- % difference

381
358
6.5%

326
355
-7.9%

315
351
-10.4%

PAT - CS
PAT - Consensus
- % difference

173
170
1.5%

148
170
-12.6%

132
165
-20.4%

Div - CS
Div - Consensus
- % difference

20.00
20.00
0.0%

20.00
20.20
-1.0%

20.00
20.00
0.0%

Div - CS
Div - Consensus
- % difference

14.74
15.20
-3.1%

12.65
15.30
-17.3%

11.24
15.10
-25.5%

Source: IBES, Credit Suisse estimates

Singapore Telecoms Sector

Source: IBES, Credit Suisse estimates

25 August 2016

Why we believe fourth mobile operator is possible in

Singapore
IDAs keenness to have a fourth mobile operator in Singapore: Encouraged with
the results yielded by the introduction of competition in the broadband segment, IDA
has been keen to introduce competition in the Singapore mobile market for some time.
The regulator tried to introduce a fourth mobile operator in the 2013 spectrum auction
by reserving 2x20MHz of 2600MHz for new operators (at S$40 mn). However, no new
operator showed any interest in the Singapore mobile market then.
The regulator has again reserved spectrum in the upcoming spectrum auction
(expected in 4Q16) for the new operator. IDA has decided to reserve 60MHz
(2x10MHz in 900MHz and 40MHz in 2.3GHz) for the new operator at a reserve price of
S$35 mn. We view IDAs recent terms as attractive, given the regulator is reserving
2x10MHz of 900MHz. Low frequency band spectrum is important for the new
operators economics as it reduces the cost of operation given the reach and in
building penetration of the frequency band. Additionally, incumbent operators are
currently using the 900MHz spectrum and the regulator is withdrawing the same from
incumbents to reserve it for new operator, highlighting IDA's keenness to introduce
competition in the mobile market. We also note if there is no fourth mobile operator
during the upcoming auction then there will not be any new operators in the sector for
the next 15 years, given the unavailability of a low band spectrum, in our view.

Figure 11: IDA's terms for the upcoming spectrum auction look attractive for
new operator
700MHz

900MHz

Amount of spectrum to be allocated

Expected start date
Duration of spectrum (indicative)

703-748MHz
/ 758-803MHz
2x45MHz
1 Jan'18
15 years

885-915MHz
/ 930-960MHz
2x30MHz
1-Apr-17
16 years

Spectrum reserved for new operator

2x10MHz

Frequencies

Proposed reserve price for new operator

Spectrum put for general auction
Lot Size
Reserve price in general auction

2300MHz (TDD)

2500MHz (TDD)

2300-2340MHz

2570-2615MHz

40MHz
1-Apr-17
16 years

45MHz
1-Apr-17
16 years

40MHz

S$35m for the entire block

2x45MHz
2x5MHz
S$20m per
2x5MHz

2x20MHz
2x5MHz
S$20m per
2x5MHz

5MHz

45MHz
5MHz

S$3m per 5MHz

S$3m per 5MHz

Source: IDA, Credit Suisse

Attractive sector returns: With the number three mobile operator (M1) having c.17%
revenue market share and generating c.25% return on capital employed in 2015, we
believe the sector returns look attractive for a new entrant to strive for a business case
in the Singapore telecoms market. We note that M1 has consistently been generating
RoCE of higher than 25% over the last 10 years.
Interest shown by two new players: In the earlier auction (2013), no new operator
had shown interest in Singapore mobile market despite IDA reserving 2x20MHz of
2600MHz spectrum. However, this time two new players, My Republic and Consistel,
have shown interest in becoming the fourth operator in Singapore and are looking to
arrange funding for the mobile venture.
Bundling no longer a entry barrier: Historically, the bundling of services (mobile,
broadband and Pay TV) has been a strong proposition in the Singapore telecoms
market. We believe the ability to bundle services will help the new mobile operator
compete more effectively in the market. With the evolution of NGBN (next generation
broadband network), over the past few years, the capability to bundle fixed fibre
Singapore Telecoms Sector

25 August 2016

broadband services has eased considerably as all telecom operators in Singapore are
virtually re-sellers of fibre broadband services.
However, bundling pay TV services remains a challenge, given investment needed in
content and HFC still being the dominant technology for pay TV. We believe the
emergence of OTT services can enhance the competitiveness of the fourth mobile
operator in the medium to long term as the appeal of pay TV services reduces with
time. We are already seeing the impact of the emergence of OTT services and IP TV
boxes with StarHubs hubbing customers declining in recent months. StarHub has
recently launched SurfHub plans promoting mobile and broadband more prominently.
We believe the new plan is a reflection of the changing landscape with pay TV services
losing their sheen.

