Asian Telecom 20110322 Regional)

Regional Industry Focus
Asian Telecom Sector
DBS Group Research . Equity 22 March 2011
Switch to growth-yield mix MXAPJTC Index: 97.99

• 2010
Analystresult vindicate that data is benefiting telcos,
especially in emerging markets. Top Picks
• But emerging market telcos are trading at 30-40%
discount to mature telcos’ EV/EBITDA multiples as 1. XL, No. 3 mobile player in Indonesia, is a pure wireless
investors continue to pay a premium for yield. play in Indonesia with superior execution track record.
• Switch to telcos that will benefit from growth and
may be re-rated with potentially higher dividends. 2. Axiata, No. 2 mobile player in Malaysia, is a liquid proxy
XL, Axiata & SingTel fulfill the criteria. to XL and yield could surprise above 3%.
• Prefer Indonesian tower operators & Chinese 3. SingTel, incumbent in Singapore, is a proxy to Bharti’s
equipment players for pure growth. growth with a cushion of over 6% yield.
Data led strong revenue growth in 2010. Despite fears
that data was cannibalising voice, cellular revenue 4. Indosat, No. 2 mobile player in Indonesia, is likely to
growth in Asia was stronger in 2010 than 2009, improve margins in 2011 & has multiple catalysts ahead.
vindicating proponents of data. Poor fixed-broadband
penetration and affordable Chinese handsets (US$40- 5. DTAC, No. 2 mobile player in Thailand, may raise its
dividend payout ratio above 80% & yield above 8.5%
$200/unit) are supporting rising data usage in emerging
markets. However, the market could still be
6. Protelindo & Tower Bersama, are largest tower players
underestimating revenue growth in 2011 due to lack of
and proxies to data growth in Indonesia.
statistics to forecast growth potential of mobile
broadband.
7. ZTE is a potential beneficiary of 4G-network launch on a
Big opportunities for small players in China & Indonesia. global scale.
China Mobile & Telkomsel have 79% and 58% revenue
share in their respective markets, but that may be
difficult to sustain in these three-player markets. While
incumbents enjoy early-mover advantage in the voice-
space due to superior network coverage, data-growth is
accelerating in urban areas where coverage is on par.
2011F EV/EBITDA and PER for various telcos in the region
Potentially lower costs in Singapore. Singapore telcos
may save costs with potentially lower handset subsidies
in 2011 due to (i) arrival of Android phones (requiring 12.0 30.0
lower subsidies) and (ii) lower smart phone sales (after
the initial frenzy in 2010). Singapore may also benefit 10.0 25.0
from high purchasing power of its consumers who are

8.0 20.0
able to buy tablets with 3G plans.
Cheap valuations and higher dividends are key criteria. 6.0 15.0
Many emerging market telcos are trading at 4x-6x 4.0 10.0

FY11F EV/EBITDA vs 7x-10x for mature telcos, who are
valued by dividend yields. We believe that sector 2.0 5.0
growth is not compelling enough currently to forego

0.0 0.0
dividends. Given the market’s appetite for yields, XL
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and Axiata may be re-rated in anticipation of higher

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payouts in 2011 and beyond. SingTel’s key concern is

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its over-exposure to regulatory risks in Asia and Africa, 2011F E V/E B IT D A (L H S ) 2011F P E R (R H S )
but its 11x FY12F (Mar-YE) PER is attractive given
expected 6% yield, mid-single digit growth and proven
execution.
“In Singapore, this research report or research analyses may only be distributed to Institutional “Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are
Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, to contact DBSVR at +65 6398 7954 in respect of any matters arising from or in connection with
Chapter 289 of Singapore.” this report.”
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SGC / sa: JC
Industry Focus
Analysts Table of Contents
Sachin Mittal +65 6398 7950 Countries benefiting from data-growth 3

sachin@dbsvickers.com
Unbalanced market structure in China & Indonesia 6
Tsz Wang TAM CFA, +852 2971 1772
tw_tam@hk.dbsvickers.com
Emerging market telcos trading at huge discount to
mature telcos 9
Chirasit VUTTIGRAI +66 0 2657 7836
chirasitv@th.dbsvickers.com Tower-leasing is true proxy to data-growth in Indonesia 12
Juliana RAMLI +603 2711 2222

juliana@hwangdbsvickers.com.my
Top picks 14
Sector Briefs 18
Competitive & Regulatory Outlook in Asia 20
Singapore 20
Malaysia 20
Indonesia 21
China 21
Thailand 22
Stock Profiles 25
XL Axiata 26
Axiata Group 28
SingTel 30
Sarana/Protelindo (TOWR) 32
Tower Bersama 34
Page 2
Theme 1 – Countries benefiting from data-growth

Revenue growth picked up in 2010 in Asia due to data-growth
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
China Indonesia Malaysia Thailand Singapore
-2.0%
-4.0% 2009 2010 2011F
Source: DBS Vickers
Non-voice as % of cellular revenue is rising Data-revenue growth was key driver in 2010. As
Singapore 2008 2009 2010 shown in the table on the left, non-voice revenue
SingTel 33% 36% 38% contributions have surged in all markets. Skeptics
M1 23% 26% 32% argue that ARPU in countries such as China,
Indonesia and Malaysia did not rise due to
Malaysia 2008 2009 2010 cannibalisation of voice revenue by data. But they
Maxis 30% 32% 39% missed the following: (i) voice ARPU had always
Digi 19% 20% 23% been declining in emerging markets, but data
growth had helped to curb the decline. In fact,
Thailand 2008 2009 2010 reported ARPU is often diluted because it includes
Advance Info 13% 14% 17% low-ARPU data-only customers; (ii) data-plans fuel
DTAC 11% 12% 14% stronger subscriber growth in all markets, bringing
in more revenue. The sharp increases in subscriber
China 2008 2009 2010 growth indicate strong pent-up demand for data-
China Mobile 28% 29% 31% services due to the lack of fixed–broadband services.
China Telecom 27% 33% 35%
This is evident in the increased take-up of both
dongle and hand-phone data plans. And although
Indonesia 2008 2009 2010
Singapore witnessed relatively higher revenue
Telkomsel 29% 31% 33%
growth, it was also accompanied by higher smart
XL 32% 34% 41%
phone subsidy costs.
Source: Companies, DBS Vickers
Page 3
Industry Focus
Countries benefited in different ways. In some countries, 14%. And in Indonesia, operators do not subsidize 3G
subscriber growth picked up considerably, while phones.
others saw much smaller declines in ARPU.
In China, challengers CT and CU offer superior 3G
Indonesia – subscriber growth picked up considerably in networks due to technological advantage over CM. As
2010 a result, there is no need to differentiate themselves
with lower prices. However, CT and CU offer subsidies
for 3G phones to entice customers to tackle the
50%
45% affordability issue. Going forward, the subsidy burden
40%
is likely to come down along with 3G-handset pricing.
30%
25%
20%
10% 14%
Singapore – subscriber & ARPU (postpaid) growth up
0%
-10% 2008 2009 2010
-14% -9% 10% 10%
-20% 8%
-30% -27% 6% 6% 7%
Subscriber grow th ARPU grow h 4%
2% 4%
0%
Source: DBS Vickers -2% 2008-3% 2009 2010
-4% -4%
-6%
China – Subscriber growth did not pick up but ARPU decline -8%
was much lower -10%
Postpaid subscriber grow th Postpaid ARPU grow th
20%
17%
15% 16%
17%
10% Singapore witnessed higher subscriber growth and

ARPU, but at the cost of margins. In Singapore, data-
5%
growth was mostly limited to the post-paid segment
0% because the pre-paid segment caters mainly to foreign
2008 2009 2010 workers. The country witnessed healthy post-paid cellular
-5%
-5%
-7%
-4% revenue growth of ~10% in 2010. More importantly,
-10% subscriber growth was extremely strong at ~10% despite
Subscriber grow th ARPU grow th
already high mobile penetration of 140%. Yet, ARPU rose
Source: DBS Vickers
because more subscribers took up data plans and roaming
contribution also rose. However, operators had to offer
China and Indonesia benefited from data-growth in significant hand phone subsidies to lure subscribers. There
different ways. Indonesia witnessed much higher is little pent-up demand for data-services in Singapore due
subscriber growth, while China benefited from smaller to adequate fixed-broadband services as shown in the
decline in ARPU. In Indonesia, challenger XL cut prices figure below.
for voice and SMS to gain revenue share, but data
growth resulted in ARPU falling only 9% instead of
Page 4
Countries with maximum data-growth potential
Per capita broadband penetration – Malaysia, China, Thailand and Indonesia have huge potential
70%
60%
50%
40%
30%
20%
10%
0%
Singapore Hong Kong South Malaysia China Thailand Indonesia India
Korea
Fixed Broadband Mobile broadband (including dongles & phones)
Source: DBS Vickers
Population coverage of 3G-networks is not far behind in Malaysia, Indonesia & China. Thailand lags clearly
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Singapore Malaysia Indonesia China Thailand India
Source: DBS Vickers
Singapore has high GDP per capita (ppp in USD), helping operators to push smartphones and tablets
60,000
50,000
40,000
30,000
20,000
10,000
0
Singapore Malaysia China Thailand Indonesia India
Source: IMF
Page 5
Industry Focus
Theme 2 – Unbalanced market structure is an opportunity for challengers in China & Indonesia
Cellular revenue market share across various markets
90% 79% China Indonesia Thailand Malyasia Singapore

80%
70%
57%
60% 53%
49%
50% 42%
40% 32% 32% 33%
26%
30% 21% 21%
17%
20% 13% 13%
8%
10%
0%
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Source: DBS Vickers
China is most unbalanced, followed by Indonesia. In Small gap in Malaysia explains significance of the
Thailand, Malaysia and Singapore, revenue share of the No.3 player. The revenue share gap between the top two
second largest player trails the largest by only 10%-20%. players in Malaysia is only 10%. This can be attributed to
But in China and Indonesia, the gap is 66% and 37%, relatively low revenue share for the No.1 player due to loss
respectively. This huge gap can be explained by the legacy of revenue share to the No.3 player. Malaysia has an
of two-player markets in China and Indonesia, which aggressive No.3 player - Digi.com - with a strong balance
cannot be sustained in a three-player market structure, in sheet. Meanwhile, the No. 3 player in Singapore - M1 -
our view. has been facing structural weakness due to lack of triple
play offering compared to its bigger peers. The No.3
Rising data use is catalyst for change. Admittedly, player in Thailand – True – has limited coverage outside
incumbents had early mover advantage in the voice-space Bangkok region because of tight financial resources with
due to their wider network coverage in rural areas. But excessive debt on its balance sheet. However, we believe
data-growth is mainly taking place in urban areas, where that both the No.2 and No.3 players in China and
network coverage is almost similar for all players. Indonesia are aggressive and have sufficient financial
Affordable Chinese handsets (US$40-$200 per unit) are resources to gain revenue share. As such, the No.1 players
also fuelling higher data usage. In fact, challengers offer in these two countries could lose revenue share over time.
similar or superior data plans as they are less worried
about data cannibalising voice revenue. This helps
challengers to secure mid-to-high-end subscribers that
they were unable to attract previously.
Page 6
Revenue share in China

revenue market shares to improve in the next three years.
We project 11% industry revenue growth in 2011 (versus CM’s revenue share could drop to 73%% by 2012F, in our
12% in 2010), with CM’s revenue growing at 6% versus CT’s view.
34% and CU’s 23%. Hence, we expect both CT’s and CU’s
Cellular industry in China to grow at 11% in 2011 after 12% in 2010
(RMB bn)
800 743 18%
17% 685 16%
700
618 14%
600 12% 552 12%
11% 12%
500 446 501
10% 10%
400 9% 8%
300
6%
200 4%
100 2%
0 0%
FY07 FY08 FY09 FY10F FY11F FY12F
Cellular revenue (LHS) Growth (RHS)
Source: DBS Vickers
CT and CU set to narrow revenue market share gap with CM
90% 82.3% 81.9% 78.8%

80% 75.6%
70% 80.0% 73.0%
60%
50%
40%
30%
20.0% 16.6%
20% 16.6% 12.6% 13.4% 15.0%
10% 0.0% 10.4%
1.1% 9.4%
0% 5.4% 7.8%
FY07 FY08 FY09 FY10F FY11F FY12F
CM CT CU
Source: DBS Vickers
Page 7
growth should be above industry growth rate. Hence, we

expect both XL’s and Indosat’s revenue market shares to
Revenue share in Indonesia
improve in the next three years. Telkomsel’s revenue share is
estimated to have fallen to 58% in 9M10, and could drop
We project 9% industry revenue growth in 2011 (versus
below 55% by 2012F, in our view.
11% in 2010), with Telkomsel’s revenue growing slightly
slower than the industry. But Indosat’s and XL’s revenue
Cellular industry to grow at 9% in 2011 after 11% in 2010
100.0 26%
24% 90.8 24%
90.0 84.0 22%
80.0 77.1 20%
69.5 18%
70.0 63.3 16%
57.1 14%
60.0 12%
11% 11%
50.0 10% 10%
9%
8% 8%
40.0 6%
2007 2008 2009 2010F 2011F 2012F
Cellular Revenue (Rp tn) Growth
Source: DBS Vickers
Telkomsel’s revenue share too high to be sustained, likely to lose share to XL and Indosat
62.9% 60.0%
60.0% 55.1%
58.4%
56.5% 53.4%
50.0%
40.0%
30.0%
23.2% 24.4%
22.1%
22.4% 22.4% 21.7% 22.2%
20.0% 19.2% 20.0%
20.1% 21.5%
14.8%
10.0%
2007 2008 2009 2010F 2011F 2012F
Telkomsel Indosat XL
Source: DBS Vickers
Page 8
Industry Focus
Theme 3- Emerging market telcos trading at huge discount to mature telcos’ EV/EBITDA multiples
Emerging market telcos are cheap compared to But mature market telcos offer rich dividend yields.
mature telcos. As shown in the figure below, China Maxis, Digi, M1 and SingTel are trading at rich
Unicom, XL, Indosat and Axiata group appear cheap EV/EBITDA multiples because they are valued based on
given 2010-12F EBITDA CAGR of 9%-10%. Axiata their dividend yields, which range from 6% to 8%.
group offers the higher growth due to its emerging
market exposure.
Indonesian and Chinese telcos are cheaper versus telcos in Singapore and Malaysia
E B IT D A C AG R 2010‐12F
‐4 ‐2 0 2 4 6 8 10 12
12.0
E x pe nsive R e a sona ble

