Singapore Industry Focus

Telecom Companies
DBS Group Research. Equity 30 July 2010

iPad- lessons learnt from AT&T

STI : 2,997.65
• iPad’s microSIM is smaller than traditional SIM; New
Analyst
revenue stream for operators from iPad’s 3G-data plan.
Sachin Mittal (65) 6398-7950
• Potential could be 2-3% of revenue and 3-4% of earnings, sachin@dbsvickers.com
plus for cellular players. Recommendations
Price Mkt Cap Target Rating
• M1 offers cheaper iPad plans with limited usage, a lesson Price
learnt from AT&T. SingTel and StarHub offer premium SINGAPORE S$ S$ (bn) S$
plans with higher usage. MobileOne 2.14 1,406 2.30 BUY

StarHub 2.35 2,946 2.20 FULLY

• We prefer SingTel & M1 to StarHub. VALUED
New revenue-stream for cellular players. iPad uses microSIM Singapore Telecom 3.11 36,231 3.45 BUY
card, which is smaller than traditional SIM card. Arguably SIM card Source: DBS Vickers
can be trimmed to a microSIM card but then it would become
useless for smartphone ruling out interchangeability. As such, iPad PER
owners would need to buy new 3G-data plan, which would be a
(x)
new revenue stream for cellular players. We estimate 50K and
20
150K iPad households in 2010 and 2011, based on 5% and 15% 15.2
13.5
household penetration rate in Singapore in 2010 & 2011 15 11.8 11.6 12.1 11.5
respectively. Assuming 80% of iPad users subscribe to 3G-data plan 10
with average ARPU of S$25, we estimate iPad data revenue of
5
S$18m in 2011F, about 2.5% of industry cellular revenue. With no
device subsidy involved, we expect 70-80% of revenue to flow to 0
the bottomline, contributing about 3-4% of cellular industry M1 SingTel Starhub
bottomline in 2011. 2010F 2011F

FCF Yield
M1’s iPad plan targets light 3G-users, lesson learnt from
AT&T. In terms of strategy, M1 seems to target light 3G-data users (%)
10
with cheaper plans, more appealing to the students. This is in 8.6 8.7
7.2
contrast to SingTel and StarHub, who are targeting heavy-data 8
6.3 6.6 6.4
users with premium plans. Plus there is no initial fee for M1 iPad 6
plans in contrast to its competitors. This is also inline with AT&T’s 4
experience where it stopped offering unlimited 3G-plans to its new 2
iPad customers and offers maximum 2GB data limit (lower than 0
M1’s 3GB) due to capacity constraints, most probably. AT&T M1 SingTel Starhub
realized that only 2% of people used more than 2GB, congesting 2010F 2011F
the network for the rest 98%. In our view, iPad is like a notebook
EV/ EBITDA
with more indoor (Wi-Fi) usage and consumers should be
(x)
discouraged to use excessive 3G-data over Wi-Fi data. While M1
8.0 7.7
does offer unlimited data plan, we expect more traction for 7.3
cheaper plans as consumers budget their iPad bills on top of 7.5 7.2
6.9
smartphone bills. SingTel targets high-end users with 50GB of data 7.0 6.6 6.5
limit while StarHub offers unlimited data under its iPad plans, which 6.5
raises questions on the efficient use of 3G-network. 6.0
5.5
Pure cellular players should benefit more. We favor M1 as the M1 SingTel Starhub
chief beneficiary of iPad’s growth in Singapore. We continue to 2010F 2011F
favor SingTel and M1 over StarHub. We like SingTel for strong
Singapore Telecom, FY11 & FY12 earnings respectively
Optus, recovering Bharti and attractive valuations. We like M1 for
its ability to gain its market share, capital management potential Source: DBS Vickers
and defensive 7% dividend yield. For StarHub, we are afraid that
group equity may become negative, if it continues with 20 cents
DPS till 2012

www.dbsvickers.com
Refer to important disclosures at the end of this report

ed: MY / sa: JC
Industry Focus
Singapore Telecom Companies

M1 offers lowest priced data plans (postpaid) with limited capacity and no initial fee.
Data Lite Data
Unlimited

