Coverage of NGNBN by JP Morgan

Asia Pacific Equity Research
21 October 2011
Singapore Telcos
When the facts don't fit the story...Buy SingTel
We initiate coverage of the Singapore Telecom sector with an OW recommendation on SingTel (TP of S$3.60), and Neutral recommendations on both Starhub (TP S$2.70) and M1 (TP S$2.50). Many, including ourselves, have made much over the potential for Singapores National Broadband Network project to increase competition and drive opportunities for infrastructure-lite competition. The facts, however, do not support this case. We think the NBN will largely serve to cement SingTels dominance of the local market, potentially forcing Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy, and lock M1 out of the mainstream market. The NBN will ultimately curtail competition and cement SingTel dominance. On paper, the NBN looks like a great opportunity for M1. In reality, we estimate SingTel earns a much higher long term (2015) margin (47%) on NBN subscribers then others (STH at 21%, M1 at 14%), giving them a structural cost advantage over both Starhub and M1. This ironically means that the NBN serves to institutionalize SingTels dominance, in our view. The only potential to break this dynamic would be Starhubs pursuance of a Virgin Media strategy where they aggressively leverage their own infrastructure and ignore the NBNwe see little sign of this as of yet. Bundling/ Pay TV will now REALLY matter: A saturated market combined with still relatively high SAC implies that operators will need to bundle in order to reduce churn. MioTV will be competitive in the future as subscribers move from fiber and cross carriage regulations bite, in our view. This should trigger both better Pay TV monetization as well as market share gains in residential broadband for SingTel, at Starhub's expense. Starhub to opt out of NBN? We do not see M1 as a credible long term alternative carrier in Singapore given its over reliance on NBN infrastructure at much lower margins then peers (we think it becomes the TalkTalk equivalent). It therefore remains a third mobile operator with little traction in overall bundled services, in our view. Starhub, however, has longer term potential to leverage their ubiquitous cable infrastructure (100% household coverage vs. Virgin Media in the UK at approximately 50%) to pursue an in-house alternative to the NBN infrastructure. This would position them as the only real domestic competition for SingTel, albeit with a large CAPEX bill attached.
Equity Ratings and Price Targets Company Singapore Telecom StarHub M1 Symbol STEL.SI STAR.SI MONE.SI Mkt Cap (S$ mn) 50,371.13 4,835.47 2,278.72 Rating Price (S$) 3.16 2.82 2.51 Cur OW N N Prev n/c n/c n/c Price Target Cur Prev 3.60 n/c 2.70 n/c 2.50 n/c
Singapore Asian Telecommunications James R. Sullivan, CFA

AC
(65) 6882-2374 james.r.sullivan@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Vishesh Gupta
(65) 6882 2367 vishesh.x.gupta@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Laurent Horrut
(61-2) 9220-1593 laurent.j.horrut@jpmorgan.com J.P. Morgan Securities Australia Limited
Christopher Gee, CFA

(65) 6882-2345 christopher.ka.gee@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Source: Company data, Bloomberg, J.P.Morgan estimates. n/c = no change. All prices as of 20 Oct 11.
See page 139 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.morganmarkets.com
James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com
Asia Pacific Equity Research 21 October 2011
Table of Contents
Investment conclusions...........................................................3 Valuation Discussion ...............................................................8 Key risks to our view..............................................................13 Valuing Singapore ..................................................................14 Comparing NBN and existing business EBITDA margin and cash flows ...............................................................................33 What does MioTV actually mean?.........................................36 Counting the Cash: Yield Sustainability...............................43
Appendices
Appendix I: NGNBN Structure in Singapore ........................48 Appendix II: NGNBN in Australia ..........................................59 Appendix III: Economics of Wireless Data: Singapore .......66 Appendix IV: Fiber vs. Cable .................................................69
Companies
Singapore Telecom ................................................................80 StarHub .................................................................................105 M1 ..........................................................................................122
Investment conclusions
Youve heard it beforefrom us, as well as others. M1 is a market share gainer in all product categories, and the big winner from the NBN. When we began work on this report, that was the easy story to see. But, an interesting thing happened on the way to the report, so to speakthe facts do not fit this view of reality. SingTel is clearly (in our view) the structural winner, Starhub plays an important #2 role but could be ultimately forced into a heavy CAPEX round to replicate a Virgin Media strategy, while M1 will be structurally challenged by the changes wrought on the market place by the NBN.
The Facts
There are several important facts, as we now understand them: 1) Operators face VERY different economics on an NBN subscriber. Per the chart below, we estimate SingTels margin on an NBN sub is almost twice that of Starhub and M1. This is due to a 75% revenue claw back of OpenNets revenues, which takes their OpenNet fee to S$3.8 vs. S$15 for all others. This implies either higher margins, or significantly greater pricing power relative to their competitors. There is evidence in other markets that high speed broadband pricing begins to move closer to unbundled pricing (BT (covered by JPM Analyst Hannes Wittig) Infinity pricing in the UK, for example, moving closer to the charge from OpenReach for Generic Ethernet Access (GEA). This type of development only favors the network owner, and while SingTel only owns 30% of OpenNet, they still control 75% of the revenues.
Table 1: Singapore NBN margin differential from NetCo and OpCo payments
NBN ARPU NetCo monthly payment OpCo payment Other monthly OpEx NBN monthly profit/user NBN margin
Source: J.P. Morgan estimates
SingTel 60.0 (3.8) (6.0) (25.0) 25.3 42.1%
StarHub 60.0 (15.0) (6.0) (25.0) 14.0 23.3%
M1 60.0 (15.0) (6.0) (25.0) 14.0 23.3%
2) A feedback loop exists between NBN and Pay TV, and therefore residential broadband: Rising NBN penetration combined with cross carriage regulations significantly increase the competitiveness of MioTV relative to Starhub's Pay TV offering. In the first instance, this should put pressure on industry Pay TV ARPU (we forecast this to go to S$40 from S$60 over the next five years). In the second instance, a more competitive Pay TV offering should enable SingTel to take residential broadband market share from Starhub (we forecast SingTels residential broadband market share to go to 51% from 42% over the next five years, vs. Starhub 32% from 34%). M1 suffers in this category given the lack of a credible Pay TV product to leverage to gain broadband market share.
Figure 1: Singapore Pay TV market share (LHS) vs. ARPU (RHS)

120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0%
2005A 2006A 2007A 2008A 1Q09A 2Q09A 3Q09A 4Q09A 2009A 2010A 2011E 2012E 2013E 2014E 2015E
Figure 2: Singapore residential broadband market share trends

70 60 50 40 30 20 10 0
0.0%
2005A 2006A 2007A 2008A 1Q09A 2Q09A 3Q09A 4Q09A 2009A 2010A 2011E 2012E 2013E 2014E 2015E
60.0% 50.0% 40.0% 30.0% 20.0% 10.0%
SingTel ARPU
StarHub ARPU
SingTel sub share
StarHub sub share
SingTel-Total
StarHub-Total
M1-NBN
Source: Company reports and J.P. Morgan estimates.
3) A feedback loop exists between NBN enabled bundles and mobile churn: Singapore is a heavily penetrated telecom market in almost every product category, with relatively high Subscriber Acquisition Costs (SAC). We therefore believe the NBN is most important in enabling churn reduction focused product bundles. We estimate that every 10bps of churn reduction is worth S$4-7mn yearly savings per the table below. This implies that a) operators like SingTel will measure the profitability of certain product investments (think Pay TV) in terms of both absolute product P&L as well as its value in churn reduction, b) operators with a weaker bundle will face structurally higher overall costs given more persistent SAC expenditures to manage churn (think M1).
Figure 3: Singapore household penetration of Pay TV, Residential broadband, and Fixed line services 2006-2015
120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0%
Figure 4: Yearly savings from 10bps of churn reduction (S$ mn)

7.0 6.0 5.0 4.0 3.0 2.0
2006A
2007A
2008A
2009A
2010A
2011E
2012E
2013E
2014E
2015E
1.0 0.0 SingTel StarHub M1
Fixed line household penetration
Broadband household penetration-fixed
Pay TV household penetration
Source: J.P. Morgan estimates.
Another way to think about this issue graphically is to chart the lifecycle profitability of a subscriber under the current scenario vs. an NBN scenario. Per the figures below, profitability is most impacted by a) SAC, b) ability of an operator to upsell incremental services, c) duration of customer life. We believe both SingTel and Starhub can successfully upsell services and reduce churn (therefore increasing customer life), while M1 may struggle.
Figure 5: Life cycle profitability of a bundled fixed line customer
Figure 6: Life cycle profitability of a bundled fixed line customer NBN environment
Source: J.P. Morgan.
Source: J.P. Morgan.
Virgin Media has released enough data to allow our UK Telecom team to estimate the value of a customer based on the number of services taken. This analysis indicates that a quad play subscriber offers operators 24x the value of a single play subscriber.
Figure 7: Average customer lifetime revenue - Virgin Media
Source: J.P. Morgan estimates, Company Data. * as commented at 4Q10 results. JPMe estimate then applied for calculation. ^ as reported in 2Q11 results.
4) The NBN should increase pricing pressure and decrease industry revenue growth, ST benefits from diversification. The chart below shows our forecast reduction in telecom industry revenue growth rates from the 5-10% seen in 2004-2010 to an average of 2% moving forward. SingTel drives 35% of its revenues from Singapore, vs. peers at 100%.
Figure 8: Singapore Telecom Industry revenue growth
Figure 9: Operator revenue contribution from Singapore

120% 100% 80% 60% 40% 20% 0% SingTel StarHub M1
Source: Company reports and J.P. Morgan estimates. Source: Company reports and J.P. Morgan estimates.
5) The Singapore telecom market could look increasingly like the UK over time. Carl Murdock-Smith argues in a recent report (UK Fixed-Line Telecom: Bundling, market maturity and superfast broadband driving price rationality, VMED and BT best positioned) that instead of explicit price competition, operators are increasingly finding their market niches, per the chart below. There are relatively clear parallels between the emerging status of the UK fixed line market and what we expect here in Singapore. Singtel plays a modified BT role, with ownership of the underlying common network (OpenNet for ST, OpenReach for BT), Starhub playing a combined Sky / potentially Virgin Media role with a history of content aggregation and management, and M1 playing the role of TalkTalk (covered by JPM Analyst Carl Murdock-Smith) on the value end. If valid, this implies that SingTel could enjoy the best economics moving forward; Starhub may eventually need to invest in a competing cable based infrastructure alternative; and M1, with a focus on value pricing, may struggle given lower structural margins. The M1/TalkTalk analogy becomes especially interesting when one considers M1s historic lack of pricing power, as shown in Figure x below (M1s ARPM relative to ST and STH shows a large and persistent gapthis implies that they need to charge a significantly lower price to gain usage / subscribers, which is difficult given their structurally lower margins).
Figure 10: M1 ARPM vs. ST and STH, 2006-2015
1.1 1 0.9 0.8 0.7 0.6 0.5
2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E
M1/SingTel ARPM
M1/StarHub ARPM
6) Impact of wireless data: We have previously published detailed analysis of the impact of wireless data on operators (The Economics of Wireless Data - Part One: The Importance of Population Density and Spectrum; The
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Economics of Wireless Data India Edition; The Economics of Wireless Data Industry Dialogues), this analysis suggests that Singapore will move from the current honeymoon period (already built wireless networks allowing for revenue growth with little incremental CAPEX), to full networks and incremental linear economics (full networks and the lack of scaleability of data as a product leads to rising CAPEX and lower structural returns) until usage reaches 50% smartphone penetration at 3GB per user per monthas such this is an issue, but one years out. The more important short-term impact of wireless data is rising international link expenses, given that over 90% of internet data accessed from Singapore resides on servers outside the country. SingTel and Starhub both have memberships in subsea cable consortia that potentially limit some of this impact, but this should be a source of margin compression for M1, in our view.
Figure 11: Site numbers in Singapore with increased user demand
Source: J.P. Morgan, ATiC Consulting
Valuation Discussion
We are assuming coverage of SingTel and initiating on StarHub and M1, with an Overweight rating on SingTel and Neutral rating on StarHub on M1, with a preference for M1 over StarHub. Our target price implies 20% total return potential at SingTel vs. 1% at StarHub and 6% at M1. Dividends account for 5.3%, 7.0% and 6.0% respectively of our total returns for SingTel, StarHub and M1.
PT (LC) 3.6 2.7 2.5 % to EV/EBITDA (x) Target 2011E 2012E 14.3% 10.6 10.8 -5.9% 8.3 7.8 0.0% 8.1 8.0 PE (x) 2011E 2012E 12.7 11.2 15.6 14.8 13.3 13.2 Dividend Yield (%) 2011E 2012E 5.3 6.1 7.0 7.0 6.0 6.0 FCF Yield (%) 2011E 2012E 5.4 4.8 7.9 9.1 9.4 9.3 Total Return 19.6% 1.0% 6.0%
Table 2: Singapore Telcos: Valuation summary

Company SingTel StarHub M1 Stock code ST SP STH SP M1 SP Rating Price (LC) OW 3.2 N 2.9 N 2.5
Source: Bloomberg and J.P. Morgan estimates. Priced as at 20 October
Best/worst case analysis: We analyze the impact on our price target for Singapore Telcos at peak and trough of their P/E valuation range. Such an analysis is increasingly important given current global macroeconomic developments and an environment of GDP downgrades. On our estimates, SingTel has the best upside to downside ratio of 1.0 while StarHub fares at the bottom with negative upside to target price on both ends of the valuation range.
Table 3: Singapore Telcos: Best and worst case analysis
Current price Current consensus P/E Peak P/E Trough P/E JPM vs. consensus Best case price % upside Worst case price % upside Up/Down EPS SingTel 3.15 11.9 13.0 10.0 6.4% 3.6 15.8% 2.7 -15.9% 1.00 StarHub 2.87 15.3 14.0 10.0 3.0% 2.7 -5.3% 1.9 -34.5% (0.15) M1 2.50 12.6 13.0 10.0 -5.1% 2.5 -1.6% 1.9 -25.5% (0.06)
Source: Bloomberg, J.P. Morgan estimates. Priced as at 20 October
DCF analysis: We run full discounted cash flow analysis on all of our companies, but do not use this analysis to specifically set target prices. Our experience has been that the heavy retail participation in most South East Asian markets leaves P/E multiples, and the upside to street + upside to multiple approach described above a more effective way of forecasting future share price movements. We instead use DCF analysis as another gauge of market sentiment, by back calculating what discount rate is implied by the current share price. A high discount rate would be indicative of either a) a very risky business / market, or b) an excessively pessimistic sentiment applied by the market. SingTel's share price currently implies a lower discount rate relative to Starhub and M1. This appears fair to us given both SingTel's greater revenue diversification outside of Singapore and the fact that it is likely a market share gainer due to the NBN, but also given its status as a large cap stock (S$50.2bn vs. STH at S$4.9, M1 at S$2.2bn) with a much larger index inclusion then STH or M1 (ST at 10.14% of STI vs. STH at 0.79% and M1 at 0%).
Table 4: Singapore Telcos: DCF summary

SingTel StarHub M1 Current price (LC) 3.15 2.87 2.50 2013E Terminal growth rate 4.0% 4.0% 4.0% 2012E Terminal value as % of EV 92.0% 87.6% 87.8% Implied discount rate at current price 7.9% 10.4% 10.1%
Source: Bloomberg, J.P. Morgan estimates. Priced as at 20 October
The discount rate equivalence between STH and M1 is interesting and arguably justifiable. On the one hand, Starhub faces a loss of its Pay TV monopoly and loss of residential broadband market share, on the other, M1 may be permanently locked out of broader participation in the market..
Valuation Methodology / Setting Target Prices

Our investment philosophy has simplified over the years. It is our belief that ultimately share prices are driven by earnings estimates, an assumption holding true for all of our coverage companies around the region. Our simple valuation methodology is that we believe only two things can mathematically move a share price: 1) changing earnings estimates, and 2) the multiple the market is willing to put on those earnings estimates. This structure allows us to focus our research on: 1) getting the numbers right; and 2) understanding what potential range of multiples the market might apply. A simple sum of the two leads to our target prices, i.e. if we have 10% upside to the Streets EPS forecasts, and think there could be 15% multiple expansion, our total target return is 25%. This method allows us to capitalize on (hopefully) good fundamental research, but also allows us to understand market sentiment. If a multiple has expanded to previously unseen levels, either the business has changed or a lot of expectations have already been built into the share price. On our numbers we see largest upside to Street FY12 EPS estimates for SingTel at 6%, StarHubs 2012 consensus EPS is largely in-line with our estimates while we think the Street needs to lower M1s EPS by 4%.
Table 5: Singapore Telcos: JPM vs. Street estimates
FY11E SingTel Revenue EBITDA EBITDA margin-BP diff EPS StarHub Revenue EBITDA EBITDA margin-BP diff EPS M1 Revenue EBITDA EBITDA margin-BP diff EPS
Source: Bloomberg and J.P. Morgan estimates.
FY12E -3.5% NA NA 6.4% -3.0% 0.8% 1.2 3.0% -1.8% -4.9% (1.0) -5.6%
0.8% NA NA 1.7% -1.0% -0.1% 0.3 3.3% -0.2% -1.1% (0.3) -0.1%
Dividend Yields do not form a basis for our valuation approach, but can serve as both a catalyst as well as a gauge of investor sentiment and the perception of risk inherent in a stream of cash flows. Per the charts below, SingTel is trading at one of its largest spreads to local Government bonds over the past few years, indicating in our view that investors are assigning too much risk to SingTels cash flows relative to their Singapore peers. The large reduction in spreads for Starhub and M1, conversely appear to be underpricing the risks to cash flows, in our view.
Figure 12: SingTel dividend yield spread to govt bonds
Source: Bloomberg.
Figure 13: StarHub: Dividend yield spread to government bonds
Source: Bloomberg.
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Figure 14: M1: Dividend yield spread to government bonds
Source: Bloomberg.
Street View
SingTel We believe the Street is not factoring in potential market share gains in residential broadband and Pay TV over the next few years. There is the potential for short term earnings downside driven by deteriorating cross forex rates, but (in our view more importantly) we see 6% upside to Street estimates for FY2013 driven by better margins on NBN products.
Figure 15: SingTel: Street 1 year forward P/E Figure 2: SingTel: Street 1 year forward EPS
Source: Bloomberg.
Source: Bloomberg
Starhub The market appears to be mispricing the business risk associated with a more competitive pay TV and residential broadband market, as such we expect yield spreads to re widen, indicating downside risk for the stock.
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Figure 16: StarHub: Street 1 year forward P/E
Figure 2: StarHub: Street 1 year forward EPS
Source: Bloomberg.
Source: Bloomberg
M1 Street EPS estimates have been largely flat for M1, recently, and we do not expect material upside from current levels. M1 is also trading close to peak valuations and hence we are Neutral on the name.
Figure 17: M1: Street 1 year forward P/E Figure 2: M1: Street 1 year forward EPS
Source: Bloomberg.
Source: Bloomberg
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Key risks to our view

Pricing competition is worse then forecast: We do expect a degree of price compression which will reduce overall industry revenue growth rates moving forward, but are not forecasting an all out price war on a product by product basis. This is driven by the fact that a) bundles will increasingly drive this saturated, mature market, in our view, which theoretically limits product specific price discovery for consumers; b) Starhub and to a lesser degree M1 will face structurally lower NBN economics, which limits their ability to aggressively cut price without significantly impacting their own margins...not a guarantee that price competition will not get out of control, but clearly a limiting factor. Forecast competitive dynamics are upended as Starhub pursues an alternative infrastructure approach: We suspect that a Virgin Media type strategy may in fact be the best long term strategic option for the company, but as of yet see no signs that this will occur. Were this dynamic to change, we would expect a greater potential for a degree of price competition between Starhub and SingTel given Starhub's better economics. This could be somewhat restrained, however, by Starhub's desire to achieve a reasonable return on their CAPEX investment. A foreign operator takes control of M1 and introduces cross market competitive dynamics into the Singapore environment. We would not be shocked to see an operator like Telstra (in order to have a counter balance to SingTel's Optus) or Axiata (already a 29.23% shareholder in M1, general offer is triggered at ) to eventually make a bid for the firm. This has the potential to introduce another layer of strategy into the Singapore market, which could be destabilizing. NIMS project creates unbundles content: The Infocomm Development Authority of Singapore (IDA), the Telecom industry regulator, has been actively pushing a program called the NextGen Interactive Multimedia Applications and Services program (NIMS), which provides for a common platform Set Top Box (STB). This could theoretically be used to completely unbundle content and reduce the role of SingTel and Starhub as Pay TV content aggregators. This program is at a very early stage of development, but is something we are watching closely.
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Valuing Singapore
Wireless matters most but the change is in fixed line
Wireless business is the single largest revenue contributor for StarHub and M1 while SingTel derives almost 30% of its revenues from wireless. Though wireless matters most we do not expect significant market share shifts in the business going ahead and believe the business has matured to a point of stability. What matters most in terms of value shifts are the fixed line and pay TV businesses in a NBN world. We expect fixed line business to see further mix shifts in fixed voice/broadband and fixed corporate segments. We thus first analyze the impact on fixed line and pay TV business from NBN with wireless business details to follow later
Figure 18: SingTel: Revenue distribution FY11A and FY16E
45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Mobile Fixed IT and engineering FY11A FY16E Pay TV Others
Figure 19: StarHub: Revenue distribution FY10A and FY15E

60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Mobile 2010A Fixed line 2015E Pay TV
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Figure 20: M1: Revenue distribution FY10A and FY15E

90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Mobile 2010A Fixed 2015E Others
Fixed line and pay TV business in an NBN era

NBN is expected to change Singapores fixed line and pay TV business going ahead, providing market share gain opportunity to SingTel on broadband and pay TV, StarHub on corporate SME business and M1 on broadband. The sections below take a deeper dive into the impact of NBN to Singapore's fixed line and pay TV business. Fixed line and broadband: Opportunity for SingTel, not meaningful for M1 We expect 12% of Singapores fixed line subs to migrate to NBN by 2012 and then gradually grow to 45% of the subscriber base by 2015. Key here is the governments set limit on NBN weekly ports, which was recently increased to 2,400 from 2,050. We are of the view that the required weekly ports capacity has to go up for the NBN to have a sizeable impact in the country. Current limit at 2,400 weekly ports implies 520k additional subs from here on until 2015, giving NBN a low market share of 23% by 2015. We forecast weekly ports to increase to 5,000 from 3Q12 as we believe this is necessary to allow NBN to gain a substantial market share (falling short of meaningful subscriber share is not a politically acceptable outcome, in our view).
Table 6: JPM NBN model
Total Fixed subs QoQ YoY Household penetration (%) BP change QoQ BP change YoY NBN's share in total Fixed line BP change QoQ BP change YoY Total NBN subs (000) NBN Weekly Ports
2010E 1Q11E 2Q11E 3Q11E 4Q11E 1,984 1,966 2,008 2,043 2,079 -0.9% 2.1% 1.8% 1.7% 4.6% 2.1% 3.3% 3.9% 4.8%
2011E 1Q12E 2Q12E 3Q12E 4Q12E 2,079 2,101 2,124 2,147 2,170 1.1% 1.1% 1.1% 1.1% 4.8% 6.9% 5.8% 5.1% 4.4%
2012E 2,170 4.4%
2013E 2,238 3.1%
2014E 2,292 2.4%
2015E 2,348 2.4%
102.9% 103.3% 105.8% 106.3% 106.8% 106.8% 107.3% 107.8% 108.3% 108.8% 108.8% 110.0% 111.0% 112.0% 0.42 2.48 0.50 0.50 0.50 0.50 0.50 0.50 5.90 4.22 7.92 4.00 3.90 3.90 3.98 2.00 2.00 2.00 2.00 1.20 1.00 1.00 0.0% 0.00 0.0 0.8% 0.85 0.85 16.7 1.39 1.8% 0.98 1.83 36.7 1.67 3.0% 1.17 3.00 61.2 2.05 4.4% 1.39 4.39 91.2 2.50 4.4% 4.39 91.2 5.8% 1.38 4.92 121.2 2.50 7.1% 1.35 5.29 151.2 2.50 9.8% 2.72 6.84 211.2 5.00 12.5% 2.66 8.11 271.2 5.00 12.5% 8.11 271.2 23.7% 11.23 531.0 5.00 34.5% 10.77 790.8 5.00 44.8% 10.27 1051.0 5.00
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Figure 21: Existing network and NBN market share of total fixed line
120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0%
2010E
2011E
2012E
2013E
2014E
Existing network's share in total Fixed line
NBN's share in total Fixed line
Fixed line: We forecast SingTel and StarHub to account for 60% and 30% of the NBN market while M1 to account for 10%. The mix is debatable and we thus analyze in further sections the sensitivity of valuation to market share. Within the existing network we expect market shares to remain largely stable.
Figure 22: Singapore fixed line subscriber market share
90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2010A 2011E 2012E SingTel-NBN 2013E SingTel-Total 2014E StarHub-NBN 2015E M1-NBN
SingTel-existing network
We believe SingTels existing network ARPUs will remain under pressure due to additional capacity in the system through NBN networks. 1H11 showed signs of increasing pressure with fixed voice ARPU down 6% in 2Q11 and 7% in 1Q11 vs. 4% in 2010.
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2015E
Figure 23: SingTel' existing network fixed local voice ARPU trend
25
20
15
10
2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E
SingTel-voice local
Source: J.P. Morgan estimates and Company data.
Fixed broadband: Given that NBN will largely be a bundled product with a monthly charge for fixed voice and broadband this takes NBN share of total fixed broadband markets to parity with the existing network by 2015. So, simply put, we believe all NBN fixed line subs would subscribe to a bundle fixed and broadband package.
Figure 24: Fixed broadband market share split between NBN and existing networks
120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 2009A 2010A 2011E 2012E 2013E 2014E 2015E
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Existing network's share in total Fixed broadband
NBN's share in total Fixed broadba nd
As with fixed line, we forecast SingTel and StarHub to retain their share in existing network broadband offerings. Thus the opportunity here lies for SingTel and M1 to gain share in the broadband market. SingTel is a unique incumbent in that it is not the market leader in fixed broadband. We believe this was largely driven by StarHubs superior bundling capabilities through a better pay TV product. SingTel has been gaining pay TV market share since its BPL win and aggressive push of the product. We believe superior bundling capabilities going ahead would be the key driver enabling SingTel to gain market share in fixed broadband and pay TV segments. The second chart below shows the
multi-product penetration of the subscriber base for SingTel and Starhub respectively.
Figure 25: Asian incumbent fixed broadband market shares
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Figure 26: SingTel and StarHub bundling market share

90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 3Q07A 4Q07A 2007A 1Q08A 2Q08A 3Q08A 4Q08A 2008A 1Q09A 2Q09A 3Q09A 4Q09A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A SingTel StarHub
SingTels Mio TV launch
SingTels BPL rights win
Source: Company reports and J.P. Morgan estimates. Note: Bundled subscribers include any user who subscribes to two or more products from the same operator.
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Figure 27: Singapore: Total fixed line broadband market share

60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E
SingTel-xDSL StarHub-NBN
SingTel-NBN StarHub-Total
SingTel-Total M1-NBN
StarHub-CATV
Overall broadband ARPUs would remain under pressure and we believe NBN bundled ARPUs would need to come down to existing xDSL and Cable TV levels in order. A quick survey done amongst our Singapore office colleagues suggested that most were not inclined to increase their monthly broadband bill beyond S$50-60 levels, even on better quality fiber services.
Figure 28: Singapore: Fixed broadband ARPU trends
90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E
19
SingTel-xDSL
SingTel-NBN
StarHub-CATV
StarHub-NBN
M1-NBN
Fixed corporate and others: This has been a monopoly segment for SingTel with ~82% market share historically. We believe the opportunity lies in here for StarHub to gain market share. We forecast StarHub's market share to increase to 24% by 2015 from 18% currently. The size of this market was ~S$1.5 bn in 2010 and we expect the space to become competitive with NBN infrastructure. 2Q11 showed signs of slowdown with only 0.7% growth in revenues and we expect the segment to decline by 2.5% every year from 2012 onwards to a size of S$1.36 bn in 2015.
Figure 29: Singapore fixed corporate and other market share and size trends
100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 1,600 1,500 1,400 1,300 1,200 1,100 1,000
2001A
2002A
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010A
2011E
2012E
2013E
2014E
SingTel mkt share
StarHub mkt share
Total corporate and others revenue (S$ mn)
Pay TV: This has been a business dominated by StarHub until SingTel's aggressive moves post its BPL rights win in 2009. Standalone profitability of SingTels pay TV business has been low but we believe pay TV would be a key asset for success on the bundling platform. SingTel has been continuously gaining pay TV market share and we believe it would get to parity with StarHub by 2015. Please see our section What does MioTV mean? later in this report for more detail on this issue.
Figure 30: Singapore pay TV subscriber market share trends
120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0%
2005A
2006A
2007A
2008A
2009A
2010A
2011E
2012E
2013E
2014E
2015E
SingTel
StarHub
Recent trends have shown significant improvement in SingTels pay TV ARPU (up 160% to S$25 in 2010 and at S$26 in 2Q11) and we expect the positive trend to continue driven by increasing take-up of SingTels sports package and improving content offering. The new content sharing law in Singapore calls for operators to share all new content acquired and any rational analysis would get someone to ARPU parity within the existing virtual duopoly.
20
2015E
Figure 31: Singapore Pay TV ARPU trends

70 60 50 40 30 20 10 0
2005A
2006A
2007A
2008A
2009A
2010A
2011E
2012E
2013E
2014E
SingTel
StarHub
Figure 32: Singapore: Pay TV revenue share and total market revenues
120% 100% 80% 60% 40% 20% 0% 600 550 500 450 400 350 300 250 200
2005A
2006A
2007A
2008A
2009A
2010A
2011E
2012E
2013E
2014E
SingTel
StarHub
Total Pay TV revenues (S$ mn)
What is the overall impact on fixed and pay TV revenue profiles in an NBN era?
Fixed and broadband (ex. corporate): Fixed line and broadband is largely one product in Singapore with a monthly charge for the combined bundle. We expect the market to grow at a 2015-2010 CAGR of 1.6%. We expect SingTel to lose market share in this segment to StarHub and M1.
Figure 33: Singapore: Combined fixed line and broadband (ex. corporate) market share and total market size
80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2010A SingTel
2015E
1,080 1,060 1,040 1,020 1,000 980 960 940 2015E StarHub M1 Total revenue
2015E
21
Fixed, broadband and pay TV (ex. corporate): SingTel is expected to be the biggest beneficiary in the pay TV segment, we do not forecast M1 to capture pay TV market share. We expect the combined market to grow at a 2015-2010 CAGR of 2.7%. On a combined basis, SingTel and M1 are expected to be beneficiaries at the expense of StarHub.
Figure 34: Singapore: Combined fixed line, broadband and pay TV (ex. corporate) market share and total market size
70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2010A SingTel StarHub M1 2015E Total revenue 1,700 1,650 1,600 1,550 1,500 1,450 1,400 1,350 1,300
Fixed, broadband and pay TV (including corporate): The equation now gets changed as with NBN assets in place, we think SingTel will feel pressure on its corporate fixed line segment while we forecast the total corporate fixed market to contract due to aggressive competition. We expect the combined market to grow at a 2015-2010 CAGR of 0.4%. Overall, SingTel and StarHub are expected to lose some market share to M1.
Figure 35: Singapore: Combined fixed line, broadband and pay TV (including corporate) market share and total market size
80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2010A SingTel StarHub M1 2015E Total revenue 3,020 3,010 3,000 2,990 2,980 2,970 2,960 2,950 2,940 2,930 2,920
NBN cost analysis

NBN being an asset light business model should structurally have lower EBITDA margins than tradition Telco businesses. We have simplified our NBN cost analysis for Singapore Telco operations by assuming two sets of expense items.
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1) Cost of services, fixed expense per subscriber added: This is the monthly charge per subscriber paid to NetCo and OpCo at S$15 and S$6 respectively. We have assumed an additional S$4/subs monthly cost of sales expense on equipments, and connectivity network maintenance. This is inline with the other cost of sales expense reported by M1 on its existing subscriber base. We thus forecast a monthly all in cost of services charge of S$25. This expense item is expected to remain largely stable going ahead. 2) Marketing and others, variable expense per subscriber added: This is a variable monthly expense line which we estimate at monthly S$15/sub for SingTel and StarHub while S$10/sub for M1. SingTel and StarHub would be offering their fixed line, broadband and pay TV products together while M1 in only offering fixed and broadband and hence a lower assumption on this cost item. We forecast a gradual (1%) yearly increase in this monthly marketing and other cost per sub going ahead. Overall NBN EBITDA margin differs greatly for the three Telcos given the difference in pricing and SingTels 75% revenue share from NetCo. We analyze the impact from both in greater detail below. Effective cost of residential fiber adoption is S$3.75 for SingTel vs. S$15 for StarHub: Operators need to pay NetCo a monthly fee of S$15 for residential NBN subs. SingTels being a key owner of NetCo receives 75% of this compensation back and thus its effective cost of fiber adoption is only S$3.75 vs. S$15 for StarHub and M1. Analysis in the table below highlights that on similar NBN ARPU's there is a large difference in NBN margin between SingTel, StarHub and M1due to NetCo payment. SingTel thus has higher effective margins than StarHub and M1.
Figure 36: SingTel, NetLink and NetCo service and lease agreements
Source: SingTel.
23
Table 7: Singapore NBN margin differential from NetCo and OpCo payments-sensitivity analysis
NBN ARPU NetCo monthly payment OpCo payment Other monthly OpEx NBN monthly profit/user NBN margin
SingTel 60.0 (3.8) (6.0) (25.0) 25.3 42.1%
StarHub 60.0 (15.0) (6.0) (25.0) 14.0 23.3%
M1 60.0 (15.0) (6.0) (25.0) 14.0 23.3%
Taking guidance from the current monthly charge on NBN broadband bundles we estimate SingTels current NBN ARPU at S$70, StarHub at S$60 and M1 at S$42. We believe monthly packages need to come down over the long term in order to stimulate mass adoption of the product. A quick survey done amongst our Singapore colleagues indicated that majority preferred their absolute broadband monthly expense to stay below S$60 and would not be willing to spend higher even for a faster service. We forecast broadband monthly package to drop to S$50 levels for SingTel and StarHub by 2015 while S$38 for M1.
Figure 37: SingTel: fiber plans
Source: Company website. 24
Figure 38: StarHub fiber plans
Source: Company website.
Figure 39: M1 current fiber plans
Source: Company website
25