10.0
F Y 11F 8.0
E V/E B IT D A
6.0
4.0
2.0
R e a sona ble C he a p
0.0
C hina Mobile C hina Telec om C hina Unic om Digi.C om Max is B hd Tel Malays ia
A x iata G roup M1 S ingTel S tarhub A dvanc ed Info DTA C
True C orp Indos at XL A x iata P T Telekom
Source: DBS Vickers
Players in Singapore, Malaysia and Thailand offer higher dividend yields
10.0% (x)
2011F Di vide nd Yi e ld
8.8%
8.4%
7.5% 7.7%
8.0%
5.9% 6.0% 6.1%

6.0%
5.0%
4.8%
4.3% 4.1%
4.0%
2.6% 2.5%
1.9%
2.0% 1.4%
0.0%
0.0%
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Source: DBS Vickers
Page 9
Many growth stocks are cheap in EV/EBITDA but expensive in PER due to high depreciation expenses
12.0 30.0
10.0 25.0
8.0 20.0
6.0 15.0
4.0 10.0
2.0 5.0
0.0 0.0

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2011F E V /E B IT D A (L H S ) 2011F P E R (R H S )

Source: DBS Vickers
Some growth telcos are cheap on EV/EBITDA b) XL and Axiata are growth telcos, but have
multiples, but not PER. Indosat, China Unicom, controlled capex and depreciation well. As
China Telecom, TrueCorp and Telekom Malaysia are such, net earnings are 25-30% of EBITDA
cheap in terms of EV/EBITDA multiples. But they are compared to 10%-20% for peers. More
expensive in terms of PE multiples due to smaller net importantly, both companies have shown
earnings base of only 10%-20% of EBITDA versus inclination to pay dividends to shareholders.
40-50% for mature telcos. The key reason for this is
higher depreciation charges because of high capex. c) AIS and DTAC are cheap because of regulatory
However, these stocks may be re-rated if (i) capex concerns. However, DTAC faces much lower
drops, leading to higher free cash flow and
risks than AIS. The market has yet to price in
dividends, and (ii) EBITDA growth beat expectations.
DTAC’s higher dividend payout potential, with
But currently, we are not optimistic that these telcos
its free cash flow yield at over 10%.
would be able to surprise on dividend front due to
the need to reduce debt. However, their data-
SingTel is an exception due to accounting treatment.
growth could exceed expectations.
SingTel is cheap in terms of FY11F PER, but not
Need to be selective among cheap stocks. China EV/EBITDA due to under-reporting of group EBITDA.
Mobile, PT Telkom, XL, Axiata, AIS and DTAC are SingTel includes pre-tax earnings instead of EBITDA of
cheap on both valuation metrics. associates in the group EBITDA because it employs the
equity accounting method. If it were to include that,
a) China Mobile and PT Telkom are cheap its group EV/EBITDA multiple would be below 6x.
because of expectedly weaker growth
prospects. A higher dividend payout policy
could boost their valuations, but there is little
indication from the companies currently.
Page 10
Industry Focus
Among cheaper telcos, Indosat & TrueCorp need to reduce debt first
3.5 (x)
N et debt t o EBI TDA
3.0
2.5
2.0
1.5
1.0
0.5
0.0
N e t Ca s h / E B I TD A
(0.5)
(1.0)
(1.5)
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2010 2011F
Source: DBS Vickers
Among cheaper telcos – XL & Axiata are generating strong FCF yield
(%)
20.0 Free Cas h f l ow yi el d
15.0
10.0
5.0
0.0
(5.0)
up
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Source: DBS Vickers
Page 11
2. Independent tower operators to gain market

Theme 4 – Tower-leasing is true proxy to data- share from mobile operators
growth in Indonesia
Protelindo and Tower Bersama command about 8% and
1. Tower revenue growth likely to outpace mobile 5% market share in Indonesia in terms of number of sites.
revenue growth substantially While telecom operators dominate with over 80% share
currently, we expect more mobile operators to (i) lease
We estimate 7-8K new towers in Indonesia each year. We towers from independent tower operators, and (ii) sell their
expect the top 5 operators to add 12-13K BTS each year, towers to independent tower operators.
slightly higher than the 11-12K added in recent years due to
rising traffic per subscriber led by explosive data growth. Market share of various tower players in Indonesia
The rising tenancy ratio implies that tower growth should be Companies Sites Market Share % Tenancy ratio
7-8K each year (lower than BTS growth), translating into
Telkomsel 18K 35 1.70
10% tower CAGR. Our estimate is more conservative than
Indosat 12K 23 1.40
street estimates of 10K annually.
XL Tower 10K 19 1.90
Protelindo 4.7K 8 1.70
At least 7-8K towers to be added each year
Tower Bersama 2.7K 5 1.85
100 Other telecom operators 3K 6 na
90 10% CAGR
80
Other tower companies 3K 6 na
70 16% CAGR Source: DBS Vickers
60
50
87
40
66 73
80 Mobile towers sold by operators in Indonesia
30 59
52
20 37.7
46.5
Year Seller Buyer Towers
10
0
2008 Bakrie Telecom STP 540
2007 2008 2009 2010F 2011F 2012F 2013F 2014F 2008 Flexi Protelindo 53
Source: DBS Vickers 2008-10 Hutchison Protelindo 3692
Source: DBS Vickers Source: DBS Vickers
Tower tenancy (average BTS per tower) has ample room to Indeed, several large mobile operators are deliberating the
grow, compared to mature tower markets like the US. sale of towers in 2011. There are three key reasons for this
Indonesian towers currently register tenancy ratios of less trend:
than 1.7 against 2.5-2.9 in the US. This means there is
strong potential to grow co-location ratio, a trend likely to Regulatory push. In Java, telecom regulators are not
benefit independent tower companies. In anticipation of permitting the construction of new towers in the vicinity of
10% tower CAGR in FY10F-14F, we expect tower revenue an existing tower, to encourage operators to share existing
to expand at 13% CAGR over the same period, led by rising infrastructure. A new tower can only be constructed if the
tenancy ratio. This should beat the 8% CAGR for mobile existing tower cannot be shared for any reason.
revenue. In fact, independent tower companies could grow
at over 15% CAGR, in our view. Expand coverage quickly while keeping capex low. Tower
leasing allows telecom operators to expand coverage within
Average tenancy ratio in various countries
a short time. By not having to build a tower from scratch,
3.0
2.5 the timeline to “live network” is reduced from 6-12 months
2.5
2.0
to a few weeks, which is a significant competitive
2.0 1.7 advantage. It also allows the operators to reduce capex for
1.5 tower-construction.
1.0
0.5
Focus on core business. Outsourcing the management of
towers would allow operator to focus on their core business
0.0
Indonesia India USA of growing subscriber base. The operators would also not
have to deal with the local communities, site construction
Source: DBS Vickers and contractors, but only with an independent tower
company.
Page 12
Industry Focus
Average investment per tower (USD K)

3. Regional comparison favour Indonesia over India
and the US 350.0
300
300.0
India and the US are the closest comparables for 250.0
Indonesia because tower leasing is popular in these
200.0
countries. In terms of average annual revenue, Indonesia’s
150.0
USD18K/tower is similar to the US but more than double 100 100
the average in India. On the other hand, it takes only 100.0
USD100K investment to construct a tower in Indonesia, 50.0

similar to India but three times lower than in the US. 0.0
Hence, Indonesia stands because of its lowest investment Indonesia India USA
cost and highest revenue per tower.
Source: DBS Vickers
Annual revenue per tower in various countries (USD K)
Regulatory restrictions likely to ensure sustainable high returns
20.0 18.0 18.0
in Indonesia. The Indonesian government requires all telecom
18.0 towers to be either owned by telecom operators, or by 100%
16.0 Indonesian-owned business. This effectively restricts foreign
14.0
tower companies from entering Indonesia. High up-front
12.0
10.0
investment for tower construction (~USD100K/tower) in
8.0
8.0 Indonesia, where GDP per capita is only ~USD3K, is a
6.0 significant entry barrier for local companies. And many local
4.0 companies do not have skilled staff to manage tower leasing
2.0
and tower-acquisition operations.
0.0
Indonesia India USA
Source: DBS Vickers
Source: DBS Vickers
Page 13
Top picks among telcos 3. SingTel is proxy to Bharti’s growth, with downside
cushioned by 6% yield
1. XL is a pure play on wireless growth in Indonesia - Key associate Bharti set to grow next year
with superior execution track record - Concerns about Optus may be excessive
- 2011/12 dividends could surprise on the upside - Additional 10-18% yield potential through capital
- Revenue growth will outpace peers’ management over next 2-3 years
- Cheap at 5.4x FY11F EV/EBITDA, given 10% EBITDA - Trading at only 11x PER versus historical 13-14x
CAGR over 2010-12F
Bharti set to grow next year. Bharti could emerge as
Higher dividends in 2011-12? XL has met its target 1.0- SingTel’s key growth driver in the next few years given
1.5x net debt-to-EBITDA ratio, which means it might raise concrete signs of turnaround at its African operations
dividend payout ratio to c.50% in 2011. This would and recovery in India. SingTel’s stable ~6% yield supports
translate into ~4.5% dividend yield. XL had raised payout our call for an indirect exposure to Bharti through
to 30% in 2010 from 20% previously, and intends to SingTel.
review its policy again in 2011. Given over 7% FCF yield
in FY11F and net debt-to-EBITDA projected to drop to Concerns about Optus may be excessive. The No. 3
below 1x, dividends could surprise on the upside. operator in Australia, VHA is grappling with network
problems following the merger. This is benefiting other
Revenue growth to outgrow its peers’. XL has superior telcos, including Optus. While Telstra is aggressive, VHA
execution track record, and we project its cellular revenue continues to bear the brunt of the problems.
to grow by 13% in 2011 against 11% for Indosat and
9% for the industry. XL’s cellular growth will be below Potential capital management could lead to additional
13% only if industry growth falls below 9% in 2011. But 10-18% yield. With net debt/EBITDA ratio at 0.8x,
in that case, it would also be catastrophic for Telkom and SingTel is well-positioned to execute further capital
Indosat, which fixed-line revenues are declining (30% and management. Assuming it raises the ratio to between
15% of group revenues, respectively). About 8% of XL’s 1.5x and 2.0x, we could see S$5.0-8.7bn cash
revenue comes from its infrastructure business, which is distribution (or S$0.30-S$0.55 per share). We expect
expected to grow as tower leasing picks up in Indonesia. SingTel to raise gearing gradually rather than in a single
move. This would allow it to remain financially flexible to
2. Axiata is a liquid proxy to XL, and offers growth in take advantage of acquisition opportunities.
Malaysia & Sri Lanka
- Higher dividends would surprise the market
- Growth at all overseas subsidiaries 4 Indosat offers large cost-cutting potential, with
- Cheap at 5.3x EV/EBITDA, given 10% EBITDA CAGR multiple catalysts ahead.
- Trading at 30-40% discount to domestic peers - EBITDA margins to improve further
- Multiple catalysts in the form of tower sale/leasing
Higher dividends would surprise the market. Axiata’s and sale of CDMA business
currently has minimum 30% dividend payout policy,
which implies about 2% yield. But with its net debt-to- EBITDA margin improved to 48.6% in FY10 (47.8% in
EBITDA projected to drop below 0.5x and free cash flow FY09), and we project it to improve to 50% in 2011
yield would exceed 7%, it might raise payout and surprise (excluding one-off cost for reducing headcount). One of
the market. Any potential acquisition in the near term is the major projects Indosat has undertaken is to improve
unlikely as almost all of its overseas subsidiaries are doing energy efficiency at its base stations. These are now
quite well now. beginning to come online and the full benefit should be
seen in 2011. Indosat can cut costs in three key areas:
Growth at all overseas subsidiaries. In 2011, Axiata is
targeting for Robi (Bangladesh) to grow at high-teens to • Currently, the local units award network
low- 20‘s percentage, Dialog at mid-single digit, XL at maintenance contracts. Indosat plans to centralise
high single digit to low teens, and Celcom at mid single the award of these contracts in order to negotiate
digit. Beyond 2011, the network-sharing arrangement
better prices and terms with vendors.
with Digi.com should lead to cost savings.
• Indosat’s labor cost is much higher than XL’s despite
similar group revenues, due to a larger workforce at
its fixed line business. However, it has recently
launched a voluntary separation scheme (VSS) to
Page 14
Industry Focus
reduce permanent headcount by 900-1,200 (12%- 5. Total Access Communications is a value play for
17% of its 7,200-stong workforce). The exercise projected 8.5% dividend yield.
should be completed by June 2011 and may incur a - Dividend payout likely to be raised to 80%
one-off cost of Rp400bn (c.4% of EBITDA). - Faces lower regulatory risks than larger peers
- Valuation attractive at 9x FY11F PE
• Indosat is also finalising the strategy with regards to
media placement and relationship with the creative Higher dividend payout? DTAC should complete its debt
agency in order to save costs. refinancing deal within 1H11, which would release it
from the current debt covenants that currently cap
Network cost as % of revenue has room to be reduced dividend payout at 70%. We assumed DTAC will pay
80% of FY11F net profit as dividends, which is close to
40%
36.2% 36.3% 82% payout ratio in 2010, including a special interim
35.3%
36%
dividend of Bt0.56/share paid in Nov 2010. The company
32% 30.9% is already in net cash position with c. 11% free cash flow
28%
yield 11%, implying ample room for a dividend hike.
24%
Faces lower regulatory risk than larger peer. AIS, DTAC
20% and TrueMove are currently being sued by the TOT for Bt
2009 2010F
214 bn. However, only Bt 76bn is relevant here (AIS being
XL Indosat
sued for Bt 76 bn) while rest is unpaid access charges,
Labor cost as % of revenue has room to be reduced which does not have much legal implications. The dispute
9%
started in 2007 when both companies claimed that the
8%
7.9% 7.8%
NTC’s interconnection regime had rendered the access
7%
5.6%
charge agreements obsolete. Subsequently, both DTAC
6% 5.1%
5% and TrueMove stopped paying access charges to the TOT,
4%
which responded by filing lawsuits with the civil court,
3%
2% but the cases were dismissed in 2008. While TOT could
1% try to re-file the cases with the administrative court, we
0%
2009 2010F think TOT is recycling these cases only to give the
XL Indosat impression that the state is pursuing all operators, not
Source: DBS Vickers just AIS.
Expect flat (+1%) core earnings in FY11F. Although DTA’s