What is the latest on funding status of My Republic

and Consistel?
In Mar-16, both My Republic and Consistel formally announced their intention to participate in
the upcoming spectrum auction. They highlighted that they are looking to raise the funding for
the upcoming spectrum auction. My Republic expects investments of S$250 mn to build a
nationwide 4G network in Singapore, while Consistel sees a total investment of S$1 bn in the
mobile venture and is initially looking for a funding of S$400 mn.
While there is no clarity on the funding status of My Republic and Consistel currently, there
were media reports (Today Online) in Jun-16 stating that My Republic was not able to raise
the funding. However, My Republic's CEO refuted these claims and said that the company
has already secured funding of S$130 mn from loan facility and the company is looking to
raise another S$120 mn from equity investors. He highlighted that the company is talking to
four potential investors and expects the deal to close before the spectrum auction.
We note that the market seems comfortable with the view that My Republic and
Consistel will not be able to raise funding for the Singapore mobile venture, which in
our view is a bit unreasonable.

What if there is no fourth mobile operator?

Risk reward seems unfavourable
In our bull case scenario, we assume no fourth mobile operator in Singapore. Hence, we
would expect the sector to experience a re-rating with the threat of a new operator
vanishing. However, we expect service revenue and EBITDA growth to remain subdued
(1-3%) over the next three years as we believe the new data add-on plans are likely to
limit the data monetisation potential (as highlighted below). We forecast dividends to grow
at a three-year CAGR (2015-18E) of 3.7% and 3.2% for M1 and StarHub, respectively
higher than their net income growth, as we expect dividend payout ratios to increase with
the improvement in industry fundamentals.

Singapore Telecoms Sector

25 August 2016

Figure 12: Base case and bull case scenarios for M1 and StarHub
Base case valuation (reflecting moderate competition with the entry of fourth telco)
Financial metrics
Consol service revenue 3yr CAGR (15-18E)
Consol EBITDA 3yr CAGR (15-18E)
Net Profit 3yr CAGR (15-18E)
Dividend 3yr CAGR (15-18E)
CS valuation
Valuation (S$/share)
% upside/downside
Implied EV/EBITDA - 2017E
Implied EV/EBITDA - 2018E
Implied Div yield - 2017E
Implied Div yield - 2018E
Bull case valuation (reflecting no fourth mobile operator)
Financial metrics
Consol service revenue 3yr CAGR (15-18E)
Consol EBITDA 3yr CAGR (15-18E)
Net Profit 3yr CAGR (15-18E)
Dividend 3yr CAGR (15-18E)
CS valuation
Valuation (S$/share)
% upside/downside
Implied EV/EBITDA - 2017E
Implied EV/EBITDA - 2018E
Implied Div yield - 2017E
Implied Div yield - 2018E

M1

StarHub

-1.0%
-3.8%
-9.6%
-9.8%

-0.3%
-2.2%
-5.5%
0.0%

2.05

3.00

-24.9%

-21.1%

7.1x
7.4x
6.2%
5.5%

8.3x
8.5x
6.1%
6.1%

1.5%
1.8%
-0.1%
3.7%

0.9%
1.8%
0.6%
3.2%

3.30

3.95

20.9%

3.9%

9.7x
9.4x
5.6%
6.1%

10.0x
9.7x
5.6%
5.6%

Source: Company data, Credit Suisse estimates

As highlighted in the table above, risk reward looks unfavourable for StarHub and M1 as the
upside potential (from the absence of fourth mobile operator) is lower than downside potential
(in the case of emergence new operator). We would point that risk reward is highly
unfavourable for StarHub as the upside potential is limited. The impact on SingTel is minimal
as our bull case valuation increases to S$4.80/share vs S$4.75/share in the base case.

Mobile service revenue growth likely to remain subdued

Singapore mobile sector is going through a tough phase with the sector service revenue
declining by 2.0% YoY over the past nine months. In the event of no fourth mobile operator,
we do not expect any significant recovery in the mobile service revenue over the next three
years, given the recent price actions in the sector. We expect the sector service revenue to
grow at a three-year CAGR (2016-18E) of 0.8% under the no fourth operator scenario.
Data add-on plans limit data monetisation potential
Singapore mobile operators introduced the data add-ons feature in March-16 after My
Republic announced its potential mobile plans for the market. The data add-on feature
virtually doubles the existing data allowance for an additional charge of c S$6/month.
Our analysis suggests there is a potential 30-65% reduction in net realisation rates
(adjusted for handset component) post the incorporation of the data add-on feature (for
similar data bundle plans). Hence, the data add-on feature can result in downtrending risk,
given the significant price difference for higher-tier data plans. That said, there is an
upselling potential in the lower-tier segment. Overall, we believe the data add-on feature
limits the data monetisation potential in the medium to long term.