90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E
SingTel-xDSL
SingTel-NBN
StarHub-CATV
StarHub-NBN
M1-NBN
Thus we expect NBN EBITDA margin to gradually decline going ahead as pricing goes down.
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Table 8: Singapore Telcos: Detailed NBN margin build

2012E SingTel NBN ARPU (S$) NBN revenue (S$ mn) Revenue share from NetCo (S$ mn) Total NBN revenue (S$ mn) NBN marketing/sub (S$) NBN marketing (S$ mn) NBN cost of services/sub (S$) NBN cost of services (S$ mn) Total NBN OpEx (S$ mn) NBN EBITDA margin StarHub NBN ARPU (S$) NBN revenue (S$ mn) Revenue share from NetCo (S$ mn) Total NBN revenue (S$ mn) NBN marketing/sub (S$) NBN marketing (S$ mn) NBN cost of services/sub (S$) NBN cost of services (S$ mn) Total NBN OpEx (S$ mn) NBN EBITDA margin M1 NBN ARPU (S$) NBN revenue (S$ mn) Revenue share from NetCo (S$ mn) Total NBN revenue (S$ mn) NBN marketing/sub (S$) NBN marketing (S$ mn) NBN cost of services/sub (S$) NBN cost of services (S$ mn) Total NBN OpEx (S$ mn) NBN EBITDA margin
2013E 56 163 72 235 (24) (74) (14) (45) (119) 49% 50 72 0 72 (14) (20) (23) (33) (53) 26% 38 18 0 18 (9) (5) (23) (11) (16) 14%
2014E 53 254 103 357 (24) (112) (15) (69) (181) 49% 48 114 0 114 (14) (34) (23) (55) (88) 23% 38 30 0 30 (9) (7) (23) (18) (26) 14%
2015E 51 340 138 478 (24) (156) (15) (98) (254) 47% 47 156 0 156 (14) (47) (23) (76) (123) 21% 38 41 0 41 (10) (11) (23) (25) (36) 14%
65 107 50 157 (24) (39) (14) (24) (62) 60% 52 34 0 34 (14) (9) (23) (15) (24) 29% 39 8 0 8 (9) (2) (23) (5) (7) 17%
Figure 41: NBN EBITDA margin, 2012-2015E

70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% SingTel 2012E
StarHub 2015E
M1
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Valuation sensitivity to NBN market share

Our best case assumes that NBN would account for 45% of the total fixed line market in Singapore by 2015 and we assume a 60%, 30% and 10% market share split within NBN subs for SingTel, StarHub and M1. This is a long dated conversation with hard data points on subscribers still not released by any operator. We thus believe it becomes important to test the variability of valuation to our NBN market share assumptions. The conclusions after we ran the numbers were interesting: Sensitivity to NBNs share of total fixed line by 2015: Here we study the impact of varying NBN market share assumptions to our 2015 earnings for SingTel, StarHub and M1. We keep our estimates of their NBN market share unchanged at 60%, 30% and 10% respectively. The table below highlights that on our estimates SingTel remains the most levered to this assumption as it receives the highest share of NBN market (60%) and also gets a flow through in revenue share from OpenNet.
Table 9: Singapore Telcos: Earnings sensitivity to total NBN fixed line market share by 2015
SingTel NBN share of fixed line market by 2015 FY16 Singapore EBITDA (S$ mn) Upside to base case FY16 group net (S$ mn) Upside to base case StarHub 2015 net income (S$ mn) Upside to base case M1 2015 net income (S$ mn) Upside to base case
10% 15% 20% 25% 30% 35% 40% 1,998 2,054 2,107 2,162 2,216 2,269 2,321 -15.8% -13.4% -11.2% -8.8% -6.6% -4.3% -2.1% 5,469 -5.0% 355 -2.8% 189 -1.5% 5,512 -4.2% 357 -2.3% 190 -1.3% 5,552 5,594 5,635 5,676 5,715 -3.5% -2.8% -2.1% -1.4% -0.7% 358 360 361 363 364 -1.8% -1.4% -1.0% -0.6% -0.3% 190 190 191 191 192 -1.0% -0.8% -0.6% -0.4% -0.2%
Base case 45% 50% 55% 60% 65% 70% 75% 2,371 2,426 2,476 2,528 2,580 2,632 2,683 0.0% 2.3% 4.4% 6.6% 8.8% 11.0% 13.1% 5,754 5,796 5,834 5,874 5,913 0.0% 0.7% 1.4% 2.1% 2.8% 365 0.0% 192 0.0% 366 0.3% 192 0.2% 367 0.6% 193 0.4% 368 0.9% 193 0.6% 369 1.1% 194 0.8% 5,953 3.5% 370 1.3% 194 1.0% 5,992 4.1% 371 1.5% 194 1.2%
Sensitivity to market share within NBN: Here we keep NBNs market share of total fixed line unchanged at 45% by 2015 and study the impact of varying our estimated NBN market share assumptions for SingTel, StarHub and M1. Our base case assumes 60%, 30% and 10% within NBN market share for SingTel, StarHub and M1 respectively. The table below highlights that M1 and StarHub are most levered to varying market share assumptions as SingTel has downside protection through payments from OpenNet.
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Table 10: Singapore Telcos: Earnings sensitivity to market share within NBN subscribers
SingTel NBN market share 5% FY16 Singapore EBITDA (S$ mn) 2,292 Upside to base case -3.3% FY16 group net (S$ mn) Upside to base case StarHub NBN market share 2015 net income (S$ mn) Upside to base case M1 NBN market share 2015 net income (S$ mn) Upside to base case
10% 15% 20% 2,300 2,307 2,314 -3.0% -2.7% -2.4% 5,700 5,705 5,711 -0.9% -0.8% -0.8% 10% 15% 20% 351 354 358 -4.0% -3.0% -2.0% Base case 10% 192 0.0% 15% 194 1.0% 20% 196 2.0%
25% 2,321 -2.1% 5,716 -0.7% 25% 361 -1.0% 25% 198 3.1%
30% 35% 2,328 2,336 -1.8% -1.5% 5,721 5,727 -0.6% -0.5% Base case 30% 365 0.0% 30% 200 4.1% 35% 369 1.0% 35% 202 5.1%
40% 45% 2,343 2,350 -1.2% -0.9% 5,732 5,738 -0.4% -0.3% 40% 372 2.0% 40% 204 6.1% 45% 376 3.0% 45% 206 7.1%
50% 55% 2,357 2,364 -0.6% -0.3% 5,743 5,748 -0.2% -0.1% 50% 380 4.0% 50% 208 8.2% 55% 383 4.9% 55% 210 9.2%
Base case 60% 2,371 0.0% 5,754 0.0% 60% 387 5.9% 60% 212 10.2%
65% 2,379 0.3% 5,759 0.1% 65% 390 6.9% 65% 214 11.2%
70% 2,386 0.6% 5,765 0.2% 70% 394 7.9% 70% 216 12.2%
5,694 -1.0% 5% 347 -4.9% 5% 190 -1.0%
Wireless business
As we earlier noted, we do not expect big moves in this segment. Wireless in our view is a stable and saturated market in Singapore with additional subscriber growth driven by multi-SIM phenomenon and dongles. SingTel lost significant market share to Starhub from 2001-2006 as the latters voice pricing was at a significant discount (35-50%) to SingTel. SingTel started to gain revenue and subscriber market share from StarHub since 2007 with more competitive pricing and better network quality, giving it a significant lead in data revenue growth. M1s subscriber share has largely remained unchanged around 30% on the back of aggressive pricing. This has led a drop in its revenue share which is below 20% now.
Figure 42: Singapore: Wireless subscriber market share trends
60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
2001A
2002A
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010A
1Q11A
2Q11A
2011E
2012E
2013E
2014E
SingTel
StarHub
M1
29
2015E
Figure 43: Singapore wireless revenue share

60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E
SingTel
StarHub
M1
Wireless MOU: StarHubs relative historical premium on MOUs has been converging and we expect the gap to continue to narrow.
Figure 44: Singapore: Wireless MOU trends
600.0 500.0 400.0 300.0 200.0 100.0 0.0
1Q10A
2Q10A
3Q10A
4Q10A
1Q11A
2Q11A
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010A
2011E
2012E
2013E
2014E
SingTel
StarHub
M1
Wireless ARPM: SingTel and StarHub have kept tariffs quite close while M1s relative discount is partly due to reporting certain line items (international revenues, which is a low margin business) on a net basis. Both SingTel and StarHub have kept tariffs largely stable while the declining trends at M1 are partly a function of net reporting of international revenues and falling international revenue margins. Operators dont intend to get aggressive on voice pricing and are fully cognizant of the overall negative impact on the industry from price wars.
30
2015E
Figure 45: Singapore: Wireless ARPM trends (long history)

25.0 20.0 15.0 10.0 5.0 0.0 2003A 2004A 2005A 2006A 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E
SingTel
StarHub
M1
Figure 46: Singapore: Wireless ARPM trends (short history)

9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0
2009A
1Q10A
2Q10A
3Q10A
4Q10A
2010A
1Q11A
2Q11A
2011E
2012E
2013E
2014E
SingTel
StarHub
M1
Wireless data as % of total: Data has been a key growth driver and we expect datas proportion in total revenues to rise to 40-46% by 2015 from 33-41% currently. SingTel leads the pack here with 41% contribution from data revenues at CY2Q11.
Figure 47: Singapore: Wireless data as % of total revenue trends
50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
2001A
2002A
2003A
2004A
2005A
2006A
2007A
2008A
2009A
1Q10A
2Q10A
3Q10A
4Q10A
2010A
1Q11A
2Q11A
2011E
2012E
2013E
2014E
SingTel
StarHub
M1
Wireless ARPUs: Given recent trends and maturity of the business, we believe wireless ARPUs would remain largely stable 2012 onwards while rise by 3% for SingTel in 2011 and decline 4% and 5% for StarHub and M1.
31
2015E
2015E
Figure 48: Singapore: Wireless total ARPU trends

65 60 55 50 45 40 35 30 25 20 2003A 2004A 2005A 2006A 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E
SingTel-total
StarHub-total
M1-total
Wireless market share and total market size: We expect ~100 bps market share gains at SingTel largely at the expense of StarHub, in line with recent trends. M1s market share is expected to remain largely stable. We expect the wireless market to grow at a 2015-2010 CAGR of 4%. Thus, our point that value shift largely lies in the pay TV and broadband segments.
Figure 49: Singapore: Wireless revenue share and total market size
60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2010A SingTel 2011E StarHub M1 2015E Total Revenue 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 -
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Comparing NBN and existing business EBITDA margin and cash flows
In this section we analyze our revenue, EBITDA and EBITDA margin forecasts for Singapore Telcos on an NBN and ex. NBN basis. Ideal world scenario would have been to analyze wireless and fixed line businesses separately but operators do not release such data and even we are of the view that to a certain extent this would be a cost allocation discussion, given the increasing combined use of assets between wireless and fixed line. What ultimately is important is the Cash flow margin profile of the two segments as a major difference between NBN and ex. NBN business is the asset light nature of the former.
11: SingTel: NBN and ex. NBN business comparison
NBN cash flow dynamics S$m NBN NBN revenue NBN OpEx NBN EBITDA NBN EBITDA margin NBN Capex NBN FCF (EBITDA-Capex) NBN FCF margin Ex. NBN Ex. NBN revenue Ex. NBN OpEx Ex. NBN EBITDA Ex. NBN EBITDA margin Ex. NBN Capex Ex. NBN FCF (EBITDA-Capex) Ex. NBN FCF margin Total Total revenue Total OpEx Total EBITDA Total EBITDA margin Total Capex Total FCF (EBITDA-Capex) Total FCF margin
FY 2009A
FY 2010A
FY 2011A
FY 2012E 63 (19) 44 70.5% 0 44 70.5%
FY 2013E 157 (62) 95 60.4% 0 95 60.4% 6,417 4,492 2,049 31.9% 847 1,203 18.7% 6,574 4,430 2,144 32.6% 847 1,297 19.7%
FY 2014E 235 (119) 116 49.5% 0 116 49.5% 6,436 4,569 2,104 32.7% 793 1,312 20.4% 6,671 4,450 2,221 33.3% 793 1,428 21.4%
FY 2015E 357 (181) 175 49.1% 0 175 49.1% 6,429 4,667 2,126 33.1% 772 1,354 21.1% 6,786 4,485 2,301 33.9% 772 1,529 22.5%
FY 2016E 478 (254) 224 46.9% 0 224 46.9% 6,436 4,797 2,147 33.4% 787 1,360 21.1% 6,914 4,543 2,371 34.3% 787 1,585 22.9%
5,547 3,437 2,111 38.0% 736 1,375 24.8% 5,547 3,437 2,111 38.0% 736 1,375 24.8%
5,995 3,772 2,223 37.1% 652 1,571 26.2% 5,995 3,772 2,223 37.1% 652 1,571 26.2%
6,399 4,219 2,181 34.1% 726 1,455 22.7% 6,400 4,219 2,182 34.1% 726 1,456 22.7%
6,438 4,426 2,049 31.8% 902 1,147 17.8% 6,501 4,407 2,094 32.2% 902 1,191 18.3%
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Table 12: StarHub: NBN and ex. NBN business comparison

Source: Company, J.P. Morgan estimates.
2008A
2009A
2010A
2011E 9 (6) 3 35.7% 0 3 35.7%
2012E 34 (24) 10 29.3% 0 10 29.3% 2,274 1,629 692 30.4% 257 435 19.1% 2,308 1,605 702 30.4% 257 445 19.3%
2013E 72 (53) 18 25.5% 0 18 25.5% 2,284 1,676 715 31.3% 251 464 20.3% 2,356 1,623 733 31.1% 251 482 20.5%
2014E 114 (88) 26 22.9% 0 26 22.9% 2,293 1,734 736 32.1% 257 479 20.9% 2,408 1,646 762 31.6% 257 505 21.0%
2015E 156 (123) 33 20.9% 0 33 20.9% 2,291 1,815 723 31.6% 261 463 20.2% 2,448 1,691 756 30.9% 261 495 20.2%
2,128 1,483 645 30.3% 220 425 20.0% 2,128 1,483 645 30.3% 220 425 20.0%
2,150 1,497 654 30.4% 231 422 19.6% 2,150 1,497 654 30.4% 231 422 19.6%
2,238 1,642 596 26.6% 272 324 14.5% 2,238 1,642 596 26.6% 272 324 14.5%
2,259 1,612 659 29.2% 276 383 16.9% 2,268 1,606 662 29.2% 276 386 17.0%
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Table 13: M1: NBN and ex. NBN business comparison

2008A
2009A
2010A
2011E 3 (3) 1 19.6% 0 0 19.6%
2012E 8 (7) 1 16.7% 0 1 16.7% 1,043 739 318 30.5% 107 211 20.2% 1,051 732 320 30.4% 107 212 20.2%
2013E 18 (16) 3 14.2% 0 3 14.2% 1,067 773 325 30.5% 111 214 20.1% 1,085 758 327 30.2% 111 217 20.0%
2014E 30 (26) 4 13.9% 0 4 13.9% 1,091 808 334 30.6% 114 220 20.1% 1,121 782 338 30.2% 114 224 20.0%
2015E 41 (36) 6 13.5% 0 6 13.5% 1,110 842 339 30.6% 118 222 20.0% 1,151 806 345 30.0% 118 227 19.8%
801 485 316 39.5% 94 222 27.7% 801 485 316 39.5% 94 222 27.7%
782 473 309 39.5% 119 190 24.3% 782 473 309 39.5% 119 190 24.3%
980 666 314 32.0% 100 214 21.8% 980 666 314 32.0% 100 214 21.8%
1,022 709 318 31.1% 105 213 20.9% 1,025 707 319 31.1% 105 214 20.9%
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What does MioTV actually mean?

There has been much conversation regarding the future outlook for MioTV, and the impact that this product may have on the overall market. We take a slightly more positive tone then market consensus on this issue. The most obvious case study to reference for the potential outcome of mioTV vs. Starhub. The parallels are numerous: IP based new market entrant competing against a HFC cable based incumbent; The IP based new market entrant backed by the incumbent fixed line player; Initial product reviews of the new entrant quite troublesome at a technical level; Initially quite limited content available from the new entrant. Initial customer feedback directly after the MioTV launch can be found on the Straights Times online forum, STOMP. The ensuing competition has also played out very close to the playbook of NOW TV vs. i-Cable: The use of the English Premier League as a primary content based competitive weapon both new entrants used this content as a way to increase the number of households taking their infrastructure; Initial a-la carte pricing strategies employed by the new entrant to reduce entry price for new users. We expect that MioTV will be more important for SingTel strategically then the market expects. This view is driven by the Hong Kong experience, but also by the two most commonly heard criticisms of mioTV: 1) Lack of content: Regulatory change has brought us to an era of content non-exclusivity as soon as current contracts expireit is quite difficult to argue that there will be any true, sustainable content differentiation between the two platforms on a multi-year view. 2) Technical issues: There have been frequent customer complaints regarding picture freeze or pixellation. In our view, this is primarily driven by the fact that the platform is currently running on SingTel's DSL network. Let's not forget, the current quality level of SingTel's DSL network was one of the drivers of the need for an NBN in the first place. We expect that the quality of mioTV services will increase significantly once customers are on an NBN connection. The success of mioTV (and the subsequent impact on residential broadband market share, please see below) is largely a function of customer take-up rates for NBN services. We suggest that a resolution of these two issues should enable MioTV to take 50% market share of Pay TV in Singapore, at an equivalent ARPU relative to Starhub. We also suggest that these market share gains will enable SingTel to take additional market share in residential broadband.
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The Hong Kong case study

PCCW launched NOW TV in Hong Kong in 2003, with an initial 23 channels (the initial channel options were seen as quite English heavy, inclusive of the various Discovery Channels, TCM, Hallmark, CNBC, MTV etc). The initial pricing packages included no installation charges with a pay as you go price model that charged HKD9-21 per month per channel. Users could choose and order channels through their remote control (a PCCW patented technology at the time) i-Cables initial reaction to the launch of NOW TV was cautious, overly so in hindsight. I-Cable management pointed to the fact that while the service took an immediate close to 20% market share of subscribers, the large majority of those subscribers were not paying anything for the service. Initially, the percentage of the user base paying for premium channels was only 20%, implying a very small impact on the overall structure of the industry (at least at a headline level).
Table 14: NOW TV subscriber base statistics - six months from launch
subs in '000 Now TV subs - installed base Net adds PCCW's market share Now TV pay channel subs as % of total Now TV subs
Source: Company reports
2H03 147
18.3% 29 19.7%
In our view i-Cable management made a very fundamental analytical error. They clearly focused almost all of their attention on the paying user base and the derived low overall ARPU, rather then on what we will term the infection rate. The infection rate is a concept we have been discussing with senior telco management teams in Singapore for some time. This concept argues that the only statistic that matters is the percentage of your current households that have been "infected" with your competitors set top box. The argument here is that during an initial ramp up period, content offering will likely be sparse, and technical issues will likely remain. That said, your customer's premise has been infected, and they may start watching some content on the new set top box, and even start spending some initial sum of money. This initial phase will likely have no impact on the incumbent Pay TV provider's subscriber or ARPU trends and indeed may actually grow market revenue, as users are not spending so much on the second box as to be faced with a decision regarding splitting their "share of wallet" to the two providers. Over time however, infection rates a) go exponential, b) move from dormant to active status. The Hong Kong case study clearly shows the use of core "must have" content to increase overall household penetration, and the subsequent use of bundled content to encourage users to finally recognize the new entrant as a comparable product, and therefore begin to split their wallet between the two services. This impact, in the Hong Kong example, was felt most clearly through the incumbent's ARPU statistic rather then their user numbers.
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Once the two products had achieved some level of exchangeability in peoples minds, which in Hong Kong we feel occurred in mid 2007, we see the incumbent Pay TV provider showing a clear ARPU shift over to the new player.
Figure 50: Hong Kong Pay TV Subscribers - PCCW takes half... Figure 51: Hong Kong Pay TV ARPU - PCCW takes the lead
Source: Company reports and J.P. Morgan estimates. Source: Company reports and J.P. Morgan estimates.
We suggest that the large overlap in timing suggests we at least take the case study a tad seriously.
Table 15: Hong Kong vs. Singapore Pay TV market development timing
Hong Kong 2003 NOW TV Launch 147K subscribers, only 29K paying Paying sub ARPU 26% of i-Cable 2007 mioTV Launch 2004 2005 2006 NOW buys BPL rights Paying subscriber share of 30% Paying sub ARPU 72% of i-Cable 2008 45K subscribers Paying sub ARPU 11% of Starhub
Source: J.P. Morgan estimates, Company data.
2007
2008
Paying sub ARPU equivalent to i-Cable 2011e 2012e
2009 i-Cable wins back BPL Total sub base equivalence to i-Cable Paying sub ARPU 2x iCable 2013e 2014e 2015e Total sub base equivalence to Starhub Paying sub ARPU equivalence to Starhub
Singapore
2009
2010 mioTV buys BPL rights Paying subscriber share of 29% Paying sub ARPU 44% of Starhub
Our forecasts for the Singapore Pay TV market hinge on two specific developments: 1) Content non-exclusivity: All content will be non exclusive post expiry of current contracts, we therefore expect mioTV to offer a similar suite of content as Starhub within the next few years. Any content gap would trigger downside to our SingTel subscriber and ARPU forecasts.
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2) NBN subscriber take-up rates: We argue, in effect, that mioTV becomes a different, more competitive product (or conversely, that on NBN the product lives up to its initial claims). Our current expectations of NBN take-up rates are shown in the figure belowthe NBN take up rates are critical both for SingTel's Pay TV competitiveness, as well as M1's entry into residential broadband.
16: JPM NBN subscriber take-up forecasts
Total Fixed subs QoQ YoY Household penetration (%) BP change QoQ BP change YoY NBN's share in total Fixed line BP change QoQ BP change YoY Total NBN subs (000) NBN Weekly Ports 2010A 1Q11A 2Q11A 3Q11E 4Q11E 1,984 1,966 2,008 2,043 2,079 -0.9% 2.1% 1.8% 1.7% 4.6% 2.1% 3.3% 3.9% 4.8% 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2,079 2,101 2,124 2,147 2,170 1.1% 1.1% 1.1% 1.1% 4.8% 6.9% 5.8% 5.1% 4.4% 2012E 2,170 4.4% 2013E 2,238 3.1% 2014E 2,292 2.4% 2015E 2,348 2.4%
102.9% 103.3% 105.8% 106.3% 106.8% 106.8% 107.3% 107.8% 108.3% 108.8% 108.8% 110.0% 111.0% 112.0% 0.42 2.48 0.50 0.50 0.50 0.50 0.50 0.50 5.90 4.22 7.92 4.00 3.90 3.90 3.98 2.00 2.00 2.00 2.00 1.20 1.00 1.00 0.0% 0.00 0.0 0.8% 0.85 0.85 16.7 1.39 1.8% 0.98 1.83 36.7 1.67 3.0% 1.17 3.00 61.2 2.05 4.4% 1.39 4.39 91.2 2.50 4.4% 4.39 91.2 5.8% 1.38 4.92 121.2 2.50 7.1% 1.35 5.29 151.2 2.50 9.8% 2.72 6.84 211.2 5.00 12.5% 2.66 8.11 271.2 5.00 12.5% 8.11 271.2 23.7% 11.23 531.0 5.00 34.5% 10.77 790.8 5.00 44.8% 10.27 1051.0 5.00
Source: J.P. Morgan estimates and Company Reports
These NBN take up rate assumptions drive our specific forecasts both for subscriber and ARPU trends in Singapore. We assume rough subscriber equivalence between MioTV and Starhub by 2015. It is important to note that this DOES NOT come at the expense of Starhubs subscriber growth. One area of potential confusion re future trends is Starhub management assertion that their lack of subscriber loss, and continued growth, is a sign that mioTV is not a concern. The i-Cable experience in Hong Kong shows clearly that significant market share loss can occur even while the incumbent grows their actual subscriber numbers.
Figure 52: Hong Kong Pay TV Subscribers
1,200 1,000 800 600 400 200 1H03 2H03 1H04 2H04 1H05 2H05 1H06 2H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10
Figure 53: Singapore Pay TV Subscribers

700 600 500 400 300 200 100 0
2005A 2006A 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E
PCCW i-Cable
SingTel StarHub
Our ARPU trend assumptions are driven by dual forces: 1) Expanded content line-up at mioTV allows for larger bundles and better subscriber monetization, i.e. rising ARPUs;
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2) The overall industry subscriber growth that we are forecasting from 2H11 on will largely be Heartland driven, likely coming in at ARPU levels significantly below the current USD43 posted by Starhub in 2H10. The chart below shows the large premium that exists in the Singapore market compared to Hong Kong (the regional market with the closest income levels).
Figure 54: Pay TV ARPU levels - Singapore vs. Hong Kong
USD
60.0 50.0 40.0 30.0 20.0 10.0 1H08 2H08 1H09 2H09 1H10 2H10
SingTel Starhub PCCW i-Cable
We note that i-Cable began to show downside to ARPU once PCCW's NOW TV offered BPL. mioTV began showing BPL matches in August 2010, we are forecasting ARPU equivalence by 2015 as a result of both rising SingTel ARPU (better content) and falling Starhub ARPU (growth into Heartland).
Figure 55: Hong Kong Pay TV ARPU (USD)
35.0 30.0 25.0 20.0 15.0 10.0 5.0 PCCW i-Cable
Figure 56: Singapore Pay TV ARPU (USD)

80 70 60 50 40 30 20 10 0
2005A 2006A 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E
SingTel StarHub
Source: J.P. Morgan estimates, Company data. Source: J.P. Morgan estimates, Company data.
These forecasts taken together drive overall industry revenue for Singapore into negative territory from 2H10 through early 2013 as competition and penetration into lower income segments of the market take their toll.
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Figure 57: Hong Kong Pay TV Annual Revenue run rate (USD)
25 20 15 10 5 0 -5 300,000 250,000 200,000 150,000 100,000 50,000 PCCW i-Cable YoY Industry revenue growth (ppts)
Figure 58: Singapore Pay TV Annual Revenue run rate (SGD)

450 400 350 300 250 200 150 100 50 2008A 2009A 2010A 2011E 2012E StarHub 2013E YoY 2014E 2015E 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
SingTel
Source: J.P. Morgan estimates, Company data. Source: J.P. Morgan estImates, Company data.
Impact of Pay TV market share on Broadband market share

Another issue driving our longer term forecasts is the related nature of Pay TV and residential broadband market share. We noted above that we expect fixed line and broadband market shares to eventually converge on the back of product bundles, we now extend this analysis to the relationship between Pay TV and residential broadband. Continuing our use of Hong Kong as a test bed, we note the very high correlations between changes in Pay TV and broadband market share statistics for both PCCW and i-Cable. This was particularly true for the "challenger" Pay TV operator, in this case PCCW.
Figure 59: Changes in Broadband market share correlation to changes in Pay TV market share
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
93%
67%
PCCW
i-Cable
Our forecast market share gains for mioTV in Singapore demands that we assume market share gains for SingTel in residential broadband, and market share losses for Starhub. In reality we are quite comfortable with the forecast relative shift in market share. In our view, SingTel has not had a competitive product, particularly at the
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high end, due to an aging physical plant within their copper infrastructure (again, there are reasons for the NBN...).
Figure 60: Market share trends, Pay TV and Broadband: PCCW
70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2H03 2H04 2H05 2H06 2H07 2H08 2H09 2H10 PCCW's Pay TV market share PCCW's Broadband Market share
Figure 61: Market share trends, Pay TV and Broadband: i-Cable

90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 0.0% 20.0% 15.0% 10.0% 5.0% 25.0%
i-Cable's Pay TV market share i-Cable Broadband Market share
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Counting the Cash: Yield Sustainability

We believe yield sustainability can be answered by analyzing two key metrics: 1) Dividend vs. FCF yield generated: The table below clearly indicates that StarHub and M1 would be able to support their dividends through internal cash flow generation. SingTels dividend yields run higher than FCF's for 2012 and 2013 so the question is whether they would be able to finance it through the balance sheet.
Table 17: Singapore Telcos: FCF vs. dividend yield
Dividend and FCF yield SingTel-dividend yield SingTel-FCF yield FCF-dividend yield StarHub-dividend yield StarHub-FCF yield FCF-dividend yield M1-dividend yield M1-FCF yield FCF-dividend yield 2007A 3.4% 4.5% 1.1% 5.5% 8.3% 2.8% 7.3% 13.6% 6.2% 2008A 4.1% 5.4% 1.3% 6.7% 9.3% 2.6% 7.4% 13.6% 6.3% 2009A 4.7% 5.7% 1.0% 9.2% 12.0% 2.8% 8.2% 12.9% 4.8% 2010A 5.4% 6.5% 1.1% 8.5% 8.0% -0.5% 8.2% 10.7% 2.5% 2011E 5.3% 5.4% 0.0% 7.0% 7.9% 1.0% 6.0% 9.4% 3.4% 2012E 6.1% 4.8% -1.3% 7.0% 9.1% 2.2% 6.0% 9.3% 3.3% 2013E 7.0% 5.0% -2.0% 7.0% 9.9% 2.9% 6.3% 9.5% 3.2%
2) Strength of the balance sheet: This helps us understand if the companies can gear up their balance sheet to an optimum level in case business cash flows are not enough to support dividend payouts. With net debt/EBITDA of <1 all Singapore Telcos have the ability to gear up. ASEAN Telco net debt/EBITDA ranges from 0.4-2.0x and we believe SingTel has a comfortably placed balance sheet to support its dividend payouts. Do note that net debt/EBITDA statistics for SingTel do not include associate contribution as these are recorded below the EBITDA line. Including these in our calculations, SingTel's net debt/EBITDA would be 0.6x.
Figure 62: Singapore Telcos FY1E net debt/EBITDA
0.96 0.94 0.92 0.90 0.88 0.86 0.84 0.82 0.80 SingTel StarHub M1
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Changes to Operating Free Cash Flow based on NBN implementation

Over the near term we believe NBN will have a positive impact on FCF margins for all three Telcos but structurally NBN has highest cash flow margins for SingTel, given its 75% revenue share from NetCo.
Table 18: Impact of NBN to Singapore FCF margins
SingTel NBN FCF margin Ex. NBN FCF margin Total FCF margin NBN FCF margin Ex. NBN FCF margin Total FCF margin NBN FCF margin Ex. NBN FCF margin Total FCF margin 2012E 60% 19% 20% 29% 19% 19% 17% 20% 20% 2013E 49% 20% 21% 26% 20% 20% 14% 20% 20% 2014E 49% 21% 23% 23% 21% 21% 14% 20% 20% 2015E 47% 21% 23% 21% 20% 20% 14% 20% 20%
StarHub
M1
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19: SingTel: NBN and ex. NBN business comparison

FY 2009A
FY 2010A
FY 2011A
FY 2012E 63 (19) 44 70.5% 0 44 70.5%
FY 2013E 157 (62) 95 60.4% 0 95 60.4% 6,417 4,492 2,049 31.9% 847 1,203 18.7% 6,574 4,430 2,144 32.6% 847 1,297 19.7%
FY 2014E 235 (119) 116 49.5% 0 116 49.5% 6,436 4,569 2,104 32.7% 793 1,312 20.4% 6,671 4,450 2,221 33.3% 793 1,428 21.4%
FY 2015E 357 (181) 175 49.1% 0 175 49.1% 6,429 4,667 2,126 33.1% 772 1,354 21.1% 6,786 4,485 2,301 33.9% 772 1,529 22.5%
FY 2016E 478 (254) 224 46.9% 0 224 46.9% 6,436 4,797 2,147 33.4% 787 1,360 21.1% 6,914 4,543 2,371 34.3% 787 1,585 22.9%
5,547 3,437 2,111 38.0% 736 1,375 24.8% 5,547 3,437 2,111 38.0% 736 1,375 24.8%
5,995 3,772 2,223 37.1% 652 1,571 26.2% 5,995 3,772 2,223 37.1% 652 1,571 26.2%
6,399 4,219 2,181 34.1% 726 1,455 22.7% 6,400 4,219 2,182 34.1% 726 1,456 22.7%
6,438 4,426 2,049 31.8% 902 1,147 17.8% 6,501 4,407 2,094 32.2% 902 1,191 18.3%
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Table 20: StarHub: NBN and ex. NBN business comparison