Multiple catalysts ahead for Indosat
revenue will continue to grow, earnings would be
affected by: (i) higher revenue-sharing rate of 30% (vs
a) Tower leasing could lead to 3-8% potential upside
25%) effective 16 Sep 2011; and (ii) higher corporate tax
to FY11F EBITDA. The key assumption is that 20%-
rate of 30% (vs 25%) after the 3-year SET listing tax
50% of its towers can be leased to another tenant.
privilege expires.
b) Potential sale of towers could lead to 5%-10%
Valuations attractive. DTAC is trading at only 9.3x FY11F
upside. We estimate that selling 14K towers at
PE and 3.6x FY11F EV/EBITDA, and offers 8.6% FY11F
USD100k-120K would create additional USD150m-
dividend yield based on 80% payout ratio. The stock also
450m value, which translates into 5%-10% of
offers 30% upside to our Bt53.40 target price.
Indosat’s USD3bn market cap.
c) May sell CDMA business. Contribution from this

unit (StarOne) is immaterial, but the frequency it
owns is the valuable asset when it comes to
negotiating the selling price.
Page 15
6. China Telecom - No more concerns on CDMA value CM’s dominant market share (~80% mobile service
chain. revenue share) is the key trigger for regulator to
- Proven execution track record, likely to concentrate implement MNP, especially one-way scheme. CT
on profitability in 2011 along with CU should be potential beneficiaries of
- Three potential key catalysts - CDMA iPhone, MNP, MNP.
and acquiring CDMA networks
- Trading at only 4.4x FY11F EV/EBITDA Potential EPS accretive CDMA network acquisition. We
expect China Telecom to acquire provincial CDMA
networks from its parent to reduce network-leasing costs
China Telecom has successfully resolved the bottleneck over the next three to four years. The earliest timing for the
issue in its CDMA handset value chain, and has more first acquisition is 2H11F. We believe that CDMA leasing
than doubled its mobile subscriber share from 4.8% in costs (28% of cellular revenue) for some provincial
2008 to 10.6% in Nov 2010. Given its more efficient networks are already exceeding depreciation charges. For
subscriber base now, CT will shift its focus from CT to own mobile network asset, investors may also be
subscriber growth to managing profitability in 2011. concerned about higher investment burden in future
investment. To justify the acquisitions, potential turnaround
EV-DO & WCDMA gaining market share in mobile division and EPS accretion is necessary. We
believe it is reasonable for the market to look for potential
EPS accretion of at least 4%-5%.
Three key catalysts in 2011
a) iPhone launch potentially in 2H11F. Another key to

watch is the potential upside from the launch of the
CDMA EVDO version of the iPhone. As the world’s
No.2 CDMA operator, CT accounts for ~45% of
global CDMA subscriber net additions in 2010. We
therefore expect CT to win the distribution right in
China. Given CT’s strong execution capability in
terms of product packaging and service quality, the
operator can attract bandwidth-hungry iPhone users
with higher ARPU.
b) Potential launch of Nationwide Mobile Number

Portability (MNP). The commercial trials for MNP
started in Tianjin and Hainan province in Nov. 2010.
The trial in Tianjin is two-way while in Hainan, it was
carried out as one-way - only 2G subs of CM could
switch to CU and CT. Both trials will last for six
months. We expect regulator to continue expand
trial scale to more cities. A nationwide rollout can
not be ruled out in the medium term. MNP would
be negative to CM as some high ARPU users may
switch to smaller operators due to pricing discount.
Page 16
Industry Focus
Top picks for growth
Tower Bersama Protelindo versus Tower Bersama at end 2010

- Premium clientele and lower gearing
Tower
- Highest EBITDA growth in the sector Protelindo
Bersama
- Trading at 10-15% discount to US peers
OPERATING METRICS
Tower sites 5072 1880
Premium clientele and lower gearing. As the second largest Non-tower sites 0 1000
independent tower operator, TBI has been able to fetch Tower Tenants 8419 3480
premium rentals (10-15% higher) and higher tenant ratio Tenacy ratio 1.66 1.85
by leveraging on its early-mover advantage. With over 62%
Hutch (45%), Flexi (42%),
of its revenue from Tier-1 mobile operators, TBI has a Big 3 (18%), Big 3 (18%),
premium clientele. FY10F net debt-to-EBITDA of only 2.5x Customer % breakdown
Mobile 8 (14%), Bakrie (15%),
is lowest among listed tower operators globally, and leaves Bakrie (11%) Mobile 8 (14%)
ample room to borrow to grow its tower portfolio.
Java (58%), Java (63%),
Highest EBITDA growth in the sector. Tower Bersama Geographical % Sumatra (23%), Sumatra
offers 42% EBITDA CAGR over 2010-12F versus 23% for breakdown Kalimantan (22%),
Protelindo. This is much better than the 9-10% offered by (7%), Bali (3%) Kalimantan
Indonesian telcos such as XL and Indosat.
FINANCIAL METRICS
Protelindo (SMN) Revenue (Rp bn) 1355 682
- Market leader and experienced management EBITDA margins 83% 78%
- Cheapest tower player, trading at 30-40% discount to FY10 Net debt to EBITDA 3.8 2.5
US peers
2010-12F EBITDA CAGR 23% 42%
Market leader and experienced management team.
Protelindo is the largest independent tower operator in VALUATION METRICS
Indonesia. Its experienced management team (10-20 years Stock price 9650 2250
experience at (former) American Tower Corporation) has Market cap (USD bn) 1.09 1.12
elevated SMN to market leader. Enterprise Value 1.56 1.27
FY10 EV/EBITDA 12.5 21.5
FY11F EV/EBITDA 8.0 12.0
Source: DBS Vickers
Indonesian tower players at significant discount to US peers in FY11F EV/EBITDA terms

16 15 15
14
14 12
12
10 8
8
6
4
2 0
0
Communications
Tower Bersama
Crown castle
Sarana Menara
American Tower
infrastructure
Nusantara
Corp
GTL
Corp
Corp
SBA
Source: Bloomberg except for SMN and TBI, which are based on
DBS estimates
Page 17
SECTOR BRIEFS
Page 18
Industry Focus
Competitive & Regulatory Outlook
Regulatory Risks vs Degree of Competition
Degree of Competition
High
Indonesia
Singapore
Malaysia China
Thailand
Low
Low High Regulatory Risks
Source: DBS Vickers
Indonesia has low regulatory risk, but high degree of