Singapore Telecoms Sector

25 August 2016

Figure 13: Analysis of plans with pre- and post-data add-on feature (like-to-like
basis for data)
Pre add on

Post add on

% change

50.3
62.8
198.4

31.0
43.6
68.7

-38.3%
-30.6%
-65.4%

48.2
62.6
186.5

30.2
42.0
68.5

-37.4%
-32.8%
-63.3%

63.0

30.8

-51.2%

SingTel
4GB
6GB
12GB
M1
5GB
7GB
13GB
StarHub
6GB

Note 1: Net realisation per month is calculated as total monthly fees over 24 months plus upfront handset payment minus cost of handset to
company divided by 24. The cost of handset to company is assumed at 95% of retail selling price of handset. Note 2: We do not adjust for
differences in voice call and SMS usage as we believe data usage is more relevant. Source: Company data, Credit Suisse estimates

StarHub's new SurfHub plans unlikely to impact service revenue meaningfully

StarHub has recently launched new plans SurfHub, which offer big mobile data (12GB
and more) bundled with 1Gbps home fiber broadband. The plans start with monthly
payment of S$96.56 offering 12GB of mobile data and go up to S$156.56 offering 24GB of
mobile data.

Figure 14: StarHub SurfHub plan details

Monthly price (S$/month)
Outgoing calls (mins)
Incoming calls (mins)
SMS/MMS
Local data (GB)
Fibre broadband (Gbps)

Plan 1

Plan 2

Plan 3

Plan 4

96.56
150
Unlimited
1,000
12GB
1Gbps

116.56
350
Unlimited
1,200
15GB
1Gbps

136.56
450
Unlimited
1,300
18GB
1Gbps

156.56
700
Unlimited
1,500
24GB
1Gbps

Source: Company data, Credit Suisse

Though the headline tariff (of S$96.56 for 12GB mobile data plus 1Gbps broadband line)
may suggest significant discount to the current 12GB mobile data plan of S$220/month
(this is a standalone mobile plan), we do not expect these plans to meaningfully impact
service revenue as:
The original S$220/month plan, offering 12GB data, was a nonstarter with very few
customers subscribing to the same as the average postpaid smartphone data usage in
Singapore is c.3.3 GB/month.
The new SurfHub plans come bundled with fixed broadband and hence maximum one
person per household can subscribe to the same.
Additionally, the customers cannot share big data bundles with other family members,
limiting the uptake potential for these plans, in our view.
Further, StarHub does not offer any discounts on the SurfHub plans vs the normal 4G
plans, which are eligible for Hub club or corporate discounts.
Our analysis of the net realisation rates (adjusted for handset subsidies) for the SurfHub
plans and standard 4G plans combined with 1Gbps home broadband plan suggests that a
subscriber needs to pay an incremental monthly tariff of c.S$15 for additional 6GB of data
(for the 12GB SurfHub plan). Though the new plans offer attractive proposition for higher
data usage subscribers, we believe the target segment for these plans is limited and
hence do not expect them to meaningfully impact StarHubs financials.

Singapore Telecoms Sector

25 August 2016

Figure 15: StarHub's SurfHub plan vs combination of standard 4G mobile plans

and 1Gbps home broadband plan
Plan 1

Plan 2

Scenario 1 Combination of standard 4G mobile plans and 1Gbps home broadband plan
Net realization rate for mobile services1, 2
23.7
34.1
Value of 1Gbps home BB plan
37.4
37.4

Plan 3

Plan 4

44.5
37.4

55.9
37.4

Total realization rate

61.1

71.5

81.9

93.4

Bundled local mobile data (GB)

Scenario 2 SurfHub plan
Net realization rate for mobile services1
Value of 1Gbps home BB plan

6GB

7GB

8GB

9GB

32.0
43.7

44.4
43.7

56.8
43.7

70.2
43.7

Total realization rate

75.6

88.1

100.4

113.9

12GB

15GB

18GB

24GB

23.8%
100.0%

23.1%
114.3%

22.6%
125.0%

22.0%
166.7%

Bundled local mobile data (GB)

SurfHub premium to Scenario 1 on
Total realization rate
Bundled local mobile data

Note 1: Net realisation per month is calculated as total monthly fees over 24 months plus upfront handset payment minus cost of handset to
company divided by 24. The analysis is done for iPhone 6S 64GB handset. Note 2: For scenario 1, we have assumed average discount of 10%
for the monthly mobile fees while calculating net realization rate. Also, we have added S$6/month under scenario 1 for subscribing to data addon plans. Source: Company data, Credit Suisse estimates