2008A
2009A
2010A
2011E 9 (6) 3 35.7% 0 3 35.7%
2012E 34 (24) 10 29.3% 0 10 29.3% 2,274 1,629 692 30.4% 257 435 19.1% 2,308 1,605 702 30.4% 257 445 19.3%
2013E 72 (53) 18 25.5% 0 18 25.5% 2,284 1,676 715 31.3% 251 464 20.3% 2,356 1,623 733 31.1% 251 482 20.5%
2014E 114 (88) 26 22.9% 0 26 22.9% 2,293 1,734 736 32.1% 257 479 20.9% 2,408 1,646 762 31.6% 257 505 21.0%
2015E 156 (123) 33 20.9% 0 33 20.9% 2,291 1,815 723 31.6% 261 463 20.2% 2,448 1,691 756 30.9% 261 495 20.2%
2,128 1,483 645 30.3% 220 425 20.0% 2,128 1,483 645 30.3% 220 425 20.0%
2,150 1,497 654 30.4% 231 422 19.6% 2,150 1,497 654 30.4% 231 422 19.6%
2,238 1,642 596 26.6% 272 324 14.5% 2,238 1,642 596 26.6% 272 324 14.5%
2,259 1,612 659 29.2% 276 383 16.9% 2,268 1,606 662 29.2% 276 386 17.0%
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Table 21: M1: NBN and ex. NBN business comparison

2008A
2009A
2010A
2011E 3 (3) 1 19.6% 0 0 19.6%
2012E 8 (7) 1 16.7% 0 1 16.7% 1,043 739 318 30.5% 107 211 20.2% 1,051 732 320 30.4% 107 212 20.2%
2013E 18 (16) 3 14.2% 0 3 14.2% 1,067 773 325 30.5% 111 214 20.1% 1,085 758 327 30.2% 111 217 20.0%
2014E 30 (26) 4 13.9% 0 4 13.9% 1,091 808 334 30.6% 114 220 20.1% 1,121 782 338 30.2% 114 224 20.0%
2015E 41 (36) 6 13.5% 0 6 13.5% 1,110 842 339 30.6% 118 222 20.0% 1,151 806 345 30.0% 118 227 19.8%
801 485 316 39.5% 94 222 27.7% 801 485 316 39.5% 94 222 27.7%
782 473 309 39.5% 119 190 24.3% 782 473 309 39.5% 119 190 24.3%
980 666 314 32.0% 100 214 21.8% 980 666 314 32.0% 100 214 21.8%
1,022 709 318 31.1% 105 213 20.9% 1,025 707 319 31.1% 105 214 20.9%
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Appendix I: NGNBN Structure in Singapore

Singapores NGNBN industry structure is comprised of 3 layers, each comprising a company/group of companies responsible for the functioning and growth of the network. Layer 1: This is the Network Company (NetCo) is responsible for the design, build and operation of passive infrastructure which comprises of the fibre network and ducts. OpenNet was appointed as the Next Gen NBN's NetCo. Layer 2: The Operating Company (OpCo) provides wholesale network services over the active infrastructure, comprising switches and transmission equipment. Nucleus Connect was selected as the OpCo for the Next Gen NBN. Layer 3: The Retail Service Providers (RSPs) offer services over the Next Gen NBN to end-users, including businesses and consumers.
Figure 63: NGNBN industry structure in Singapore
Source: IDA Singapore.
OpenNet the NetCo OpenNet is a consortium of four partners Axia NetMedia (Axia), Singapore Telecommunications (SingTel), Singapore Press Holdings (SPH) and Singapore
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Power Telecommunications (SPT). OpenNet is responsible for building, managing and operating an open and high quality fibre platform. The Singapore Government would provide a grant of up to S$750 mn to the NetCo for the network rollout. OpenNet will use some of the existing passive infrastructure assets owned by SingTel. SingTel has transferred the underlying assets to CityNet in April 2011. CityNet is an independent and separately managed company.
Figure 64: NetCo ownership structure
Source: Company reports.
This fibre optic platform will be the key foundation of the Next Gen NBN, which is part of the Intelligent Nation 2015 or iN2015 blueprint to turn Singapore into a sophisticated city with seamless high-speed connectivity. OpenNet claims to deliver a resilient and robust fibre platform at least 2.5 years ahead of the iN2015 vision timeframe, thus aiming for completion by 2012. Ultimate aim for NetCo is enabling the delivery of ultra-high speeds network of 1Gbps and above.
Figure 65: Key milestone timelines in NetCo deployment
Source: IDA Singapore.
For operating companies, OpenNet will offer wholesale prices of S$15 per month for each residential fibre connection, and S$50 per month for each non-residential fibre connection. Under a Universal Service Obligation (USO), which will take effect from 2013, OpenNet will be required to fulfill all subsequent requests to install connectivity to homes, offices and buildings. OpenNet shares its coverage plan with the public through an interactive website. When inputted with the postal code of the building the website indicates whether OpenNets is already present, installing a network, coming soon or requests invitation.
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Figure 66: OpenNet's network coverage interactive search tool
Source: OpenNet
Figure 67: Search result for Capital Tower in Singapore
Source: OpenNet.
Nucleus Connect the OpCo Nucleus Connect was selected as the OpCo of NGNBN. Established in April 2009, Nucleus Connect is a wholly owned subsidiary of StarHub (STH SP). Nucleus Connect will design, build and operate the active infrastructure of the NGNBN. The IDA will provide a grant of up to S$250 million to Nucleus Connect in support of its infrastructure deployment. Nucleus Connect is tasked to ensure that the prices for its services remain competitive, transparent and non-discriminatory for RSPs. Nucleus Connect is also committed to establishing an integration test-lab facility that will help RSPs trial and test out new applications and services over the Next Gen NBN's commercial deployment. Its charter also includes the commitment to attract overseas online service providers to host their content in Singapore.
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Nucleus Connect began commercial operation on 31 August 2010.
NBN Comparison: Singapore vs. Australia

Though NBN sound similar between the two countries the composition and structure of the business is drastically different. Below are the key structural differences and similarities between the NBN in Singapore and Australia. Differences in NBN structure between Singapore and Australia. Singapore Australia Structural separation between active and passive infrastructure companies. The NBN companies are owned by private corporate. Operators need to migrate subs to NBN only if they want to. NBN companies are owned by existing Telco operators and hence there can potentially be conflict of interests. NBN products are already out in the market. Wholesale pricing at S$21 per line. No structural separation, the NBN Co owns both the active and passive infrastructure but would lease Telstras ducts and pipes where required. NBN Co is government owned. Telstras has to migrate subscribers to the NBN network post installed at a certain place, unless the subscriber objects. NBN Co, is owned by the government so there is less probability of conflict of interest. NBN is still in discussion/negotiation phase. Wholesale pricing has not been decided yet.
Similarities in NBN structure between Singapore and Australia. Singapore Australia Aimed at providing a comprehensive high speed infrastructure base to the economy. The intent is to lower barriers to entry on the fixed line space and make additional room for healthier competition. Project is supported by financial aid from the government. Incumbent fixed line player has to transfer passive assets to the operating company, which would be shared to RSPs. Aimed at providing a comprehensive high speed infrastructure base to the economy. The intent is to lower barriers to entry on the fixed line space and make additional room for healthier competition. Project is supported by financial aid from the government. Incumbent fixed line player has to transfer passive assets to the operating company, which would be shared to RSPs.
Regulatory Aims: Regulatory aims of the NBN project are similar between Singapore and Australia. Governments of both countries are supporting the project by partial monetary funding.
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We see two key potential regulatory goals targeted in both countries: Providing a comprehensive high speed infrastructure base to the economy. Lower barriers to entry on the fixed line space and transform it to a level playing field.
Timing: NBN rollout began in early 2009 for Singapore while in Australia it is still at an early stage. NBN rollout is expected to be completed by 2015 in Singapore while the timeline in Australia is still uncertain. Operating structure: There is structural separation between active and passive infrastructure companies in Singapore, with the active infrastructure owned by OpCo and passive infrastructure owned by NetCo. There is no structural separation in Australia, the NBN Co owns both the active and passive infrastructure but would lease Telstras ducts and pipes where required. Exclusivity: The broader idea behind NBN in both countries is to provide high speed broadband infrastructure at low cost and barriers to entry for the operators. Thus, there is no exclusivity on the infrastructure in both countries. One key aspect of the changing Singapore market is the loss of exclusivity rights on Pay TV content. Content sharing mandates ion Singapore require pay-TV retailers who have acquired exclusive rights to content on or after March-10 to make the content available for cross carriage. Wholesale Pricing: Wholesale pricing has been fixed by the regulator and Nucleus Connect in Singapore while in Australia final pricing decisions are still a long time away. In Singapore, Nucleus Connect is offering a wholesale price of S$21 a month for a 100 Mbps residential end-user and S$121 for a 1 Gbps connection. Non-residential premises will cost S$75 a month and S$860 respectively Compensation: Government is giving S$750 mn to NetCo of which Singtel is a stake 30% owner; they are also giving S$250 mn to OpCo. For both the NetCo and OpCo there are targets that have to be achieved to get the payments. For NetCo the target is to reach 60% coverage by Dec-11 and 95% by June. Operators see no risk to achieving the targets. Revenue share: SingTel gets paid a revenue share of what OpenNet gets, which is 75% of NetCo's revenues or a minimum of S$55 mn. SingTel has committed to transfer the assets used by OpNet into an open access structure (NetLink Trust). SingTel would reduce the holding in the trust to 25% by
52
2014. 70% of the revenue share from NetCo or S$20 mn out of the minimum S$55 mn would be paid by SingTel to the NetLink trust. OpenNet is also paying S$1 bn to SingTel for rolling out the network; this is a very low margin business.
Figure 68: SingTel, NetLink and NetCo service and lease agreements
Source: SingTel.
Segmental Market Share Impact

Wireless: We do not expect big shifts in the wireless market from NBN. Key reason for the view being already high penetration levels in Singapore (150% at June-11) making it difficult for a new entrant to gain a relevant market share. Industry voice tariffs have already declined by 30-50% since 2006 making profitability hard to achieve without the required levels of scale.
Figure 69: Singapore wireless subscriber market share
60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
2001A 2002A 2003A 2004A 2005A 2006A 1Q07A 2Q07A 3Q07A 4Q07A 2007A 1Q08A 2Q08A 3Q08A 4Q08A 2008A 1Q09A 2Q09A 3Q09A 4Q09A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 3Q11E 4Q11E 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2012E 2013E 2014E 2015E
SingTel StarHub M1
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Fixed line: We expect NBN's share in total fixed line to increase to 45% by 2015 and fixed line house hold penetration to increase to 112% from 106% at 2Q11. We forecast SingTels share within NBN subs to be 60%, StarHub's NBN share at 30% and M1s share at 10%. Within existing copper fixed line we expect SingTels subscriber market share to remain stable at 85%.
Figure 70: Existing network and NBN market share of total fixed line
120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0%
2010A
1Q11A
2Q11A
3Q11E
4Q11E
2011E
1Q12E
2Q12E
3Q12E
4Q12E
2012E
2013E
2014E
2015E M1-NBN
Existing network's share in total Fixed line
NBN's share in total Fixed line
Source: Company data, J.P. Morgan estimates.
Overall we expect SingTel to lose fixed line market share to StarHub and M1 as NBN eases barriers to entry in the fixed line market through easily available capacity at uniform prices.
Figure 71: Singapore fixed line subscriber market share
90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2010A 2011E 2012E SingTel-NBN 2013E SingTel-Total 2014E StarHub-NBN
SingTel-existing network
We expect competition to intensify on fixed line tariffs given the entry of new players in the market and availability of large amounts of idle capacity at no incremental capex.
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2015E
Figure 72: Singapore: Fixed local voice ARPU trends (existing network)
25
20
15
10
SingTel-voice local
Fixed Broadband: We expect NBNs share of total fixed line broadband market to rise to 51% by 2015. Like fixed line we expect SingTels share within NBN broadband to be 60%, StarHub at 30% and M1 at 10%. SingTel's and StarHubs share within existing network fixed broadband market is expected to remain stable at 42% and 34% respectively.
Figure 73: Fixed broadband market share split between NBN and existing network's
120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 2009A 2010A 2011E 2012E 2013E 2014E 2015E
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Existing network's share in total Fixed broadband
NBN's share in total Fixed broadba nd
Overall we expect SingTels fixed broadband market share to increase to 51% by 2015 from 42% from 2010. SingTel would benefit from increasing up selling of the broadband product given their win on BPL and subsequent increase in Pay TV market penetration. StarHubs total fixed broadband market share is expected to fall to 32% by 2015 from 34% at 2010. M1a share is expected to rise to 5% from a low base at 2010. We believe major listed players would benefit additionally from the NBN launches and gain market share from other smaller players given the limited bundling opportunity for the smaller players and new entrants. Management teams
have been indicating that there has been limited pressure from new entrants in the space.
Figure 74: Singapore: Total fixed line broadband market share
60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E
SingTel-xDSL StarHub-NBN
SingTel-NBN StarHub-Total
SingTel-Total M1-NBN
StarHub-CATV

90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E
SingTel-xDSL
SingTel-NBN
StarHub-CATV
StarHub-NBN
M1-NBN
Given the culmination of subscriber and ARPU trends we expect SingTels total fixed broadband revenue market share to remain largely stable at 61% while M1 to gain 3% revenue market share from StarHub by 2013.
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Figure 76: Singapore fixed broadband revenue market share

80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E
SingTel
StarHub
M1
Pay TV: We expect SingTel and StarHub to own equal share of the total pay TV subscriber market by 2015, from 37% and 63% currently. Post SingTels BPL win, the Pay TV has drastically changed in market dynamics, with the consumers wallet share shifting from StarHub to SingTel. We expect increasing Pay TV market penetration by SingTel to help its fixed line broadband offerings too. Content sharing rule established in 2010 would also help push equal wallet share between existing participants.
Figure 77: Singapore pay TV subscriber market share trends
120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0%
2005A
2006A
2007A
2008A
2009A
2010A
2011E
2012E
2013E
2014E
SingTel
StarHub
2015E
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Figure 78: Singapore Pay TV ARPU trends

70 60 50 40 30 20 10 0
2005A
2006A
2007A
2008A
2009A
2010A
2011E
2012E
2013E
2014E
SingTel
StarHub
Figure 79: Singapore Pay TV revenue market share

120% 100% 80% 60% 40% 20% 0%
2005A
2006A
2007A
2008A
2009A
2010A
2011E
2012E
2013E
2014E
SingTel
StarHub
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2015E
2015E
Appendix II: NGNBN in Australia

Our initial analysis on impact on Telstras fixed line business from NBN (Contributed by Lauren Horrut)
Highlighted in the table below is our analysis published in the report Telstra Corporation: NBN: Deal or No deal? on the basic economics of a bundled Fixed telephony + Broadband for Telstra under 1- pre-NBN, 2- post NBN assuming a A$40 monthly wholesale access price (best case) 3- post NBN assuming a A$70 monthly wholesale access price (worst case) The A$40-A$70 access price range (attributed to Optus) was endorsed in late October by Communications Minister Conroy. In a subsequent press conference, Senator Conroy referred to a A$60 average wholesale access price (within the range). We used the A$40- A$70 range to highlight the impact of the NBN price on TLS future fixed margins. Our conclusion of this analysis was that the impact on margins was radically different at both ends of the range. At A$40 access price, the margin erosion would have been manageable for Telstra, whilst at A$70 the impact would have been dramatic. Please see the report for detailed assumptions used for the analysis.
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Figure 80: Impact of NBN Access price on Telstra's Fixed margins
Source: Company data, J.P. Morgan estimates.
Telstras capex profile in an NBN world

We analyzed Telstras capex profile in an NBN world in our report Telstra Corporation: NBN Heads of Agreement- A deal but no fine print published in June2010. We believe long-term capital intensity assumptions are the most value sensitive assumption in an incumbent Telco DCF model and Telstra is no different than its global peers. We estimated that every 1% of variance in the long-term capex:sales ratio is worth 25cps (i.e., assuming 14% LT capex: sales vs. 15% adds 25cps to our valuation). Highlighted below is TLS capex to sales ratio since 2000 showing the well established cyclicality in Telstras investment cycles.
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Figure 81: Telstra's capex cycles since 2000
In the context of the transition of the NBN, the question is to what extent is the NBN likely to change the capital intensity of Telstra? In particular, the two critical questions, in our view, are: 1. How much Fixed line capex can Telstra save in the NBN environment? 2. Would Telstra need to accelerate Mobile capex in order to mitigate the NBN risk on the Fixed earnings? How much Capex could Telstra save in an NBN world? Intuitively, one would think that if Telstra has to transition to a lower-margin Fixed line business in an NBN environment, the capital intensity in Fixed line should decline as well. Highlighted below is Telstra's capex breakdown over the past four years:
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Figure 82: Telstra's capex breakdown
Fixed access- According to Telstras disclosure above, the capex spent in Fixed Access (i.e., the Customer Access Network, mostly the copper network) amounted to A$750m-A$800m in FY08/FY09, representing 15% of total capex in FY09. It is unclear how much of that capex envelope Telstra would save and how quickly it could scale that capex back as the migration to the NBN progresses. At the October 2009 Investor day, management indicated that they themselves have little visibility as to how the Access capex will change in an NBN world. Network Core/ transmission- TLS spent c. A$1bn in its core and transmission network in FY09. We note that NBNCo CEO Quigley recently stated that it will not invest into fibre backhaul where the market is contestable. The NBNco CEO also flagged that NBNco would interconnect in 100 to 200 Points of Interconnection with
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carriers but that the exact number of PoI has yet to be determined. As such, it is unclear where Telstra core and transmission capex will be impacted but we believe it is likely Telstra will continue to need to invest in its core and transmission network. In fact, given the competitive threat of NBNco on routes where Telstra has a monopoly today, TLS might have to increase its spend in order to mitigate the earnings risk. Land & Building- TLS spends c.A$300m in Land & Building p.a. Whilst some savings should be realized as Telstra looks at restructuring its number of exchanges in an NBN environment, the savings are likely to be modest, in our view. IT- TLS spent in excess of A$1bn in IT capex p.a. over the past few years. It is unclear today how much of that Capex Telstra could save in an NBN environment. Wireless- TLS spent c. A$400m in wireless access capex (base stations, sites, etc.) in FY09. Depending on the outcome of on the NBN and the Legislation, we believe TLS might have to accelerate wireless spend (or not) as it develops risk mitigation strategy on the Fixed line. Will Telstra need to accelerate Mobile capex to mitigate the NBN risk on Fixed earnings? The other key question, in our view, is whether Telstra will have to accelerate spend in other network platforms, e.g., Mobile, HFC, etc. in order to mitigate the earnings risk on Fixed line from the NBN. We believe so and note that Telstra is trialing LTE from May this year .Assuming that Telstra does secure the additional spectrum required for LTE, we believe that Telstra would look at the possibility of bringing forward LTE deployment by a few years. We note that LTE has been rolled out commercially by a number of Western carriers and is tested by Telstra in HK through CSL. We note that Telstra has already upgraded its network to HSPA+ (Feb-09 announcement). In that context, we believe it is not inconceivable to forecast an increase in TLS mobile capex in the next few years as a mitigation strategy against the NBN impact on its fixed business.
Key points from NBN Co Corporate Plan
Key points from JPMs report on NBN Cos corporate plan released in Dec-2010, the plan sets out the key objectives and priorities for NBN Co for the three years from 1 July 2010 to 30 June 2013. Please click here for detailed JPM report. Key takeaways include: Blended ARPU - $33 - $34 (Option A & B) IRR base case 7.04% Wholesale access price & Take up Assumes c.45% of customers take the 12mbps option & 30% take 100mbps by 2020.
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Figure 83: NBN Co charge details
Source: NBN Co.
Points of interconnect 120 Points of Interconnect (PoI) (80 Metro, 40 regional) and 980 fibre servicing areas. This is more than the original 14 PoI but fewer than the 200 to 400 wanted by the major telcos. Telstra Deal The NBN Corporate plan assumes that a deal with Telstra is completed by 30 June 2011. Revenues Annual revenues are forecast at $5.8bn by 2021 and $7.6bn by 2025. Capital expenditure $35.9bn to the end of the construction period Operating expenditure $21.8bn to the end of the construction period Funding Peak funding is $40.9bn. Minimum government equity is $27.5bn. NBN Co will seek debt funding from capital markets from 2015 Coverage 13m premises covered by 2021, 93% fibre network, 7% wireless or satellite
Figure 84: Fibre premises connected targets (000)
Source: NBN Co.
Products Opportunity to build a triple play offering, (Internet, telephone & TV) Construction The NBN is expected to take 9.5 years to complete in a Telstra deal scenario. Full-scale construction of the NBN is due to
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commence in Q3, 2011. NBN Co will ramp up its construction capacity to 5,200 premises passed per day by March 2014, after which the rate will increase to 5,900 premises per day during peak construction. Cherry Picking The Corporate Plan assumes regulatory protection to prevent opportunistic cherry pickers. If NBN were to be cherry picked' in the most lucrative regions, it would decrease Greenfield connections by 50% (0.8m fewer connections) and the NBN projected return would reduce to 5.4%.
Figure 85: Key financial performance indicators (Nominal dollars)
Source: NBN Co.
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Appendix III: Economics of Wireless Data: Singapore

We can investigate a base scenario for a modern city center with a mature 3 operators. In our first example Singapore is used. Singapore can be described as: 1. Relatively small land mass 2. 3 Mature 3G operators with over 100% mobile penetration 3. A large percentage of smart-phone users we will assume 30% The modeling parameters are described in Table 2.
Table 22: ATiC Modeling Parameters used for Singapore
Modelling parameters 3G bandwidth available per operator Sectors per site 3G spectral efficiency Spectrum band Environment Spectrum carriers assigned for voice Smartphone penetration Land area Density of people Population
Source: ATiC Consulting
Unit MHz bps/Hz MHz % km^2 persons/km^2 Persons
Singapore 30 3 0.9 2100 Dense Urban 1 30 479 835 4650000
The land area and population density are found in Appendix A for most major cities around the world. The potential density of people per operator, assuming 100% mobile penetration is a simple division by the number of operators present. Once we have these figures a simple linear equation can be derived for determining the number of cell sites required to meet aggregate download capacity demand from the subscriber density and a traffic model. The traffic model works on a busy hour of 4 hours per day and busy-hour-days per year of 365 days. Figure 6 shows the decrease in the cell radius with the average user data allowance given per month in GigaBytes. There are several key aspects to note with this graph: 1. There is a floor at a cell radius of around 700m where there is no impact going from a 1GB/Month smart-phone plan to a 2 GB/Month smart-phone plan. This is because we defined this floor scenario to be 800m cell radius to get uplink coverage from the mobile to the base station. This 800m cell radius corresponds to 700m in a hexagonal regular grid. 2. An operator in Singapore quickly runs out of capacity at around 3-4 Gb per month and will need to add cells to the network to cope with capacity demand. 3. As the capacity demand increases the cell radius is decreased but at ever decreasing steps for incremental capacity. This is to be expected where cell radius and range are related by a squared relationship.
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Figure 86: Average Singapore city cell radius with increasing monthly allowance per subscribers
In reality there is a physical limit to macro cell sites being approached at around 300m-400m radius where it become very difficult to find sites in major city areas and an operator has to start moving to a lower powered micro base station solutions that requires an extra carrier to avoid interference with the macro network. Another way of looking at Figure 6 is to understand the physical number of sites required to meet capacity growth in Singapore. Figure 7 shows that for every additional GB user monthly allowance a 3G operator with 30 MHz of spectrum would have to add around 120 sites to the base coverage requirement of 400 sites to cover the urban area of Singapore or a capital intensity of around 30%.
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Figure 87: Site numbers in Singapore with increased user demand
In Singapore, the three incumbent operators purchased additional 3G spectrum at an average of USD15 million each, or approximately USD40 per smart-phone user to instantaneously increase network capacity with minimal hardware cost. To understand the implications of this increased smart-phone usage it is necessary to look at places where spectrum is limited and populations differ from the average case of Singapore.
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Appendix IV: Fiber vs. Cable

Current European incumbent fiber plans (Contributed by Hannes Wittig)
Against the backdrop of multiple uncertainties, European incumbents have typically been reluctant to commit substantial resources to fiber deployments. Few incumbents have been pro-active. Responses have varied. Some incumbents have decided to team up with the competition, others have preferred a standalone deployment strategy. We will discuss the relative merits of these two strategies in some detail in a separate chapter in this report. The following table shows the fibre deployment status expected for year-end 2011E. We provide our estimates according to three different speed categories, with the first two corresponding to VDSL, the third (100Mbps) to FTTH. We provide a ranked position which is generated by weighing the coverage with the average assumed speed in that category. We also provide operators long-term targets. According to this ranking, PT and Swisscom will be the most advanced operators by year end 2011E, followed by Belgacom. The midfield is comprised of KPN, Telekom Austria, DT, and BT Group. The laggards are FT, Telefonica and Telecom Italia. An alternative ranking would utilize investment costs per household (FTTH c. 1,500 vs. VDSL c. 300).
Table 23: Fibre coverage by speed category - YE2011E
% of households Year end 2011E Belgacom BT Group Deutsche Telekom France Telecom KPN Portugal Telecom Swisscom Telecom Italia Telefonica Telekom Austria 20-40Mbps 80% 24% 15% 0% 0% 0% 80% 0% 0% 45% 40-50Mbps 0% 0% 15% 0% 4% 0% 0% 0% 0% 3% 100Mbps 0.0% 3.0% 0.3% 3.5% 13.0% 40.0% 12.5% 2.0% 2.5% 3.0% Total 80.0% 27.0% 30.3% 3.5% 17.0% 40.0% 92.5% 2.0% 2.5% 51.0% Ranked 2.4 1.0 1.2 0.4 1.5 4.0 3.7 0.2 0.3 1.8 Longer term targets 85% VDSL coverage end 2013; at 50Mbps 2/3 of UK homes FTTC (75%)/FTTH (25%) by 2015 Up to 10% FTTH coverage by 2012 30% FTTH coverage by 2015 (10m homes) 17% FTTH coverage by end 2012 1.6m HH by end 2011 35% FTTH coverage by 2015 11% 50/100Mbps by end 2013 No published targets pre April 2011 investor day 55% coverage by 2013
In this section we review the various incumbents fiber strategies and spending commitments. Some incumbents already spend one fifth of their total capex and free cash flow on fiber, others spend very little, creating a potential investment overhang going forward. Deutsche Telekom rolled out VDSL to c. 30% of German households and c. 10% of German street cabinets in 2007/2008. In March 2010 it revealed plans to cover up to 10% of German households with FTTH by year end 2012, however, it expects to pass 0.3% of German households only by year end 2011. DT has not disclosed the magnitude of its planned fiber investments. France Telecom: FT has so far spent only minor amounts on fibre (60m in 2010), however, it expects this to be ramped up towards a cumulative amount of 2bn by 2015. With this budget FT believes it can pass 10m French homes,
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presumably hoping to benefit from existing civil infrastructure (sewers etc.) and from sharing deployments with competitors. The French regulator has mandated symmetrical access obligations especially for the vertical (inhouse) infrastructure. BT Group: BT aims to pass two thirds of UK homes with fiber by 2015. Of these, it aims to pass one quarter with FTTH, three quarters with FTTC (VDSL). BT has stated a total cost of 2.5bn to achieve this coverage. The budget excludes the cost of the actual customer connection, and benefits from the availability of drop-wire, which within Europe is somewhat unique to Britain. Telecom Italia: TI currently covers 2% of Italian households with FTTH, planning to extend this to 11% by year-end 2013. At the end of 2010 TI agreed to form a national broadband company together with most of its competitors, which has the aim of furthering and coordinating Italian fiber deployments. Telefonica: At its September 2007 investor day Telefonica revealed targets to spend 1bn to pass 40% of Spanish homes with fiber (25% FTTH, 15% VDSL) by 2010E. At the end of 2009 the company decided to postpone deployments by 2 years, having passed 350k homes (10k households and 15k businesses connected KPN: Having presented plans in late 2005 to replace its entire copper infrastructure with VDSL, KPN changed tack to embrace FTTH in late 2007 when it agreed its joint venture with Reggefiber, which was in the process deploying an open access FTTH network with ambitious targets. KPN now targets 17% FTTH household coverage by end 2012. Belgacom: Belgacom was the first European operator to deploy mass market VDSL (2003). At year end 2010 Belgacom covered three quarters of Belgian households with FTTC (investment to date c.550m), and now targets 85% coverage by end 2013. Through the use of DSL enhancement technologies (see later in this report), Belgacom hopes to increase the speed of its VDSL network to around 50Mbps from the current level of up to 30Mbps. Swisscom: Swisscom already deployed VDSL to c. 80% of Swiss households from 2005. However, due to long sub loops, VDSL in Switzerland offered only ADSL2+ level speeds. Swisscom therefore decided to deploy FTTH through a longer term strategy, leveraging routine civil works and local collaborations. During the past two years Swisscom focused on agreeing fibre deployment joint ventures with local utilities and cable operators. Swisscom has guided it will spend c. SF2bn to cover c. one third of Swiss households. Telekom Austria: Having previously piloted FTTH and VDSL in Vienna and Graz, in August 2010 TA revealed plans to cover 55% of Austrian households with FTTH/FTTC and VDSL from the exchange by 2013, up from 38% at the end of 2010. In the mix we expect VDSL to account for c. almost 50%, FTTH/FTTC for a little over 5%. Portugal Telecom: Starting in 2009 PT invested what it expects to be a total of 250m in passing 1.6m homes (40% of Portugal) with FTTH by year end 2011. PT benefits from access to civil infrastructure including cable ducts, and the dense topology of Lisbon and other key municipalities. The guidance excludes the costs of inhouse wiring
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Current incumbent fibre spending

Huge differences in current incumbent fibre spending
In this section we compare how much European incumbents actually spend on fibre. We find that a few European incumbents spend 15-20% of their capex/free cash flow on fibre, while others like DT or FT did not spend much in 2010 and are not intending to do so in 2011. When evaluating incumbents facing a comparable cable/competitive threat, we believe it is important to take such differences in futureoriented spending levels into account. The following chart summarizes our estimates, typically informed by company guidance. We provide the information in absolute terms, and as a percentage of capex and free cash flow. Telefonica did not provide any information on current fiber coverage or spending levels, which we expect to be a subject at the forthcoming investor day.
Figure 88: Fibre capex (2011/2012E average) per pop

SCOM KPN BCOM BT TKA PT FT DT* 2 TEF TI NA NA 9 8 8 6 5 17 41
% of capex
SCOM KPN BCOM BT TKA PT FT 9% 8% 5% 12% 15% 15% 21%
% of free cash flow

SCOM KPN BCOM BT TKA PT FT DT* 5% 4% 12% 25% 12% 12% 26% 20%
DT* 3% TEF NA TI NA
TEF NA TI NA
Source: J.P. Morgan estimates, Company data. * Excl. USA.
Big fibre spenders Swisscom: We estimate Swisscom is spending c. 20% of its capex, equivalent to c. 20% of its free cash flow, on fibre deployment. This is equivalent to c. 41/pop KPN: On a Reggefiber fully consolidated basis we estimate KPN is spending c. 12% of its capex and free cash flow on fibre. On a per pop basis this is equivalent to c. 16 Portugal Telecom: We estimate PT will spend about 16% of its group capex, equivalent to almost half of its free cash flow, on fibre in 2011E.
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Table 24: Incumbent fibre capex - big spenders

Local currency in millions 2008 Swisscom Capex Fibre capex Per pop (Euro) % of total capex % of FCF Adjusted FCF Ex fibre KPN Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre Portugal Telecom Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre
2009 1,987 100 10.3 5.0% 4.7% 2,149 2,249 1,767 0 0.0 0% 0% 2,446 2,446 745 75 7.5 10.1% 61.2% 123 198
2010 1,903 200 20.5 10.5% 10.7% 1,863 2,063 2,009 200 12.9 10% 9% 2,241 2,041 643 75 7.5 11.7% 30.1% 249 324
2011E 1,926 400 41.0 20.8% 20.3% 1,966 2,366 2,136 252 16.3 12% 12% 2,180 1,928 676 110 11.0 16.3% 49.1% 224 334
2012E 1,857 400 41.0 21.5% 20.2% 1,985 2,385 2,167 260 16.8 12% 12% 2,151 1,891 569 0 0.0 0.0% 0.0% 337 337
2013E 1,840 400 41.0 21.7% 19.7% 2,029 2,429 2,071 268 17.3 13% 12% 2,188 1,920 528 0 0.0 0.0% 0.0% 361 361
2,050 100 10.3 4.9% 4.9% 2,061 2,161 1,925 0 0.0 0% 0% 2,599 2,599 647 0 0.0 0.0% 0.0% 229 229
Medium fibre spenders Belgacom: Belgacom is spending about 16% of its capex and 12% of its free cash flows in the next few years, equivalent to 9 per pop per year. BT Group: We estimate BTs fibre capex at 15% of its total capex and 25% of its free cash flow post pension funding. However, on a per pop basis this is 'only' 8 per year. Telekom Austria: Somewhat surprisingly, TA is a fairly big fibre spender in the near term, with an estimated 11% of sales (corresponding to c. 15% of its free cash flow) in 2010 and 2011E.
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Table 25: Incumbent fibre capex - medium spenders

Local currency in millions 2008 Belgacom Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre BT Group Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre Telekom Austria Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre
2009 597 76 7.0 12.7% 9.5% 801 877 2533 400 7.6 15.8% 28.4% 1408 1,808 711 0 0.0 0.0% 0.0% 674 674
2010 637 76 7.0 11.9% 11.2% 674 749 2600 400 7.6 15.4% 29.4% 1360 1,760 764 80 10.0 10.5% 15.6% 513 593
2011E 650 100 9.3 15.4% 12.3% 816 916 2600 400 7.6 15.4% 25.2% 1586 1,986 742 80 10.0 10.8% 15.3% 525 605
2012E 646 100 9.3 15.5% 11.9% 842 942 2600 400 7.6 15.4% 25.9% 1546 1,946 722 50 6.3 6.9% 9.5% 526 576
2013E 643 50 4.6 7.8% 5.9% 851 901 2600 400 7.6 15.4% 25.8% 1552 1,952 680 0 0.0 0.0% 0.0% 563 563
764 91 8.4 11.9% 12.2% 747 838 3088 400 7.6 13.0% 42.5% 941 1,341 808 0 0.0 0.0% 0.0% 879 879
Low fibre spenders France Telecom: We estimate FT will spend c. 4% of its 2011E capex on fibre, equivalent to an estimated 3% of its free cash flow. We estimate this amounts to 3/pop in 2011E, growing to 6/pop in 2012E. Deutsche Telekom: We expect the company to spend c. 2% of its ex-US capex on fibre in 2011, rising to 4% in 2012/2013E. This is equivalent to c. 2 per pop per year. Telecom Italia: TI has not indicated any specific levels of fibre investment, however, since it is guiding for flat to slightly declining domestic capex, we consider it unlikely that any substantial amounts are currently being spent on fibre deployments.
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Table 26: Incumbent fibre capex - low spenders