None of the countries currently suffer from both high- competition. Competition is the key driver in Indonesia
regulatory risks and high degree of competition. as XL and Indosat are keen to take away revenue share
from Telkomsel. Competition should remain intense but
Singapore offers both low regulatory risk and low will not turn irrational, as we do not foresee new players
degree of competition. Competition in the cellular space entering this 3-player market.
is likely to ease in 2011 following the smart phone
deluge in 2010. Competition could intensify in the
broadband space, but that might only happen in 2012 Thailand, China & Malaysia have high regulatory risk but
with the delayed roll out of the National Broadband low degree of competition. Regulatory risks are highest
Network. Although cross-carriage of content and NBN in Thailand because of uncertainty about concession
could see regulatory intervention, the regulators have so regime. Meanwhile, the government continues to play
fare remained benign so that foreign investors continue an important role in China. In Malaysia, Maxis and
to have faith in Singapore. Celcom could overpay for refarmed 2G-spectrum to
outbid Digi and UMobile at the end of 2011.
Page 19
SINGAPORE
Cellular competition likely to ease after intense market does not seem to have much growth
competition in 2010. Competition intensified in 2010, potential, (ii) the government has large stakes in two
as StarHub and M1 subsidized iPhones to regain lost out of the three players, and (iii) players are positioned
market share from SingTel, which secured exclusive as dividend plays. Most of the uncertainties are in the
iPhone rights much earlier. We expect competition to pay TV and broadband sectors.
ease due to three reasons.
a) Zero mobile termination rate (MTR). Mobile
a) High smart phone penetration. Smartphone operators do not pay any fees for inter-operator
penetration among postpaid subscribers has already calls, while termination fee is fixed. This
reached 50-60%. Most handset users made the arrangement is unique to Singapore (among the
transition in 2010 and are now locked in two-year markets we cover).
contracts. Moreover, smartphone adoption is
unlikely to breach 80% as there is still a large pool b) Concerns for Pay TV segment. The main concern
of users, such as the elderly, who are resistant to is the Media Development Authority (MDA)’s
the switch. Telcos require three to six months to plan to (i) launch common set top box solutions,
recoup subsidies for each smartphone, and this and (ii) come up with a satisfactory content
should happen in 2011. sharing mechanism. A common set top box could
prompt Singapore players seek regulatory
b) Arrival of Android phones. SingTel and StarHub had subsidies to invest in the new technology, so this
clearly mentioned their intent to move away from should not be a major worry. But the regulator
iPhones to Android phones. Android phones from would need to come up with a satisfactory
companies such as Motorola and HTC are much formula for carriage-cost for content-sharing
cheaper than iPhones, and may need lower mechanism. Telcos are currently negotiating the
subsidies. formula between themselves, so we expect a
mutually beneficial outcome.
c) Foresee tablet glut, including iPad 2. This could
boost mobile subscriptions further, because 3G- c) Roll out of National Broadband Network is
enabled touch-screen slates can boost cellular behind schedule. Over 50% of households in
revenue without the bane of incurring an upfront Singapore now have NBN coverage in their area,
loss. All three telcos have already introduced iPad- but the percentage with NBN access up-to-house
specific data plans. is less than half that. This is much lower than the
end-2010 rollout target of 60%. Therefore, NBN
Regulatory risks are minimal despite uncertainties. The will only start to have a meaningful impact in
regulator had been benign in the past as (i) the 2012 instead of 2011.
MALAYSIA
Cellular competition in Malaysia remains rational. There broadband players – Green Packet and YTL - have been
are two reasons for our view: trying to grab market share. But we believe the impact
will be limited given the lack of network coverage and
a) Differentiated offerings of handset-brands and WiMAX enabled handsets. Currently, WiMax network
pricing plans. Out of the three major mobile players, coverage is relatively thin and it could take a couple of
only Maxis and Digi offer iPhones, while Celcom years to expand coverage to a satisfactory level.
focuses on Blackberries. For iPhones, Maxis offers
upfront handset subsidies while Digi offers monthly
rebates. The major players also target different Regulatory risks in Malaysia higher than in Singapore.
segments with different subsidy plans. With the expiry of 2G-spectrum in 2012-15, there are
some concerns in the sector.
b) New players targeting dongle-based broadband
segment. The new WiMAX-based wireless a) 2G-spectrum refarming is the biggest issue. We
believe that DiGi and UMobile have been
Page 20
Industry Focus
pushing for a more uniform allocation of subject to the approval of business plans. We are
900MHz spectrum (Digi has 8MHz versus 34 not sure if smaller WiMAX players will have the
MHz for Celcom and 32 MHz for Maxis). The 900 necessary financial muscle for an LTE rollout, so
MHz spectrum for Maxis set to expire in Dec consolidation cannot be ruled out.
2012, Celcom by Mar 2014, and Digi by Jan
2015. It is understood that the regulator has left
it to the three mobile incumbents to resolve the c) Potential cuts in termination rate could affect
issue. However, bigger operators are unwilling to bigger players slightly. Termination rates are due
part with their 900 MHz spectrum as network to be revised in Jul 2011 to replace the current
configuration cost could be quite high. An interim rate. In July 2010, both mobile
auction would also be an expensive proposition termination rates (MTR) and fixed termination
for telcos, in our view. rates (FTR) were reduced to 5 sen/min,
representing cuts of 40% for MTR and 18% for
b) 4G-spectrum likely to be awarded to all players. FTR. Further rate cuts could have ~1% adverse
In 2010, the regulator indicated that 2.6GHz impact on Maxis & Celcom, neutral impact on
spectrum would be awarded to nine players, Digi, but could be positive for TM.
INDONESIA
Cellular competition in Indonesia likely to remain a) New 2G-frequency fee regime may punish very
intense but not irrational. In 4Q10, Telkomsel and XL small players. The regulator changed the 2G-
launched aggressive voice plans, which might not frequency fee regime in Dec 2010. Going
dilute ARPU but generate much higher traffic for forward, the fee would be based on bandwidth
similar ARPU. We do not expect competition to ease rather than number of base stations, but
in 2011 for two major reasons. implementation would be gradual over five years.
This should benefit bandwidth-efficient players
a) Incumbent needs to retain price-conscious like Telkomsel and XL, but may be mildly negative
subscribers. Given that XL is a price-leader, for Indosat in the near term. And it could be
Telkomsel needs to retain its price-conscious especially negative for smaller players who
customers. The optimum solution is to offer more possess spectrum but have not invested in
minutes for the same ARPU. We do not see any enough BTS due to limited network coverage.
reason for Telkomsel to change its strategy of
voice-promotions. b) Minor mobile termination rate cuts. The regulator
announced a minor cut (<5%) in interconnection
b) Mobile players are leasing towers aggressively. fee recently, which should have minimal impact
Our channel checks indicate that Telkomsel and on mobile operators.
XL are leasing towers aggressively in 2011. This
indicates their expectations of continued surge in c) Regulatory push for tower sharing. Mobile
traffic both voice and data. But the higher tower- players can no longer construct new towers in
leasing expenses could adversely affect EBITDA Java unless they can prove that their
margins. requirements cannot be served by leasing an
existing tower. This is healthy for the whole
Low regulatory risks in Indonesia, given recent positive industry as it would minimise duplicate
regulations. The new 2G-fee regime and tower leasing expenditures to build towers.
regulations are positive for the industry.
CHINA
Cellular competition to remain moderate. The reforms a) Market balancing happening as expected. We
in 2008 introduced one smaller player - China notice that monthly net adds market share is
Telecom (CT) - to the market. We expect competition seeing more uniform distribution. CM is
to remain moderate for two reasons. registering ~50% net adds each month
(compared to ~70% total subscriber share),
Page 21
leaving the remaining 50% to CT and CU to implement MNP, especially one-way scheme. CT
expand their respective subscriber bases. along with CU should be potential beneficiaries of
However, if the regulator assigns too ambitious MNP.
3G subscriber targets, it could lead to higher
handset subsidies and consequently, affect b) CDMA network acquisition by CT. We expect
telco’s earnings adversely. CT to acquire provincial CDMA networks from its
parent to reduce network-leasing costs over the
c) Differentiated offerings due to technology next three to four years. The earliest timing for
platform. Chinese players do not compete on the first acquisition is 2H11F. We believe that
price alone. For example, China Unicom (CU) and CDMA leasing costs (28% of cellular revenue) for
CT have better 3G offerings because of some provincial networks are already exceeding
technology advantage, while CM continues to depreciation charges. For CT to own mobile
march ahead in 2G due to its network coverage network asset, investors may also be concerned
advantage. about higher investment burden in future
investment. To justify the acquisitions, potential
Regulatory risks are moderate in China. The government turnaround in mobile division and EPS accretion is
owns substantial stakes in the three players and necessary. We believe it is reasonable for the
continues to drive 3G-subscriber growth. market to look for potential EPS accretion of at
least 4%-5%.
a) Potential asymmetric regulations such as
Mobile Number Portability (MNP). The
commercial trials for MNP started in Tianjin and a) Regulator’s aggressive 3G-growth targets could
Hainan province in Nov. 2010. The trial in Tianjin hit earnings. Industry sources indicate that the
is two-way while in Hainan, it was carried out as Ministry of Industry and Information
one-way - only 2G subs of CM could switch to CU Technology (MIIT, Chinese Telecom regulator)
and CT. Both trials will last for six months. We has set 2011 3G subscriber addition targets of
expect regulator to continue expand trial scale to 40m for each of the three telcos. This 120m
more cities. A nationwide rollout can not be ruled total target is aggressive given only 37m 3G
out in the medium term. MNP would be negative net adds in FY10. But if true, it could result in
to CM as some high ARPU users may switch to irrational handset subsidies, which could hurt
smaller operators due to pricing discount. CM’s earnings. We do not expect operators to revise
dominant market share (~80% mobile service their internal targets or guidance immediately
revenue share) is the key trigger for regulator to following this news.
THAILAND
Cellular competition liked to remain relaxed in b) True Move is in weak financial position.
Thailand. Price competition had been easing for the ADVANC and DTAC are focusing on
last two years, and this trend is likely to continue for profitability, not market share.
two major reasons.
c) Price cuts unlikely before issue of 3G licenses.
As the 6.5% regulatory cost for the 3G
a) High depreciation charges for new licenses is much lower than the 20-30%
investments. Remaining concession periods charged currently, operators may have room
are becoming shorter (True Move in 2013; to reduce prices only when 3G-licenses are
ADVANC in 2015; and DTAC in 2018). As the issued and not before.
network is bound to be transferred to state
enterprises, the shortening usage period does
Regulatory risks are highest in Thailand. This is mainly
not justify new investments. Further, if any
due to concession damage claims.
new capex is depreciated over the remaining
life of the concessions, a shorter depreciation
period would result in a jump in incremental
a) ADVANC may be forced to pay up to Bt75bn. This
depreciation charges per year.
figure is based on the conclusions of a committee
Page 22
Industry Focus
appointed by the Information and Communications Cabinet has ordered the MICT to set up a
Technology. The committee believes nine committee to negotiate with the cellular
amendments made to the contract between operators. In the worst case, where the committee
ADVANC and TOT had breached the 1992 Public- reaffirms that the three major cellular operators,
Private Joint Venture Law. The report said the especially ADVANC, had breached the concession
government has lost Bt55bn since TOT Corp agreed agreements and the Cabinet approves the lawsuit,
to reduce the share ADVANC paid on its prepaid TOT would be responsible for pursuing legal
cellular revenue, and ADVANC owes Bt20bn in action against ADVANC. But under Thai laws, they
network roaming fees (which it had refused to pay). would have to first ursue an arbitration process,
The sums exclude an estimated Bt35bn paid by which could take two years, before taking the
ADVANC to the Finance Ministry as excise tax in lieu case to the Administrative Court, which would
of revenue sharing to TOT. ADVANC reported to the take another two years. After the expected 3-4
SET that it had been complied with the terms and years, the National Broadcasting and
conditions of the amendments, and that it was not Telecommunications Commission (NBTC) would
obligated to make additional payments for revenue have been set up and 3G-licenses may have been
sharing as demanded by TOT. auctioned and awarded, and ADVANC’s
concession would be close to expiry (Sep 2015).
This news flow will create negative sentiment
b) But Thai government is keen to negotiate. It seems towards ADVANC, but we do not expect any
that PM Abhisit Vejjajiva and a few cabinet material negative impact on the company.
members disagree with the ICT Minister’s proposal
to sue ADVANC for the (non) payments. And the
Page 23
Regional Peers Valuation
Bloomberg Mkt Mkt Price Target Avg CAGR

Company Code FYE Cap Cap (S$) Price % 6-mth 10-12 PE (x) Dividend Yield (%) P/BV EV/EBITDA
(US$m) LC 18-Mar (S$) Upside Rcmd Vol (m) (%) 10A 11F 12F 10A 11F 12F 10A 10A 11F 12F
China / Hong Kong HSI Index 23,668

China Mobile 941 HK Equity Dec 179,689 1,401,589 69.85 82.00 17% Buy 22.2 3 9.9 9.5 9.4 4.4% 4.5% 4.6% 2.0x 3.8x 3.5x 3.2x
China Telecom 728 HK Equity Dec 7,775 60,644 4.37 4.90 12% Buy 61.6 30 20.5 16.4 12.1 2.0% 2.0% 2.0% 1.3x 4.6x 4.3x 3.7x
China Unicom 762 HK Equity Dec 37,276 290,757 12.34 14.00 13% Buy 32.4 75 62.9 34.6 20.6 1.5% 1.5% 1.5% 1.2x 5.1x 4.5x 3.7x
1,752,991 9 10.7 9.8 9.1
Malaysia KLCI Index 1,504
Digi.Com DIGI MK equity Dec 7,018 21,350 27.46 25.80 -6% Hold 0.4 8 18.3 16.9 15.7 5.9% 5.9% 7.3% 15.9x 9.0x 8.7x 8.1x
Maxis Bhd Maxis MK Equity Dec 13,312 40,500 5.40 5.10 -6% Hold 3.5 6 17.6 16.7 15.7 7.4% 6.0% 6.4% 4.7x 10.2x 9.7x 9.4x
Telekom T MK equity Dec 4,562 13,880 3.88 3.35 -14% Hold 6.8 4 24.6 24.6 22.9 7.8% 5.0% 5.0% 1.8x 5.5x 6.1x 6.0x
Axiata Group AXIATA MK Equity Dec 13,241 40,283 4.77 5.60 17% Buy 14.5 14 15.4 13.5 11.9 2.1% 2.6% 2.9% 2.2x 6.1x 5.3x 4.6x
116,014 9 17.5 16.0 14.6
Singapore STI Index 2,936
M1 M1 SP Equity Dec 1,689 2,150 2.38 2.60 9% Buy 0.9 3 13.6 13.2 12.9 7.3% 7.6% 7.7% 7.4x 7.9x 7.7x 7.6x
SingTel ST SP Equity Mar 35,676 45,416 2.85 3.55 25% Buy 18.2 8 11.7 11.0 10.1 6.0% 6.4% 7.4% 1.9x 7.0x 6.6x 6.2x
Starhub STH SP Equity Dec 3,517 4,478 2.61 2.90 11% Buy 1.9 9 17.0 14.5 14.2 7.7% 7.6% 7.8% 82.5x 8.4x 7.6x 7.4x
52,044 8 12.1 11.3 10.5
Thailand SET Index 925
Advanced Info Service ADVANC TB Equity Dec 8,563 259,193 87.25 121.71 39% Buy 6.4 4 11.7 11.2 10.8 14.8% 8.5% 8.9% 6.3x 5.3x 5.0x 4.7x
Total Access CommunicaDTAC TB Equity Dec 3,364 101,816 43.00 53.43 24% Buy 6.3 -1 9.9 9.7 10.2 8.8% 8.2% 7.8% 1.5x 3.9x 3.8x 3.8x
True Corporation TRUE TB Equity Dec 1,618 48,987 6.30 9.00 43% Buy 209.1 - -117.9 47.7 33.9 0.0% 0.0% 0.0% 4.1x 5.8x 5.0x 4.7x
409,996 1 -32.1 22.9 18.3
Indonesia JCI Index 3,494
Indosat ISAT IJ Equity Dec 3,192 27,984,760 5,150 7,000 36% Buy 2.6 19 24.1 20.8 17.0 2.1% 2.4% 2.9% 1.5x 5.3x 4.7x 4.4x
PT Telekom TLKM IJ Equity Dec 15,405 135,072,000 6,700 8,900 33% Buy 22.9 5 11.1 10.3 10.0 5.0% 5.2% 5.5% 3.3x 4.3x 4.3x 3.9x
XL Axiata EXCL IJ Equity Dec 5,191 45,517,800 5,350 7,200 35% Buy 1.9 25 14.9 11.3 9.5 2.0% 4.4% 5.3% 3.9x 6.0x 5.2x 4.5x
163,056,760 10 10.0 8.9 8.3
* PT Telkom is adjusted for SingTel's 35% stake in Telkomsel

Singapore Telecom 11 & 12 earnings respectively
Source: DBS Vickers
Page 24
Industry Focus
STOCK PROFILES
Page 25
Industry Focus
XL Axiata
Bloomberg: EXCL IJ | Reuters: EXCL.JK
BUY Rp5,350 JCI : 3,494.07 Pure wireless exposure

Price Target : 12-month Rp 7,200 • 2011/12 dividends could surprise on the upside
Potential Catalyst: Quarterly result • Revenue growth will outpace peers’
Analyst • Cheap at 5.4x FY11F EV/EBITDA, given 10%
Sachin MITTAL +65 6398 7950 EBITDA CAGR over 2010-12F
sachin@dbsvickers.com
Higher dividends in 2011-12? XL has met its target 1.0-