Monthly Subscription $20 $39.40

Data Limit 3GB Unlimited
Excess Charge Cap $51.36 N/A
One-time fee N/A
Source: M1 website, DBS Vickers

StarHub offers most premium plans (postpaid) with unlimited capacity and highest initial fee.
2-year contract Without
and free USB modem contract

Monthly Subscription $43.66 $36.38

Data Limit Unlimited
Excess Charge Cap N/A
One-time fee $37.45
Source: StarHub website, DBS Vickers

SingTel offers reasonable plans (postpaid) with high capacity and moderate initial fee
2-year contract 2-year contract Without contract
and free USB dongle plus
microSIM to SIM adaptor
Monthly Subscription $36.50 $30.50 $34.50
Data Limit 50GB
Excess Charge Cap $94.16
One-time fee $13.38
Source: M1 website, DBS Vickers

M1 & StarHub are more aggressive than SingTel in prepaid iPad plans. M1 offers cheaper plans for light users
SingTel StarHub M1
Initial Price $20 $12.60 $32
Data Limit 1GB Unlimited 2.5GB
Valid Period 30 Days 3 Days 60 Days
Top Up S$49.50 for 30 days S$32 for 60 days S$30 for 2GB

S$24.50 for 7 days S$25 for 7 days S$18 for 1GB

S$10 for 2 days S$16 for 3 days S$5 for 256MB
Source: operator’s website, DBS Vickers

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 Industry Focus
Singapore Telecom Companies

M1 should benefit in 2010F from higher capex to service revenue ratio for 2009 & 2010F
Capex (S$m) 2007 2008 2009 2010F
M1 56 95 120 100
StarHub 212 222 232 250*
SingTel 500 800 680 800
Capex/Service Rev 2007 2008 2009 2010F
M1 7.7% 12.7% 7.1% 13.3%
StarHub 11.1% 10.9% 11.3% 11.7%*
SingTel 11.0% 15.5% 12.1% 13.2%
* Excludes an estimated S$50m for OpCo related capex, overall should be around 14%
Source: Operators, DBS Vickers

SingTel’s higher capex to service revenue of 15.5% in ratio in 2009 and 2010F respectively. SingTel’s relatively
2008 helped SingTel gain market share in 2008. We high ratio of 13.2% for 2010F indicates that the
expect M1 to defend or slightly increase market share in company may not lose market share in 2010F.
2010, on account of its over 17% & 13% capex to sales

M1’s market share decline reversed in 2Q09 and has been rising gradually for the last five quarters

50.0%

45.0%

40.0%

35.0%

30.0%

25.0%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10

M1 StarHub Singtel

Source: Operators, DBS Vickers

Substantial rise in data as % of revenue contribution in Singapore over the last five quarters

40.0%

36.0%

32.0%

28.0%

24.0%

20.0%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10

SingTel StarHub M1

Source: Operators, DBS Vickers

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Industry Focus
Singapore Telecom Companies