Local currency in millions 2008 France Telecom Capex Fibre capex Per pop % of total capex % of FCF Adjusted FCF Ex fibre Deutsche Telekom Capex DT (group) DT ex US Fibre Per pop % of total % of total ex US % of u'lying FCF % of u'lying ex US FCF Free cash flow (u'lying) DT DT ex US Ex fibre Ex fibre ex US
2009 5396 80 1.3 1.5% 1.2% 6921 7,001 9202 6646 50 0.6 0.5% 0.8% 1.3% 1.4% 3959 3600 4009 3650
2010 5590 60 1.0 1.1% 0.9% 6611 6,671 8551 6543 50 0.6 0.6% 0.8% 1.0% 1.3% 4782 3996 4832 4046
2011E 5359 200 3.3 3.7% 3.4% 5914 6,114 8438 6554 100 1.2 1.2% 1.5% 2.2% 2.7% 4588 3680 4688 3780
2012E 5422 360 6.0 6.6% 6.6% 5485 5,845 8642 6770 250 3.0 2.9% 3.7% 5.2% 5.8% 4803 4296 5053 4546
2013E 5440 460 7.7 8.5% 8.7% 5275 5,735 8491 6493 250 3.0 2.9% 3.9% 5.0% 5.7% 5007 4416 5257 4666
6867 80 1.3 1.2% 1.3% 6388 6,468 8707 6803 50 0.6 0.6% 0.7% 1.1% 1.0% 4737 4984 4787 5034
To match KPN/Reggefiber, DT would have to spend 1.2bn pa more
Working example DT In the following example we consider what it would mean for DTs capex and cash flows if its fibre investments were more in line with those peers facing similarly strong cable competition. We leave aside Swisscom, due to structurally higher Swiss capex. The following chart shows that if DT, in 2011/2012E, wanted to match Belgacoms fibre spending levels, DT would have to spend an additional 0.6bn per year, equivalent to 9% of DTs currently expected, ex US, capital expenditure or 15% of its underlying, ex US, free cash flow yield. KPNs fibre spending levels, DT would have to spend an additional 1.2bn per year, equivalent to 18% of its currently expected, ex US, capital expenditure, or 30% of its underlying, ex US, free cash flow yield.
Figure 89: Deutsche Telekom - capex levels required to match peers with cable exposure
1.5 1 0.5 0 0 1 2 DT
Additional annual capex (bn) 1.18
0.58 0 3 4 5 6 7
1.18
10 11 12 13 14 15 16 17 18 19 20 Fibre capex BT BCOM KPN ( per POP)
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Customer demand for fibre

In order to justify spending >1,000 per home passed incumbents crucially rely on high ARPU and high take-up rates. However, European customer take-up of more expensive high speed offerings has so far been muted. Sweden tops the list at >40%, however, in France fiber penetration is struggling to exceed 10%. In general, where fibre is charged as a premium product, the take-up is low. As a further complication, Docsis 3.0 is already paid for in most markets, hence cable operators threaten the incumbent's ability to achieve sufficiently high ARPU and/or high take-up rates.
Little evidence for customer willingness to pay up
For an incumbent, fiber deployments can be justified by (1) ARPU upside, (2) market share gains, or (3) cost savings. Simply speaking, at an estimated cost of connecting a household of 1,000, assuming a WACC of 10%, the investing operator would need to generate an incremental contribution of c. 100 per year (8.3/month) to justify the deployment, assuming a hypothetical take-up of 100%. If the take-up rate were only 50%, subscribers would have to spend an additional 17/month to make it worthwhile. However, there is little evidence that at a 17/month premium the take-up rate would be 50%, even in the longer term. As such, incumbents would have to hope that eventually copper networks can be switched off completely, and/or a substantially higher wholesale and retail price level can be achieved and maintained in the longer term. With cable competition able to offer comparable speeds without substantial premium (Docsis 3.0 is already paid for), it is difficult to see how such a premium can be achieved in the marketplace.
Evidence from the marketplace

Customers have so far been quite reluctant to sign up for fiber-enabled products, where these were priced at a premium. Various data points underscore the investment risk for a fibre-deploying European incumbent.
Figure 90: Fibre take-up rates (%)
Sw eden USA Netherlands Denmark Italy Portugal* France 41% 32% 28% 22% 14% 11% 8% Bredbandsbolaget (Telenor) Verizon Reggefiber Fibre utilities Fastw eb Zon (PT estimated at c.4%*) Orange Telefonica DT (VDSL)
Spain 7% Germany 3%
Source: J.P. Morgan estimates, Company data. * Percent of cable TV subs
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Sweden: After more than a decade of availability fiber has achieved 41% penetration of c. 2m Swedish households. US: According to the Fiber-to-the-Home Council the US had 6.45m fiber subs mid year 2010, a penetration of 32%. We believe this take-up rate benefits from the absence of strong unbundling competition. Netherlands: Reggefiber (KPN) had achieved close to 30% take-up at the end of 2010, a fairly constant rate during recent years. Denmark: iDate estimates fiber penetration in Denmark at c. 22% at year-end 2009. Italy: After almost 10 years of fiber availability, Italy had 348k subscribers out of 2.5m homes passed with fiber (Fastweb 297k/2m), a penetration of c. 14%. Portugal: Zon says its fiber offering has been subscribed to by 19% of its broadband subscriber base by year-end 2010, double the penetration at the end of 2009. This is equivalent to 11% of its cable TV subscriber base. France: Orange has achieved 8% penetration, up from 7% one year ago. Telefonica: At the end of 2009 Telefonica had achieved 25k activations, of 350k homes passed (7%). Germany: Having covered c. 11m homes with VDSL for >3 years, DT has only achieved 342k VDSL subs (3% take-up), despite a comprehensive and exclusive Bundesliga IP TV offering. VDSL offers 50Mbps compared to standard DSL at 5-10Mbps; DT charges c. 10/month more for VDSL. It is also interesting, in our view, to consider the take-up of Docsis 3.0-enabled, highspeed cable products. It seems that where these are priced at a premium, take-up is fairly modest. Germany: Based on its initial pricing of 50/month (20 premium relative to standard 30Mbps offer), KDG achieved a take-up rate of c. 10%. This take-up rate increased to >20% when KDG lowered the price to 40 (20 for the first year). UK: Virginmedias 50Mbps product (11.5/month more expensive than 10Mbps product) is subscribed to by c. 3% of net additions. These take-up rates show the commercial risk for an incumbent who hopes to fund a fiber deployment through an ARPU premium. However, they also show that incumbents in many markets are likely to have some time to develop their responses, time needed for the lead times and cash requirements of a major fibre deployment.
Competitor FTTX economics

Competitor FTTX economics can be better than the incumbents
The potential calamity for the incumbent is that, unless it can benefit from a major infrastructure or scale advantage, competitors at least collectively have inherently superior fibre economics. This is because competitors, by deploying fibre all the way to the premise, can avoid paying wholesale or unbundling charges to the incumbent. However, we will argue below that the magnitude of the costs involved is nevertheless likely to contain spontaneous competitor action. However, where the incumbent invites competition to share deployments the alternative operators barrier to entry should be materially diminished.
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We calculate a positive NPV for altnet fibre if the wholesale rate is 20/month
FTTX valuation for altnets Using consistent assumptions with our incumbent model we compare the economic situation for the alternative carrier that uses wholesale and that which deploys FTTX. We calculate that investing in FTTX, in order to avoid wholesale charge of 20/month, is NPV-positive for alternative carriers in dense enough areas, even where the incumbent invests itself. In our second scenario (altnet chooses own fibre over wholesale in 75% of the incumbents fibre coverage area) we calculate the NPV per customer connected at 165 (= 69 per home passed), in our third scenario (incumbent and altnet share civil works, altnet builds own fibre in 100% of the incumbent fibre coverage area) even at 456 (= 196 per home passed).The following chart shows how this NPV varies with the monthly saving for the altnet, from avoiding the monthly wholesale charge to the incumbent. It can be seen that at wholesale ARPUs below 20/month the new entrant ceases to have a strong incentive to roll out their own infrastructure (unless there is extensive infrastructure sharing with the incumbent). Meanwhile, however, many incumbents NPV would also be close to zero in this scenario. Still, from an incumbent perspective, this neutral outcome would clearly be superior to the scenario where both the incumbent and the altnet invest in fibre.
Figure 91: Competitor FTTX NPV, depending on wholesale ARPU
Competitor fibre NPV per sub (Euro) 456 262 67 360 165 -30 -224 Incumbent fibre wholesale 16 18 20 22 24 26 ARPU (Euro/month) 555 749 651 846 1041 Sharing civ ils No sharing of civ ils
Source: JPMorgan estimates.
But will altnets take advantage of this?
While FTTX economics appear manageable or even attractive, we see the biggest problem for competition in funding such large scale investments. This is true for independent players such as Versatel, Jazztel, or QSC. But even where competitors are owned by cash-rich companies such as France Telecom, Vodafone, or Telefonica, they may be victims of their parents reluctance to commit the required resource, due to other strategic priorities. Alternative scenario incumbent best case The following table varies our assumptions. We are looking at a market structure where the incumbent's market share has already dropped to 20%, unbundlers have 20%, and cable 60% of the market. Similar situations exist in strong cable markets such as Austria (Vienna), or various parts of Belgium, the Netherlands, and Spain. We calculate that in such a scenario the economics would still be tenuous. As we have emphasized we are using somewhat optimistic assumptions, still we do not calculate a clear positive NPV in the case of joint fibre deployments.
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Table 27: Fibre scenario in cable-dominated market

Base case Investment per building connected Investment per HH connected Units per building Total investment per building Per HH connected - 100% market share Per HH connected - actual market share Market shares Retail Wholesale Total incumbent Unbundling Cable Other Incumbent ARPUs Retail Wholesale Unbundling Cable Other Blended ARPU Increase in monthly gross margin Cost saving per customer/month EBITDA return on invest Payback (years) NPV per home passed
Scenario I: Incumbent FTTX -2250 -500 6 5250 875 1265 19% 30% 49% 0% 51% 0% 52 22 10 0 0 16.5 7.1 2.5 114.9 11.0 271
Scenario II: Competitor FTTX -2250 -500 6 5250 875 1654 16% 17% 33% 0% 48% 20% 49 20 10 0 0 11.1 1.9 2.5 52.4 31.5 -148
Scenario III: Competitor FTTX, sharing -2250 -500 6 5250 875 1182 18% 10% 28% 0% 45% 28% 48 20 10 0 0 10.4 1.1 2.5 42.8 27.6 0
10% 10% 20% 20% 60% 0% 45 25 10 0 0 9.0 90%
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Companies
79

21 October 2011
Overweight
Singapore Telecom
Downside hedged benefits from NBN, regional asset contributions to improve; upgrade to OW
We upgrade SingTel to Overweight with a Mar-13 price target of S$3.60 with a total return expectation of 20% (+14% capital appreciation based on our target FY13 P/E of 13x + 5% expected cash dividends during the next 12 months). Our price target is driven by two factors: 1) our EPS forecasts vs. street: we are 6% ahead for FY13; 2) the target FY13 earnings multiple currently at 11.9x and below the top of its normal trading range; we use 13.0x for our price target. The NBN should ultimately curtail competition and cement SingTel dominance: Many, including ourselves, have made much about the potential for Singapores National Broadband Network (NBN) project to increase competition and drive opportunities for infrastructure-lite competition. The facts, however, do not support this case. We believe the NBN will largely serve to cement SingTels dominance of the local market, potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy, and lock M1 out of the mainstream market. Regional assets contributions to improve: We expect 12% growth in FY12 associate contributions for SingTel; driven by 20% growth at AIS and 15% at Bharti. The decline over FY11 was largely driven by appreciation of the Singapore dollar vs. local currencies. We expect 6% growth in Optuss EBIT contributions to SingTel in FY12. Potential for increased capital management: SingTel has the best balance sheet among Singapore telcos with a net debt/EBITDA (including associates) of 0.6x. Current dividend yield of 6% is more than covered by internal cash flows and we thus see potential for a special dividend as an upside risk. SingTel is trading at a 330bp spread to Singapore govt bonds vs. a historical high of 390bp. Key risks: Key downside risks include worse-than-expected pricing competition and lower-than-expected NBN market share.
Singapore Telecoms Ltd (Reuters: STEL.SI, Bloomberg: ST SP) S$ in mn, year-end Mar FY09A FY10A FY11A Revenue (S$ mn) 14,934 16,871 18,070 EBITDA (S$ mn) 4,432 4,846 5,116 EBITDA growth (%) -2.2% 9.3% 5.6% Recurring profit (S$ mn) 3,455 3,910 3,800 Recurring EPS (S$) 0.22 0.25 0.24 EPS growth (%) (6.2%) 13.2% (2.9%) DPS (S$) 0.12 0.14 0.16 EV/EBITDA (x) 12.8 11.5 10.8 P/E 14.6 12.9 13.2 Dividend Yield 4.0% 4.5% 5.2% FCF to mkt cap (%) 6.4% 6.8% 8.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Previous: Neutral STEL.SI, ST SP Price: S$3.16
Price Target: S$3.60

Previous: S$3.40
Singapore Wireline Services/Incumbents James R. Sullivan, CFA

AC
(65) 6882-2374 james.r.sullivan@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Vishesh Gupta
(65) 6882 2367 vishesh.x.gupta@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Laurent Horrut
(61-2) 9220-1593 laurent.j.horrut@jpmorgan.com J.P. Morgan Securities Australia Limited

Price Performance
3.4 3.2 S$ 3.0 2.8
Aug-10 Nov-10 Feb-11 May-11 Aug-11
STEL.SI share price (S$) FTSTI (rebased)
Abs Rel
YTD -2.0% 10.5%
1m -6.5% 1.5%
3m -5.0% 4.7%
12m 1.7% 5.1%
FY12E 18,755 5,166 1.0% 3,942 0.25 3.7% 0.17 10.6 12.8 5.4% 6.7%
FY13E 18,287 5,053 -2.2% 4,494 0.28 14.0% 0.19 10.9 11.2 6.1% 6.2%
Company Data 52-wk range (S$) Mkt cap (S$ mn) Mkt cap ($ mn) Shares O/S (mn) Free float (%) 3-mth avg trading volume: Average 3m Daily Turnover ($ mn) FTSTI Exchange Rate Price (S$) Date Of Price
3.30 - 2.75 50,371 39,778 15,940 45.5% 30 71.92 2,720 1.27 3.16 20 Oct 11
Company Description SingTel provides Internet, IPTV, mobile and fixed line telephony services domestically and it also owns 100% of the Australian Telco Optus. Other major regional associate investments include Bharti (India), Telkomsel (Indonesia), Advanced (Thailand) and Globe (Philippines).
P&L sensitivity metrics (FY2012E)

Singapore revenues (S$ mn) Impact of each 1% Forex A$/S$ Impact of each 1% Bharti equitized PBT (S$ mn) Impact of each 5% Telkomsel equitized PBT (S$ mn) Impact of each 5%
EBITDA impact (%) 6,501 0.4% 0.78 0.6% 892 0.0% 886 0.0%
EPS impact (%) 0.4% 0.6% 0.9% 0.8%
Price target and valuation analysis
Our PT is based on the sum of 1) potential upside/ (downside) to consensus EPS vs. JPM EPS estimates, and 2) our estimated multiple expansion/(contraction) based on peak P/E multiple. Our peak P/E multiple is based on the stocks historical trading range and expected future business changes.
Revenue breakdown (FY12E)
Optus-mobile 42%
Sing-others 16%

Current consensus P/E (a) Peak P/E (b)
FY12E 12.8 13.0 1.5% 1.7% 3.2%
FY13E 11.9 13.0 9.4% 6.4% 15.8% 3.6
Sing-data & internet 9% Sing-mobile 10%
Upside/ (Downside) to peak multiple (b/a-1=e)

Optusothers 25%
JPM vs. consensus EPS (d) Cumulative upside to current price (e+d) JPM Dec-12 price target (S$/sh)
Net income: J.P. Morgan vs consensus

S$ MM FY12E FY13E J. P. Morgan 3,985 4,494 Consensus 3,819 4,040
If our price target were achieved, SingTel would be trading at 2010E/11E P/E of 14.5x/12.8x and EV/EBITDA of 11.9x/12.3x and provide a 4.7%/5.3% yield. Less-than-expected NBN and pay TV market share in Singapore is a key downside risk to our price target. Further appreciation of the Singapore dollar is also a risk.
Source: Bloomberg, J.P. Morgan estimates.
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Investment Summary
We upgrade SingTel to Overweight with a Mar-13 price target of S$3.60 with a total return expectation of 20% (+14% capital appreciation based on our target FY13 P/E of 13x + 5% expected cash dividends during the next 12 months). Our price target is driven by two factors: 1) our EPS forecasts vs. street: we are 6% ahead for FY13; 2) the target FY13 earnings multiple currently at 11.9x and below the top of its normal trading range; we use 13.0x for our price target. . We have rebuilt our Singapore models, incorporating NBN into our forecasts and have shifted our price target timeframe to Mar-13. The NBN should ultimately curtail competition and cement SingTel dominance: Many, including ourselves, have made much about the potential for Singapores National Broadband Network (NBN) project to increase competition and drive opportunities for infrastructure-lite competition. The facts, however, do not support this case. The NBN will largely serve to cement SingTels dominance of the local market, potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy, and lock M1 out of the mainstream market. Please see our Singapore industry report published today in conjunction with this report for details. Regional assets contributions to improve: We expect 12% growth in FY12 associate contributions for SingTel; driven by 20% growth at AIS and 15% at Bharti. The decline over FY11 was largely driven by appreciation of the Singapore dollar vs. local currencies. We expect 6% growth in Optuss EBIT contributions to SingTel in FY12. Potential for increased capital management: SingTel has the best balance sheet among Singapore Telcos with a net debt/EBITDA (including associates) of 0.6x. Current dividend yield of 6% is more than covered by internal cash flows and we thus see potential for a special dividend as an upside risk. SingTel is trading at a 330bp spread to Singapore govt bonds vs. a historical high of 390bp. Key risks: Key downside risks include worse-than-expected pricing competition and lower-than-expected NBN market share.
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Risks to our view

Pricing competition is worse than forecast: We do expect a degree of price compression which will reduce overall industry revenue growth rates moving forward, but are not forecasting an all out price war on a product by product basis. This is driven by the fact that a) bundles will increasingly drive this saturated, mature market, in our view, which theoretically limits product specific price discovery for consumers; b) Starhub and to a lesser degree M1 will face structurally lower NBN economics, which limits their ability to aggressively cut price without significantly impacting their own margins...not a guarantee that price competition will not get out of control, but clearly a limiting factor. Forecast competitive dynamics are upended as Starhub pursues an alternative infrastructure approach: We suspect that a Virgin Media type strategy may in fact be the best long-term strategic option for the company, but as of yet see no signs that this will occur. Were this dynamic to change, we would expect a greater potential for a degree of price competition between Starhub and SingTel given StarHubs better economics. This could be somewhat restrained, however, by StarHubs desire to achieve a reasonable return on capex. A foreign operator takes control of M1 and introduces cross market competitive dynamics into the Singapore environment. We would not be shocked to see an operator such as Telstra (in order to have a counter balance to SingTel's Optus) or Axiata (already a 29.23% shareholder in M1, general offer is triggered at ) to eventually make a bid for the firm. This has the potential to introduce another layer of strategy into the Singapore market, which could be de-stabilizing. NIMS project creates unbundles content: The Infocomm Development Authority of Singapore (IDA), the Telecom industry regulator, has been actively pushing a program called the NextGen Interactive Multimedia Applications and Services program (NIMS), which provides for a common platform Set Top Box (STB). This could theoretically be used to completely unbundle content and reduce the role of SingTel and Starhub as Pay TV content aggregators. This program is at a very early stage of development, but is something we are watching closely. Worse-than-expected NBN market share: We expect SingTel to capture 60% of the total NBN market. We assume StarHub would account for 30% of the market while the remaining 10% would be M1. SingTels current fixed broadband market share is 42% while pay TV market share is 37% and less-than-expected share of NBN subs is thus a downside risk. Please see the table below for earnings sensitivity to NBN market share assumptions.
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10% 15% 20% 2,300 2,307 2,314 -3.0% -2.7% -2.4% 5,700 5,705 5,711 -0.9% -0.8% -0.8% 10% 15% 20% 351 354 358 -4.0% -3.0% -2.0% Base case 10% 192 0.0% 15% 194 1.0% 20% 196 2.0%
25% 2,321 -2.1% 5,716 -0.7% 25% 361 -1.0% 25% 198 3.1%
30% 35% 2,328 2,336 -1.8% -1.5% 5,721 5,727 -0.6% -0.5% Base case 30% 365 0.0% 30% 200 4.1% 35% 369 1.0% 35% 202 5.1%
40% 45% 2,343 2,350 -1.2% -0.9% 5,732 5,738 -0.4% -0.3% 40% 372 2.0% 40% 204 6.1% 45% 376 3.0% 45% 206 7.1%
50% 55% 2,357 2,364 -0.6% -0.3% 5,743 5,748 -0.2% -0.1% 50% 380 4.0% 50% 208 8.2% 55% 383 4.9% 55% 210 9.2%
Base case 60% 2,371 0.0% 5,754 0.0% 60% 387 5.9% 60% 212 10.2%
65% 2,379 0.3% 5,759 0.1% 65% 390 6.9% 65% 214 11.2%
70% 2,386 0.6% 5,765 0.2% 70% 394 7.9% 70% 216 12.2%
5,694 -1.0% 5% 347 -4.9% 5% 190 -1.0%
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Valuation and share price analysis

Price target calculation
Our investment philosophy has been simplified over the years. It is our belief that ultimately share prices are driven by earnings estimates, an assumption holding true for all of our coverage companies around the region. Our simple valuation methodology is that we believe only two things can mathematically move a share price: 1) changing earnings estimates; and 2) the multiple the market is willing to put on those earnings estimates. This structure allows us to focus our research on: 1) getting the numbers right; and 2) understanding what potential range of multiples the market might apply. A simple sum of the two leads to our price targets...i.e. if we have 10% upside to street EPS forecasts, and think there could be 15% multiple expansion, our total target return is 25%. This method allows us to capitalize on (hopefully) good fundamental research, but also allows us to understand market sentiment. If a multiple has expanded to previously unseen levels, either the business has changed or a lot of expectations have already been built into the share price. Our Dec-12 PT at S$3.6 is based on a sum of: 1) potential upside/(downside) to consensus EPS vs. JPM EPS estimates at +6%; and 2) our estimated multiple expansion/(contraction) at 9% based on peak P/E multiple. Our peak P/E multiple at 13.0x is based on the stocks historical trading range and expected future business changes.
Valuation
Our price target of S$3.6 implies a total return of +20% (14% capital appreciation and 5% dividend yield). Our share price target is driven by two aspects: 1) our EPS forecasts vs. the Street; we are 6% above for 2012 EPS; and 2) target earnings multiple; shares are at 11.9x, we use a 13.0x multiple for our PT.
Company SingTel StarHub M1 Stock code ST SP STH SP M1 SP Rating Price (LC) OW 3.2 N 2.9 N 2.5 PT (LC) 3.6 2.7 2.5 % to EV/EBITDA (x) Target 2011E 2012E 14.3% 10.6 10.8 -5.9% 8.3 7.8 0.0% 8.1 8.0 P/E (x) 2011E 2012E 12.7 11.2 15.6 14.8 13.3 13.2 Dividend Yield (%) 2011E 2012E 5.3 6.1 7.0 7.0 6.0 6.0 FCF Yield (%) 2011E 2012E 5.4 4.8 7.9 9.1 9.4 9.3 Total Return 19.6% 1.0% 6.0%
Source: Bloomberg, and J.P. Morgan estimates. Priced on 20 Oct 2011
We run a best- and worst-case scenario valuation for our companies where we compare our peak and trough level valuation returns. SingTel looks most attractive on this metric with an equal distribution both sides while StarHub and M1 offer higher losses on the downside than gains on the upside.
Table 30: Singapore Telcos: Best- and worst-case analysis
Current price Current consensus P/E Peak P/E Trough P/E SingTel StarHub M1 3.2 2.9 2.5 11.9 15.3 12.6 13.0 14.0 13.0 10.0 10.0 10.0 JPM vs. consensus Best case price % upside Worst case price % upside Up/Down EPS 6.4% 3.6 15.8% 2.7 -15.9% 1.00 3.0% 2.7 -5.3% 1.9 -34.5% (0.15) -5.1% 2.5 -1.6% 1.9 -25.5% (0.06)
Source: Bloomberg and J.P. Morgan estimates. . Priced on 20 Oct 2011 85
As per the J.P. Morgan vs. consensus table below, we see 6% upside to Street's 2012 EPS estimates for SingTel. EPS estimates have been revised down 5% YTD for SingTel, driven to a large extent by appreciation of the Singapore dollar. We expect the trend to reverse given business fundamentals have been strong across Singapore, Australia, India and Thailand.
SingTel Revenue EBITDA EBITDA margin-BP diff EPS StarHub Revenue EBITDA EBITDA margin-BP diff EPS M1 Revenue EBITDA EBITDA margin-BP diff EPS
FY1E 0.8% NA NA 1.7% -1.0% -0.1% 0.3 3.3% -0.2% -1.1% (0.3) -0.1%
FY2E -3.5% NA NA 6.4% -3.0% 0.8% 1.2 3.0% -1.8% -4.9% (1.0) -5.6%
Figure 92: SingTel: Street one-year forward EPS trends
Source: Bloomberg.
SingTels P/E has expanded by 13% YTD given its increased dividend payout and improving regional asset performance.
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Figure 93: SingTel: Street one-year forward P/E trends
Source: Bloomberg.
SingTels dividend has been rising since 2009, closing the dividend yield gap to StarHub and M1.
Figure 94: SingTel: Street dividend yield estimates
Source: Bloomberg.
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Figure 95: SingTel: Street dividend yield spread to Singapore 10-year govt bonds
Source: Bloomberg.
We run full discounted cash flow analysis on all of our companies, but do not use this analysis to specifically set target prices. Our experience has been that the heavy retail participation in most Southeast Asian markets leaves P/E multiples, and the upside to street + upside to multiple approach described above a more effective way of forecasting future share price movements. We instead use DCF analysis as another gauge of market sentiment, by back calculating what discount rate is implied by the current share price. A high discount rate would be indicative of either a) a very risky business / market, or b) an excessively pessimistic sentiment applied by the market. SingTel's share price currently implies a lower discount rate relative to Starhub and M1. This appears fair given both SingTel's greater revenue diversification outside of Singapore and the fact that it is likely a share gainer due to the NBN, but also given its status as a large cap stock (S$50.2B vs. STH at S$4.9B, and M1 at S$2.2B) with a much larger index inclusion then STH or M1 (ST at 10.14% of STI vs. STH at 0.79% and M1 at 0%).
SingTel StarHub M1 Current price (LC) 3.15 2.87 2.50 2013 Terminal growth rate 4.0% 4.0% 4.0% 2012 Terminal value as % of EV 92.0% 87.6% 87.8% Implied discount rate at current price 7.9% 10.4% 10.1%
Source: Company reports and J.P. Morgan estimates. . Priced on 20 Oct 2011
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Singapore Optus Bharti Telkomsel AIS Globe Warid PBTL SingPost Total
SingTel starts bundled plans Wins pay TV license M1 broadband gives 5Gb free usage Bharti Dec07 net up 100% Analyst upgrades China slowdown concern Optus reports 10% decline in earnings
Table 33: SingTel: SOTP valuation
Source: Company reports, Bloomberg and J.P. Morgan estimates.
Figure 96: SingTel: Share price analysis with key events
1.5
Net Debt 3,306 1,249 13,689 (748) 1,411 1,368 NA NA 106
Sells 49% of bharti aquanet Analyst upgrades Optus offers bundled plans Stocks fall on Subprime concerns Optus stops selling Telstra's fixed line product. M1 Cuts prices by 35% ahead of MNP Sells 41% ISAT stake to Qtel Buys 3% Globe stake MNP commences Lehman files bankruptcy Market fall Analyst downgrades Sells 10% of United Business Solutioins Sell Australia fixed line assets Actively involved in Bharti MTN merger talks Bharti MTN extend merger talks Buys 1.5% of Bharti Reduces iPhone price Governmet passes content sharing rule Protest on rising soccer fee in Singapore Lim Chuan: CEO intl. to retire Govt. seeks 3G spectrum bids 1Q11 net down 0.2% YoY Analyst downgrades Dec09 net neats street by 4.5%
2.5
Acquires 30% Warid stake Commercial pay TV launch
3.5
4.5
EV 14,896 18,035 58,461 22,728 18,476 4,974 NA NA 2,060 Equity Value 11,590 16,786 44,772 23,476 17,066 3,605 3,183 577 1,954 Implied EV/EBITDA (x) 6.9 5.9 7.4 5.5 7.5 4.5 NA NA 8.9
Source: Company reports and J.P. Morgan estimates. . Priced on 20 Oct 2011
Implied P/E (x) NA NA 15.9 12.0 13.7 11.0 NA NA 12.4 SingTel's Stake 100.0% 100.0% 32.3% 35.0% 21.3% 47.3% 30.0% 45.0% 25.9%
SingTel price
Attributable Equity 11,590 16,786 14,461 8,217 3,635 1,705 955 259 506 58,115 Equity/sh new (S$) 0.73 1.05 0.91 0.52 0.23 0.11 0.06 0.02 0.03 3.6 Contribution to NAV 20% 29% 25% 14% 6% 3% 2% 0% 1% 100%
SG- Malaysia romaing rate cut S$0.1/share special dividend Telstra NBN negotiations closing S&P downgrades US debt rating 1Q12 net down 3% QoQ
Comments
Jan-07 Jan-07 Feb-07 Mar-07 Apr-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Aug-07 Sep-07 Oct-07 Nov-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Jul-08 Aug-08 Sep-08 Oct-08 Oct-08 Nov-08 Dec-08 Jan-09 Jan-09 Feb-09 Mar-09 Apr-09 May-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Sep-09 Oct-09 Nov-09 Dec-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Aug-10 Sep-10 Oct-10 Nov-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Mar-11 Apr-11 May-11 Jun-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11
Implied JPM estimated EV/EBITDA JPM TP Rs460 XL Axiata JPM multiple JPM 2012 TP Bt140 JPM 2012 TP Php930 Purchase price Purchase price Market price-20 Oct 2011
1.5
2.5
3.5
4.5
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SWOT analysis
Strengths
Strongest balance sheet amongst Singapore Telcos. Diversified business model. A high quality mobile network. Strategically well placed in the NBN business model.
Weaknesses
Risk of heavy competition on all business lines post opening up of NBN infrastructure. Excessive competition in India, Indonesia and Philippines.
Opportunities
Opportunity to gain market in share the pay TV and fixed broadband segment post BPL win and new content sharing law in Singapore. Growth assets in Indonesia, India, Philippines and Thailand. Growing pay TV base providing higher bundling opportunities.
Threats
Risk to SingTels monopoly share in corporate fixed line market due to NBN infrastructure. Threat from new entrants as NBN infrastructure expands and matures. Long-term threat to pay TV market share from the NIMS initiative.
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Regional Asset Discussions