1.5x net debt-to-EBITDA ratio, which means it might raise
dividend payout ratio to c.50% in 2011. This would
Price Relative
Rp R e la t iv e In d e x
translate into ~4.5% dividend yield. XL had raised payout
226
to 30% in 2010 from 20% previously, and intends to
5 ,7 2 9 206
186
review its policy again in 2011. Given over 7% FCF yield in
4 ,7 2 9
166 FY11F and net debt-to-EBITDA projected to drop to below
146
1x, dividends could surprise on the upside.
3 ,7 2 9
126
2 ,7 2 9 106
86
1 ,7 2 9
729 46
66
XL to outpace peers’ revenue growth. XL has superior
2007 2008 2009 2010 2011
execution track record, and we project its cellular
X L A x ia t a ( L H S ) R e la t iv e K L C I IN D E X (R H S )
revenue to grow by 13% in 2011 against 11% for
Indosat and 9% for the industry. XL’s cellular growth
Forecasts and Valuation will be below 13% only if industry growth falls below
9% in 2011. But in that case, it would also be
FY Dec (Rp bn) 2009A 2010A 2011F 2012F
catastrophic for Telkom and Indosat, which fixed-line
Turnover 13,880 17,448 19,714 21,548 revenues are declining (30% and 15% of group
EBITDA 6,205 9,289 10,242 11,205
Pre-tax Profit 2,350 4,098 5,388 6,375
revenues, respectively). About 8% of XL’s revenue
Net Profit 1,709 3,063 4,041 4,781 comes from its infrastructure business, which is
Net Pft (Pre Ex.) 1,244 3,063 4,041 4,781 expected to grow as tower leasing picks up in Indonesia.
EPS (Rp) 237 360 475 562
EPS Pre Ex. (Rp) 173 360 475 562
EPS Gth Pre Ex (%) 252 109 32 18
Cheap in PE and EV/EBITDA valuation metrics. XL has
Diluted EPS (Rp) 237 360 475 562 controlled its capex well at c.25% of revenue in 2010,
Net DPS (Rp) 50 108 237 281 much lower than peer Indosat. Depreciation is also not
BV Per Share (Rp) 1,221 1,375 1,741 2,066 too high. At 11.4x FY11F PE, XL is an attractive bet for
PE (X) 22.6 14.9 11.3 9.5
PE Pre Ex. (X) 31.0 14.9 11.3 9.5
25% EPS CAGR in 2010-12F and 4.5% FY11F dividend
P/Cash Flow (X) 7.1 6.3 5.5 5.1 yield.
EV/EBITDA (X) 8.3 6.0 5.2 4.5
Net Div Yield (%) 0.9 2.0 4.4 5.3
P/Book Value (X) 4.4 3.9 3.1 2.6
Net Debt/Equity (X) 1.4 0.8 0.5 0.3
ROAE (%) 26.1 29.9 30.5 29.5 At A Glance
Issued Capital (m shrs) 8,508
Earnings Rev (%): - -
Consensus EPS (Rp): 461 545 Mkt. Cap (Rpbn/US$m) 45,518 / 5,191
Other Broker Recs: B: 16 S: 0 H: 3 Major Shareholders
Indocel Holding Sdn (%) 67.0
ICB Industry : Telecommunications Khazanah Nasional (%) 17.0
ICB Sector: Mobile Telecommunications Parkmix Ltd (%) 16.0
Principal Business: GSM telecommunications Free Float (%) 0.0
Avg. Daily Vol.(‘000) 1,927
Source of all data: Company, DBS Vickers, Bloomberg
Page 26
“In Singapore, this research report or research analyses may only be distributed
to Institutional Investors, Expert Investors or Accredited Investors as defined in the
Securities and Futures Act, Chapter 289 of Singapore.
www.dbsvickers.com
ed: SGC / sa: JC
Industry Focus
XL Axiata
Income Statement (Rp bn) Balance Sheet (Rp bn)

FY Dec 2009A 2010A 2011F 2012F FY Dec 2009A 2010A 2011F 2012F
Turnover 13,880 17,448 19,714 21,548 Net Fixed Assets 23,616 24,568 25,447 26,419
Cost of Goods Sold (2,201) (2,251) (2,661) (2,909) Invts in Associates & JVs 0 0 0 0
Gross Profit 11,678 15,197 17,052 18,639 Other LT Assets 1,756 1,756 1,756 1,756
Other Opng (Exp)/Inc (9,214) (10,031) (11,074) (11,664) Cash & ST Invts 748 366 1,504 3,747
Operating Profit 2,464 5,166 5,979 6,976 Inventory 20 21 25 27
Other Non Opg (Exp)/Inc 640 (518) (151) (161) Debtors 332 418 493 539
Associates & JV Inc 0 0 0 0 Other Current Assets 907 1,409 1,409 1,409
Net Interest (Exp)/Inc (1,218) (550) (440) (440) Total Assets 27,380 28,539 30,634 33,897
Exceptional Gain/(Loss) 465 0 0 0
Pre-tax Profit 2,350 4,098 5,388 6,375 ST Debt 2,475 977 977 977
Tax (641) (1,035) (1,347) (1,594) Other Current Liab 3,533 5,086 5,261 5,764
Minority Interest 0 0 0 0 LT Debt 10,988 9,202 8,000 8,000
Preference Dividend 0 0 0 0 Other LT Liabilities 1,580 1,580 1,580 1,580
Net Profit 1,709 3,063 4,041 4,781 Shareholder’s Equity 8,803 11,694 14,817 17,577
Net Profit before Except. 1,244 3,063 4,041 4,781 Minority Interests 0 0 0 0
EBITDA 6,205 9,289 10,242 11,205 Total Cap. & Liab. 27,380 28,539 30,635 33,897
Sales Gth (%) 14.2 25.7 13.0 9.3 Non-Cash Wkg. Capital (2,274) (3,238) (3,334) (3,788)
EBITDA Gth (%) 20.9 49.7 10.3 9.4 Net Cash/(Debt) (12,716) (9,813) (7,473) (5,230)
Opg Profit Gth (%) 17.8 109.7 15.7 16.7
Net Profit Gth (%) (11,414.2 79.2 31.9 18.3
Effective Tax Rate (%) 27.3 25.3 25.0 25.0
Cash Flow Statement (Rp bn) Rates & Ratio

Pre-Tax Profit 2,350 4,098 5,388 6,375 Gross Margins (%) 84.1 87.1 86.5 86.5
Dep. & Amort. 3,741 4,122 4,263 4,229 Opg Profit Margin (%) 17.8 29.6 30.3 32.4
Tax Paid (611) (638) (1,191) (1,470) Net Profit Margin (%) 12.3 17.6 20.5 22.2
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 26.1 29.9 30.5 29.5
Chg in Wkg.Cap. (538) 1,069 (60) 331 ROA (%) 6.1 11.0 13.7 14.8
Other Operating CF 2,775 64 0 0 ROCE (%) 7.5 16.3 18.4 19.6
Net Operating CF 7,718 8,715 8,401 9,464 Div Payout Ratio (%) 21.1 30.0 50.0 50.0
Capital Exp.(net) (5,259) (5,075) (5,142) (5,201) Net Interest Cover (x) 2.0 9.4 13.6 15.9
Other Invts.(net) 136 0 0 0 Asset Turnover (x) 0.5 0.6 0.7 0.7
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 9.4 7.8 8.4 8.7
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) (637.3) (492.8) (662.4) (827.0)
Other Investing CF 0 (374) 0 0 Inventory Turn (avg days) (17.5) (4.0) (5.3) (7.2)
Net Investing CF (5,123) (5,449) (5,142) (5,201) Current Ratio (x) 0.3 0.4 0.6 0.8
Div Paid 0 (360) (919) (2,021) Quick Ratio (x) 0.2 0.1 0.3 0.6
Chg in Gross Debt (5,796) (3,285) (1,202) 0 Net Debt/Equity (X) 1.4 0.8 0.5 0.3
Capital Issues 2,786 0 0 0 Net Debt/Equity ex MI (X) 1.4 0.8 0.5 0.3
Other Financing CF (6) (3) 0 0 Capex to Debt (%) 39.1 49.9 57.3 57.9
Net Financing CF (3,017) (3,648) (2,121) (2,021) Z-Score (X) 0.6 1.3 3.0 3.4
Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (Rp) (1,764) (1,153) (878) (615)
Chg in Cash (422) (381) 1,138 2,242 Opg CFPS (Rp) 1,145 899 994 1,074
Free CFPS (Rp) 341 428 383 501
Quarterly / Interim Income Statement (Rp bn) Segmental Breakdown / Key Assumptions
FY Dec 1Q2010 2Q2010 3Q2010 4Q2010 FY Dec 2009A 2010A 2011F 2012F
Turnover 4,166 4,304 4,485 4,683 Revenues (Rp bn)
Cost of Goods Sold (608) (543) (613) (562) GSM Revenue 11,220 14,234 16,275 17,922
Gross Profit 3,558 3,761 3,872 4,121 GSM interconnect 1,551 1,727 1,744 1,762
Other Oper. (Exp)/Inc (2,390) (2,446) (2,516) (2,637) Other GSM 0 0 0 0
Operating Profit 1,168 1,315 1,356 1,484 Others 1,109 1,487 1,695 1,865
Other Non Opg (Exp)/Inc (138) (116) (220) 292
Associates & JV Inc N/A N/A N/A N/A Total 13,880 17,448 19,714 21,548
Net Interest (Exp)/Inc (211) (205) (188) (176)
Pre-tax Profit 819 994 948 1,600
Tax (221) (269) (189) (298)
Minority Interest 0 0 0 0
Net Profit 598 725 0 0
Net profit bef Except. 598 725 759 1,302
EBITDA 2,141 2,288 2,363 2,653
Sales Gth (%) 3.3 3.3 4.2 4.4

EBITDA Gth (%) 7.3 6.9 3.3 12.3
Opg Profit Gth (%) 20.4 12.6 3.1 9.4
Net Profit Gth (%) 17.7 21.2 (100.0) N/A
Gross Margins (%) 85.4 87.4 86.3 88.0
Opg Profit Margins (%) 28.0 30.6 30.2 31.7
Net Profit Margins (%) 14.4 16.8 0.0 0.0
Source: Company, DBS Vickers
Page 27
Industry Focus
Axiata Group
Bloomberg: AXIATA MK | Reuters: AXIA.KL
BUY RM4.77 KLCI : 1,503.89 Solid growth ahead

Price Target : 12-Month RM 5.60
Potential Catalyst: Market share gains, improving efficiency • Axiata is a liquid proxy to XL while offering
Analyst exposure to other growing markets
Juliana RAMLI +603 2711 2222 • As balance sheet strengthens, it could surprise the
juliana@hwangdbsvickers.com.my
market with higher dividends
• Maintain Buy for potential returns of over 20%
Might surprise market with higher dividends. Axiata

Price Relative currently has minimum 30% dividend payout policy, which
RM R elative Index implies about 2% yield. And as its balance sheet
5.80
5.30
219
strengthens (expected to turn net cash in FY12) and
4.80 169 operating cash flows improve, it could surprise the market
4.30
3.80
119
with higher dividends. We project 35% payout ratio,
premised on more-than-sufficient free cash flows over the
3.30
2.80
next 2-3 years.

2.30 69
1.80
1.30 19
2008 2009 2010
Axiata Group (LHS ) R elative KLC I INDE X (R HS )

Growth at all overseas subsidiaries. In 2011, Axiata is
targeting for Robi (Bangladesh) to grow at high-teens to
low- 20‘s percentage, Dialog at mid-single digit, XL at high
Forecasts and Valuation
single digit to low teens, and Celcom at mid-single digit.
FY Dec (RM m) 2010A 2011F 2012F 2013F Except for Dialog, other subsidiaries should perform ahead
Turnover 15,621 17,179 18,463 19,702 of the industry. Celcom, XL and Dialog will continue to
EBITDA 7,642 8,429 9,154 9,755 grow mobile data services while remaining cost efficient,
Pre-tax Profit 3,206 4,826 5,472 5,988 while Robi plans to improve service quality and offerings.
Net Profit 1,770 2,992 3,393 3,713
Net Pft (Pre Ex.) 2,611 2,992 3,393 3,713 Consequently, we expect Axiata’s FY11F revenue to grow
EPS (sen) 21.0 35.4 40.2 44.0 by 10% and EBITDA margin to remain stable at 49%.
EPS Pre Ex. (sen) 30.9 35.4 40.2 44.0
EPS Gth Pre Ex (%) 45 15 13 9
Diluted EPS (sen) 21.0 35.4 40.2 44.0
Undemanding valuation. Trading at only 13.5x FY11F
Net DPS (sen) 10.0 12.4 14.1 15.4 EPS, Axiata is the cheapest Malaysian telco in our
BV Per Share (sen) 221.7 244.8 270.9 299.4 coverage. The market has yet to recognize the full
PE (X) 22.8 13.5 11.9 10.9 potential of Axiata as the country’s fastest growing major
PE Pre Ex. (X) 15.4 13.5 11.9 10.9
P/Cash Flow (X) 7.0 6.7 6.2 5.8 telco. Maintain Buy with SOP-derived TP of RM5.60.
EV/EBITDA (X) 6.1 5.3 4.6 4.1
Net Div Yield (%) 2.1 2.6 2.9 3.2
At A Glance
P/Book Value (X) 2.2 1.9 1.8 1.6
Net Debt/Equity (X) 0.2 0.1 CASH CASH Issued Capital (m shrs) 8,445
ROAE (%) 9.6 15.2 15.6 15.4 Mkt. Cap (RMm/US$m) 40,283 / 13,241
Major Shareholders
Earnings Rev (%): - - - Khazanah (%) 44.5
Consensus EPS (sen): 36.9 41.2 42.8 EPF (%) 14.0
Other Broker Recs: B: 20 S: 2 H: 7
Skim ASB (%) 8.5
Free Float (%) 32.9
ICB Industry : Telecommunications
ICB Sector: Mobile Telecommunications Avg. Daily Vol.(‘000) 14,229
Principal Business: Regional cellular telco
Page 28
“In Singapore, this research report or research analyses may only be distributed to Institutional “Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are
Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, to contact DBSVR at +65 6398 7950 in respect of any matters arising from or in connection with
Chapter 289 of Singapore.” this report.”
www.dbsvickers.com
ed: SGC / sa: JC
Industry Focus
Axiata Group
Income Statement (RM m) Balance Sheet (RM m)