We believe StarHub introduced SurfHub plans to strengthen its hubbing (or bundling)
proposition, as lately the hubbing strategy has lost its sheen, given pay TV services are
under threat with the emergence of OTT services and IP TV boxes. With SurfHub, the
company is promoting mobile and broadband more prominently. However, we note that
StarHub is unlikely to have a distinct advantage with mobile and broadband bundling as
SingTel and M1 can also offer the same (unlike bundling scenarios under pay TV). We
expect SingTel and M1 to also come up with their own versions of SurfHub plans (but not
much different from StarHubs).
Unlikely that tariffs will move up over the next 2-3 years
The Singapore mobile sector has seen some pricing actions over the last 12-15 months
(since talks of fourth mobile operators have gained momentum). We believe most of these
price moves were aimed to pre-empt the introduction of competition in the sector. Of all
the price actions (introduction of SIM only plans, data add-on plans, and StarHub's new
SurfHub plans), we are apprehensive of the data add-on plans as we believe they limit the
data monetisation potential.
In the event no fourth operator surfaces, we do not expect operators to reverse some of the
earlier price actions or increase tariffs substantially over the next two to three years as it will
lead to negative publicity and defeat IDA's purpose of intensifying competition in the sector.

Singapore Telecoms Sector

25 August 2016

Companies Mentioned (Price as of 25-Aug-2016)

M1 Limited (MONE.SI, S$2.73, UNDERPERFORM, TP S$2.05)
Singapore Telecom (STEL.SI, S$4.27, OUTPERFORM, TP S$4.75)
StarHub Ltd (STAR.SI, S$3.8, UNDERPERFORM, TP S$3.0)

Disclosure Appendix
Important Global Disclosures
I, Varun Ahuja, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and
securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in
this report.
3-Year Price and Rating History for M1 Limited (MONE.SI)
MONE.SI
Date
21-Jan-14
15-Jul-14
19-Jan-15
07-Oct-15
19-Jan-16
13-Apr-16

Closing Price
(S$)
3.29
3.59
3.62
2.92
2.50
2.48

Target Price
(S$)
3.64
3.73
3.85
2.35
2.15
2.05

Rating
O
N
U*

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM
N EU T RA L
U N D ERPERFO RM

3-Year Price and Rating History for Singapore Telecom (STEL.SI)

STEL.SI
Date
14-Nov-13
06-Jan-14
16-Jan-14
05-Jun-14
15-Aug-14
12-Feb-15
08-Oct-15
13-Nov-15
14-Jan-16
12-Apr-16
12-May-16
20-Jun-16
11-Aug-16

Closing Price
(S$)
3.79
3.54
3.52
3.86
3.91
4.18
3.77
3.86
3.50
3.69
3.89
3.85
4.27

Target Price
(S$)
4.20
4.10
3.90
3.84
4.00
4.15
4.25
4.40
4.20
4.35
4.40
4.45
4.75

Rating
O
N

O*

O U T PERFO RM
N EU T RA L

* Asterisk signifies initiation or assumption of coverage.

Singapore Telecoms Sector

25 August 2016

3-Year Price and Rating History for StarHub Ltd (STAR.SI)

STAR.SI
Date
07-Feb-14
15-Jul-14
08-Oct-15
21-Jan-16
17-Feb-16

Closing Price
(S$)
4.24
4.14
3.58
3.33
3.56

Target Price
(S$)
4.40
3.95
3.10
3.05
3.00

Rating
N
U
*

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L
U N D ERPERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts stock rating are defined as follows:

Outperform (O) : The stocks total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stocks total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stocks total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stocks total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings
are based on a stocks total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian
ratings were based on (1) a stocks absolute total return potential to its current share price and (2) the relative attractiv eness of a stocks total return potential within
an analysts coverage universe. For Australian and New Zealand stocks, the e xpected total return (ETR) calculation includes 12-month rolling dividend yield. An
Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned
where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18
May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July
2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Not Rated : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at
this time.
Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment
view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts sector weightings are distinct from analysts stock ratings and are based on the analysts expectations for the fundamentals and/or
valuation of the sector* relative to the groups historic fundamentals and/or valuation:
Overweight : The analysts expectation for the sectors fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analysts expectation for the sectors fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analysts expectation for the sectors fundamentals and/or valuation is cautious over the next 12 months.
*An analysts coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating

Versus universe (%)

Of which banking clients (%)