Singapore
Table 34: SingTel: Singapore revenue build
FY FY FY FY FY FY FY FY FY FY FY FY FY FY 2008A 2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011A 1Q12A 2012E 2013E 2014E 2015E 2016E Mobile Voice Blended MOU-JPM calc YoY Voice ARPM (S cents)-JPM calc YoY Voice revenue (S$ mn)-JPM calc YoY Voice ARPU (S$)-JPM calc YoY Data Data ARPU (S$)-JPM calc YoY Data revenue (S$ mn)-JPM calc Data as % of mobile revenue Total mobile communication revenue (S$ mn) YoY Blended ARPU-JPM calc (S$) YoY National telephone Ex. NBN Fixed line ARPU (S$)-JPM calc QoQ YoY Ex. NBN National telephone revenue (S$ mn) QoQ YoY NBN Fixed SingTel subs (000) YoY NBN ARPU (S$) YoY NBN Revenue (S$) YoY Total National telephone revenue (S$ mn) YoY
319 370 9.0% 15.8% 11.0 7.9 -21.3% -28.1% 929 8.2% 977 5.1%
351 -5.1% 8.2 3.9% 1,058 8.3% 28.9 -1.4% 0.0 15.1 7.4%
351 2.4% 8.3 -1.4% 272 5.4% 29.1 1.0% 0.0 17.1 26.0% 160 37.0% 432 13.8% 46.3 9.0% 18.9 -1.1% -4.1% 95 -0.7% -4.8% NM NM NM 95 -4.8%
362 3.7% 7.9 -2.6% 271 4.2% 28.8 1.1%
358 3.3% 8.1 -2.7% 279 2.3% 29.0 0.5%
351 0.9%
356 1.4%
343 346 345 343 -2.3% -2.6% -0.5% -0.5%
343 0.0%
343 0.0%
7.9 8.0 -2.4% -3.1% 273 2.2% 1,095 3.5%
8.0 7.9 7.7 7.7 7.6 7.5 -3.0% -1.3% -2.3% -0.7% -1.0% -1.0% 279 2.3% 1,127 2.9% 1,163 3.2% 1,189 2.3% 1,206 1.4% 1,221 1.2%
35.3 29.3 -14.2% -16.8% 0.0 14.9 7.0% 0.0 14.1 -5.5%
27.8 28.4 -1.6% -1.8%
27.6 27.3 26.6 26.2 26.0 25.7 -5.2% -3.8% -2.8% -1.2% -1.0% -1.0% 0.0 21.0 5.2% 0.0 21.3 1.1% 0.0 21.5 1.0% 0.0 21.7 1.0%
0.0 0.0 0.0 0.0 0.0 0.0 17.6 19.4 18.6 18.0 19.2 20.0 20.2% 24.4% 16.7% 19.1% 12.2% 11.1%
393 469 552 29.7% 32.4% 34.3% 1,322 15.0% 1,445 1,610 9.3% 11.4% 44.0 1.4% 19.4 0.0% -0.1% 393 0.0% -2.7% NM NM NM 393 -2.7%
166 186 182 694 194 825 921 964 998 1,030 38.0% 40.0% 40.0% 38.8% 41.0% 42.3% 44.2% 44.8% 45.3% 45.8% 437 465 10.9% 10.9% 46.4 7.6% 18.8 -0.5% -4.9% 95 -0.1% -4.5% NM NM NM 95 -4.5% 48.4 8.9% 18.7 -0.8% -5.3% 95 -0.4% -4.1% NM NM NM 95 -4.1% 455 1,789 9.0% 11.1% 46.4 5.0% 46.4 5.4% 472 9.3% 46.8 1.2% 1,952 9.1% 47.3 2.0% 2,084 6.8% 2,153 3.3% 2,204 2.4% 2,251 2.1%
50.2 43.4 -8.9% -13.4% 20.0 0.0% -5.3% 425 0.0% -6.6% NM NM NM 425 -6.6% 19.5 0.0% -2.8% 404 0.0% -4.9% NM NM NM 404 -4.9%
47.6 47.5 47.5 47.4 0.6% -0.2% -0.1% -0.1%
17.8 18.6 -4.5% 0.0% -6.8% -4.5% 90 375 -4.3% 0.0% -5.5% -4.6% 10 NM NM NM 10 NM NM NM
17.8 17.3 16.3 15.9 15.0 14.2 -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% -5.9% -6.9% -5.6% -2.8% -5.2% -5.5% 90 351 320 293 247 204 -0.4% 0.0% 0.0% 0.0% 0.0% 0.0% -5.3% -6.4% -8.8% -8.5% -15.7% -17.6% 22 73 202 319 474 631 NM 627.0% 177.4% 58.0% 48.9% 32.9% NM NM NM NM NM NM NM NM NM NM NM NM
90 375 -5.5% -4.6%
90 351 320 293 247 204 -5.3% -6.4% -8.8% -8.5% -15.7% -17.6%
91
Table 35: SingTel: Singapore revenue build continued

FY FY FY FY FY FY FY FY FY FY FY FY FY FY 2008A 2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011A 1Q12A 2012E 2013E 2014E 2015E 2016E Data and Internet (includes fixed BB) Fixed broadband EX. NBN Fixed BB ARPU (S$)-JPM calc YoY Ex. NBN Fixed broadband revenue (S$ mn) YoY NBN broadband ARPU (S$) YoY NBN broadband Revenue (S$) YoY Total Fixed broadband revenue (S$ mn) YoY Others data & Internet Other data & internet revenue (S$ mn) YoY Total data and Internet revenue (S$ mn) YoY International telephone IDD outgoing mins (mil) YoY IDD revenue per minute (S cents) YoY Elasticity International telephone revenue (S$ mn) YoY IT and engineering services NBN revenue (Fibre rollout) YoY Revenue from NCS group YoY Total IT and engineering revenue (S$ mn) YoY Equipment Sale of equipment revenue (S$ mn) YoY Pay TV Pay TV ARPU (S$) YoY Pay TV (S$ mn) YoY Total Miscellaneous revenue (S$ mn) YoY Total operating revenue (S$ mn) YoY
Source: Company reports and J.P. Morgan estimates. 92
61.9 3.3% 333 19.8% NM NM 333 19.8%
62.2 0.4% 363 9.0% NM NM 363 9.0%
59.2 -4.7% 360 -0.8% NM NM 360 -0.8% 1,216 3.8% 1,577 2.7% 2,531 4.6%
59.4 -1.1% 92 2.2% 80.0 NM NM 92 2.2% 303 0.5% 395 0.9% 717 26.5%
60.4 1.0% 94 4.4% 80.0 NM NM 94 4.4% 308 1.7% 402 2.3%
61.4 3.8% 96 6.7% 80.0 NM NM 96 6.7% 305 1.1% 401 2.3%
61.9 6.0% 97 7.6% 80.0 NM 1 NM 98 8.9% 317 2.1% 415 3.6%
61.1 3.1% 379 5.2% 80.0 NM 1 NM 380 5.6% 1,233 1.3% 1,613 2.3%
60.2 58.3 51.3 46.5 41.5 36.5 1.4% -4.5% -11.9% -9.5% -10.8% -12.1% 93 368 326 286 240 194 1.3% -2.7% -11.5% -12.4% -16.1% -19.1% 80.0 66.5 65.1 56.3 53.3 51.3 0.0% -16.9% -2.0% -13.6% -5.3% -3.8% 4 33 107 163 254 340 NM 2649% 225.1% 51.6% 56.0% 34.1% 97 5.4% 401 5.6% 433 8.0% 448 493 3.5% 10.0% 534 8.2%
1,053 1,172 7.7% 11.3% 1,385 1,535 10.3% 10.9% 1,771 2,420 53.2% 36.6%
301 1,210 1,156 1,129 1,080 1,032 -0.7% -1.9% -4.5% -2.3% -4.4% -4.4% 398 1,611 1,589 1,577 1,573 1,566 0.8% -0.1% -1.4% -0.7% -0.3% -0.4% 785 9.5% 3,226 6.8% 3,387 5.0% 3,455 2.0% 3,524 2.0% 3,595 2.0%
765 767 771 3,020 22.6% 17.1% 12.7% 19.3%
34.8 25.8 20.5 17.5 17.1 17.2 16.0 16.9 -32.3% -25.8% -20.5% -26.9% -19.0% -11.8% -11.6% -17.4% 1.6 616 3.8% 0 NM 1.4 0.2 1.0 126 -7.6% 1.2 131 -0.7% 1.5 132 3.3% 1.1 1.1
16.2 15.9 15.1 14.8 14.5 14.2 -7.6% -6.4% -5.0% -2.0% -2.0% -2.0% 1.2 127 1.1% 1.1 1.0 1.0 510 0.0% 1.0 510 0.0% 1.0 509 0.0%
624 519 1.4% -16.9% 0 NM
123 511 -0.3% -1.5%
511 510 0.0% -0.3%
181 73 72 72 51 268 47 158 49 10 2 0 NM 421.4% 132.3% 30.9% -37.0% 48.1% -35.6% -40.9% -69.1% -80.0% -80.0% -80.0% 273 6.1% 346 27.5% 66 29.8% 302 4.5% 374 16.9% 75 41.0% 312 1.2% 384 5.7% 85 7.1% 379 -0.7% 430 -7.0% 1,266 2.4% 1,534 8.3% 277 1,238 1.5% -2.2% 1,263 2.0% 1,288 2.0% 1,314 2.0% 1,316 1.4% 401 5.0% 34.5 9.5% 1,340 2.0% 1,341 1.9% 421 5.0% 37.5 8.7%
731 1,072 1,236 17.4% 46.6% 15.4% 731 1,072 1,417 17.4% 46.6% 32.2% 272 15.9% 268 -1.5% 268 0.1%
324 1,397 1,312 1,298 -6.4% -9.0% -6.1% -1.1% 364 5.0% 29.5 6.3% 382 5.0% 31.5 6.9%
86 311 77 346 0.1% 16.0% 16.7% 11.4% 27.7 1.7%
36 7.5 10.0 21.9 30.8 27.8 27.3 27.3 25.8 NM -79.0% 32.8% 126.1% 191.5% 178.7% 148.9% 173.3% 17.8%
1 6 16 14 22 21 23 79 23 112 151 188 230 278 NM 1000% 192.7% 419.2% 497.2% 404.8% 300.0% 390.7% 73.3% 42.2% 34.2% 24.4% 22.6% 20.7% 154 194 27.7% 26.5% 4,904 5,547 10.7% 13.1% 195 0.3% 5,995 8.1% 47 -8.6% 1,520 9.9% 51 52 39 189 6.5% 12.0% -20.4% -3.1% 1,586 9.9% 1,634 6.8% 1,661 1.3% 6,400 6.8% 46 220 244 270 305 344 -2.4% 16.6% 10.8% 10.7% 12.8% 12.8% 1,557 2.5% 6,501 1.6% 6,574 1.1% 6,671 1.5% 6,786 1.7% 6,914 1.9%
Table 36: SingTel domestic OpEx build

FY 2008A Selling & Administrative Monthly expense per sub (S$) YoY Ex. NBN Selling and administrative (S$ mn) As % of ex. NBN revenue NBN monthly marketing/sub (S$) YoY NBN marketing expense (S$ mn) As % of NBN revenues Total S&A (S$ mn) As % of total revenue Traffic charges Intl. phone outpayments IDD outgoing mins (mil) Tariff per minute (S cents) YoY Intl phone outpayments (S$ mn) As % of ex. NBN revenue Mobile roaming outpayments Monthly expense per sub (S$) YoY Mobile roaming (S$ mn) As % of ex. NBN revenue Leases Ex. NBN Monthly expense/ sub (S$) YoY Ex. NBN Leases (S$ mn) As % of ex. NBN revenue NBN monthly marketing/sub (S$) YoY NBN Lease expense (S$ mn) As % of NBN revenues Leases (S$ mn) As % of total revenue Interconnect Mobile minutes (mn) Interconnect per minute (S cents) YoY Interconnect (S$ mn) As % of ex. NBN revenue Traffic expenses (S$ mn) As % of total revenue 14.3 8.3% (761) 15.5% 0 NM 0 (761) 15.5% FY 2009A 14.8 3.9% FY 2010A 14.8 -0.2% FY 1Q11A 14.0 7.5% (254) 16.7% 25.0 NM 0.0% (254) 16.7% FY FY FY FY FY 2Q11A 3Q11A 4Q11A 2011A 1Q12A 18.3 23.8% (339) 21.4% 25.0 NM 0.0% (339) 21.4% 16.7 8.5% (319) 19.5% 25.0 NM 0.0% (319) 19.5% 17.1 6.5% 16.4 10.8% 15.6 11.1% FY 2012E 16.1 -2.2% FY 2013E 14.5 -9.9% FY 2014E 13.5 -7.0% FY 2015E 12.8 -5.0% FY 2016E 12.3 -4.0%
(916) (1,015) 16.5% 16.9% 0 NM 0 0 NM 0
(337) (1,249) 20.3% 19.5% 25.0 NM (0.4) 0.0% 25.0 NM (0.4) 0.0%
(317) (1,362) (1,343) (1,315) (1,293) (1,279) 20.5% 21.2% 20.9% 20.4% 20.1% 19.9% 25.0 0.0% (1.2) 31.3% 23.4 -6.4% (11.6) 35.2% 23.6 0.7% (38.8) 36.2% 23.6 0.0% 23.6 0.0% 23.6 0.0%
(73.6) (112.1) (156.3) 45.3% 44.2% 46.0%
(916) (1,015) 16.5% 16.9%
(337) (1,249) 20.3% 19.5%
(318) (1,374) (1,381) (1,388) (1,405) (1,435) 20.4% 21.1% 21.0% 20.8% 20.7% 20.8%
1,771
2,420
2,531
717
765
767
771
3,020
785
3,226
3,387 5.2 -5.0% (177) 2.8% 5.6 -6.6% (247) 3.9%
3,455 5.2 -1.0% (179) 2.8% 5.4 -4.0% (246) 3.8% 2.9 -7.0% (279) 4.3% 14.4 1.0% (45.0) 27.7% (324) 4.9%
3,524 5.1 -1.0% (181) 2.8% 5.3 -3.0% (244) 3.8% 2.7 -5.0% (274) 4.3% 14.6 1.0% (69.3) 27.3% (344) 5.1%
3,595 5.1 -1.0% (183) 2.8% 5.1 -3.0% (242) 3.8% 2.6 -3.0% (274) 4.3% 14.7 1.0% (97.6) 28.7% (372) 5.4%
11.4 9.0 7.7 -31.3% -21.4% -14.5% (202) 4.1% (217) 3.9% (194) 3.2%
6.7 6.7 6.0 5.8 6.3 5.7 5.5 -20.9% -18.4% -18.2% -16.8% -17.9% -14.4% -12.4% (48) 3.2% 6.3 8.8% (58) 3.8% (51) 3.2% 6.1 5.3% (57) 3.6% (46) 2.8% 6.8 6.8% (66) 4.0% (45) 2.7% 5.9 3.7% (58) 3.5% (190) 3.0% 6.2 3.0% (239) 3.7% (45) 2.9% 5.9 -4.8% (60) 3.9% (178) 2.8% 6.0 -2.5% (249) 3.9%
9.4 7.1 6.0 -12.8% -24.7% -15.3% (249) 5.1% 5.0 5.6% (267) 5.4% 0 NM 0 (267) 5.4% 8,590 (236) 4.3% 4.9 -2.0% (303) 5.5% 0 NM 0 (303) 5.5% 12,326 (220) 3.7% 4.7 -4.9% (320) 5.3% 0 NM 0 (320) 5.3% 12,812 0.71 12.2% (91) 1.5% (825) 13.8%
4.3 4.2 3.9 -14.1% -15.0% -15.7% (78) 5.1% 15.0 NM 0.0% (78) 5.1% 3,284 0.76 11.3% (25) 1.6% (209) 13.8% (78) 4.9% 15.0 NM 0.0% (78) 4.9% 3,414 0.79 9.8% (27) 1.7% (213) 13.4% (74) 4.5% 15.0 NM 0.0% (74) 4.5% 3,435 0.82 15.7% (28) 1.7% (214) 13.1%
4.0 4.1 3.5 3.5 3.1 -6.0% -13.1% -19.7% -14.1% -11.9% (79) 4.7% 15.0 NM (0.2) 0.0% (79) 4.8% (309) 4.8% 15.0 NM (0.2) 0.0% (309) 4.8% (70) 4.5% 15.0 0.0% (0.7) 18.8% (71) 4.6% (296) 4.6% 14.0 -6.4% (7.0) 21.1% (303) 4.7% (285) 4.4% 14.3 1.7% (23.5) 21.9% (308) 4.7%
3,437 13,570 0.81 11.4% (28) 1.7% (210) 12.6% 0.80 12.1% (108) 1.7% (846) 13.2%
3,463 14,398 15,114 15,545 15,928 16,284 0.84 10.0% (29) 1.9% (205) 13.2% 0.85 6.7% (122) 1.9% (852) 13.1% 0.87 2.0% (131) 2.0% (864) 13.1% 0.87 1.0% (136) 2.1% (885) 13.3% 0.87 0.0% (139) 2.2% (908) 13.4% 0.87 0.0% (142) 2.2% (939) 13.6%
0.77 0.63 -12.0% -17.6% (66) 1.3% (784) 16.0% (78) 1.4% (834) 15.0%
93
Table 37: SingTel domestic OpEx build continued

FY 2008A Staff Average employees Subscribers per employee YoY Monthly cost per employee (S$ 000) YoY Staff costs (S$ mn) As % of ex. NBN revenue Cost of sales Monthly expense per sub (S$) YoY Cost of sales (S$ mn) As % of ex. NBN revenue Repair & maintenance Monthly expense per sub (S$) YoY Repair and maintenance (S$ mn) As % of ex. NBN revenue Others Monthly expense per sub (S$) YoY Others (S$ mn) As % of ex. NBN revenue 9,895 FY 2009A 11,956 FY 2010A 12,649 434 -1.0% 5.7 0.9% (859) 14.3% 15.0 8.8% FY 1Q11A 12,666 436 5.1% 5.6 0.5% (213) 14.0% 14.0 21.9% (253) 16.7% FY FY FY FY FY 2Q11A 3Q11A 4Q11A 2011A 1Q12A 12,887 436 2.0% 5.9 5.9% (229) 14.4% 15.5 17.4% (288) 18.2% 12,822 445 1.9% 5.8 6.0% (224) 13.7% 12,920 12,920 450 3.6% 6.1 1.4% (235) 14.2% 450 3.5% 5.8 2.7% (901) 14.1% FY 2012E FY 2013E FY 2014E FY 2015E FY 2016E
12,983 13,205 13,092 12,893 12,660 12,374 456 4.5% 6.0 7.2% (234) 15.1% 468 4.0% 6.2 7.0% 482 3.0% 6.6 5.9% 489 1.5% 6.8 3.5% 494 1.0% 7.1 3.5% 499 1.0% 7.3 3.5%
490 439 16.0% -10.4% 5.9 6.6% (701) 14.3% 12.5 6.1% (665) 13.6% 5.6 -4.9% (805) 14.5% 13.8 10.4%
(985) (1,034) (1,054) (1,071) (1,084) 15.3% 16.1% 16.4% 16.7% 16.8% 10.9 -7.0% 10.3 -5.0% 9.9 -4.0%
15.9 16.8 3.5% -14.2% (305) 18.6% 1.5 -3.5% (29) 1.8% (0.22) NM 4 -0.3%
15.5 11.9 13.3 11.7 3.2% -14.5% -14.1% -12.0%
(850) (1,027) 15.3% 17.1% 1.7 1.4% (114) 1.9% (0.38) NM 26 -0.4%
(331) (1,177) 19.9% 18.4% 1.7 -1.6% (33) 2.0% (0.15) NM 3 -0.2% 1.6 -4.8% (121) 1.9% (0.27) NM 21 -0.3%
(243) (1,127) (1,086) (1,063) (1,045) (1,034) 15.7% 17.5% 16.9% 16.5% 16.3% 16.1% 1.5 -9.7% (30) 1.9% (0.29) NM 6 -0.4% 1.4 -9.1% (122) 1.9% (0.25) NM 21 -0.3% 1.3 -9.9% (120) 1.9% (0.25) NM 24 -0.4% 1.2 -7.0% (118) 1.8% (0.3) 5.0% 26 -0.4% 1.1 -5.0% (116) 1.8% (0.3) 5.0% 28 -0.4% 1.1 -5.0% (113) 1.8% (0.3) 5.0% 31 -0.5%
1.9 1.6 -10.0% -11.8% (99) 2.0% (0.43) NM 23 -0.5% (101) 1.8% (0.45) NM 28 -0.5%
1.6 1.6 0.1% -11.4% (30) 1.9% (0.39) NM 7 -0.5% (29) 1.8% (0.35) NM 7 -0.4%
Total Operating expenses (S$ mn) (2,987) (3,479) (3,814) As % of total revenue 60.9% 62.7% 63.6% BP change YoY 2.68 1.81 0.91
(952) (1,092) (1,086) (1,143) (4,272) (1,024) (4,439) (4,462) (4,482) (4,517) (4,575) 62.6% 68.8% 66.5% 68.8% 66.7% 65.8% 68.3% 67.9% 67.2% 66.6% 66.2% 2.34 5.29 2.65 2.42 3.13 3.13 1.54 (0.42) (0.68) (0.63) (0.40)
94
Table 38: SingTel: Singapore P&L

SingTel domestic P&L (S$ MM, YE Mar) Mobile-voice Mobile-data National telephone Fixed broadband Other data & internet International telephone IT and engineering services Sale of equipment Pay TV Miscellaneous Operating revenue YoY Selling and administrative Intl. Telephone outpayments Mobile roaming outpayments Leases Interconnect Staff costs Cost of sales Repair and maintenance Others (govt grant etc.) Operating expenses Gross Operating Profit Other income EBITDA YoY EBITDA margin (%) BP change YoY Depreciation & amortization EBIT YoY FY 2008A 929 393 425 333 1,053 616 731 272 1 154 4,905 10.7% (761) (202) (249) (267) (66) (701) (665) (99) 23 (2,987) 1,919 49 1,968 3.5% 40.1% (2.81) (488) 1,480 5.8% FY 2009A 977 469 404 363 1,172 624 1,072 268 6 194 5,547 13.1% (916) (217) (236) (303) (78) (805) (850) (101) 28 (3,479) 2,069 42 2,111 7.3% 38.0% (2.06) (476) 1,635 10.5% FY 2010A 1,058 552 393 360 1,216 519 1,417 268 16 195 5,995 8.1% (1,015) (194) (220) (320) (91) (859) (1,027) (114) 26 (3,814) 2,181 42 2,223 5.3% 37.1% (0.97) (518) 1,705 4.3% FY 1Q11A 272 160 95 92 303 126 346 66 14 47 1,520 9.9% (254) (48) (58) (78) (25) (213) (253) (30) 7 (952) 568 8 576 2.4% 37.9% (2.77) (134) 442 1.6% FY 2Q11A 271 166 95 94 308 131 374 75 22 51 1,586 9.9% (339) (51) (57) (78) (27) (229) (288) (29) 7 (1,092) 494 11 505 -6.0% 31.8% (5.40) (134) 371 -9.6% FY 3Q11A 279 186 95 96 305 132 384 85 21 52 1,634 6.8% (319) (46) (66) (74) (28) (224) (305) (29) 4 (1,086) 548 24 572 1.8% 35.0% (1.70) (136) 436 1.1% FY 4Q11A 273 182 90 98 317 123 430 86 23 39 1,661 1.3% FY 2011A 1,095 694 375 380 1,233 511 1,534 311 79 189 6,400 6.8% FY 1Q12A 279 194 90 97 301 127 324 77 23 46 1,557 2.5% FY 2012E 1,127 825 351 401 1,210 511 1,397 346 112 220 6,501 1.6% FY 2013E 1,163 921 320 433 1,156 510 1,312 364 151 244 6,574 1.1% FY 2014E 1,189 964 293 448 1,129 510 1,298 382 188 270 6,671 1.5% FY 2015E 1,206 998 247 493 1,080 510 1,316 401 230 305 6,786 1.7% FY 2016E 1,221 1,030 204 534 1,032 509 1,341 421 278 344 6,914 1.9% (1,435) (183) (242) (372) (142) (1,084) (1,034) (113) 31 (4,575) 2,339 32 2,371 3.1% 34.3% 0.39 (556) 1,816 4.2%
(337) (1,249) (45) (190) (58) (239) (79) (309) (28) (108) (235) (901) (331) (1,177) (33) (121) 3 21 (1,143) (4,272) 518 11 529 -6.0% 31.8% (2.45) (147) 382 -11.0% 2,128 54 2,182 -1.8% 34.1% (2.99) (551) 1,631 -4.3%
(318) (1,374) (1,381) (1,388) (1,405) (45) (178) (177) (179) (181) (60) (249) (247) (246) (244) (71) (303) (308) (324) (344) (29) (122) (131) (136) (139) (234) (985) (1,034) (1,054) (1,071) (243) (1,127) (1,086) (1,063) (1,045) (30) (122) (120) (118) (116) 6 21 24 26 28 (1,024) (4,439) (4,462) (4,482) (4,517) 533 8 541 -6.0% 34.8% (3.13) (134) 407 -7.9% 2,062 32 2,094 -4.0% 32.2% (1.88) (530) 1,564 -4.1% 2,112 32 2,144 2.4% 32.6% 0.41 (546) 1,598 2.2% 2,189 32 2,221 3.6% 33.3% 0.67 (556) 1,665 4.2% 2,269 32 2,301 3.6% 33.9% 0.62 (557) 1,743 4.7%
95
Australia-Optus
Whats changed in the past 12 months? Telstras (the incumbent operator in Australia) reassertion in the Mobile (+1.1% market share) and Fixed Broadband markets (+1.4%) has undeniably been the main development in the Australian Telecom market over the past year. This was driven by a significant reinvestment by Telstra (c. A$1bn) in customers acquisition and retention costs but also helped by Vodafone network severe congestion issues and subsequent customer dissatisfaction (loss of -400k customers in 2H11) during the year. Optus remained reasonably resilient throughout the year with most of Telstras market share gains coming at the expense of other players (Vodafone in Mobile, Layer 2 ISPs in Fixed).
Figure 97: Subscribers Market share changes
+4.0% +3.0% +2.0% +1.0% +0.0% -1.0% -2.0% -3.0% FY10 1H11 Telstra Optus 2H11 VHA -0.1% -0.6% -0.8% -0.1% -0.6% -1.8% -2.6% FY11 +2.1% +1.4% +3.2% +1.9%
Figure 98: Service Revenue Market share changes

+2.0% +1.5% +1.0% +0.5% +0.0% -0.5% -1.0% -1.5% -2.0% -2.5% 1H11 2H11 FY11 -1.9% -0.7% -0.6% +0.6% +0.0% +0.2% +1.7%
Telstra Optus VHA
+0.5% +0.1%
-2.0%
Source: Company reports, J.P. Morgan estimates
Source: J.P.Morgan estimates, Company data.
What is the driver for the sector / operator for the next 12 months? In mobile, wireless data consumption driven by strong smartphone adoption (c. 30%+ mkt penetration) and continued mobile broadband take-up is likely to continue to drive mid to high single digit mobile in revenue growth. A likely reduction in Mobile Termination rate (60% reduction over next 2 years proposed by the Regulator) is likely to drive a moderation in mobile industry growth (JPMe mobile market growth of +6%) in FY12-13. In Fixed line, the carriers main focus will be on preparing for the migration to NBN and possibly on consolidation ahead of the NBN roll-out (e.g. TPG/IIN ). Key issues that investors need to be aware of for the next 12-24 months Key issues in the Australian Telecom market in the next 12-24 months: NBN: with NBNco expected to launch core wholesale products commercially in 2012, the migration to the new NBN market environment will be the main focus in the Fixed line segment. Mobile termination rate reduction: the Regulator (ACCC) has recently launched a review on a proposed reduction in termination rates (9cpm today going to 6cpm from 3.6cpm. Competitive environment : Following the well publicized network/customer issues in 2011, Vodafone is likely to try to re-assert itself in the market place though price based competition.
96
Table 39: SingTel: Australia (Optus) P&L

Optus Australia P&L (A$ MM, YE Mar) Mobile Business & wholesale Consumer & multimedia Inter-segment Operating revenue YoY EBITDA Mobile Business & wholesale Consumer & multimedia Operational EBITDA YoY EBITDA margin Mobile Business & wholesale Consumer & multimedia EBITDA margin (%) BP change YoY D&A EBIT YoY Optus P&L (S$ mn) Operating revenue YoY Operational EBITDA YoY EBITDA margin (%) BP change YoY D&A EBIT YoY FY 2008A 4,355 1,872 1,553 (20) 7,760 3.8% 1,432 421 163 2,002 0.7% 32.9% 22.5% 10.5% 25.8% (0.80) (1,092) 910 5.2% 9,940 11.1% 2,564 7.7% 25.8% (0.81) (1,399) 1,165 12.3% FY 2009A 4,938 1,974 1,421 (12) 8,321 7.2% 1,388 474 205 2,066 3.2% 28.1% 24.0% 14.4% 24.8% (0.97) (1,108) 958 5.3% 9,387 -5.6% 2,321 -9.5% 24.7% (1.06) (1,257) 1,065 -8.6% FY 2010A 5,573 2,004 1,384 (12) 8,949 7.5% 1,455 490 209 2,153 4.2% 26.1% 24.5% 15.1% 24.1% (0.77) (1,120) 1,033 7.8% 10,876 15.9% 2,623 13.0% 24.1% (0.61) (1,360) 1,263 18.6% FY 1Q11A 1,424 494 339 (2) 2,255 2.6% 369 129 55 553 9.5% 25.9% 26.1% 16.2% 24.5% 1.55 (286) 267 19.2% 2,769 12.3% 679 20.0% 24.5% 1.56 (351) 329 30.8% FY 2Q11A 1,498 484 343 (2) 2,323 4.8% 374 124 58 557 9.6% 25.0% 25.6% 16.9% 24.0% 1.06 (283) 274 20.4% 2,850 7.1% 683 11.5% 24.0% 0.95 (347) 336 21.8% FY 3Q11A 1,561 490 336 (2) 2,385 3.6% 371 126 56 553 4.5% 23.8% 25.7% 16.7% 23.2% 0.21 (286) 267 7.2% 3,070 5.1% 712 6.1% 23.2% 0.22 (368) 344 8.9% FY 4Q11A 1,494 500 330 (2) 2,322 4.0% 448 162 61 671 9.8% 30.0% 32.4% 18.5% 28.9% 1.52 (275) 396 19.3% 2,982 5.3% 862 11.3% 28.9% 1.55 (353) 509 21.0% FY 2011A 5,977 1,968 1,348 (8) 9,285 3.8% 1,562 541 230 2,333 8.4% 26.1% 27.5% 17.1% 25.1% 1.07 (1,130) 1,203 16.5% 11,670 7.3% 2,934 11.9% 25.1% 1.03 (1,418) 1,516 20.1% FY 1Q12A 1,492 497 327 (2) 2,314 2.6% 371 131 58 560 1.3% 24.9% 26.4% 17.7% 24.2% (0.32) (279) 281 5.2% 3,048 10.1% 738 8.6% 24.2% (0.33) (367) 370 12.7% FY 2012E 6,217 2,022 1,314 (8) 9,545 2.8% 1,679 505 210 2,394 2.6% 27.0% 25.0% 16.0% 25.1% (0.04) (1,145) 1,249 3.8% 12,254 5.0% 3,072 4.7% 25.1% (0.08) (1,470) 1,602 5.7% FY 2013E 6,518 2,086 1,371 (9) 9,966 4.4% 1,727 522 226 2,475 3.4% 26.5% 25.0% 16.5% 24.8% (0.25) (1,196) 1,279 2.4% 11,713 -4.4% 2,909 -5.3% 24.8% (0.23) (1,405) 1,504 -6.2% FY 2014E 6,809 2,149 1,402 (9) 10,351 3.9% 1,770 543 238 2,551 3.1% 26.0% 25.3% 17.0% 24.6% (0.19) (1,221) 1,330 4.0% 12,124 3.5% 2,988 2.7% 24.6% (0.19) (1,431) 1,558 3.6% FY 2015E 7,054 2,216 1,433 (10) 10,694 3.3% 1,799 565 251 2,615 2.5% 25.5% 25.5% 17.5% 24.5% (0.20) (1,240) 1,374 3.3% 12,401 2.3% 3,032 1.5% 24.5% (0.20) (1,438) 1,594 2.3% FY 2016E 7,263 2,280 1,465 (10) 10,998 2.8% 1,816 587 264 2,667 2.0% 25.0% 25.8% 18.0% 24.2% (0.20) (1,243) 1,424 3.6% 12,626 1.8% 3,061 1.0% 24.2% (0.20) (1,427) 1,635 2.6%
97
Other Regional Associates

We are positive on the business for Bharti in India, AIS in Thailand while Globe has been gaining back revenue market share from PLDT in the Philippines. Recent lower contributions from associates to SingTel were largely a function of large appreciation of the Singapore dollar. Telkomsels operations in Indonesia are expected to remain weak due to heavy competition in the industry. Please see below for links to detailed recent J.P. Morgan reports on Bharti, PT Telkom (Telkomsels parent company), AIS and Globe. Bharti (OW, Mar-12 PT Rs460) India Telecoms: DoT responds to TRAI's recommendations India Telecoms NTP 2011 draft - key takeaways India Telecoms: The future of voice services Bharti Airtel Limited: Encouraging developments in Africa PT Telkom (N, Dec-12 PT Rp7,900) TIPM Telcos: The 2Q11 Deep Dive PT Telekomunikasi IndonesiaTbk: 2Q11 net 11% below JPM, higher S&M and depreciation for both TLKM and EXCL AIS (N, Dec-12 PT Bt140) Thai Telcos: 3Q11 Preview Asia Telcos: Where to care about GDP downgrades Downgrade AIS/Thailand TIPM Telcos: The 2Q11 Deep Dive Advanced Info Services 2Q11 net 7% ahead of JPM Globe (N, Dec-12 PT Php930) TIPM Telcos: The 2Q11 Deep Dive Globe Telecom 2Q11: spot in line with JPM, higher than Street
98
Table 40: SingTel: Associate contribution breakdown