FY Dec 2010A 2011F 2012F 2013F FY Dec 2010A 2011F 2012F 2013F
Cost of Goods Sold (12,509) (12,435) (13,209) (14,029) Invts in Associates & JVs 6,698 6,694 6,690 6,685
Gross Profit 3,112 4,744 5,254 5,674 Other LT Assets 7,852 7,852 7,852 7,852
Other Opng (Exp)/Inc 589 667 750 798 Cash & ST Invts 6,277 7,442 9,064 11,207
Operating Profit 3,701 5,411 6,004 6,472 Inventory 85 93 100 107
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 1,704 1,874 2,014 2,149
Associates & JV Inc (4) (4) (5) (5) Other Current Assets 354 354 354 354
Net Interest (Exp)/Inc (671) (581) (527) (479) Total Assets 38,101 39,721 41,634 43,931
Pre-tax Profit 3,206 4,826 5,472 5,988 ST Debt 700 700 700 700
Tax (1,089) (1,448) (1,642) (1,796) Other Current Liab 5,364 5,652 5,820 6,033
Minority Interest (346) (386) (438) (479) LT Debt 9,984 8,986 8,087 7,278
Preference Dividend 0 0 0 0 Other LT Liabilities 1,775 1,775 1,775 1,775
Net Profit 1,770 2,992 3,393 3,713 Shareholder’s Equity 18,725 20,670 22,875 25,288
Net Profit before Except. 2,611 2,992 3,393 3,713 Minority Interests 1,553 1,939 2,377 2,856
EBITDA 7,642 8,429 9,154 9,755 Total Cap. & Liab. 38,101 39,721 41,634 43,931
Sales Gth (%) 19.2 10.0 7.5 6.7 Non-Cash Wkg. Capital (3,221) (3,331) (3,353) (3,424)
EBITDA Gth (%) 35.9 10.3 8.6 6.6 Net Cash/(Debt) (4,406) (2,243) 277 3,229
Opg Profit Gth (%) 33.9 46.2 11.0 7.8
Net Profit Gth (%) 14.8 69.0 13.4 9.4
Cash Flow Statement (RM m) Rates & Ratio

Pre-Tax Profit 3,206 4,826 5,472 5,988 Gross Margins (%) 19.9 27.6 28.5 28.8
Dep. & Amort. 3,942 3,018 3,151 3,283 Opg Profit Margin (%) 23.7 31.5 32.5 32.8
Tax Paid (793) (1,448) (1,642) (1,796) Net Profit Margin (%) 11.3 17.4 18.4 18.8
Chg in Wkg.Cap. 110 274 196 224 ROA (%) 4.7 7.7 8.3 8.7
Other Operating CF (545) (458) (404) (355) ROCE (%) 7.8 11.6 12.3 12.5
Net Operating CF 5,923 6,217 6,778 7,349 Div Payout Ratio (%) 32.3 35.0 35.0 35.0
Capital Exp.(net) (2,946) (3,300) (3,300) (3,300) Net Interest Cover (x) 5.5 9.3 11.4 13.5
Invts in Assoc. & JV 2,051 0 0 0 Debtors Turn (avg days) 38.1 38.0 38.4 38.6
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 188.1 185.8 188.4 188.4
Other Investing CF 153 0 0 0 Inventory Turn (avg days) 2.6 3.5 3.5 3.5
Net Investing CF (742) (3,300) (3,300) (3,300) Current Ratio (x) 1.4 1.5 1.8 2.1
Div Paid 0 (845) (1,047) (1,187) Quick Ratio (x) 1.3 1.5 1.7 2.0
Chg in Gross Debt (944) (998) (899) (809) Net Debt/Equity (X) 0.2 0.1 CASH CASH
Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) 0.2 0.1 0.0 (0.1)
Other Financing CF 34 90 90 90 Capex to Debt (%) 27.6 34.1 37.6 41.4
Net Financing CF (910) (1,753) (1,856) (1,906) Z-Score (X) 0.6 0.7 NA NA
Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (sen) (52.2) (26.6) 3.3 38.2
Chg in Cash 4,271 1,164 1,622 2,143 Opg CFPS (sen) 68.8 70.4 77.9 84.4
Free CFPS (sen) 35.3 34.5 41.2 47.9
Quarterly / Interim Income Statement (RM m) Segmental Breakdown / Key Assumptions

FY Dec 1Q2010 2Q2010 3Q2010 4Q2010 FY Dec 2010A 2011F 2012F 2013F
Turnover 3,813 3,854 3,937 4,017 Key Assumptions

Cost of Goods Sold (2,134) (2,042) (2,104) (2,287) Celcom's subscribers (k) 10,336.0 12,450.8 13,832.4 15,221.8
Gross Profit 1,678 1,812 1,833 1,730 Celcom's blended ARPU 48.7 40.6 36.3 32.4
Other Oper. (Exp)/Inc (383) (715) (651) (1,751) Group EBITDA margin (%) 45.2 45.2 45.5 45.5
Operating Profit 1,296 1,098 1,182 (21) Group capex (RMm) 2,945.5 3,300.0 3,300.0 3,300.0
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 54 23 35 52
Exceptional Gain/(Loss) 24 (21) (56) 58
Pre-tax Profit 1,217 971 1,044 (27)
Tax (261) (295) (299) (234)
Minority Interest (35) (99) (106) (106)
Net Profit 921 577 639 (367)
Net profit bef Except. 594 670 680 667
EBITDA 1,974 1,883 1,863 1,775
Sales Gth (%) 3.2 1.1 2.2 2.0

EBITDA Gth (%) 22.5 (4.6) (1.1) (4.7)
Opg Profit Gth (%) 49.5 (15.3) 7.7 (101.8)
Net Profit Gth (%) 65.1 (37.4) 10.8 (157.4)
Gross Margins (%) 44.0 47.0 46.6 43.1
Opg Profit Margins (%) 34.0 28.5 30.0 (0.5)
Net Profit Margins (%) 24.2 15.0 16.2 (9.1)
Page 29
Industry Focus
Singapore Telecom
Bloomberg: ST SP | Reuters: STEL.SI
BUY S$2.85 STI : 2,935.78 Proxy to Bharti with 6% yield.

Price Target : 12-month S$ 3.55 • Markets possibly overly concerned about Optus
Potential Catalyst: Capital management .
• Additional 10-18% yield potential through capital
Analyst management
Sachin MITTAL +65 6398 7950
sachin@dbsvickers.com • Trading at only 11x PE versus historical 13x
Key associate Bharti set to grow in FYMar12F.

Bharti is likely to be the key growth driver for SingTel
Price Relative with concrete signs of turnaround in African operations
S$ R e la t iv e In d e x and recovery in Indian operations. Indian operations to
benefit from 3G launch while African operations to
221
4 .4 0
201
3 .9 0
181 benefit from cost-cutting. SingTel’s sustainable yield of
3 .4 0 161
~6% supports our call for indirect exposure to Bharti
141
2 .9 0
121
through SingTel.
2 .4 0
101
1 .9 0 81
Markets are perharps overly concerned about
2007 2008 2009 2010 2011
Optus. The number 3 mobile operator in Australia,
S in g a p o r e T e le c o m (L H S ) R e la t iv e S T I IN D E X (R H S )
VHA, is grappling with network problems subsequent to
the merger between Vodafone and Hutch. This is
Forecasts and Valuation benefiting other telcos including Optus. While Telstra
continues to be aggressive, VHA is bearing most of the
FY Mar (S$ m) 2009A 2010A 2011F 2012F
brunt.
Turnover 14,933 16,871 17,669 18,211
EBITDA 6,458 7,275 7,229 7,637 Potential capital management could lead to
Pre-tax Profit 4,429 5,043 4,960 5,285 additional 10-18% yield. With net debt-to-EBITDA
Net Profit 3,448 3,907 3,862 4,122
Net Pft (Pre Ex.) 3,454 3,907 3,862 4,122 ratio of 0.8x, SingTel is well positioned to execute
EPS (S cts) 21.7 24.6 24.3 25.9 further capital management. SingTel targets a net
EPS Pre Ex. (S cts) 21.7 24.6 24.3 25.9 debt/EBITDA of between 1.5x and 2.0x. This would
EPS Gth Pre Ex (%) (6) 13 (1) 7
imply a cash distribution of around S$5-8.7 bn (or
Diluted EPS (S cts) 21.7 24.6 24.3 25.9
Net DPS (S cts) 12.6 14.3 17.0 18.2 S$0.30-S$0.55 per share). We expect SingTel to raise its
BV Per Share (S cts) 128.8 140.8 150.9 159.8 gearing level in a steady manner rather than in one go,
PE (X) 13.1 11.6 11.7 11.0 allowing it to maintain financing flexibility for potential
PE Pre Ex. (X) 13.1 11.6 11.7 11.0
P/Cash Flow (X) 14.5 13.3 12.4 12.1 acquisitions.
EV/EBITDA (X) 7.9 7.0 7.0 6.6
Net Div Yield (%) 4.4 5.0 6.0 6.4
P/Book Value (X) 2.2 2.0 1.9 1.8
Net Debt/Equity (X) 0.3 0.2 0.2 0.2 At A Glance
ROAE (%) 16.6 18.2 16.7 16.7 Issued Capital (m shrs) 15,935
Earnings Rev (%): - - Mkt. Cap (S$m/US$m) 45,416 / 35,676
Consensus EPS (S cts): 23.9 25.6 Major Shareholders
Other Broker Recs: B: 11 S: 2 H: 10 Temasek Holdings Pte Ltd (%) 54.1
Capital Group Companies (%) 4.9
ICB Industry : Telecommunications Free Float (%) 41.0
ICB Sector: Telecommunications Avg. Daily Vol.(‘000) 16,276
Principal Business: SingTel operates and provides
telecommunication systems and services and engages in investment
holdings.
Page 30
www.dbsvickers.com
ed: JS / sa: JC
Industry Focus
Singapore Telecom
Income Statement (S$ m) Balance Sheet (S$ m)

FY Mar 2009A 2010A 2011F 2012F FY Mar 2009A 2010A 2011F 2012F
Other Opng (Exp)/Inc (1,641) (1,783) (1,892) (1,974) Invts in Associates & JVs 7,931 8,830 9,669 10,631
Operating Profit 2,697 2,969 3,043 3,126 Other LT Assets 11,746 11,971 12,586 12,398
Other Non Opg (Exp)/Inc (24) 0 0 0 Cash & ST Invts 1,076 1,613 1,618 1,903
Associates & JV Inc 2,051 2,410 2,200 2,442 Inventory 107 121 126 130
Net Interest (Exp)/Inc (288) (336) (283) (283) Debtors 2,575 2,909 3,046 3,140
Exceptional Gain/(Loss) (6) 0 0 0 Other Current Assets 37 37 37 37
Pre-tax Profit 4,429 5,043 4,960 5,285 Total Assets 33,255 35,317 37,147 38,483
Tax (982) (1,136) (1,097) (1,162)
Minority Interest 0 0 0 0 ST Debt 1,427 1,427 1,427 1,427
Preference Dividend 0 0 0 0 Other Current Liab 3,676 4,043 4,279 4,403
Net Profit 3,448 3,907 3,862 4,122 LT Debt 5,668 5,668 5,668 5,668
Net Profit before Except. 3,454 3,907 3,862 4,122 Other LT Liabilities 1,984 1,784 1,784 1,577
EBITDA 6,458 7,275 7,229 7,637 Shareholder’s Equity 20,464 22,372 23,968 25,387
Minority Interests 24 24 24 24
Sales Gth (%) 0.6 13.0 4.7 3.1 Total Cap. & Liab. 33,243 35,318 37,150 38,485
EBITDA Gth (%) (7.6) 12.7 (0.6) 5.6
Opg Profit Gth (%) 1.9 10.1 2.5 2.7 Non-Cash Wkg. Capital (958) (977) (1,070) (1,096)
Net Profit Gth (%) (13.0) 13.3 (1.2) 6.7 Net Cash/(Debt) (6,019) (5,482) (5,477) (5,192)
Cash Flow Statement (S$ m) Rates & Ratio