Regional Telecom valuations

Mkt Price Target Avg CAGR

Company FYE Cap (S$) Price % Share Price 6-mth 09-11 PE (x) Dividend Yield (%) P/BV EV/EBITDA
(US$m) 29-Jul (S$) Upside Rcmd 1M 3M 6M 12M Vol (m) (%) 09A 10F 11F 09A 10F 11F 09A 09A 10F 11F
Hong Kong 21,094 18498.96 22158 21654 18259
China Mobile Dec 190,660 78.60 85.00 29% Hold 73.30 63 77 107 28.4 4 11.0 10.5 10.2 3.8% 3.9% 3.9% 2.7x 4.9x 4.6x 4.1x
China Telecom Dec 6,837 3.82 4.40 15% Buy 3.65 4 4 4 79.3 27 18.7 14.8 11.5 1.6% 2.4% 3.1% 1.2x 4.5x 3.9x 3.3x
China Unicom Dec 30,992 10.22 8.30 -19% FV 11.26 9 10 11 40.8 7 18.1 24.2 15.9 2.9% 1.9% 1.9% 1.0x 3.9x 3.8x 3.8x
6 11.1 10.8 9.9
Malaysia 1,358 1091.17 1339 1299 1097
Digi.Com Dec 6,029 24.68 21.30 -14% Hold 21.90 22 22 22 0.5 7 19.2 17.5 16.7 7.2% 7.0% 6.0% 12.6x 9.3x 8.8x 8.4x
Maxis Bhd Dec 12,514 5.31 5.40 2% Hold 5.00 5 5 5 4.1 8 17.8 17.1 15.4 4.4% 4.4% 4.9% 4.5x 10.1x 9.5x 8.6x
Telekom Dec 3,811 3.39 3.45 2% Hold 2.70 3 3 3 4.8 -9 19.8 23.7 23.9 34.7% 5.8% 5.8% 1.7x 4.9x 5.0x 4.9x
Axiata Group Dec 11,437 4.31 4.50 4% Buy 2.39 4 3 3 10.4 52 31.0 16.1 13.4 0.0% 0.0% 0.7% 2.0x 7.8x 5.6x 4.7x
19 21.9 17.4 15.5
Singapore 2,998 2316.56 3017 2908 2389
M1 Dec 1,410 2.14 2.30 7% Buy 1.47 2 2 2 1.0 6 13.1 11.8 11.6 6.3% 6.8% 6.9% 7.8x 7.0x 6.6x 6.5x
SingTel Mar 36,343 3.11 3.45 11% Buy 2.90 3 3 3 17.6 5 12.6 12.1 11.5 4.6% 4.9% 6.1% 2.2x 7.5x 7.3x 6.9x
Starhub Dec 2,955 2.35 2.20 -6% Fully Valued 2.08 2 2 2 2.4 -4 12.6 15.5 13.7 7.8% 8.5% 8.4% 33.5x 7.2x 7.9x 7.3x
4 12.7 12.4 11.6
Thailand 855 611.92 761 747 588
Advance Info Dec 8,512 92.50 120.04 30% Buy 88.00 79 84 93 7.1 6 15.6 14.3 13.9 12.2% 6.8% 7.0% 3.8x 6.2x 5.9x 5.5x
Total Access Communication Dec 3,305 45.00 53.49 19% Buy 32.00 35 35 34 6.1 19 16.1 11.0 11.3 3.1% 4.6% 4.4% 1.7x 5.9x 4.5x 4.2x
True Corporation Dec 939 4.28 5.16 20% Buy 2.26 3 3 2 66.6 1 27.1 28.3 26.5 0.0% 0.0% 0.0% 3.3x 4.6x 4.4x 4.2x
9 19.6 17.8 17.2
Indonesia 3,097 2069.875 2901 2647 2123
Indosat Dec 2,969 4,900 5,500 12% Hold 5100.00 6050 5450 5150 2.5 3 17.7 18.5 16.6 2.8% 2.7% 3.0% 1.5x 5.7x 5.0x 4.5x
XL Axiata Dec 4,506 4,750 5,200 9% Buy 1200.00 3525 2250 1280 2.2 28 27.5 20.2 16.8 1.1% 1.0% 1.2% 3.9x 7.6x 6.7x 5.8x
PT Telekom Dec 18,546 8,250 8,500 3% Hold 7750.00 8000 9500 8050 21.6 3 13.5 13.8 12.6 3.8% 3.9% 4.3% 4.2x 5.2x 5.0x 4.6x
7 15.6 15.2 13.7

Singapore Telecom, FY11 & FY12 earnings respectively

Source: DBS Vickers

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 Industry Focus
Singapore Telecom Companies

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Industry Focus
Singapore Telecom Companies

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