Associates (S$ MM) SingTel's effective stake Telkomsel AIS Bharti Globe Warid PBTL Effective contributions Associate PBT (S$ mn) Telkomsel AIS Bharti Globe Warid PBTL Others Exceptional items Total Associate PAT (S$ mn) Telkomsel AIS Bharti Globe Warid PBTL Others Exceptional items Total Associates Dividends Telkomsel AIS Bharti Globe Warid PBTL Others Total FY 2008A 35.0% 21.4% 30.4% 44.5% 30.0% 45.0% FY 2009A 35.0% 21.4% 30.4% 47.3% 30.0% 45.0% FY 2010A 35.0% 21.3% 32.0% 47.3% 30.0% 45.0% FY 1Q11A 35.0% 21.3% 32.0% 47.3% 30.0% 45.0% FY 2Q11A 35.0% 21.3% 32.0% 47.3% 30.0% 45.0% FY 3Q11A 35.0% 21.3% 32.2% 47.3% 30.0% 45.0% FY 4Q11A 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2011A 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 1Q12A 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2012E 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2013E 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2014E 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2015E 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2016E 35.0% 21.3% 32.3% 47.3% 30.0% 45.0%
1,153 253 840 317 (31) (23) 83 (1) 2,591 803 176 753 209 (32) (38) 60 1 1,932 604 179 0 239 0 0 93 1,115
712 239 871 258 (116) (23) 89 1 2,031 517 179 808 172 (115) (23) 78 1,616 534 169 0 231 0 0 134 1,068
940 215 987 235 (63) (13) 119 2,420 682 148 848 165 (63) (13) 109 (1) 1,875 447 169 18 228 0 0 92 954
221 68 210 45 (14) (5) 26 551 164 48 164 31 (14) (5) 21 409 0 223 0 0 0 0 5 228
230 67 209 49 (14) (4) 31 567 172 46 156 34 (14) (4) 28 (1) 417 265 80 17 74 0 0 47 483
214 68 184 40 (14) (4) 30 518 161 48 156 33 (21) (4) 27 (2) 398 215 164 0 0 0 22 401
190 73 173 59 (12) (4) 35 514 142 49 128 41 (12) (4) 32 376 0 0 58 0 0 25 83
855 276 776 193 (54) (17) 122 2,150 639 191 604 139 (61) (17) 108 (3) 1,600 480 467 17 132 99 1,195
210 77 154 49 (12) (6) 28 (1) 500 157 53 103 34 (12) 2 23 360 353 102 0 0 0 0 9 464
886 331 892 212 (38) (15) 112 (1) 2,379 664 242 629 146 (38) (7) 92 1,728 440 369 141 99 1,049
950 385 1,450 234 (17) (7) 112 3,108 713 296 1,061 159 (17) (7) 92 2,296 445 242 150 99 936
1,102 435 1,981 264 (4) (5) 112 0 3,884 826 334 1,450 179 (4) (5) 92 0 2,871 470 289 159 99 1,017
1,411 492 2,415 327 2 (4) 112 0 4,756 1,059 377 1,681 223 1 (4) 92 0 3,430 530 334 186 99 1,149
1,139 262 2,814 286 7 (2) 112 0 4,617 854 201 1,865 194 4 (2) 92 0 3,209 722 377 230 99 1,429
99
Group Model Build

Table 41: SingTel: Group P&L
Group P&L (S$ MM) Total Operating Revenue YoY EBITDA YoY EBITDA margin - Group BP change YoY Compensation from IDA D&A EBIT Share of results of associates Interest income Forex gain/(loss) Finance costs Net finance (expense)/ income Exceptional items ("EI") Profit before tax Taxation Tax rate Profit after taxation Minority interests Net profit YoY Net profit (underlying) YoY EPS (Sen) Recurring EPS (Sen) FY 2008A 14,845 11.0% 4,531 5.8% 30.5% (1.49) 0 (1,887) 2,644 2,559 52 165 (393) (177) 103 5,130 (1,168) 23% 3,962 (1) 3,961 4.8% 3,681 3.5% 24.9 23.2 FY 2009A 14,934 0.6% 4,432 -2.2% 29.7% (0.85) 0 (1,733) 2,699 2,051 57 (8) (361) (312) (56) 4,382 (933) 21% 3,450 (1) 3,449 -12.9% 3,455 -6.1% 21.7 21.7 FY 2010A 16,871 13.0% 4,846 9.3% 28.7% (0.95) 0 (1,878) 2,968 2,410 22 (44) (312) (334) (2) 5,042 (1,136) 23% 3,906 1 3,906 13.3% 3,910 13.2% 24.6 24.6 FY 1Q11A 4,289 11.5% 1,255 11.2% 29.3% (0.06) 0 (484) 771 541 4 5 (88) (79) 0 1,233 (292) 24% 942 1 943 -0.3% 943 -0.2% 5.9 5.9 FY 2Q11A 4,436 8.1% 1,188 3.3% 26.8% (1.23) 0 (481) 707 567 6 (7) (87) (88) 1 1,187 (296) 25% 891 1 892 -6.7% 891 -6.4% 5.6 5.6 FY 3Q11A 4,704 5.7% 1,284 4.2% 27.3% (0.40) 0 (503) 781 519 33 0 (99) (66) 30 1,264 (266) 21% 998 1 999 0.9% 968 -2.3% 6.3 6.1 FY 4Q11A 4,643 3.8% 1,391 4.0% 30.0% 0.06 0 (500) 891 514 8 3 (102) (92) (6) 1,307 (317) 24% 990 0 990 -2.5% 998 -2.4% 6.2 6.3 FY 2011A 18,070 7.1% 5,116 5.6% 28.3% (0.41) 0 (1,969) 3,147 2,141 50 2 (376) (324) 25 4,991 (1,171) 23% 3,821 3 3,823 -2.1% 3,800 -2.8% 24.0 23.9 FY 1Q12A 4,605 7.4% 1,279 1.9% 27.8% (1.50) FY 2012E 18,755 3.8% 5,166 1.0% 27.5% (0.77) FY 2013E 18,287 -2.5% 5,053 -2.2% 27.6% 0.09 FY 2014E 18,795 2.8% 5,209 3.1% 27.7% 0.08 FY 2015E 19,187 2.1% 5,333 2.4% 27.8% 0.08 FY 2016E 19,540 1.8% 5,433 1.9% 27.8% 0.01 0 (1,982) 3,450 4,617 43 0 (534) (492) 0 7,576 (1,818) 24% 5,757 (4) 5,754 -1.9% 5,754 -1.9% 36.1 36.1
0 0 (501) (2,000) 778 3,166 508 3 0 (96) 2,387 27 0 (398)
0 0 0 (1,952) (1,986) (1,996) 3,101 3,223 3,337 3,108 30 0 (398) 3,884 27 0 (398) 4,756 24 0 (398)
(93) (371) 66 66 1,259 5,249 (342) (1,260) 27% 24% 917 3,989 (1) (4) 916 3,985 -2.8% 4.2% 873 -7.4% 5.8 5.5 3,942 3.7% 25.0 24.7
(368) (371) (374) 0 0 0 5,841 6,736 7,719 (1,343) (1,549) (1,853) 23% 23% 24% 4,497 5,187 5,867 (4) (4) (4) 4,494 5,183 5,863 12.8% 15.3% 13.1% 4,494 14.0% 28.2 28.2 5,183 15.3% 32.5 32.5 5,863 13.1% 36.8 36.8
100
Table 42: SingTel: Group balance sheet

S$ MM, YE March Cash and cash equivalents Trade and other receivables Others Total Current Assets Property, plant and equipment Intangible assets Associate & JV companies Others Total Non-Current Assets Total Assets Trade and other payables Borrowings Others Total Current Liabilities Borrowings Others Total Non Current Liabilities Total Liabilities Minority interests Share capital Reserves Total equity Total liabilities and equity 2008 1,372 2,541 137 4,050 10,124 10,057 8,540 1,944 30,664 34,714 3,360 1,875 521 5,756 5,668 2,288 7,956 13,712 3 2,594 18,406 21,000 34,714 2009 1,076 2,532 186 3,794 9,123 10,027 8,659 1,652 29,461 33,255 3,268 1,434 401 5,103 6,061 1,591 7,652 12,754 24 2,606 17,871 20,476 33,255 2010 1,614 3,172 359 5,144 10,750 10,200 10,412 1,445 32,807 37,952 4,650 1,528 657 6,835 5,351 2,250 7,601 14,436 23 2,616 20,877 23,493 37,952 2011 2,738 3,449 368 6,555 11,113 10,218 10,197 1,199 32,727 39,282 4,450 2,699 1,392 8,541 4,587 1,805 6,391 14,932 22 2,623 21,706 24,328 39,282 2012E 2,965 3,580 368 6,913 11,379 10,342 10,962 1,199 33,882 40,795 4,619 2,699 1,392 8,709 4,587 1,805 6,391 15,101 26 2,623 23,046 25,668 40,795 2013E 2,731 3,491 368 6,590 11,653 10,465 12,418 1,199 35,735 42,324 4,504 2,699 1,392 8,594 4,587 1,805 6,391 14,985 29 2,623 24,687 27,310 42,324 2014E 2,403 3,588 368 6,359 11,850 10,588 14,392 1,199 38,029 44,388 4,629 2,699 1,392 8,719 4,587 1,805 6,391 15,111 33 2,623 26,621 29,244 44,387 2015E 4,293 3,662 368 8,323 12,045 10,711 16,858 1,199 40,813 49,136 4,725 5,199 1,392 11,316 4,587 1,805 6,391 17,707 36 2,623 28,770 31,392 49,136 2016E 3,659 3,730 368 7,757 12,296 10,834 18,937 1,199 43,267 51,024 4,812 5,199 1,392 11,403 4,587 1,805 6,391 17,794 40 2,623 30,567 33,190 51,024
101
Table 43: SingTel: Cash flows

S$ MM, YE March Profit before tax Adjustments for Depreciation and amortisation Interest and investment income (net) Finance costs Share of associated and JV's (Pretax-tax) Others Operating cash flow before working capital changes Changes in operating assets and liabilities Trade and other receivables Trade and other payables Others Cash generated from operations Dividends received from associated and joint venture companies Income tax and withholding tax paid Others Net cash inflow from operating activities Interest received Net Payment for acquisition of subsidiary Net Investment in associated and joint venture companies Payment for purchase of property, plant and equipment Purchase of intangible assets Others Net cash outflow from investing activities Net proceeds from borrowings Net interest paid on borrowings and swaps Final dividends paid to shareholders of the Company Interim dividends paid to shareholders of the Company Proceeds from issue of shares Others Net cash outflow from financing activities Net decrease in cash and cash equivalents Exchange effects on cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Net debt / (cash)
2008 5,130 1,887 (216) 393 (2,559) (52) 4,583 (36) 177 (38) 4,687 1,114 (335) (12) 5,454 52 0 (1,102) (1,879) (3) 184 (2,748) 1,166 (411) (2,545) (891) 32 (63) (2,711) (6) (12) 1,390 1,372 6,171
2009 4,382 1,733 (49) 361 (2,051) 89 4,465 (86) 96 (38) 4,437 1,068 (339) (4) 5,163 35 (185) (255) (1,918) (4) (63) (2,391) (466) (374) (1,098) (891) 12 (201) (3,018) (245) (51) 1,372 1,076 6,419
2010 5,042 1,878 8 326 (2,410) 39 4,883 (456) 357 (37) 4,747 954 (370) (2) 5,329 17 0 (90) (1,923) (123) (60) (2,179) (204) (315) (1,097) (987) 11 (42) (2,634) 515 23 1,076 1,614 5,266
2011 4,991 1,969 (44) 368 (2,141) (5) 5,138 (134) 101 48 5,154 1,194 (301) (4) 6,043 34 0 (670) (2,005) (27) (92) (2,759) 840 (348) (1,274) (1,083) 7 (283) (2,141) 1,143 (18) 1,614 2,738 4,548
2012E 5,249 2,000 (27) 398 (2,387) 0 5,232 (131) 169 0 5,270 1,049 (687) 0 5,633 27 0 0 (2,266) (123) 0 (2,362) 0 (398) (1,529) (1,116) 0 0 (3,043) 227 0 2,738 2,965 4,320
2013E 5,841 1,952 (30) 398 (3,108) 0 5,053 89 (115) 0 5,027 936 (629) 0 5,334 30 0 0 (2,225) (123) 0 (2,318) 0 (398) (1,594) (1,258) 0 0 (3,250) (234) 0 2,965 2,731 4,555
2014E 6,736 1,986 (27) 398 (3,884) 0 5,209 (97) 125 0 5,237 1,017 (656) 0 5,598 27 0 0 (2,184) (123) 0 (2,280) 0 (398) (1,797) (1,451) 0 0 (3,647) (328) 0 2,731 2,403 4,883
2015E 7,719 1,996 (24) 398 (4,756) 0 5,333 (75) 96 0 5,355 1,149 (711) 0 5,792 24 0 0 (2,191) (123) 0 (2,290) 2,500 (398) (2,073) (1,642) 0 0 (1,613) 1,890 0 2,403 4,293 5,493
2016E 7,576 1,982 (43) 534 (4,617) 0 5,433 (67) 87 0 5,452 1,429 (710) 0 6,171 43 0 0 (2,233) (123) 0 (2,314) 0 (534) (2,345) (1,611) 0 0 (4,491) (633) 0 4,293 3,659 6,126
102
JPM Q-Profile
Singapore Telecommunications Ltd. (SINGAPORE / Telecommunication Services)
As Of: 13-Oct-2011 Quant_Strategy@jpmorgan.com
Local Share Price

4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
3.21
12 Mth Forward EPS

0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05
Current:
0.26
Sep/08
Sep/09
Sep/10
Sep/11
0.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/10 Sep/10 Sep/10 Sep/11
Earnings Yield (& local bond Yield)

12% 10% 8% 6% 4%
12Mth fwd EY Singapore BY Proxy
Current:
8%
Implied Value Of Growth*

0.80 0.60 0.40 0.20 0.00 -0.20
Current:
-21.62%
2% 0% Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/11
-0.40 -0.60 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/11
PE (1Yr Forward)
30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
12.4x
Price/Book Value
7.0x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x
PBV hist PBV Forward
Current:
2.0x
Sep/08
Sep/09
Sep/10
Sep/11
0.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/11
ROE (Trailing)
35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
15.53
Dividend Yield (Trailing)

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
4.97
Sep/08
Sep/09
Sep/08
Sep/09
Sep/10
Summary
Singapore Telecommunications Ltd. 39378.38 SINGAPORE 71.14382 SEDOL B02PY22 Telecommunication Services Diversified Telecommunication Latest Min Max 12mth Forward PE 8.82 25.95 12.40x P/BV (Trailing) 1.45 6.42 2.03x Dividend Yield (Trailing) 0.00 7.64 4.97 ROE (Trailing) 9.32 30.72 15.53 Implied Value of Growth -0.38 0.63 -21.6% Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, J.P. Morgan Calcs As Of: Local Price: EPS: % to Max % to Med 109% 14% 216% 15% 54% -33% 98% 19% 391% 140% 13-Oct-11 3.21 0.26 % to Avg 23% 44% -29% 28% 171%
Median 14.14 2.34 3.33 18.48 0.09
Sep/11
Average 15.27 2.92 3.52 19.95 0.15
2 S.D.+ 23.19 5.56 7.61 29.91 0.68
2 S.D. 7.35 0.28 -0.57 9.98 -0.37
% to Min -29% -29% -100% -40% -76%
* Implied Value Of Growth = (1 - EY/Cost of equity) where cost of equity =Bond Yield + 5.0% (ERP)
Sep/11
103
Singapore Telecom: Summary of Financials

Profit and Loss Statement S$ in millions, year end Mar Revenue EBITDA Depreciation Amortization EBIT Interest income Interest expense Associates Profit before tax Tax Minorities Net profit - reported Net profit - adjusted Shares Outstanding (mn) EPS (S$) (Reported) EPS (Adjusted) DPS (S$) DPS payout ratio Revenue growth EBITDA growth Adj Net profit growth Adj EPS growth DPS growth FY10 16,871 4,846 (1,878) 0 2,968 22 (312) 2,410 5,042 (1,136) 1 3,906 3,910 15,912 0.25 0.25 0.14 58% 13.0% 9.3% 13.2% 13.2% 13.5% FY11 18,070 5,116 (1,969) 0 3,147 50 (376) 2,141 4,991 (1,171) 3 3,823 3,800 15,918 0.24 0.24 0.16 68% 7.1% 5.6% (2.8%) (2.9%) 15.6% FY12E 18,755 5,166 (2,000) 0 3,166 27 (398) 2,387 5,249 (1,260) -4 3,985 3,942 15,931 0.25 0.25 0.17 68% 3.8% 1.0% 3.7% 3.7% 3.8% FY13E 18,287 5,053 (1,952) 0 3,101 30 (398) 3,108 5,841 (1,343) -4 4,494 4,494 15,931 0.28 0.28 0.19 68% (2.5%) (2.2%) 14.0% 14.0% 12.8% Balance Sheet statement FY14E S$ in millions, year end Mar 18,795 Cash and equivalents 5,209 Accounts receivable (1,986) Others 0 Total Current assets 3,223 27 ST loans (398) Others 3,884 Total current liabilities 6,736 (1,549) Net working capital -4 5,183 Net fixed assets 5,183 Other long term assets Total non-current assets 15,931 0.33 Total Assets 0.33 0.22 Long-term debt 68% Other liabilities Total Liabilities 2.8% 3.1% Shareholders' equity 15.3% 15.4% Total liabilities and equity 15.3% Net debt/(cash) Book value per share Cash flow statement FY14E S$ in millions, year end Mar 27.7% Cash flow from operations 18.2% Capex 18.3% Cash flow from other investing 9.1% Cash flow from financing 12.0% 23.0% Change in cash for year (11.6%) 19.9% Beginning cash 16.7% Closing cash 14.06 FY10 1,614 3,172 359 5,144 1,528 5,307 6,835 (1,691) 10,750 22,057 32,807 37,952 5,351 2,250 14,436 23,493 37,952 5,266 1.48 FY11 2,738 3,449 368 6,555 2,699 5,842 8,541 FY12E 2,965 3,580 368 6,913 2,699 6,011 8,709 FY13E 2,731 3,491 368 6,590 2,699 5,895 8,594 (2,005) 11,653 24,082 35,735 42,324 4,587 1,805 14,985 27,310 42,324 4,555 1.71 FY13E 5,334 (2,225) (94) (3,250) (234) 2,965 2,731 FY14E 2,403 3,588 368 6,359 2,699 6,020 8,719 (2,361) 11,850 26,179 38,029 44,388 4,587 1,805 15,111 29,244 44,387 4,883 1.84 FY14E 5,598 (2,184) (96) (3,647) (328) 2,731 2,403
(1,986) (1,796) 11,113 21,615 32,727 39,282 4,587 1,805 14,932 24,328 39,282 4,548 1.53 11,379 22,502 33,882 40,795 4,587 1,805 15,101 25,668 40,795 4,320 1.61
Ratio Analysis %, year end Mar FY10 FY11 EBITDA margin 28.7% 28.3% FCF margin 20.2% 22.4% ROE 17.8% 15.9% ROC 10.2% 10.2% ROA 11.0% 9.8% Tax rate 22.5% 23.5% Capex to sales (11.4%) (11.1%) Debt/Capital 22.7% 23.1% Net debt or (cash) to equity 22.4% 18.7% Interest cover (x) 16.70 15.72 Source: Company reports and J.P. Morgan estimates.
FY12E 27.5% 18.0% 15.8% 9.8% 9.9% 24.0% (12.1%) 22.1% 16.8% 13.94
FY13E 27.6% 17.0% 17.0% 9.2% 10.8% 23.0% (12.2%) 21.1% 16.7% 13.72
FY10 FY11 FY12E 5,329 6,043 5,633 (1,923) (2,005) (2,266) (256) (755) (96) (2,634) (2,141) (3,043) 538 1,076 1,614 1,125 1,614 2,738 227 2,738 2,965
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21 October 2011
Initiation
StarHub
Pay TV share at risk from SingTel while NBN margins are relatively less attractive
We initiate coverage of StarHub with a Neutral rating and Dec-12 price target of S$2.70: With a total return expectation of 1% (-6% capital appreciation based on target FY12 P/E of 14x + 7% expected cash dividends during the next 12 months). Our price target is driven by two factors: 1) our EPS forecasts vs. street: we are 3% ahead for 2012; 2) target 2012 earnings multiple currently at 15.3x and above the top of its normal trading range, we use 14.0x for our price target. NBN to potentially force StarHub into a Virgin Media type strategy: Many, including ourselves, have made much over the potential for Singapores National Broadband Network project to increase competition and drive opportunities for infrastructure-lite competition. The facts, however, do not support this case. The NBN will largely serve to cement SingTels dominance of the local market, potentially force Starhub into a Virgin Media (covered by JPM analyst Carl MurdockSmith) type strategy, and lock M1 out of the mainstream market. Pay TV business at biggest risk: StarHubs pay TV business faces multiple risks in the near and longer term. First from improving content and bundling capabilities at SingTel. Current content sharing rule coupled with the governments NIMS initiative are expected to unbundle content/products over the longer term. Stable dividend yield and cash flows: StarHubs committed 20c/year in dividends imply a yield of 7.3% and are well supported by FCF yields of 7-8%. With a low geared balance sheet (2011 net debt/EBITDA at 0.9x) special dividends are an upside risk. StarHub is trading at 530 bps spread to Singapore govt bonds vs. a historical high of 810bps. Key risks: Key upside risk are higher than expected NBN market share for StarHub (we currently forecast 30%) and special dividend payments. Higher than expected price competition is a downside risk.
Neutral
STAR.SI, STH SP Price: S$2.82 Price Target: S$2.70

AC
(65) 6882-2374 james.r.sullivan@jpmorgan.com
Vishesh Gupta
(65) 6882 2367 vishesh.x.gupta@jpmorgan.com

Price Performance
2.8 S$ 2.6 2.4 2.2

STAR.SI share price (S$) FTSTI (rebased)
Abs Rel
YTD 4.9% 14.8%
1m 0.0% 6.8%
3m -3.2% 5.9%
12m 16.5% 18.5%
StarHub (Reuters: STAR.SI, Bloomberg: STH SP) S$ in mn, year-end Dec FY08A FY09A Revenue (S$ mn) 2,128 2,150 EBITDA (S$ mn) 645 654 EBITDA growth (%) 0.3% 1.4% Recurring profit (S$ mn) 311 320 Recurring EPS (S$) 0.18 0.19 EPS growth (%) -2.4% 2.2% DPS (S$) 0.18 0.18 EV/EBITDA (x) 8.8 8.5 P/E 15.4 15.1 Dividend Yield 6.4% 6.6% FCF to mkt cap (%) 7.8% 9.5%
FY10A 2,238 596 -8.8% 263 0.15 -17.9% 0.20 9.1 18.4 7.1% 8.2%
FY11E 2,268 662 11.1% 312 0.18 19.8% 0.20 8.3 15.3 7.1% 6.5%
FY12E 2,308 702 6.1% 329 0.19 5.3% 0.20 7.8 14.6 7.1% 7.8%
2.92 - 2.50 4,835 3,819 1,715 33.0% 3 5.81 2,720 1.27 2.82 20 Oct 11
Company Description StarHub is the second largest mobile operator in Singapore, providing mobile, cable TV, broadband and fixed network services. As of 2Q11, it had 29% share of Singapores wireless market, which has a 150% penetration rate.
P&L sensitivity metrics

2011E Wireless revenue (S$ mn) Impact of each 5% Cable TV revenue (S$ mn) Impact of each 5% EBITDA margin (%) Impact of each 1% Capex (S$mn) Impact of each 5%
EBITDA impact (%) 1,207 2.8% 361 0.8% 30.7% 3.3% 276 NM
EPS impact (%) 5.0% 1.5% 5.8% 0.1%
Revenue breakdown (2011E)

Sale of equipment 5% Cable TV 16% Cable BB 11%
Price target methodology
Wireless 53% Fixed 15%
Our PT is based on a sum of 1) potential upside/ (downside) to consensus EPS vs. JPM EPS estimates and 2) our estimated multiple expansion/(contraction) based on peak P/E multiple. Our peak P/E multiple is based on the stocks historical trading range and expected future business changes.
Current consensus P/E (a) Peak P/E (b) 2011E 16.1 14.0 -13.2% 3.3% -9.9% 2012E 15.3 14.0 -8.3% 3.0% -5.3% 2.7
Upside/ (Downside) to peak multiple (b/a-1=e) JPM vs. consensus EPS (d) Cumulative upside to current price (e+d) JPM Dec-2011 price target (S$/sh) Consensus 2,291 2,380 662 697 303 324
J.P. Morgan vs consensus

S$ mn FY11E-Rev FY12E-Rev FY11E-EBITDA FY12E-EBITDA FY11E-Net inc. FY12E-Net inc. J. P. Morgan 2,268 2,308 662 702 312 329
If our price target were achieved, StarHub would be trading at 2011E/12E P/E of 14.78x/13.9x and EV/EBITDA of 7.9x/7.4x but still provide a healthy 7.4%/7.4% yield. Higher than expected NBN and pay TV market share are the key upside risks to our price target for StarHub while extensive pay TV competition and threat of new entrants are downside risks.
Source: J.P. Morgan estimates, Bloomberg
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Investment Summary
We initiate coverage of StarHub with a Neutral rating and Dec-12 price target of S$2.70: With a total return expectation of 1% (-6% capital appreciation based on target FY12 P/E of 14x + 7% expected cash dividends during the next 12 months). Our price target is driven by two factors: 1) our EPS forecasts vs. street: we are 3% ahead for 2012; 2) target 2012 earnings multiple currently at 15.3x and above the top of its normal trading range, we use 14.0x for our price target. NBN to potentially force StarHub into a Virgin Media type strategy: Many, including ourselves, have made much over the potential for Singapores National Broadband Network project to increase competition and drive opportunities for infrastructure-lite competition. The facts, however, do not support this case. The NBN will largely serve to cement SingTels dominance of the local market, potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy, and lock M1 out of the mainstream market. Pay TV business at biggest risk: StarHubs pay TV business faces multiple risks in the near and longer term. First from improving content and bundling capabilities at SingTel. Current content sharing rule coupled with the governments NIMS initiative are expected to unbundle content/products over the longer term. Stable dividend yield and cash flows: StarHubs committed 20c/year in dividends imply a yield of 7.3% and are well supported by FCF yields of 7-8%. With a low geared balance sheet (2011 net debt/EBITDA at 0.9x) special dividends are an upside risk. StarHub is trading at 530 bps spread to Singapore govt bonds vs. a historical high of 810bps. Key risks: Key upside risk are higher than expected NBN market share for StarHub (we currently forecast 30%) and special dividend payments. Higher than expected price competition is a downside risk.
Upside/downside risks to our view

Positive risks Better than expected NBN market share: We expect StarHub to capture 30% of the total NBN market. We assume SingTel would account for 60% of the market while the remaining 10% would be M1. StarHubs current fixed broadband market share is 34% while pay TV market share is 64% and better than expected share of NBN subs is thus an upside risk. Please see the table below for earnings sensitivity to NBN market share assumptions.
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10% 15% 20% 2,300 2,307 2,314 -3.0% -2.7% -2.4% 5,700 5,705 5,711 -0.9% -0.8% -0.8% 10% 15% 20% 351 354 358 -4.0% -3.0% -2.0% Base case 10% 192 0.0% 15% 194 1.0% 20% 196 2.0%
25% 2,321 -2.1% 5,716 -0.7% 25% 361 -1.0% 25% 198 3.1%
30% 35% 2,328 2,336 -1.8% -1.5% 5,721 5,727 -0.6% -0.5% Base case 30% 365 0.0% 30% 200 4.1% 35% 369 1.0% 35% 202 5.1%
40% 45% 2,343 2,350 -1.2% -0.9% 5,732 5,738 -0.4% -0.3% 40% 372 2.0% 40% 204 6.1% 45% 376 3.0% 45% 206 7.1%
50% 55% 2,357 2,364 -0.6% -0.3% 5,743 5,748 -0.2% -0.1% 50% 380 4.0% 50% 208 8.2% 55% 383 4.9% 55% 210 9.2%
Base case 60% 2,371 0.0% 5,754 0.0% 60% 387 5.9% 60% 212 10.2%
65% 2,379 0.3% 5,759 0.1% 65% 390 6.9% 65% 214 11.2%
70% 2,386 0.6% 5,765 0.2% 70% 394 7.9% 70% 216 12.2%
5,694 -1.0% 5% 347 -4.9% 5% 190 -1.0%
Negative risks Pricing competition is worse than forecast: We do expect a degree of price compression which will reduce overall industry revenue growth rates moving forward, but are not forecasting an all out price war on a product by product basis. This is driven by the fact that a) bundles will increasingly drive this saturated, mature market, in our view, which theoretically limits product specific price discovery for consumers; b) Starhub and to a lesser degree M1 will face structurally lower NBN economics, which limits their ability to aggressively cut price without significantly impacting their own margins...not a guarantee that price competition will not get out of control, but clearly a limiting factor. Forecast competitive dynamics are upended as Starhub pursues an alternative infrastructure approach: We suspect that a Virgin Media type strategy may in fact be the best long term strategic option for the company, but as of yet see no signs that this will occur. Were this dynamic to change, we would expect a greater potential for a degree of price competition between Starhub and SingTel given StarHubs better economics. This could be somewhat restrained, however, by StarHubs desire to achieve a reasonable return on their CAPEX investment. A foreign operator takes control of M1 and introduces cross market competitive dynamics into the Singapore environment. Potentially an operator like Telstra (in order to have a counter balance to SingTel's Optus) or Axiata (already a 29.23% shareholder in M1, general offer is triggered at ) to eventually make a bid for the firm. This has the potential to introduce another layer of strategy into the Singapore market, which could be de-stabilizing. NIMS project creates unbundles content: The Infocomm Development Authority of Singapore (IDA), the Telecom industry regulator, has been actively pushing a program called the NextGen Interactive Multimedia Applications and Services program (NIMS), which provides for a common platform Set Top Box (STB). This could theoretically be used to completely unbundle content and reduce the role of SingTel and Starhub as Pay TV content aggregators. This program is at a very early stage of development, but is something we are watching closely.
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Our investment philosophy has been simplified over the years. It is our belief that ultimately share prices are driven by earnings estimates, an assumption holding true for all of our coverage companies around the region. Our simple valuation methodology is that we believe only two things can mathematically move a share price: 1) changing earnings estimates; and 2) the multiple the market is willing to put on those earnings estimates. This structure allows us to focus our research on: 1) getting the numbers right; and 2) understanding what potential range of multiples the market might apply. A simple sum of the two leads to our price targets...i.e. if we have 10% upside to street EPS forecasts, and think there could be 15% multiple expansion, our total target return is 25%. This method allows us to capitalize on (hopefully) good fundamental research, but also allows us to understand market sentiment. If a multiple has expanded to previously unseen levels, either the business has changed or a lot of expectations have already been built into the share price. Our Dec-12 PT at S$2.7 is based on a sum of: 1) potential upside/(downside) to consensus EPS vs. JPM EPS estimates at +3%; and 2) our estimated multiple expansion/(contraction) at -8% based on peak P/E multiple. Our peak P/E multiple at 14.0x is based on the stocks historical trading range and expected future business changes.
Valuation
Our price target of S$2.7 implies a total return of +1% (-6% capital appreciation and 7% dividend yield). Our share price target is driven by two aspects: 1) Our EPS forecasts vs. the Street, we are 3% above for 2012 EPS; 2) Target earnings multiple; shares are at 15.3x, we use a 14.0x multiple for our PT.
Company SingTel StarHub M1 Stock code ST SP STH SP M1 SP Rating Price (LC) OW 3.2 N 2.9 N 2.5 PT (LC) 3.6 2.7 2.5 % to EV/EBITDA (x) Target 2011E 2012E 14.3% 10.6 10.8 -5.9% 8.3 7.8 0.0% 8.1 8.0 PE (x) 2011E 2012E 12.7 11.2 15.6 14.8 13.3 13.2 Dividend Yield (%) 2011E 2012E 5.3 6.1 7.0 7.0 6.0 6.0 FCF Yield (%) 2011E 2012E 5.4 4.8 7.9 9.1 9.4 9.3 Total Return 19.6% 1.0% 6.0%
Source: Company reports and J.P. Morgan estimates. Priced on 20 Oct 2011.
We run a best and worst case scenario valuation for our companies where we compare our peak and trough level valuation returns. SingTel looks most attractive on this metric with an equal distribution both sides while StarHub and M1 offer higher losses on the downside than gains on the upside.
Source: Company reports and J.P. Morgan estimates. Priced on 20 Oct 2011. 109
As per the J.P. Morgan vs. consensus table below, we see 3% upside to Street's 2012 EPS estimates for StarHub. EPS estimates have been flat YTD for StarHub.
FY1E 0.8% NA NA 1.7% -1.0% -0.1% 0.3 3.3% -0.2% -1.1% (0.3) -0.1%
FY2E -3.5% NA NA 6.4% -3.0% 0.8% 1.2 3.0% -1.8% -4.9% (1.0) -5.6%
Figure 99: StarHub: Street 1 year forward EPS trends
Source: Bloomberg.
StarHub P/E has expanded by 15% YTD as people were willing to pay higher for yields given concerns on global macro economic events.
Figure 100: StarHub: Street 1 year forward P/E trends
Source: Bloomberg.
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Yields have contracted massively for StarHub to 7% levels now from 10% earlier. The large reduction in spreads for Starhub appear to be under pricing the risks to cash flows, in our view
Figure 101: StarHub: Street dividend yield estimates
Source: Bloomberg.
Figure 102: StarHub: Street dividend yield spread to Singapore 10 yr. govt bonds
Source: Bloomberg.
We run full discounted cash flow analysis on all of our companies, but do not use this analysis to specifically set target prices. Our experience has been that the heavy retail participation in most South East Asian markets leaves P/E multiples, and the upside to street + upside to multiple approach described above a more effective way of forecasting future share price movements. We instead use DCF analysis as another gauge of market sentiment, by back calculating what discount rate is implied by the current share price. A high discount rate would be indicative of either a) a very risky business / market, or b) an excessively pessimistic sentiment applied by the market. Per Table 2 below, StarHub's share price (combined with our free cash flow forecasts) implies a discount rate of 10.4%, largely in line with M1.
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Source: Bloomberg. Priced on 20 Oct 2011.
Figure 103: StarHub: Share price analysis with key events
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1.5
SingTel StarHub M1
2Q07 eps up 19% YoY, dividend raised to 40 cents Settles network dispute with SingTel. 3Q07 net declines 0.2% Stocks fall on Subprime concerns DPS increased to 45 cents SPH might sell stake 2Q08 net down 21% YoY Lehman files bankruptcy Analyst upgrades Market decline Dividends sustainable
1.7
1.9
2.1
Launches HDTV
Wins bid to run high speed internet n/w 1Q09 net up 3% YoY
2.3
1Q07 eps up 32% YoY
2.5
2.7
2.9
3.1
3.3
Current price (LC) 3.15 2.87 2.50 2013 Terminal growth rate 4.0% 4.0% 4.0%
StarHub price
Analyst downgrades DPS raised to 50 cents StarHub and SingTel make joint bid for world cup Governmet passes content sharing rule Protest on world cup fee hike Analyst upgrades Govt. seeks 3G spectrum bids Analyst downgrades Wins Marina Bay Sands contract
2012 Terminal value as % of EV 92.0% 87.6% 87.8%
SG- Malaysia romaing rate cut STH to raise pay TV rates S&P downgrades US debt rating
1Q11 net up 62%
Jan-07 Jan-07 Feb-07 Mar-07 Apr-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Aug-07 Sep-07 Oct-07 Nov-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Jul-08 Aug-08 Sep-08 Oct-08 Oct-08 Nov-08 Dec-08 Jan-09 Jan-09 Feb-09 Mar-09 Apr-09 May-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Sep-09 Oct-09 Nov-09 Dec-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Aug-10 Sep-10 Oct-10 Nov-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Mar-11 Apr-11 May-11 Jun-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11
Market decline
1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3
Implied discount rate at current price 7.9% 10.4% 10.1%
SWOT analysis
Strengths
Access to corporate fixed line customers through the new NBN network at low incremental capex. Strong balance sheet (2011E net debt/EBITDA at 0.9x) to support future expansion and dividends.
Weaknesses
Potentially heavy competition on strength segments of pay TV and broadband. Strategically not well placed in the NBN business chain. SingTel the biggest beneficiary through OpenNet.
Opportunities
NBN assets provide significant opportunity to StarHub to participate in earlier less accessible corporate fixed line market.
Threats
Risk to Pay TV business from SingTel. Threat from new entrants as NBN infrastructure expands and matures. Long term threat to pay TV market share from the NIMS initiative.
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Model build
Table 49: StarHub revenue build
2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A Mobile Voice Blended MOU-JPM calc YoY Voice ARPM (S cents/min)-JPM calc YoY Voice revenue (S$ mn) YoY Voice ARPU (S$)-JPM calc YoY Non-voice Non voice ARPU (S$) YoY Non voice revenue (S$ mn) YoY Total mobile revenue (S$ mn) YoY Total mobile ARPU (S$)-JPM calc YoY Pay TV Pay TV ARPU (S$)-JPM calc YoY Pay TV revenue (S$ mn) YoY Broadband CATV broadband ARPU (S$)-JPM calc YoY CATV Broadband revenue (S$ mn) YoY NBN broadband ARPU (S$)-JPM calc YoY NBN Broadband revenue (S$ mn) YoY Blended BB ARPU (S$)-JPM calc YoY Total Broadband revenue (S$ mn) YoY 419 3.5% 10.0 -5.8% 825 9.6% 41.7 -2.5% 10.8 13.2% 438 495 4.7% 12.9% 9.1 7.4 -9.0% -18.8% 840 1.9% 39.8 -4.7% 806 -4.1% 36.5 -8.3% 475 -4.0% 7.2 -3.8% 200 0.4% 34.3 -7.7% 465 450 429 455 420 416 -6.5% -11.7% -12.0% -8.1% -11.6% -10.5% 7.3 -0.4% 206 2.4% 7.3 1.4% 206 1.2% 7.6 2.8% 208 2.6% 7.4 0.3% 819 1.7% 7.4 2.7% 200 0.1% 31.1 -9.2% 14.8 0.4% 7.5 2.8% 202 -1.9% 31.3 -8.0% 15.6 7.1% 2011E 413 -9.1% 7.5 1.2% 803 -2.0% 30.9 -8.0% 15.6 4.9% 404 11.7% 1,207 2.2% 46.5 -4.1% 55.3 -9.6% 361 -8.6% 45.9 -4.0% 235.4 -0.3% 54.6 -22.0% 2012E 400 -3.3% 7.4 -0.7% 794 -1.1% 29.7 -3.9% 16.7 7.3% 447 10.5% 1,241 2.8% 46.4 -0.2% 50.3 -9.1% 337 -6.6% 2013E 392 -2.0% 7.4 -0.5% 800 0.8% 29.0 -2.5% 17.4 4.0% 480 7.5% 1,281 3.2% 46.3 -0.1% 46.3 -8.0% 321 -5.0% 2014E 388 -1.0% 7.4 -0.5% 807 0.8% 28.5 -1.5% 17.9 2.8% 505 5.2% 1,312 2.5% 46.4 0.1% 43.3 -6.5% 309 -3.7% 2015E 384 -1.0% 7.3 -0.5% 810 0.3% 28.1 -1.5% 18.0 0.6% 518 2.4% 1,327 1.1% 46.1 -0.7% 41.3 -4.6% 302 -2.1%
34.1 32.8 -6.9% -10.5%
32.5 33.6 -9.5% -7.8% 14.8 14.8 7.2% 13.9%
11.3 13.0 14.8 14.6 14.8 5.0% 15.4% 21.1% 13.0% 11.3%
213 239 288 86 88 93 95 362 95 100 27.3% 12.3% 20.7% 31.7% 24.3% 25.8% 21.6% 25.6% 10.6% 14.2% 1,037 12.8% 52.5 0.3% 1,079 4.0% 51.1 -2.7% 1,094 1.4% 49.5 -3.0% 63.6 -1.5% 406 1.8% 286 8.2% 49.0 -0.5% 62.7 -3.1% 102 -0.4% 294 8.1% 48.6 -1.7% 67.5 6.5% 110 9.1% 48.4 -7.1% 59.2 -1.8% 70.0 NM 0.0 NM 48.4 -7.1% 59 -1.8% 298 7.8% 47.6 -4.7% 303 1,181 7.9% 8.0% 47.3 48.5 -4.9% -2.1% 296 3.2% 45.9 -6.3% 303 2.9% 46.9 -3.5%
57.5 64.6 3.0% 12.3% 342 398 9.1% 16.5% 61.3 0.7% 246.9 12.3% 0.0 NM 0.0 NM 61.3 0.7% 247 12.3%
57.1 56.9 61.2 -9.0% -10.6% -3.8% 92 92 395 -7.9% -10.5% -2.5% 47.4 -5.6% 58.3 -0.9% 70.0 NM 0.0 NM 47.4 -5.6% 58 -0.9% 47.2 47.9 -5.2% -7.8% 59.0 236.0 -0.2% -1.9% 70.0 NM 0.0 NM 70.0 NM 0.0 NM
56.5 56.7 -9.8% -16.1% 92 92 -9.8% -15.8% 47.0 -4.2% 59.4 -0.2% 70.0 0.0% 0.5 NM 47.1 -4.0% 60 0.7% 47.1 -2.7% 59.3 0.2% 70.0 0.0% 1.7 NM 47.5 -1.8% 61 3.0%
58.7 51.9 49.1 -4.3% -11.6% -10.8% 253.2 2.6% 0.0 NM 0.0 NM 240.6 -5.0% 0.0 NM 0.0 NM 59.5 -4.6% 70.0 NM 0.0 NM
42.9 37.6 -6.6% -12.2%
34.1 30.6 -9.3% -10.3%
223.7 191.5 162.0 133.7 -4.9% -14.4% -15.4% -17.5% 52.1 -4.6% 49.6 -4.8% 48.1 -3.0% 114.5 59.8% 38.8 -3.7% 276 5.1% 47.1 -2.1% 156.2 36.4% 37.8 -2.7% 290 4.9%
9.0 34.0 71.6 NM 279.3% 110.8% 46.2 -3.5% 244 3.5% 43.9 -4.9% 258 5.5% 40.3 -8.3% 263 2.1%
58.7 51.9 49.1 -4.3% -11.6% -10.8% 253 2.6% 241 -5.0% 60 -4.6%
47.2 47.9 -5.2% -7.8% 59 236 -0.2% -1.9%
114
Table 50: StarHub revenue build continued