FY Mar 2009A 2010A 2011F 2012F FY Mar 2009A 2010A 2011F 2012F
Pre-Tax Profit 4,429 5,043 4,960 5,285 Opg Profit Margin (%) 18.1 17.6 17.2 17.2
Dep. & Amort. 1,734 1,897 1,989 2,072 Net Profit Margin (%) 23.1 23.2 21.9 22.6
Tax Paid (335) (503) (483) (559) ROAE (%) 16.6 18.2 16.7 16.7
Assoc. & JV Inc/(loss) (2,051) (2,410) (2,200) (2,442) ROA (%) 10.1 11.4 10.7 10.9
Chg in Wkg.Cap. 441 602 16 11 ROCE (%) 7.0 7.6 7.4 7.3
Other Operating CF (124) (158) (192) (223) Div Payout Ratio (%) 58.0 58.0 70.0 70.0
Net Operating CF 4,094 4,470 4,090 4,144 Net Interest Cover (x) 9.4 8.8 10.8 11.1
Capital Exp.(net) (1,847) (1,807) (2,039) (2,044) Asset Turnover (x) 0.4 0.5 0.5 0.5
Other Invts.(net) 0 0 (600) 0 Debtors Turn (avg days) 62.7 59.3 61.5 62.0
Invts in Assoc. & JV (194) 0 0 0 Creditors Turn (avg days) 122.7 113.5 117.3 118.6
Div from Assoc & JV 1,068 858 822 892 Inventory Turn (avg days) 4.4 4.1 4.2 4.2
Other Investing CF (349) (372) 0 0 Current Ratio (x) 0.7 0.9 0.8 0.9
Net Investing CF (1,322) (1,321) (1,817) (1,153) Quick Ratio (x) 0.7 0.8 0.8 0.9
Div Paid (1,999) (2,000) (2,266) (2,703) Net Debt/Equity (X) 0.3 0.2 0.2 0.2
Chg in Gross Debt (466) 0 0 0 Net Debt/Equity ex MI (X) 0.3 0.2 0.2 0.2
Capital Issues 0 0 0 0 Capex to Debt (%) 26.0 25.5 28.7 28.8
Other Financing CF (553) (634) 0 0 Z-Score (X) 4.3 4.0 4.1 4.0
Net Financing CF (3,018) (2,634) (2,266) (2,703) N. Cash/(Debt)PS (S cts) (37.9) (34.5) (34.5) (32.7)
Currency Adjustments (50) 23 0 0 Opg CFPS (S cts) 23.0 24.3 25.6 26.0
Chg in Cash (296) 538 7 288 Free CFPS (S cts) 14.1 16.8 12.9 13.2
Quarterly / Interim Income Statement (S$ m)

FY Mar 3Q2010 4Q2010 1Q2011 2Q2011
Turnover 4,450 4,471 4,289 4,436

Other Oper. (Exp)/Inc (463) (460) (460) (455)
Operating Profit 748 849 771 708
Exceptional Gain/(Loss) 0 (7) 0 0
Pre-tax Profit 1,265 1,300 1,233 1,187
Tax (275) (285) (292) (296)
Net Profit 990 1,015 943 892
Net profit bef Except. 990 1,022 942 892
EBITDA 1,825 1,901 1,796 1,275
Sales Gth (%) 8.5 0.5 (4.1) 3.4

EBITDA Gth (%) 4.0 4.2 (5.5) (29.0)
Opg Profit Gth (%) 9.2 13.5 (9.2) (8.2)
Net Profit Gth (%) 3.7 2.5 (7.1) (5.4)
Net Profit Margins (%) 22.2 22.7 22.0 20.1
Page 31
Industry Focus
PT Sarana Menara Nusantara
Bloomberg: TOWR IJ EQUITY | Reuters: TOWR.JK
BUY Rp9,650 JCI : 3,494.07 Cheap tower operator

Price Target : 12-Month Rp 15,000 ()
Potential Catalyst: Acquiring more towers, increase in free float
• Market leader with experienced management
team
Analyst • Strong revenue pipeline implies upside potential
Sachin MITTAL +65 6398 7950
sachin@dbsvickers.com for FY11F EBITDA
• Over 50% potential upside because it is trading at
over 40% discount to US peers
Market leader and experienced management team.

Price Relative Protelindo is the largest independent tower operator in
1019
Indonesia. Its experienced management team (10-20
1 2 ,9 4 5 years experience at (former) American Tower
819
1 0 ,9 4 5
Corporation) has elevated SMN to market leader.
619
Tenancy ratio is currently 1.66x, implying more room to
8 ,9 4 5
6 ,9 4 5
419
4 ,9 4 5 grow over the next 6-7 years.
219
2 ,9 4 5
945 19
M a r-1 0 A u g -1 0 Ja n -1 1 Strong revenue pipeline implies upside potential
P T S a ra n a M e n a ra N u sa n ta ra (L H S ) R e la t iv e J C I IN D E X (R H S )
for FY11F EBITDA. TOWR has USD37m (Rp333 billion)
worth of new revenue in the pipeline, on top of its
Forecasts and Valuation recurring revenue base, indicating upside risk to FY11F
revenue and EBITDA. The acquisition of the remaining
FY Dec (Rp bn) 2009A 2010A 2011F 2012F 820 towers (out of 1,000) from Hutch over 2010-12F,
Turnover 1,082 1,356 1,673 2,048 coupled with rising tenancy ratios, should drive the
EBITDA 933 1,127 1,389 1,700
Pre-tax Profit 676 134 215 524
estimated >23% FY10-12F EBITDA CAGR.
Net Profit 589 100 162 393
Net Pft (Pre Ex.) 25 (95) 162 393 Over 50% upside potential to our DCF-based TP
EPS (Rp) 578 98 158 385 (WACC 11.5%, terminal growth 4%). TOWR is trading
EPS Pre Ex. (Rp) 25 (93) 158 385
EPS Gth Pre Ex (%) 20 (479) (270) 143 at over 40% discount to US peers, which are trading at
Diluted EPS (Rp) 578 98 158 385 15x FY11F EV/EBITDA. But TOWR offers much stronger
Net DPS (Rp) 0 0 0 0 growth than the estimated 10%-16% EBITDA CAGR
BV Per Share (Rp) 1,094 1,270 1,428 1,814
(Bloomberg) for its US peers (FY10-12F). TOWR’s thin
PE (X) 16.7 98.3 60.9 25.0
PE Pre Ex. (X) 393.6 nm 60.9 25.0 trading liquidity could be a key reason why the stock has
P/Cash Flow (X) 10.3 19.3 15.7 10.6 been overlooked by the market.
EV/EBITDA (X) 15.6 12.8 10.6 8.7
Net Div Yield (%) 0.0 0.0 0.0 0.0
P/Book Value (X) 8.8 7.6 6.8 5.3 At A Glance
Net Debt/Equity (X) 4.2 3.5 3.4 2.7 Issued Capital (m shrs) 1,020
ROAE (%) 72.3 8.3 11.7 23.8 Mkt. Cap (Rpbn/US$m) 9,846 / 1,123
Major Shareholders
Earnings Rev (%): - - Tricipta Mandhala Gumilang 25.6
Consensus EPS (Rp): 328 516
Other Broker Recs: B: 5 S: 0 H: 0 Caturguwirantna Sumapala 24.6
Free Float (%) 49.8
ICB Industry : Telecommunications Avg. Daily Vol.(‘000) 111
ICB Sector: Mobile Telecommunications
Principal Business: Sarana Menara Nusantara PT, through a
subsidiary, builds telecommunications towers. The Company
constructs, operates and rents the towers to mobile
telecommunications services providers
Page 32
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Industry Focus
PT Sarana Menara Nusantara
Income Statement (Rp bn) Balance Sheet (Rp bn

Cost of Goods Sold (416) (488) (566) (662) Invts in Associates & JVs 0 0 0 0
Gross Profit 666 868 1,107 1,386 Other LT Assets 475 320 131 77
Other Opng (Exp)/Inc (99) (149) (184) (225) Cash & ST Invts 474 354 224 169
Operating Profit 568 719 923 1,160 Inventory 1 1 1 2
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 53 67 115 140
Associates & JV Inc 0 0 0 0 Other Current Assets 473 473 473 473
Pre-tax Profit 676 134 215 524 ST Debt 589 374 589 589
Tax (86) (34) (54) (131) Other Current Liab 249 309 347 448
Minority Interest 0 0 0 0 LT Debt 4,573 4,543 4,573 4,573
Preference Dividend 0 0 0 0 Other LT Liabilities 350 350 350 350
Net Profit 589 100 162 393 Shareholder’s Equity 1,115 1,296 1,457 1,850
Net Profit before Except. 25 (95) 162 393 Minority Interests 0 0 0 0
EBITDA 933 1,127 1,389 1,700 Total Cap. & Liab. 6,877 6,872 7,317 7,810
Sales Gth (%) 295.5 25.2 23.4 22.4 Non-Cash Wkg. Capital 277 232 241 167
EBITDA Gth (%) 310.6 20.8 23.2 22.4 Net Cash/(Debt) (4,688) (4,563) (4,938) (4,993)
Opg Profit Gth (%) 316.5 26.6 28.5 25.7
Net Profit Gth (%) (225.1) (83.0) 61.4 143.4

Pre-Tax Profit 676 134 215 524 Gross Margins (%) 61.6 64.0 66.2 67.7
Dep. & Amort. 365 409 466 539 Opg Profit Margin (%) 52.4 53.0 55.2 56.7
Tax Paid (201) 0 0 0 Net Profit Margin (%) 54.5 7.4 9.7 19.2
Chg in Wkg.Cap. (136) 18 (30) (3) ROA (%) 9.3 1.5 2.3 5.2
Other Operating CF (488) 314 0 0 ROCE (%) 8.1 8.1 10.2 12.1
Net Operating CF 216 875 651 1,061 Div Payout Ratio (%) 0.0 0.0 0.0 0.0
Capital Exp.(net) (1,501) (664) (1,181) (1,117) Net Interest Cover (x) 1.2 0.9 1.3 1.8
Other Investing CF 0 (10) 0 0 Inventory Turn (avg days) 7.1 4.9 4.8 4.8
Net Investing CF (1,501) (675) (1,181) (1,117) Current Ratio (x) 1.2 1.3 0.9 0.8
Div Paid 0 0 0 0 Quick Ratio (x) 0.6 0.6 0.4 0.3
Chg in Gross Debt 833 (165) 400 0 Net Debt/Equity (X) 4.2 3.5 3.4 2.7
Capital Issues 0 40 0 0 Net Debt/Equity ex MI (X) 4.2 3.5 3.4 2.7
Other Financing CF 0 (195) 0 0 Capex to Debt (%) 29.1 13.5 22.9 21.6
Net Financing CF 833 (320) 400 0 Z-Score (X) NA NA NA NA
Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (Rp) (4,596) (4,474) (4,841) (4,895)
Chg in Cash (452) (120) (129) (56) Opg CFPS (Rp) 345 840 668 1,043
Free CFPS (Rp) (1,261) 206 (519) (54)
Quarterly / Interim Income Statement (Rp bn)

FY Dec 1Q2010 2Q2010 3Q2010 4Q2010
Turnover 326 338 343 348
Cost of Goods Sold (135) (111) (124) (118)
Gross Profit 191 227 219 230
Other Oper. (Exp)/Inc (36) (33) (35) (45)
Operating Profit 156 194 184 185
Exceptional Gain/(Loss) 132 22 68 (27)
Pre-tax Profit 146 (193) 147 34
Tax (39) 48 (38) (5)
Net Profit 107 (145) 109 29
Net profit bef Except. (26) (167) 41 57
EBITDA 156 194 184 185
Sales Gth (%) 9.0 3.6 1.5 1.2

EBITDA Gth (%) 21.4 24.7 (5.2) 0.4
Opg Profit Gth (%) 21.4 24.7 (5.2) 0.4
Net Profit Gth (%) 25.5 (236.3) (175.4) (73.2)
Gross Margins (%) 58.6 67.2 63.8 66.1
Net Profit Margins (%) 32.6 (42.9) 31.9 8.4
Page 33
Industry Focus
Tower Bersama Infrastructure
Bloomberg: TBIG IJ EQUITY | Reuters: TBIG.JK
BUY Rp2,225 JCI : 3,494.07 Proxy to data growth in Indonesia

Price Target : 12-Month Rp 3,200 • Prime locations allow Tower Bersama (TBI) to secure
Potential Catalyst: Acquistion of towers premium tower rentals from top-tier clients
• Low gearing should enable TBI to expand tower
Analyst
Sachin MITTAL +65 6398 7950 portfolio when opportunities arise
sachin@dbsvickers.com • Offers highest EBITDA growth in the sector; BUY
with Rp3200 TP, implying >35% upside potential
Price Relative Indonesia is perfect for tower business to thrive. 2011