Outperform/Buy*
54%
(50% banking clients)
Neutral/Hold*
30%
(23% banking clients)
Underperform/Sell*
16%
(44% banking clients)
Restricted
0%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisses policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer
to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-andanalytics/disclaimer/managing_conflicts_disclaimer.html
Singapore Telecoms Sector

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25 August 2016

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot
be used, by any taxpayer for the purposes of avoiding any penalties.
Target Price and Rating
Valuation Methodology and Risks: (12 months) for M1 Limited (MONE.SI)
Method: Our 12-month target price of S$2.05 for M1 Ltd is based on discounted cash flow valuation based on a 7.2% weighted average cost of
capital (WACC) and a 0.0% terminal growth rate. Our 7.2% WACC is based on a 8.0% cost of equity and a 3.7% cost of debt (post tax
shield). At our target price, M1 would be trading at an FY17E EV/EBITDA of 7.1x below its historical range as we expect entry of fourth
cellular operator in Singapore market leading to pressure on earnings and hence dividend and accordingly we maintain our
UNDERPERFORM rating.
Risk:

Risks to our 12-month target price of S$2.05 and UNDERPERFORM rating for M1 Ltd include: (1) absence of fourth cellular operator from
Singapore Telecoms sector, (2) more severe than expected competition among the telcos in Singapore, (3) slower than expected growth
in key business segments in Singapore and (4) changes in regulatory environment.

Target Price and Rating

Valuation Methodology and Risks: (12 months) for Singapore Telecom (STEL.SI)
Method: Our target price of S$4.75 for Singapore Telecom is based on a sum-of-the parts calculation. The core Singapore and Australia operations
within the sum-of-the-parts, which contribute S$2.07 of the total, are valued using discounted cash flow (DCF) analysis. For Singapore, we
use an estimated 6.8% weighted average cost of capital (WACC) and we use a terminal growth rate of 0.0% for mobile and 0.0% for fixed
line, For Australia, we use an estimated 8.5% WACC and we use 1.9% terminal growth. The associates, which contribute S$2.68 within
our sum-of-the-parts, are also valued using DCF. For Singtel's 35% stake in Telkomsel, we value at S$1.20. For Singtel's 36% stake in
Bharti Airtel, we value at S$0.52. For Singtel's 23% stake in AIS, we value at S$0.35. For SingTel's 21% stake in Intouch, we value at
S$0.12. For Singtel's 47% stake in Globe, we value at S$0.30. We also value Singtel's 26% stake in SingPost at S$0.05 and 100% stake
in NetLink Trust at S$0.14. We have an OUTPERFORM rating on SingTel as the company offers unique combination of dividends and
growth (primarily coming from international associates)
Risk:

The key risks to our S$4.75 target price and OUTPERFORM rating for Singtel include: (1) Foreign currency fluctuations, (2) more severe
than expected competition among the telcos in Singapore and Australia, as well as key regional markets, (3) slower than expected growth
in key business segments in key regional markets, (4) changes in regulatory environment, and (5) acquisition risk.

Target Price and Rating

Valuation Methodology and Risks: (12 months) for StarHub Ltd (STAR.SI)
Method: Our target price of S$3.00 for Starhub is derived from discounted cash flow (DCF) based on weighted average cost of capital (WACC) of
7.2%, 0.0% terminal growth rate for mobile, 0.0% for cable & broadband, and 0.0% for Fixed network services respectively. Our 7.2%
WACC is based on a 8.0% cost of equity and a 3.7% cost of debt (post tax shield). At our target price, StarHub would be trading at an
2017E EV/EBITDA of 8.3x below its historical range as we expect entry of fourth cellular operator in Singapore market leading to pressure
on earnings and accordingly maintain our UNDERPERFORM rating.
Risk:

Key risks to achievement of our S$3.00 target price and UNDERPERFORM rating for StarHub include: (1) absence of fourth cellular
operator from Singapore Telecoms sector, (2) more severe than expected competition among the telcos in Singapore, (3) slower than
expected growth in key business segments in Singapore and (4) changes in regulatory environment.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the
target price method and risk sections.
See the Companies Mentioned section for full company names

The subject company (STEL.SI, STAR.SI) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of
Credit Suisse.
Credit Suisse provided investment banking services to the subject company (STEL.SI) within the past 12 months.
Credit Suisse has managed or co-managed a public offering of securities for the subject company (STEL.SI) within the past 12 months.
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Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (STEL.SI, STAR.SI,
MONE.SI) within the next 3 months.
For a history of recommendations for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to
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Credit Suisse AG, Singapore Branch ........................................................................................................................................... Varun Ahuja, CFA
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