2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A Fixed Network Services Data & internet revenue (S$ mn) YoY IDD Voice Voice revenue (S$ mn) YoY Fixed NBN NBN fixed subs (000) YoY NBN fixed ARPU (S$) YoY NBN fixed Revenue (S$) YoY Fixed network services total (S$ mn) YoY Equipment sales Sale of equipment (S$ mn) YoY Total Revenue YoY 206 247 16.4% 19.8% 74 53 -10.3% -28.1% 0 NM 0 NM 0 NM 280 7.9% 108 15.9% 2,014 11.6% 0 NM 0 NM 0 NM 300 7.1% 97 -9.8% 2,128 5.7% 269 9.1% 49 -9.0% 0 NM 0 NM 0 NM 318 5.9% 68 1.0% 12 1.7% 0 NM 0 NM 0 NM 80 1.1% 68 0.9% 71 5.6% 71 6.0% 278 3.4% 70 2.9% 69 0.9% 15 9.0% 11 NM 0 NM 0 NM 83 2.2% 2011E 282 1.2% 58 9.4% 2012E 289 2.7% 61 5.0% 2013E 304 4.9% 63 3.0% 159 95.8% 0 NM 0 NM 367 4.6% 124 3.0% 2,356 2.1% 2014E 317 4.4% 65 3.0% 237 48.9% 0 NM 0 NM 382 4.2% 128 3.0% 2,408 2.2% 2015E 329 3.9% 67 3.0% 315 32.9% 0 NM 0 NM 396 3.8% 132 3.0% 2,448 1.7%
13 14 14 53 13 8.1% 12.1% 18.0% 10.1% 14.5% 0 NM 0 NM 0 NM 82 2.0% 0 NM 0 NM 0 NM 85 6.6% 0 NM 0 NM 0 NM 85 7.9% 0 NM 0 NM 0 NM 332 4.4% 93 0.8% 5 NM 0 NM 0 NM 84 4.6%
27 81 NM 197.5% 0 NM 0 NM 340 2.5% 115 23.1% 2,268 1.3% 0 NM 0 NM 351 3.1% 121 5.0% 2,308 1.7%
93 30 25 18 20 -4.8% 33.0% 25.8% -15.0% -29.4% 2,150 1.1% 557 5.0% 569 6.9% 552 2.8%
28 29 -6.7% 18.1% 559 0.3% 569 -0.1%
559 2,238 1.6% 4.1%
115
Table 51: StarHub OpEx build

2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E Cost of sales Cost of equipment sold Equipment sales margin BP change YoY Cost of equipment sold (S$ mn) as % of ex. NBN revenue Cost of services Ex. NBN monthly expense per sub (S$) YoY Ex. NBN cost of services (S$ mn) as % of ex. NBN revenue NBN monthly expense per sub (S$) YoY NBN cost of services (S$ mn) As % of NBN revenues Total cost of services (S$ mn) as % of total revenue Traffic expenses Total voice minutes (mn) YoY Traffic expense/min (S cents) YoY Traffic expenses (S$ mn) as % of ex. NBN revenue Total cost of sales (S$ mn) as % of total revenue BP change YoY -107% -146% -149% -215% -227% -237% -272% -235% -201% -199% -197% -167% -142% -122% -117% (8.84) (39.23) (2.56) (97.35) (77.92) (92.97) (94.75) (85.91) 13.69 27.93 37.49 30.00 25.00 20.00 5.00 (223) (240) (230) (94) (81) (61) (76) (312) (84) (88) (341) (322) (301) (284) (286) 11.1% 11.3% 10.7% 16.8% 14.3% 11.1% 13.6% 14.0% 15.0% 15.5% 15.1% 14.2% 13.2% 12.4% 12.5% 7.9 9.5 27.1% 21.1% 10.1 5.9% 10.2 11.6 8.2 7.9 -0.9% 12.3% -18.1% -19.2% 9.5 7.6 7.7 7.6 -5.9% -25.7% -33.6% -20.1% 7.3 -3.8% 7.1 -2.0% 7.0 -2.0% 6.9 -2.0%
(234) (301) (333) (88) (103) (74) (73) (339) (71) (72) (285) (281) (283) (281) (277) 11.6% 14.1% 15.5% 15.9% 18.1% 13.5% 13.1% 15.1% 12.7% 12.6% 12.6% 12.4% 12.4% 12.2% 12.1% 0.0 NM 0 0.0% 0.0 NM 0 0.0% 0.0 NM 0 0.0% 25.0 NM 0 0.0% 25.0 NM 0 0.0% 25.0 NM 0 0.0% 25.0 NM 0 0.0% 25.0 NM 25.0 0.0% 25.0 22.0 0.0% -12.2% 22.9 4.4% 22.9 0.0% 22.9 0.0% 22.9 0.0%
0 (0) (1) (4) (15) (33) (55) (76) 0.0% 35.7% 35.7% 40.2% 44.0% 46.2% 47.7% 48.7%
(234) (301) (333) (88) (103) (74) (73) (339) (71) (72) (288) (296) (316) (335) (353) 11.6% 14.1% 15.5% 15.9% 18.1% 13.5% 13.1% 15.1% 12.7% 12.7% 12.7% 12.8% 13.4% 13.9% 14.4% 8,282 9,286 10,967 22.7% 12.1% 18.1% 2.9 -4.3% 2.6 -9.6% 2.4 -7.0% 2,773 4.3% 2.4 -3.9% 2,813 2.9% 2.4 -1.2% 2,817 -0.1% 2.4 2.0% 2,748 11,151 -0.2% 1.7% 2.2 -9.8% 2.3 -3.2% 2,702 -2.5% 2.3 -5.1% 2,684 10,702 10,691 10,832 10,975 11,064 -4.6% -4.0% -0.1% 1.3% 1.3% 0.8% 2.3 -4.2% 2.3 -2.5% 2.2 -4.0% 2.1 -4.0% 2.0 -4.0% (222) 9.7% 2.0 -3.0% (217) 9.5%
(239) (242) (266) (67) (67) (67) (61) (262) (62) (61) (245) (235) (228) 11.9% 11.4% 12.4% 12.0% 11.8% 12.1% 10.9% 11.7% 11.1% 10.8% 10.8% 10.3% 10.0%
(696) (782) (830) (249) (251) (202) (210) (913) (216) (222) (875) (854) (845) (842) (857) 34.6% 36.8% 38.6% 44.7% 44.2% 36.6% 37.6% 40.8% 38.7% 39.0% 38.6% 37.0% 35.9% 35.0% 35.0% 3.88 2.22 1.81 7.30 6.56 (0.68) (4.32) 2.21 (5.97) (5.20) (2.23) (1.57) (1.11) (0.92) 0.05
116
Table 52: StarHub OpEx build continued

2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E Other OpEx Staff cost Monthly expense per sub (S$) YoY Staff cost (S$ mn) as % of ex. NBN revenue Operating lease Monthly expense per sub (S$) YoY Operating lease (S$ mn) as % of ex. NBN revenue 7.7 6.8 6.1 7.8 6.4 6.6 7.0 7.0 7.1 7.3 7.2 7.5 7.7 8.0 8.3 -7.0% -10.9% -11.0% 19.7% 10.9% 6.5% 19.2% 14.7% -9.4% 14.1% 2.6% 4.0% 3.5% 3.5% 3.5% (228) (216) (202) (68) (57) (60) (65) (250) (66) (68) (270) (288) (306) (321) (335) 11.3% 10.2% 9.4% 12.2% 10.0% 10.9% 11.6% 11.2% 11.8% 12.1% 11.9% 12.7% 13.4% 14.0% 14.6% 3.8 -22.1% (113) 5.6% 4.1 7.3% (129) 6.1% 4.4 7.2% (145) 6.7% 4.2 4.1 2.8% -17.5% (37) 6.6% 4.7 -3.2% (41) 7.3% 15.0 NM 0.0% (41) 7.3% (37) 6.4% 4.0 -5.4% (36) 6.5% 4.0 -5.5% (37) 6.6% 4.1 3.7 3.7 3.7 -6.5% -12.3% -10.7% -10.5% (146) 6.5% 4.4 -6.6% (156) 7.0% 15.0 NM (34) 6.2% 4.5 -2.6% (42) 7.6% 15.0 0.0% (34) 6.0% 4.7 -5.9% (44) 7.7% (138) 6.1% 4.5 2.6% (169) 7.5% 3.4 -7.5% (131) 5.8% 4.6 2.0% (177) 7.8% 13.9 5.5% 3.1 -7.5% (124) 5.4% 4.6 1.0% (183) 8.0% 14.0 1.0% 3.0 -5.0% (119) 5.2% 4.7 1.0% (187) 8.2% 14.2 1.0% 2.9 -2.0% (118) 5.1% 4.7 1.0% (191) 8.3% 14.3 1.0%
Marketing & promotion Ex. NBN monthly expense per sub (S$) 6.3 YoY -10.2% Ex. NBN marketing (S$ mn) as % of ex. NBN revenue NBN monthly marketing /sub (S$) YoY NBN marketing expense (S$ mn) As % of NBN revenues Total marketing & promotion (S$ mn) as % of total revenue Allowance for doubtful accounts Monthly expense per sub (S$) YoY Doubtful accounts (S$ mn) as % of ex. NBN revenue Repair and maintenance Monthly expense per sub (S$) YoY Repair and maintenance (S$ mn) as % of ex. NBN revenue Others Monthly expense per sub (S$) YoY Others (S$ mn) as % of ex. NBN revenue Total other OpEx (S$ mn) as % of total revenue Total opex (S$ mn) as % of total revenue BP change YoY Opex per minute (S cents) YoY Opex ex. marketing/min (S cents) YoY (187) 9.3% 0 NM 0 (187) 9.3%
6.0 4.7 -4.9% -22.0% (190) 8.9% 0 NM 0 (190) 8.9% (155) 7.2% 0 NM 0 (155) 7.2%
5.0 3.8 4.0 4.7% -12.9% -17.0% (44) 7.8% 15.0 NM 0.0% (44) 7.8% (35) 6.3% 15.0 NM 0.0% (35) 6.3% (37) 6.6% 15.0 NM 0.0% (37) 6.6%
15.0 13.2 0.0% -12.2%
(0.1) (0.4) (2.2) (9.1) (20.3) (33.7) (47.5) 0.0% 21.4% 21.4% 24.1% 26.7% 28.3% 29.5% 30.4% (156) 7.0% (43) 7.6% (44) 7.8% 0.5 1.3% (5) 0.9% 1.9 -4.7% (18) 3.1% (171) 7.5% 0.5 3.1% (20) 0.9% 1.9 -6.1% (72) 3.2% (186) 8.1% 0.5 1.5% (21) 0.9% 1.9 -2.5% (73) 3.2% (203) 8.6% 0.5 1.0% (22) 0.9% 1.8 -2.0% (73) 3.2% (221) 9.2% 0.5 1.0% (22) 1.0% 1.8 -1.0% (73) 3.2% 1.2 -5.0% (48) 2.1% (238) 9.7% 0.6 1.0% (22) 1.0% 1.8 -0.5% (73) 3.2% 1.2 0.0% (48) 2.1%
0.4 0.4 0.4 0.5 0.5 39.6% -17.8% 12.7% 41.5% 40.5% (13) 0.6% (11) 0.5% (13) 0.6% 2.0 -0.2% (66) 3.1% 2.6 -9.9% (86) 4.0% (4) 0.7% 2.1 1.1% (18) 3.2% (5) 0.8% 2.0 5.1% (18) 3.1%
0.5 0.5 0.5 0.5 3.6% 44.6% 30.0% 13.5% (5) 0.9% 2.0 1.7% (18) 3.3% (5) 0.8% 2.1 -1.2% (19) 3.5% (18) 0.8% 2.0 2.2% (73) 3.3% (5) 0.9% 1.9 -5.9% (18) 3.2%
2.2 2.0 -7.8% -10.6% (67) 3.3% (64) 3.0%
2.3 2.9 -7.8% 28.3% (67) 3.3% (91) 4.3%
2.6 2.2 5.2% -25.7% (23) 4.1% (19) 3.4%
2.5 2.1 2.2% -15.3% (23) 4.2% (20) 3.5%
2.4 1.8 1.5 1.6 1.4 1.2 -8.7% -32.7% -31.3% -31.6% -14.6% -10.0% (85) 3.8% (17) 3.0% (14) 2.5% (61) 2.7% (54) 2.4% (50) 2.2%
(675) (701) (667) (189) (180) (178) (182) (729) (182) (183) (732) (752) (777) (804) (834) 33.5% 32.9% 31.0% 34.0% 31.6% 32.2% 32.6% 32.6% 32.6% 32.3% 32.3% 32.6% 33.0% 33.4% 34.1% (1,371) (1,483) (1,497) (439) (431) (380) (392) (1,642) (399) (405) (1,606) (1,605) (1,623) (1,646) (1,691) 68.1% 69.7% 69.6% 78.7% 75.7% 68.8% 70.2% 73.4% 71.4% 71.2% 70.8% 69.6% 68.9% 68.4% 69.1% (0.20) 1.63 (0.10) 10.36 6.05 0.90 (2.19) 3.77 (7.32) (4.51) (2.55) (1.25) (0.69) (0.52) 0.75 16.6 -9.3% 14.3 -7.6% 16.0 13.6 15.8 15.3 -3.5% -14.5% 15.9% 12.9% 13.9 12.2 14.4 13.8 -2.5% -12.2% 17.9% 13.3% 13.5 4.3% 12.3 5.3% 14.3 -1.2% 12.9 -0.4% 14.7 7.9% 13.3 8.9% 14.8 -6.7% 13.2 -8.2% 15.1 -1.6% 13.4 -2.2% 15.0 1.9% 13.4 0.7% 15.0 0.0% 13.3 -1.0% 15.0 -0.2% 13.1 -1.3% 15.0 0.1% 13.0 -0.9% 15.3 1.9% 13.1 1.2%
117
Table 53: StarHub P&L

S$ mn, YE Dec Mobile-voice Mobile-non-voice Pay TV Broadband Fixed-data & internet Fixed-voice Sale of equipment Total revenues Cost of equipment Cost of services Traffic expenses Staff costs Operating lease Marketing and promotion Allowance for doubtful accounts Repair and maintenance Others Total opex EBITDA EBITDA margin (%) - service Depreciation Operating profits Interest income Interest Expense Net Finance costs Profit before tax Tax Tax Rate (%) Net income Reported EPS 2007A 2008A 2009A 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11A 2Q11A 2011E 2012E 2013E 2014E 2015E 825 840 806 200 206 206 208 819 200 202 803 794 800 807 810 213 239 288 86 88 93 95 362 95 100 404 447 480 505 518 342 398 406 102 110 92 92 395 92 92 361 337 321 309 302 247 253 241 60 59 58 59 236 60 61 244 258 263 276 290 206 247 269 68 68 71 71 278 70 69 282 289 304 317 329 74 53 49 12 13 14 14 53 13 15 58 61 63 65 67 108 97 93 30 25 18 20 93 28 29 115 121 124 128 132 2,014 2,128 2,150 557 569 552 559 2,238 559 569 2,268 2,308 2,356 2,408 2,448 (223) (240) (230) (234) (301) (333) (239) (242) (266) (228) (216) (202) (113) (129) (145) (187) (190) (155) (13) (11) (13) (67) (64) (66) (67) (91) (86) (1,371) (1,483) (1,497) (94) (88) (67) (68) (37) (41) (4) (18) (23) (439) (81) (103) (67) (57) (37) (44) (5) (18) (19) (431) (61) (74) (67) (60) (36) (35) (5) (18) (23) (380) (76) (312) (73) (339) (61) (262) (65) (250) (37) (146) (37) (156) (5) (18) (19) (73) (20) (85) (392) (1,642) (84) (71) (62) (66) (34) (43) (5) (18) (17) (399) (88) (341) (322) (301) (284) (286) (72) (288) (296) (316) (335) (353) (61) (245) (235) (228) (222) (217) (68) (270) (288) (306) (321) (335) (34) (138) (131) (124) (119) (118) (44) (171) (186) (203) (221) (238) (5) (20) (21) (22) (22) (22) (18) (72) (73) (73) (73) (73) (14) (61) (54) (50) (48) (48) (405) (1,606) (1,605) (1,623) (1,646) (1,691)
643 645 654 119 138 172 167 596 160 164 662 702 733 762 756 33.7% 31.7% 31.8% 22.5% 25.4% 32.3% 31.0% 27.8% 30.1% 30.4% 30.7% 32.1% 32.9% 33.4% 32.7% (226) (235) (245) (61) (63) (65) (70) (260) (69) (69) (276) (290) (295) (296) (299) 417 409 409 58 75 107 103 342 91 95 394 420 448 476 467 3 1 1 0 1 1 0 2 0 1 2 1 2 3 5 (26) (27) (24) (6) (7) (7) (7) (27) (5) (5) (22) (24) (24) (27) (32) (23) (26) (23) (5) (6) (6) (7) (25) (5) (4) (20) (23) (23) (24) (27) 394 383 385 53 69 101 96 318 86 91 374 398 426 451 440 (63) (71) (66) (10) (13) (19) (12) (54) (17) (14) (62) (69) (72) (77) (75) 16.0% 18.7% 17.0% 18.6% 19.0% 18.5% 12.9% 17.1% 19.5% 15.1% 16.5% 17.3% 17.0% 17.0% 17.0% 330 311 320 43 56 82 83 263 69 77 312 329 353 375 365 18.7 18.3 18.7 2.5 3.4 4.9 4.7 15.3 4.0 4.5 18.4 19.4 20.8 22.1 21.5
118
Table 54: StarHub balance sheet

S$ mn, YE Dec Cash and bank balances Trade receivables Other receivables, deposits, prepayments Others Total current assets PPE Intangible assets Deferred tax assets Others Total non-current assets Total Assets Current liabilities Trade payables and accruals Other payables Bank loans Others Total current liabilities Non current liabilities Interest bearing borrowings Others Total non-current liabilities Minority Interest Share capital Other reserves Total equity Total Liabilities & Equity
2007A 138 114 95 35 382 894 352 92 (0) 1,338 1,719 352 171 124 72 719 844 49 892 0 247 (275) 108 1,719
2008A 128 128 113 41 410 846 381 25 0 1,252 1,661 339 198 218 41 796 696 62 758 0 255 (286) 108 1,661
2009A 234 125 116 51 526 785 416 5 0 1,206 1,733 377 196 290 62 925 605 76 681 0 258 (274) 126 1,733
2010A 238 174 102 48 561 776 452 5 (0) 1,232 1,794 438 237 330 68 1,073 475 191 666 0 260 (269) 54 1,794
2011E 191 176 103 48 518 809 419 5 (0) 1,232 1,750 428 232 330 68 1,058 475 191 666 0 260 (269) 26 1,750
2012E 207 179 105 48 539 797 399 5 (0) 1,200 1,739 428 232 330 68 1,058 475 191 666 0 260 (269) 15 1,739
2013E 365 183 107 48 704 773 379 5 (0) 1,156 1,860 433 235 330 68 1,065 575 191 766 0 260 (269) 28 1,860
2014E 593 187 109 48 938 753 359 5 (0) 1,116 2,054 439 238 330 68 1,075 725 191 916 0 260 (269) 63 2,054
2015E 871 190 111 48 1,220 735 339 5 (0) 1,078 2,298 451 245 330 68 1,093 925 191 1,116 0 260 (269) 89 2,299
119
Table 55: StarHub cash flows

S$ mn, YE Dec Profit/(Loss) before taxation Adjustments for: Depreciation and amortization Interest income Interest expense Others (incl. tax paid) Operating cash flow before WC changes Changes in WC Trade receivables Other receivables, deposits, prepayments Trade payables & other payables Others Net cash from operations Purchase of PPE and intangible assets Interest received Others Net cash outflow from investing Proceeds from share issuance Dividends paid Interest paid Net proceeds from loans Others (including grants received) Net cash outflow from financing Net change in cash Starting cash Ending cash Net debt / (cash)
2007 393 226 (3) 26 22 664 (2) 13 12 8 696 (213) 3 2 (208) (432) (266) (22) 335 (16) (400) 88 50 138 830
2008 383 235 (1) 27 25 669 (14) (18) 7 (46) 597 (220) 1 0 (219) 8 (308) (29) (54) (6) (388) (10) 138 128 785
2009 385 245 (1) 24 6 660 2 (3) 41 (8) 692 (231) 1 1 (230) 2 (317) (24) (18) (0) (357) 106 128 234 662
2010 318 260 (2) 27 4 606 (49) 14 96 2 670 (272) 2 2 (268) 2 (343) (27) (90) 60 (398) 3 234 237 568
2011E 374 276 (2) 22 (62) 608 (2) (1) (15) 0 590 (276) 2 0 (274) 0 (341) (22) 0 0 (363) (47) 237 191 615
2012E 398 290 (1) 24 (69) 641 (3) (2) (0) 0 636 (257) 1 0 (256) 0 (340) (24) 0 0 (364) 16 191 207 599
2013E 426 295 (2) 24 (72) 671 (4) (2) 7 0 672 (251) 2 0 (249) 0 (340) (24) 100 0 (264) 159 207 365 540
2014E 451 296 (3) 27 (77) 695 (4) (2) 10 0 698 (257) 3 0 (254) 0 (340) (27) 150 0 (217) 228 365 593 462
2015E 440 299 (5) 32 (75) 691 (3) (2) 19 0 705 (261) 5 0 (256) 0 (340) (32) 200 0 (171) 278 593 871 385
120
StarHub: Summary of Financials

Profit and Loss Statement S$ in millions, year end Dec Revenue EBITDA Depreciation & Amortization EBIT Interest income Interest Expense Other Income Profit before tax Tax Minorities Net profit - reported Net profit - adjusted Shares Outstanding (mn) EPS (S$) (Reported) DPS (S$) DPS payout ratio Revenue growth EBITDA growth Net profit growth EPS growth DPS growth FY09 2,150 654 -245 409 1 -24 0 385 -66 320 320 1,711 0.19 0.18 98.9% 1.1% 1.4% 2.7% 2.2% 2.3% FY10 2,238 596 -260 342 2 -27 0 318 -54 263 263 1,716 0.15 0.20 130.2% 4.1% -7.9% -17.7% (17.9%) 8.1% FY11E 2,268 662 -276 394 2 -22 0 374 -62 312 312 1,698 0.18 0.20 109.1% 1.4% 11.3% 18.6% 19.8% 0.4% FY12E 2,308 702 -290 420 1 -24 0 398 -69 329 329 1,698 0.19 0.20 103.3% 1.8% 6.0% 5.3% 5.3% -0.3% Balance Sheet statement FY13E S$ in millions, year end Dec 2,356 Cash and equivalents 733 Accounts receivable -295 Others 448 Total Current assets -24 ST loans 0 Others current liabilities 426 Total current liabilities -72 - Net working capital 353 353 Net fixed assets Other long term assets 1,698 Total non-current assets 0.21 0.20 Total Assets 96.1% Long-term debt 2.1% Other liabilities 4.6% Total Liabilities 7.5% 7.4% Shareholders' equity 0.0% Total liabilities and equity Net debt/(cash) Cash flow statement FY13E S$ in millions, year end Dec 31.1% Cash flow from operations 17.9% Capex 1641.0% Cash flow from other investing 51.1% Cash flow from financing 19.6% Change in cash for year 17.0% -10.7% Beginning cash 97.0% Closing cash 1905.0% 30.34 FY09 FY10 FY11E FY12E FY13E 234 238 191 207 365 125 174 176 179 183 167 150 151 161 0 526 561 518 539 704 290 330 635 743 925 1,073 -399 -512 330 728 1,058 -540 809 423 1,232 1,750 475 191 1,725 26 1,750 615 330 728 1,058 -519 797 403 1,200 1,739 475 191 1,724 15 1,739 599 330 735 1,065 -361 773 383 1,156 1,860 575 191 1,832 28 1,860 540
785 776 421 456 1,206 1,232 1,733 1,794 605 475 76 191 1,607 1,740 126 54
1,733 1,794 662 568
Ratio Analysis %, year end Dec EBITDA margin FCF margin ROE ROC ROA
FY09 30.4% 21.4% 273.4% 40.0% 18.8%
FY10 26.6% 17.8% 292.7% 36.4% 14.9%
FY11E 29.2% 13.8% 784.2% 46.6% 17.6% 16.5% -12.2% 96.9% 2401.2% 32.56
FY12E 30.4% 16.4% 1630.8% 50.9% 18.8% 17.3% -11.2% 98.2% 4069.9% 30.93
FY09 FY10 FY11E FY12E FY13E 692 670 590 636 672 -231 -272 -276 -257 -251 -230 -268 -274 -256 -249 -357 -398 -363 -364 -264 106 128 234 3 234 237 -47 237 191 16 191 207 159 207 365
Tax rate 17.0% 17.1% Capex to sales -10.8% -12.2% Debt/Capital 87.7% 93.7% Net debt or (cash) to equity 525.8% 1051.7% Interest cover (x) 28.05 24.02 Source: Company reports and J.P. Morgan estimates.
121