Rp R e la t iv e In d e x should be a record year in terms of new tenancies secured by
3 ,2 2 3
219
independent tower operators, as mobile operators in
3 ,0 2 3
2 ,8 2 3
169 Indonesia finally embrace the tower-leasing model. Tower
2 ,6 2 3
119
operators enjoy high operating leverage by leasing one tower
2 ,4 2 3
to multiple tenants without large increases in costs. Another
key attraction is predictable future income, as mobile
2 ,2 2 3 69
2 ,0 2 3
1 ,8 2 3
O ct-1 0 Ja n -1 1
19 operators lock-in leases for 10-20 years to avoid network
T o w e r B e r s a m a In f r a s t r u c t u r e (L H S ) R e la t iv e J C I IN D E X (R H S )
disruptions. Indonesia’s tower sector offers higher ROI than in
the US and India, because it is closed to foreign players.
Forecasts and Valuation Tier-1 clientele and low gearing differentiate TBI. As the
FY Dec (Rp bn) 2009A 2010F 2011F 2012F
second largest independent tower operator, TBI has been
able to fetch premium rentals (10-15% higher) and higher
Turnover 341 682 1,111 1,418
EBITDA 251 531 874 1,100 tenant ratio by leveraging on its early-mover advantage. With
Pre-tax Profit 268 401 712 937 over 62% of its revenue from Tier-1 mobile operators, TBI
Net Profit 241 328 582 762 has a premium clientele. FY10F net debt/EBITDA of only 2.5x
Net Pft (Pre Ex.) 124 328 582 762 is lowest among listed tower operators globally, and leaves
EPS (Rp) 53 72 128 167
EPS Pre Ex. (Rp) 27 72 128 167 ample room to borrow to grow its tower portfolio.
EPS Gth Pre Ex (%) 144 164 78 31
Diluted EPS (Rp) 53 72 128 167 DCF-based Rp3,200 TP (WACC 11.5%, terminal growth
Net DPS (Rp) 0 0 0 0 4%). Our TP translates into 16x FY11F EBITDA, the average
BV Per Share (Rp) 115 424 552 719
PE (X) 42.1 30.9 17.4 13.3 valuation for its US peers. This is justified by TBI’s higher
PE Pre Ex. (X) 81.6 30.9 17.4 13.3 EBITDA growth (FY10F-12F CAGR of 42% versus 14% for US
P/Cash Flow (X) 41.7 30.3 17.0 13.1 peers) and lower gearing (FY10 net-debt/EBITDA of 2.5x
EV/EBITDA (X) 44.2 21.8 13.6 10.8 versus 5x for US peers). This might also explain TBI’s 10-20%
Net Div Yield (%) 0.0 0.0 0.0 0.0
P/Book Value (X) 19.3 5.2 4.0 3.1
valuation-premium over its local peers.
Net Debt/Equity (X) 1.8 0.7 0.6 0.5
ROAE (%) 68.2 26.7 26.2 26.3 At A Glance
Issued Capital (m shrs) 4,557
Earnings Rev (%): 77 137 182 Mkt. Cap (Rpbn/US$m) 10,139 / 1,156
Consensus EPS (Rp): 62 119 157 Major Shareholders
Other Broker Recs: B: 2 S: 0 H:1 Saratoga Infrastructure (%) 25.8
Provident Capital (%) 20.9
ICB Industry : Technology
ICB Sector: Technology Hardware & Equipmen Wahana Anugerah (%) 20.9
Principal Business: Tower Bersama Infrastructure Tbk PT provides Free Float (%) 32.3
telecommunication infrastructure services to Indonesian wireless Avg. Daily Vol.(‘000) 2,514
carriers. The Company develops and operates telecommunication
supporting infrastructure including tower and in-building systems
across Indonesia.
Page 34
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Industry Focus

Turnover 341 682 1,111 1,418 Net Fixed Assets 67 275 1,138 1,972
Gross Profit 298 606 992 1,259 Other LT Assets 1,333 2,889 2,837 2,751
Minority Interest (11) (21) (44) (66) LT Debt 985 1,585 1,585 1,585
Net Profit 241 328 582 762 Shareholder’s Equity 525 1,933 2,515 3,277
Net Profit before Except. 124 328 582 762 Minority Interests 17 38 82 148
EBITDA 251 531 874 1,100 Total Cap. & Liab. 1,860 3,899 4,568 5,430
EBITDA Gth (%) 46.8 111.3 64.7 25.9 Net Cash/(Debt) (952) (1,369) (1,625) (1,594)
Opg Profit Gth (%) 47.1 110.9 63.8 26.8
Net Profit Gth (%) 24.6 36.3 77.6 30.8

Dep. & Amort. 2 (6) (15) (11) Opg Profit Margin (%) 72.9 76.9 77.3 76.8
Chg in Wkg.Cap. (252) (85) (106) (71) ROA (%) 16.4 11.4 13.8 15.2
Other Operating CF 191 0 0 0 ROCE (%) 19.1 17.3 19.0 20.5
Net Operating CF 193 310 591 855 Div Payout Ratio (%) 0.0 0.0 0.0 0.0
Capital Exp.(net) (140) (202) (848) (823) Net Interest Cover (x) 2.6 4.3 5.8 7.2
Other Invts.(net) (398) (1,605) 0 0 Asset Turnover (x) 0.2 0.2 0.3 0.3
Net Investing CF (538) (1,807) (848) (823) Current Ratio (x) 1.5 2.3 1.6 1.8
Chg in Gross Debt 306 600 0 0 Net Debt/Equity (X) 1.8 0.7 0.6 0.5
Capital Issues 103 1,080 0 0 Net Debt/Equity ex MI (X) 1.8 0.7 0.6 0.5
Net Financing CF 409 1,680 0 0 Z-Score (X) NA NA NA NA
Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (Rp) (209) (300) (357) (350)
Chg in Cash 64 183 (257) 32 Opg CFPS (Rp) 98 87 153 203
Free CFPS (Rp) 12 24 (56) 7
Page 35
Industry Focus
Bloomberg: TBIG IJ EQUITY | Reuters: TBIG.JK
BUY Rp2,225 JCI : 3,494.07 Proxy to data growth in Indonesia

Price Target : 12-Month Rp 3,200 • Prime locations allow Tower Bersama (TBI) to secure
Potential Catalyst: Acquistion of towers premium tower rentals from top-tier clients
• Low gearing should enable TBI to expand tower
Analyst
Sachin MITTAL +65 6398 7950 portfolio when opportunities arise
sachin@dbsvickers.com • Offers highest EBITDA growth in the sector; BUY
with Rp3200 TP, implying >35% upside potential
Indonesia is perfect for tower business to thrive. 2011

should be a record year in terms of new tenancies secured by
Price Relative independent tower operators, as mobile operators in
Indonesia finally embrace the tower-leasing model. Tower
219
operators enjoy high operating leverage by leasing one tower

3 ,2 2 3
3 ,0 2 3
2 ,8 2 3
169
to multiple tenants without large increases in costs. Another
2 ,6 2 3
2 ,4 2 3
119 key attraction is predictable future income, as mobile
2 ,2 2 3 69
operators lock-in leases for 10-20 years to avoid network
2 ,0 2 3
disruptions. Indonesia’s tower sector offers higher ROI than in
the US and India, because it is closed to foreign players.
1 ,8 2 3 19
O ct-1 0 Ja n -1 1
T o w e r B e r s a m a In f r a s t r u c t u r e (L H S ) R e la t iv e J C I IN D E X (R H S )
Tier-1 clientele and low gearing differentiate TBI. As the

Forecasts and Valuation second largest independent tower operator, TBI has been
able to fetch premium rentals (10-15% higher) and higher
FY Dec (Rp bn) 2009A 2010F 2011F 2012F tenant ratio by leveraging on its early-mover advantage. With
Turnover 341 682 1,111 1,418 over 62% of its revenue from Tier-1 mobile operators, TBI
EBITDA 251 531 874 1,100 has a premium clientele. FY10F net debt/EBITDA of only 2.5x
Pre-tax Profit 268 401 712 937 is lowest among listed tower operators globally, and leaves
Net Profit 241 328 582 762
Net Pft (Pre Ex.) 124 328 582 762 ample room to borrow to grow its tower portfolio.
EPS (Rp) 53 72 128 167
EPS Pre Ex. (Rp) 27 72 128 167 DCF-based Rp3,200 TP (WACC 11.5%, terminal growth
EPS Gth Pre Ex (%) 144 164 78 31 4%). Our TP translates into 16x FY11F EBITDA, the average
Diluted EPS (Rp) 53 72 128 167
Net DPS (Rp) 0 0 0 0 valuation for its US peers. This is justified by TBI’s higher
BV Per Share (Rp) 115 424 552 719 EBITDA growth (FY10F-12F CAGR of 42% versus 14% for US
PE (X) 42.1 30.9 17.4 13.3 peers) and lower gearing (FY10 net-debt/EBITDA of 2.5x
PE Pre Ex. (X) 81.6 30.9 17.4 13.3 versus 5x for US peers). This might also explain TBI’s 10-20%
P/Cash Flow (X) 41.7 30.3 17.0 13.1
EV/EBITDA (X) 44.2 21.8 13.6 10.8
valuation-premium over its local peers.
Net Div Yield (%) 0.0 0.0 0.0 0.0
P/Book Value (X) 19.3 5.2 4.0 3.1 At A Glance
Net Debt/Equity (X) 1.8 0.7 0.6 0.5 Issued Capital (m shrs) 4,557
ROAE (%) 68.2 26.7 26.2 26.3 Mkt. Cap (Rpbn/US$m) 10,139 / 1,156
Major Shareholders
Earnings Rev (%): 77 137 182 Saratoga Infrastructure (%) 25.8
Consensus EPS (Rp): 62 119 157
Other Broker Recs: B: 2 S: 0 H:1 Provident Capital (%) 20.9
Wahana Anugerah (%) 20.9
ICB Industry : Technology Free Float (%) 32.3
ICB Sector: Technology Hardware & Equipmen Avg. Daily Vol.(‘000) 2,514
Principal Business: 0
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Industry Focus

Turnover 341 682 1,111 1,418 Net Fixed Assets 67 275 1,138 1,972
Gross Profit 298 606 992 1,259 Other LT Assets 1,333 2,889 2,837 2,751
Minority Interest (11) (21) (44) (66) LT Debt 985 1,585 1,585 1,585
Net Profit 241 328 582 762 Shareholder’s Equity 525 1,933 2,515 3,277
Net Profit before Except. 124 328 582 762 Minority Interests 17 38 82 148
EBITDA 251 531 874 1,100 Total Cap. & Liab. 1,860 3,899 4,568 5,430
EBITDA Gth (%) 46.8 111.3 64.7 25.9 Net Cash/(Debt) (952) (1,369) (1,625) (1,594)
Opg Profit Gth (%) 47.1 110.9 63.8 26.8
Net Profit Gth (%) 24.6 36.3 77.6 30.8

Dep. & Amort. 2 (6) (15) (11) Opg Profit Margin (%) 72.9 76.9 77.3 76.8
Chg in Wkg.Cap. (252) (85) (106) (71) ROA (%) 16.4 11.4 13.8 15.2
Other Operating CF 191 0 0 0 ROCE (%) 19.1 17.3 19.0 20.5
Net Operating CF 193 310 591 855 Div Payout Ratio (%) 0.0 0.0 0.0 0.0
Capital Exp.(net) (140) (202) (848) (823) Net Interest Cover (x) 2.6 4.3 5.8 7.2
Other Invts.(net) (398) (1,605) 0 0 Asset Turnover (x) 0.2 0.2 0.3 0.3
Net Investing CF (538) (1,807) (848) (823) Current Ratio (x) 1.5 2.3 1.6 1.8
Chg in Gross Debt 306 600 0 0 Net Debt/Equity (X) 1.8 0.7 0.6 0.5
Capital Issues 103 1,080 0 0 Net Debt/Equity ex MI (X) 1.8 0.7 0.6 0.5
Net Financing CF 409 1,680 0 0 Z-Score (X) NA NA NA NA
Currency Adjustments 0 0 0 0 N. Cash/(Debt)PS (Rp) (209) (300) (357) (350)
Chg in Cash 64 183 (257) 32 Opg CFPS (Rp) 98 87 153 203
Free CFPS (Rp) 12 24 (56) 7
Page 35
Industry Focus
DBSV 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
DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson
(www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg (DBSR
GO). For access, please contact your DBSV salesperson.
GENERAL DISCLOSURE/DISCLAIMER
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Regional Industry Focus

Asian Telecom Sector

DBS Group Research . Equity 22 March 2011

Switch to growth-yield mix MXAPJTC Index: 97.99

from high purchasing power of its consumers who are

Many emerging market telcos are trading at 4x-6x 4.0 10.0

growth is not compelling enough currently to forego

and Axiata may be re-rated in anticipation of higher

payouts in 2011 and beyond. SingTel’s key concern is

Analysts Table of Contents

Sachin Mittal +65 6398 7950 Countries benefiting from data-growth 3

Juliana RAMLI +603 2711 2222

Competitive & Regulatory Outlook in Asia 20

Theme 1 – Countries benefiting from data-growth

-4.0% 2009 2010 2011F

Source: DBS Vickers

10% Singapore witnessed higher subscriber growth and

Countries with maximum data-growth potential

Fixed Broadband Mobile broadband (including dongles & phones)

Source: DBS Vickers

Source: DBS Vickers

Cellular revenue market share across various markets

90% 79% China Indonesia Thailand Malyasia Singapore

Source: DBS Vickers

Revenue share in China

Cellular industry in China to grow at 11% in 2011 after 12% in 2010

Source: DBS Vickers

CT and CU set to narrow revenue market share gap with CM

90% 82.3% 81.9% 78.8%

Source: DBS Vickers

growth should be above industry growth rate. Hence, we

Cellular industry to grow at 9% in 2011 after 11% in 2010

Cellular Revenue (Rp tn) Growth

Source: DBS Vickers

Source: DBS Vickers

E x pe nsive R e a sona ble

Source: DBS Vickers

Players in Singapore, Malaysia and Thailand offer higher dividend yields

5.9% 6.0% 6.1%

Source: DBS Vickers

2011F E V /E B IT D A (L H S ) 2011F P E R (R H S )

Source: DBS Vickers

Source: DBS Vickers

2. Independent tower operators to gain market

Average investment per tower (USD K)

USD100K investment to construct a tower in Indonesia, 50.0

Expect flat (+1%) core earnings in FY11F. Although DTA’s

c) May sell CDMA business. Contribution from this

Three key catalysts in 2011

a) iPhone launch potentially in 2H11F. Another key to

b) Potential launch of Nationwide Mobile Number

Top picks for growth

Tower Bersama Protelindo versus Tower Bersama at end 2010

Indonesian tower players at significant discount to US peers in FY11F EV/EBITDA terms

Competitive & Regulatory Outlook

Regulatory Risks vs Degree of Competition

Low High Regulatory Risks

Source: DBS Vickers

Indonesia has low regulatory risk, but high degree of

Regional Peers Valuation

Bloomberg Mkt Mkt Price Target Avg CAGR

China / Hong Kong HSI Index 23,668

* PT Telkom is adjusted for SingTel's 35% stake in Telkomsel