21 October 2011
Initiation
M1
Lack of pay TV and inferior NBN margins lock M1 out of mainstream market
We initiate coverage of M1 with a Neutral rating and a Dec-12 price target of S$2.50, with a total return expectation of 6% (0% capital appreciation based on target FY12 P/E of 13x + 6% expected cash dividends during the next 12 months). Our price target is driven by two factors: 1) our EPS forecasts vs. the Street (we are 6% below for 2012); 2) a target 2012 earnings multiple currently at 12.6x and near the top of its normal trading range; we use 13.0x for our price target. NBN not a big opportunity for M1: Many, including ourselves, have made much of the potential for Singapores National Broadband Network project to increase competition and drive opportunities for infrastructure-lite competition. The facts, however, do not support this case. We believe NBN will largely serve to cement SingTels dominance of the local market, potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy, and lock M1 out of the mainstream market. Bundling/Pay TV will now REALLY matter: A saturated market combined with still relatively high SAC implies that operators will need to bundle in order to reduce churn. M1 suffers from a lack of pay TV and inferior NBN business margins, in our view. Stable dividend yield and cash flows: With a payout ratio of 80% M1 provides a stable 6% dividend yield which is well supported by FCF yield of 8%. We believe higher capital management could be a positive share price driver if the company decides to pay out specials. M1 is trading at 400 bps spread to Singapore govt bonds vs. a historical high of 540bps. Key risks: Key upside risks are higher than expected NBN market share for M1 (we currently forecast 10%) and better participation in the pay TV market through the NIMS initiative. Higher than expected price competition is a downside risk.
M1 (Reuters: MONE.SI, Bloomberg: M1 SP) S$ in mn, year-end Dec FY09A FY10A Revenue (S$ mn) 782 980 EBITDA (S$ mn) 309 314 EBITDA growth (%) -2.2% 1.5% Recurring profit (S$ mn) 150 157 Recurring EPS (S$) 0.17 0.17 EPS growth (%) 0.0% 0.0% DPS (S$) 0.13 0.13 EV/EBITDA (x) 8.1 8.2 P/E 14.9 14.9 Dividend Yield 5.3% 5.2% FCF to mkt cap (%) 4.5% 3.8%
Neutral
MONE.SI, M1 SP Price: S$2.51 Price Target: S$2.50

AC
(65) 6882-2374 james.r.sullivan@jpmorgan.com
Vishesh Gupta
(65) 6882 2367 vishesh.x.gupta@jpmorgan.com

Price Performance
2.7 2.5 S$ 2.3 2.1 1.9
MONE.SI share price (S$) FTSTI (rebased)
Abs Rel
YTD 5.5% 15.4%
1m -4.2% 2.6%
3m 2.1% 11.2%
12m 19.2% 21.2%
FY11E 1,025 319 1.6% 171 0.19 11.8% 0.18 8.0 13.4 7.2% 7.7%
FY12E 1,051 320 0.3% 172 0.19 0.6% 0.15 7.9 13.3 6.1% 7.6%
FY13E 1,085 327 2.5% 179 0.20 3.8% 0.15 7.6 12.8 6.1% 7.7%
2.70 - 2.16 2,279 1,789 908 37.3% 1 2.41 2,720 1.27 2.51 20 Oct 11
Company Description M1 is the third largest mobile operator in Singapore, providing mobile and broadband services. As of 2Q11, it had 26% share of Singapores wireless market, which has a 150% penetration rate.
P&L sensitivity metrics

2011E Wireless revenue (S$ mn) Impact of each 5% Equipment sales revenue (S$ mn) Impact of each 5% EBITDA margin (%) Impact of each 1% Capex (S$mn) Impact of each 5%
EBITDA impact (%) 593 3.9% 267 -0.6% 42.0% 2.4% 105 NM
EPS impact (%) 6.0% -1.0% 3.7% 0.1%
Revenue breakdown (2011E)

Fixed 4% IDD 12%
Price target methodology
Sales 26% Mobile 58%
Our PT is based on a sum of 1) potential upside/(downside) to consensus EPS vs. JPM EPS estimates and 2) our estimated multiple expansion/(contraction) based on peak P/E multiple. Our peak P/E multiple is based on the stocks historical trading range and expected future business changes.
Current consensus P/E (a) 2011E 13.3 13.0 -2.2% -0.1% -2.4% 2012E 12.6 13.0 3.5% -5.1% -1.6% 2.5
Peak P/E (b) Upside/ (Downside) to peak multiple (b/a-1=e) JPM vs. consensus EPS (d) Cumulative upside to current price (e+d) JPM Dec-2012price target (S$/sh) Consensus 1,026 1,067 321 334 168 177
J.P. Morgan vs consensus

S$ mn FY11E-Rev FY12E-Rev FY11E-EBITDA FY12E-EBITDA FY11E-Net inc. FY12E-Net inc. J. P. Morgan 1,025 1,051 319 320 171 172
If our price target were achieved, M1 would be trading at 2010E/11E P/E of 13.3x/13.2x and EV/EBITDA of 8.1x/8.0x but still provide a healthy 6.0%/6.0% yield. Key upside risk to M1 is attracting higher than expected NBN share while the key downside risk remains entry of new competitors.
Source: J.P. Morgan estimates, Bloomberg
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Investment Summary
We initiate coverage of M1 with a Neutral rating and a Dec-12 price target of S$2.50, with a total return expectation of 6% (0% capital appreciation based on target FY12 P/E of 13x + 6% expected cash dividends during the next 12 months). Our price target is driven by two factors: 1) our EPS forecasts vs. the Street (we are 6% below for 2012); 2) a target 2012 earnings multiple currently at 12.6x and near the top of its normal trading range; we use 13.0x for our price target. NBN not a big opportunity for M1: Many, including ourselves, have made much of the potential for Singapores National Broadband Network project to increase competition and drive opportunities for infrastructure-lite competition. The facts, however, do not support this case. We believe NBN will largely serve to cement SingTels dominance of the local market, potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy, and lock M1 out of the mainstream market. Bundling/Pay TV will now REALLY matter: A saturated market combined with still relatively high SAC implies that operators will need to bundle in order to reduce churn. M1 suffers from lack of pay TV and inferior NBN business margins, in our view. Stable dividend yield and cash flows: With a payout ratio of 80% M1 provides a stable 6% dividend yield which is well supported by FCF yields of 8%. We believe higher capital management could be a positive share price driver if the company decides to pay out specials. M1 is trading at 400 bps spread to Singapore govt bonds vs. a historical high of 540bps. Key risks: Key upside risks are higher-than-expected NBN market share for M1 (we currently forecast 10%) and better participation in the pay TV market through the NIMS initiative. Higher than expected price competition is a downside risk.
Upside/downside risks to our view

Positive risks Better than expected NBN market share: We expect M1 to capture 10% of the total NBN market given the lack of current payTV bundling capabilities. We assume SingTel will account for 60% of the market while the remaining 30% will be Starhub. M1s current wireless market share is ~26% and the company expects to account for a similar proportion of the NBN market. Please see the table below for earnings sensitivity to NBN market share assumptions.
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10% 15% 20% 2,300 2,307 2,314 -3.0% -2.7% -2.4% 5,700 5,705 5,711 -0.9% -0.8% -0.8% 10% 15% 20% 351 354 358 -4.0% -3.0% -2.0% Base case 10% 192 0.0% 15% 194 1.0% 20% 196 2.0%
25% 2,321 -2.1% 5,716 -0.7% 25% 361 -1.0% 25% 198 3.1%
30% 35% 2,328 2,336 -1.8% -1.5% 5,721 5,727 -0.6% -0.5% Base case 30% 365 0.0% 30% 200 4.1% 35% 369 1.0% 35% 202 5.1%
40% 45% 2,343 2,350 -1.2% -0.9% 5,732 5,738 -0.4% -0.3% 40% 372 2.0% 40% 204 6.1% 45% 376 3.0% 45% 206 7.1%
50% 55% 2,357 2,364 -0.6% -0.3% 5,743 5,748 -0.2% -0.1% 50% 380 4.0% 50% 208 8.2% 55% 383 4.9% 55% 210 9.2%
Base case 60% 2,371 0.0% 5,754 0.0% 60% 387 5.9% 60% 212 10.2%
65% 2,379 0.3% 5,759 0.1% 65% 390 6.9% 65% 214 11.2%
70% 2,386 0.6% 5,765 0.2% 70% 394 7.9% 70% 216 12.2%
5,694 -1.0% 5% 347 -4.9% 5% 190 -1.0%
NIMS project creates unbundled content: The Infocomm Development Authority of Singapore (IDA), the Telecom industry regulator, has been actively pushing a program called the NextGen Interactive Multimedia Applications and Services program (NIMS), which provides for a common platform Set Top Box (STB). This could theoretically be used to completely unbundle content and reduce the role of SingTel and Starhub as Pay TV content aggregators. This program is at a very early stage of development, but is something we are watching closely. Negative risks Pricing competition is worse than forecast: We do expect a degree of price compression, which will likely reduce overall industry revenue growth rates moving forward, but are not forecasting an all-out price war on a product by product basis. This is driven by the likelihood that a) bundles will increasingly drive this saturated, mature market, in our view, which theoretically limits product specific price discovery for consumers; b) Starhub and to a lesser degree M1 will face structurally lower NBN economics, which limits their ability to cut prices aggressively without significantly impacting their own margins... not a guarantee that price competition will not get out of control, but clearly a limiting factor. Forecast competitive dynamics are upended as Starhub pursues an alternative infrastructure approach: We suspect that a Virgin Media type strategy may in fact be the best long term strategic option for the company, but as of yet see no signs that this will occur. Were this dynamic to change, we would expect a greater potential for a degree of price competition between Starhub and SingTel, given StarHubs better economics. This could be somewhat restrained, however, by StarHubs desire to achieve a reasonable return on its CAPEX investment. A foreign operator takes control of M1 and introduces cross market competitive dynamics into the Singapore environment. Potentially an operator like Telstra (in order to have a counter balance to SingTel's Optus) or Axiata (already a 29.23% shareholder in M1, general offer is triggered at ) to eventually make a bid for the firm. This has the potential to introduce another layer of strategy into the Singapore market, which could be de-stabilizing.
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Our investment philosophy has been simplified over the years. It is our belief that ultimately share prices are driven by earnings estimates, an assumption holding true for all of our coverage companies around the region. Our simple valuation methodology is that we believe only two things can mathematically move a share price: 1) changing earnings estimates; and 2) the multiple the market is willing to put on those earnings estimates. This structure allows us to focus our research on: 1) getting the numbers right; and 2) understanding what potential range of multiples the market might apply. A simple sum of the two leads to our price targets...i.e. if we have 10% upside to street EPS forecasts, and think there could be 15% multiple expansion, our total target return is 25%. This method allows us to capitalize on (hopefully) good fundamental research, but also allows us to understand market sentiment. If a multiple has expanded to previously unseen levels, either the business has changed or a lot of expectations have already been built into the share price. Our Dec-12 PT at S$2.5 is based on a sum of: 1) potential upside/(downside) to consensus EPS vs. JPM EPS estimates at -5.6%; and 2) our estimated multiple expansion/(contraction) at +3% based on peak P/E multiple. Our peak P/E multiple at 13.0x is based on the stocks historical trading range and expected future business changes.
Valuation
Our price target of S$2.5 implies a total return of +6% (0% capital appreciation and 6% dividend yield). Our share price target is driven by two aspects: 1) Our EPS forecasts vs. the Street (we are 5.6% below for 2012 EPS); 2) Target earnings multiple; shares are at 12.6x, we use a 13.0x multiple for our PT.
Company SingTel StarHub M1 Stock code ST SP STH SP M1 SP Rating Price (LC) OW 3.2 N 2.9 N 2.5 PT (LC) 3.6 2.7 2.5 % to EV/EBITDA (x) Target 2011E 2012E 14.3% 10.6 10.8 -5.9% 8.3 7.8 0.0% 8.1 8.0 PE (x) 2011E 2012E 12.7 11.2 15.6 14.8 13.3 13.2 Dividend Yield (%) 2011E 2012E 5.3 6.1 7.0 7.0 6.0 6.0 FCF Yield (%) 2011E 2012E 5.4 4.8 7.9 9.1 9.4 9.3 Total Return 19.6% 1.0% 6.0%
We run a best and worst case scenario valuation for our companies where we compare our peak and trough level valuation returns. SingTel looks most attractive on this metric with an equal distribution both sides while StarHub and M1 offer higher losses on the downside than gains on the upside.
Source: Company reports and J.P. Morgan estimates. Priced on 20 Oct 2011. 126
As per the J.P. Morgan vs. consensus table below, we see 6% downside to Street's 2012 EPS estimates for M1. EPS estimates have largely remained flat YTD for M1.
FY1E 0.8% NA NA 1.7% -1.0% -0.1% 0.3 3.3% -0.2% -1.1% (0.3) -0.1%
FY2E -3.5% NA NA 6.4% -3.0% 0.8% 1.2 3.0% -1.8% -4.9% (1.0) -5.6%
Figure 104: M1: Street 1 year forward EPS trends
Source: Bloomberg.
M1 saw 10% P/E expansion YTD to July as people were willing to pay higher for yields. Since July valuations have retracted by 6% on the back of a worsening macro economic outlook.
Figure 105: M1: Street 1 year forward P/E trends
Source: Bloomberg.
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The Street's dividend yield estimates have largely been flat at ~6% levels for M1.
Figure 106: M1: Street dividend yield estimates
Source: Bloomberg.
Figure 107: M1: Street dividend yield spread to Singapore 10 yr. govt bonds
Source: Bloomberg.
We run full discounted cash flow analysis on all of our companies, but do not use this analysis to specifically set target prices. Our experience has been that the heavy retail participation in most South East Asian markets leaves P/E multiples, and the upside to Street, plus upside to multiple approach (described above) as a more effective way of forecasting future share-price movements. We instead use DCF analysis as another gauge of market sentiment, by back calculating what discount rate is implied by the current share price. A high discount rate would be indicative of either a) a very risky business/market, or b) an excessively pessimistic sentiment applied by the market. Per Table 2 below, M1's share price (combined with our free cash flow forecasts) implies a discount rate of 10.1%, largely in line with StarHub.
SingTel StarHub M1 Current price (LC) 3.15 2.87 2.50 2013 Terminal growth rate 4.0% 4.0% 4.0% 2012 Terminal value as % of EV 92.0% 87.6% 87.8% Implied discount rate at current price 7.9% 10.4% 10.1%
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M1 broadband gives 5Gb free usage Secures S$250 mn facility Temasek sells down stake
Stocks fall on Subprime concerns Partners Mediacorp: mobile TV trial 4Q07 net down 5% YoY Cuts prices by 35% ahead of MNP SPH might sell stake MNP commences 2Q08 eps up 7% YoY
0.5
1.0
1.5
2.0
Stock split
Source: J.P. Morgan estimates, Bloomberg. Priced on 20 Oct 2011.

DBS decreases stake
2.5 3.0 -
Figure 108: M1: Share price analysis with key events
Market fall
Lehman files bankruptcy 3Q08 net down 21% M1 to maintain dividend payouton subsidies Submits bid to build and operate NGN n/w. CEO to step down next month. CEO neil montefiore steps down. Analyst downgrade 1Q09 net up 10% YoY
Karen Kooi new CEO
M1 price
Acquires Qala Singapore Signs agreement with Apple iPhone 3GS launch Analyst upgrades Governmet passes content sharing rule 1Q10 net down 6% YoY 2Q10 eps up 10% YoY Govt. seeks 3G spectrum bids 3Q10 eps up 16% YoY M1 4Q10 net down 5% QoQ SG- Malaysia romaing rate cut 2Q11 profit up 5% S&P downgrades US debt rating Market decline
0.5 1.0 1.5 2.0 2.5 3.0 -
Jan-07 Jan-07 Feb-07 Mar-07 Apr-07 May-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11
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SWOT analysis
Strengths
Access to corporate fixed line customers through the new NBN network at low incremental capex. Strong balance sheet (2011E net debt/EBITDA at 0.9x) and FCF yields (2011 FCF yield at 8%) to support future expansion and dividends.
Weaknesses
No Pay TV offering at the moment to compete with the bundled plans offered by SingTel and StarHub. Weaker fixed line and broadband profile as compared to SingTel and StarHub. Smallest player out of the three and hence most sensitive to top line fluctuations due to macro economic conditions. Not a member of the NBN operating bodies (OpenNet and OpCo).
Opportunities
NBN assets provide significant opportunity to M1 to participate in earlier inaccessible fixed line and fixed broadband segments. The NIMS initiative provide significant opportunity participate the pay TV market and eventually become a bundled service provider like StarHub and SingTel.
Threats
High pricing on NBN infrastructure might impact future plans on the fixed line business. Threat from new entrants as NBN infrastructure expands and matures.
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Model build
Table 61: M1 revenue build
2007A Mobile Voice Blended MOU-JPM calc YoY Voice ARPM (S cents/min)-JPM calc YoY Voice revenue (S$ mn) YoY Voice ARPU (S$)-JPM calc YoY Non-voice Non voice ARPU (S$) YoY Non voice revenue (S$ mn) YoY Total mobile revenue (S$ mn) YoY Total mobile ARPU (S$)-JPM calc YoY
2008A 282 -0.6% 8.6 -10.7% 460 -2.1% 24.2 -11.2% 7.4 -1.3% 141 8.8% 601 0.2% 31.7 -9.1%
2009A 306 8.5% 6.7 -21.6% 419 -9.0% 20.6 -15.0% 7.2 -2.8% 147 4.1% 566 -5.9% 27.8 -12.1%
2010A 315 2.9% 5.7 -15.5% 395 -5.8% 17.9 -13.1% 8.4 16.4% 185 26.0% 579 2.4% 26.3 -5.4%
1Q11A 318 2.8% 5.2 -15.5% 95 -5.9% 16.4 -13.1% 8.7 8.8% 50 17.7% 145 1.1% 25.1 -6.5%
2Q11A 323 2.5% 5.0 -12.1% 95 -3.6% 16.3 -9.9% 9.0 7.3% 53 14.8% 148 2.3% 25.3 -4.5%
3Q11A 322 1.4% 4.9 -9.5% 95 -2.4% 15.8 -8.2% 8.9 5.9% 53 12.5% 148 2.5% 24.7 -3.6%
2011E 322 2.3% 5.0 -12.6% 380 -3.7% 16.0 -10.6% 9.0 7.0% 213 15.1% 593 2.3% 25.0 -5.0%
2012E 325 1.0% 4.7 -5.7% 382 0.5% 15.3 -4.8% 9.5 5.4% 237 11.2% 619 4.4% 24.7 -1.1%
2013E 329 1.0% 4.6 -2.5% 389 2.0% 15.0 -1.5% 9.9 4.9% 257 8.7% 647 4.6% 25.0 0.9%
2014E 332 1.0% 4.5 -1.0% 399 2.5% 15.0 0.0% 10.4 4.2% 275 6.8% 674 4.2% 25.4 1.7%
2015E 335 1.0% 4.5 -0.5% 409 2.5% 15.1 0.5% 10.6 2.6% 288 4.6% 697 3.3% 25.7 1.4%
284 4.2% 9.6 -10.3% 471 4.0% 27.3 -6.5% 7.5 0.2% 130 11.4% 600 5.5% 34.8 -5.1%
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Table 62: M1 revenue build continued

2007A Fixed Network Services Fixed Service revenue (S$ mn) YoY IDD Voice IDD minutes (mn) YoY IDD ARPM (S cents) YoY Voice revenue (S$ mn) YoY Fixed-NBN NBN fixed subs (000) YoY NBN fixed ARPU (S$) YoY NBN fixed Revenue (S$) YoY NBN broadband ARPU (S$)-JPM calc YoY NBN Broadband revenue (S$ mn) YoY Fixed-NBN Revenue Total (S$) YoY Fixed network services total (S$ mn) YoY Equipment sales Sale of equipment (S$ mn) YoY Total Revenue YoY
2008A 0 NM 526 69.7% 26.1 -36.3% 137 8.0% 0 NM 0 NM 0 NM 0 NM 0 NM 0 NM 137 NM 62 -18.3% 801 -0.3%
2009A 7 NM 728 38.4% 17.6 -32.4% 128 -6.5% 0 NM 0 NM 0 NM 0 NM 0 NM 0 NM 135 -1.6% 81 30.1% 782 -2.4%
2010A 24 258.2% 956 31.3% 13.5 -23.4% 129 0.5% 0 NM 0 NM 0 NM 50 NM 0 NM 0 NM 153 13.3% 247 205.8% 980 25.3%
1Q11A 7 18.6% 270 24.4% 12.0 -19.9% 32 -0.4% 2 NM 0 NM 0 NM 50 0.0% 0 NM 0 NM 39 2.9% 75 11.3% 259 4.1%
2Q11A 10 63.9% 289 25.7% 10.6 -22.9% 31 -3.2% 4 NM 0 NM 0 NM 50 0.0% 0 NM 0 NM 41 8.8% 57 40.0% 246 10.3%
3Q11A 11 83.3% 305 19.6% 9.4 -24.9% 29 -10.2% 16 NM 0 NM 0 NM 43 -15.0% 1 NM 1 NM 41 7.9% 56 -12.5% 245 -0.6%
2011E 38 57.9% 1,182 23.6% 10.5 -21.8% 125 -3.4% 9 NM 0 NM 0 NM 62 23.6% 3 NM 3 NM 166 8.4% 267 8.0% 1,025 4.7%
2012E 37 -2.6% 1,241 5.0% 9.5 -10.0% 118 -5.5% 27 197.5% 0 NM 0 NM 39 -37.4% 8 148.6% 8 148.6% 163 -1.7% 269 1.0% 1,051 2.5%
2013E 35 -5.0% 1,241 0.0% 9.1 -4.0% 113 -4.0% 53 95.8% 0 NM 0 NM 38 -2.6% 18 115.7% 18 115.7% 166 1.9% 272 1.0% 1,085 3.2%
2014E 33 -5.0% 1,241 0.0% 8.7 -4.0% 109 -4.0% 79 48.9% 0 NM 0 NM 38 -0.1% 30 64.5% 30 64.5% 172 3.3% 275 1.0% 1,121 3.3%
2015E 32 -5.0% 1,241 0.0% 8.4 -4.0% 104 -4.0% 105 32.9% 0 NM 0 NM 38 -0.1% 41 39.2% 41 39.2% 177 3.3% 278 1.0% 1,151 2.8%
0 NM 310 50.5% 41.0 -26.0% 127 11.4% 0 NM 0 NM 0 NM 0 NM 0 NM 0 NM 0 NM 76 -14.6% 803 4.0%
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Table 63: M1 OpEx build

2007A Cost of sales Cost of equipment sold Equipment sales margin BP change YoY Cost of equipment sold (S$ mn) as % of ex. NBN revenue Leased circuit Monthly expense per sub (S$) YoY Leased circuit cost (S$ mn) as % of ex. NBN revenue Traffic expenses Total voice minutes (mn) YoY Traffic expense/min (S cents) YoY Traffic expenses (S$ mn) as % of ex. NBN revenue NBN cost of sales NBN monthly expense per sub (S$) YoY NBN cost of sales (S$ mn) As % of NBN revenues Other cost of sales Monthly expense per sub (S$) YoY Other cost of sales (S$ mn) as % of ex. NBN revenue Total cost of sales (S$ mn) as % of total revenue
2008A -106% (30.99) (128) 16.0% 2.1 -13.6% (40) 4.9% 5,387 11.3% 1.0 -0.4% (52) 6.5% 0 NM 0 4.3 -1.1% (81) 10.2% (301) 37.6%
2009A -71% 35.33 (138) 17.7% 2.6 25.3% (53) 6.8% 6,150 14.2% 0.9 -7.5% (55) 7.0% 0 NM 0 4.0 -7.0% (81) 10.4% (327) 41.8%
2010A -20% 50.60 (297) 30.3% 1.9 -28.6% (41) 4.2% 6,965 13.3% 0.8 -5.3% (59) 6.0% 25.0 NM 0.0% 4.4 9.4% (96) 9.8% (493) 50.3%
1Q11A -9% 13.81 (82) 31.6% 1.6 -24.4% (9) 3.5% 1,831 11.3% 0.9 2.7% (16) 6.2% 25.0 0.0% (0.1) 50.0% 4.5 9.0% (26) 10.0% (133) 51.3%
2Q11A -25% 5.66 (71) 28.9% 1.4 -25.3% (8) 3.3% 1,890 9.7% 0.8 -2.7% (16) 6.5% 25.0 0.0% (0.2) 50.0% 4.2 -3.5% (25) 10.1% (120) 48.8%
3Q11A -18% (0.67) (66) 27.1% 1.3 -24.7% (8) 3.3% 1,922 7.8% 0.8 -1.1% (16) 6.6% 25.0 0.0% (0.7) 58.8% 4.6 6.9% (27) 11.2% (118) 48.3%
2011E -15% 5.13 (307) 30.0% 1.4 -25.3% (33) 3.2% 7,621 9.4% 0.8 -0.8% (64) 6.3% 35.5 42.0% (1.9) 57.5% 4.5 2.2% (106) 10.3% (512) 49.9%
2012E -14% 1.00 (307) 29.5% 1.2 -15.2% (30) 2.8% 8,136 6.8% 0.8 -2.0% (67) 6.4% 22.9 -35.4% (5.0) 59.3% 4.5 0.2% (112) 10.7% (521) 49.5%
2013E -13% 1.00 (308) 28.8% 1.1 -8.0% (28) 2.6% 8,513 4.6% 0.8 -1.0% (69) 6.5% 22.9 0.0% (11.0) 60.9% 4.5 0.0% (116) 10.8% (532) 49.0%
2014E -12% 1.00 (308) 28.2% 1.0 -5.0% (27) 2.5% 8,813 3.5% 0.8 -1.0% (71) 6.5% 22.9 0.0% (18.2) 61.0% 4.5 0.0% (119) 10.9% (543) 48.5%
2015E -11% 1.00 (308) 27.8% 1.0 -2.0% (27) 2.5% 9,075 3.0% 0.8 -1.0% (73) 6.5% 22.9 0.0% (25.3) 61.1% 4.5 0.0% (121) 10.9% (554) 48.2%
-75% (20.97) (133) 16.6% 2.4 24.0% (42) 5.2% 4,842 17.7% 1.0 28.4% (47) 5.9% 0 NM 0 4.3 -6.9% (75) 9.3% (296) 36.9%
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Table 64: M1 OpEx build continued

2007A Other OpEx Staff cost Monthly expense per sub (S$) YoY Staff cost (S$ mn) as % of ex. NBN revenue Marketing & promotion Ex. NBN monthly expense per sub (S$) YoY Ex. NBN marketing & promotion (S$ mn) as % of ex. NBN revenue NBN monthly expense per sub (S$) YoY NBN marketing expense (S$ mn) As % of NBN revenues Total marketing & promotion (S$ mn) as % of total revenue Others Monthly expense per sub (S$) YoY Others (S$ mn) as % of ex. NBN revenue Total other OpEx (S$ mn) as % of total revenue Total opex (S$ mn) as % of total revenue BP change YoY Opex per minute (S cents) YoY Opex ex. marketing per minute (S cents) YoY
2008A
2009A
2010A 4.1 9.4% (90) 9.2% 1.1 4.9% (25) 2.6% 10.0 NM 0.0% (25) 2.6% 2.6 12.6% (58) 5.9% (173) 17.7% (666) 68.0% 7.52 9.6 24.4% 9.2 25.6%
1Q11A 4.2 5.6% (24) 9.3% 1.4 47.4% (8) 3.1% 10.0 0.0% (0.0) 20.0% (8) 3.1% 2.8 -5.8% (16) 6.3% (48) 18.7% (181) 69.9% 0.84 9.9 -5.3% 9.5 -6.7%
2Q11A 3.9 2.3% (23) 9.4% 1.2 7.7% (7) 2.8% 10.0 0.0% (0.1) 20.0% (7) 2.8% 2.9 12.6% (17) 6.9% (47) 19.1% (167) 67.9% 3.74 8.8 6.4% 8.5 6.4%
3Q11A 4.2 6.9% (25) 10.3% 0.8 -26.2% (5) 1.9% 10.0 0.0% (0.3) 23.5% (5) 2.0% 2.9 12.0% (18) 7.2% (48) 19.4% (166) 67.7% (0.10) 8.6 -7.9% 8.4 -7.4%
2011E 4.3 4.5% (101) 9.9% 1.2 6.0% (29) 2.8% 14.2 42.0% (0.8) 23.0% (29) 2.9% 2.7 3.6% (65) 6.3% (195) 19.0% (707) 68.9% 0.94 9.3 -3.0% 8.9 -3.4%
2012E 4.4 3.6% (111) 10.6% 1.2 2.2% (31) 3.0% 9.3 -34.8% (2.0) 24.0% (33) 3.1% 2.7 -0.8% (68) 6.5% (211) 20.1% (732) 69.6% 0.68 9.0 -3.0% 8.6 -3.4%
2013E 4.6 3.5% (119) 11.1% 1.3 2.0% (33) 3.0% 9.4 1.0% (4.5) 24.9% (37) 3.4% 2.7 0.0% (70) 6.6% (226) 20.8% (758) 69.8% 0.22 8.9 -1.0% 8.5 -1.4%
2014E 4.7 3.5% (126) 11.5% 1.3 2.0% (34) 3.1% 9.4 1.0% (7.5) 25.1% (41) 3.7% 2.7 0.0% (72) 6.6% (239) 21.3% (782) 69.8% 0.01 8.9 -0.2% 8.4 -0.7%
2015E 4.9 3.5% (133) 12.0% 1.3 2.0% (35) 3.2% 9.5 1.0% (10.5) 25.4% (46) 4.0% 2.7 0.0% (73) 6.6% (252) 21.9% (806) 70.0% 0.20 8.9 0.1% 8.4 -0.3%
5.3 -6.6% (92) 11.4% 1.1 -1.3% (19) 2.4% 0 NM 0 (19) 2.4% 4.4 6.1% (75) 9.4% (186) 23.2% (482) 60.1% 3.05 10.0 -6.9% 9.6 -6.9%
4.5 3.7 -14.7% -17.5% (86) 10.8% 1.1 -1.7% (21) 2.6% 0 NM 0 (21) 2.6% (76) 9.7% 1.1 -1.2% (22) 2.8% 0 NM 0 (22) 2.8%
4.0 2.3 -7.4% -42.2% (77) 9.6% (184) 22.9% (485) 60.5% 0.47 (48) 6.1% (146) 18.6% (473) 60.5% (0.07)
9.0 7.7 -9.7% -14.6% 8.6 7.3 -10.0% -14.9%
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Table 65: M1 P&L

S$ mn, YE Dec Mobile-voice Mobile-non-voice Fixed Service IDD Sale of equipment Total revenues Cost of equipment Leased circuit Traffic expenses Other cost of sales Staff costs Marketing and promotion Others Total opex EBITDA EBITDA margin (%) - service Depreciation Operating profits Interest income Interest Expense Profit before tax Tax Tax Rate (%) Net income Reported EPS 2007A 471 130 0 127 76 803 (133) (42) (47) (75) (92) (19) (75) (482) 321 44.1% (117) 204 0 (10) 195 (23) 11.7% 172 18.5 2008A 460 141 0 137 62 801 (128) (40) (52) (81) (86) (21) (77) (485) 316 42.8% (124) 192 0 (8) 185 (35) 18.8% 150 16.8 2009A 419 147 7 128 81 782 (138) (53) (55) (81) (76) (22) (48) (473) 309 44.1% (128) 181 1 (7) 175 (25) 14.2% 150 16.8 2010A 395 185 24 129 247 980 (297) (41) (59) (96) (90) (25) (58) (666) 314 42.8% (118) 196 0 (6) 191 (33) 17.5% 157 16.8 1Q11A 95 50 7 32 75 259 (82) (9) (16) (26) (24) (8) (16) (181) 78 42.3% (25) 53 0 (1) 52 (9) 17.4% 43 4.7 2Q11A 95 53 10 31 57 246 (71) (8) (16) (25) (23) (7) (17) (167) 79 41.8% (26) 53 0 (2) 52 (9) 17.4% 43 4.7 3Q11A 95 53 11 29 56 245 (66) (8) (16) (27) (25) (5) (18) (166) 79 41.9% (28) 51 0 (2) 50 (9) 17.7% 41 4.5 2011E 380 213 38 125 267 1,025 (307) (33) (64) (106) (101) (29) (65) (707) 319 42.0% (105) 214 0 (7) 207 (36) 17.4% 171 18.8 2012E 382 237 37 118 269 1,051 (307) (30) (67) (112) (111) (33) (68) (732) 320 40.9% (106) 214 1 (7) 207 (35) 17.0% 172 18.9 2013E 389 257 35 113 272 1,085 (308) (28) (69) (116) (119) (37) (70) (758) 327 40.3% (107) 221 1 (7) 215 (37) 17.0% 179 19.6 2014E 399 275 33 109 275 1,121 (308) (27) (71) (119) (126) (41) (72) (782) 338 40.0% (108) 230 2 (7) 225 (38) 17.0% 187 20.5 2015E 409 288 32 104 278 1,151 (308) (27) (73) (121) (133) (46) (73) (806) 345 39.5% (110) 235 3 (7) 231 (39) 17.0% 192 21.1
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Table 66: M1 balance sheet

S$ mn, YE Dec Cash and bank balances Trade receivables Others Total current assets PPE License & spectrum rights Goodwill Others Total non-current assets Total Assets Current liabilities Trade payables and accruals Unearned revenue Bank loans Others Total current liabilities Non current liabilities Interest bearing borrowings Others Total non-current liabilities Minority Interest Share capital Retained earnings Other reserves Total equity Total Liabilities & Equity
2007 23 81 23 127 637 83 0 1 720 847 198 0 35 55 288 250 107 357 0 114 83 5 202 847
2008 18 69 24 111 613 79 0 1 693 804 149 32 0 50 231 250 100 350 0 116 103 4 223 804
2009 7 87 46 141 611 73 12 1 697 838 153 31 269 41 494 0 88 88 0 117 133 6 256 838
2010 9 178 47 234 601 87 13 1 701 935 158 33 66 43 300 250 82 332 0 128 169 6 303 935
2011E 19 187 47 252 605 82 13 1 700 952 168 35 66 43 312 250 82 332 0 128 175 6 309 952
2012E 51 191 47 289 612 77 13 1 702 991 174 36 66 43 319 250 82 332 0 128 207 6 341 991
2013E 87 197 47 331 621 72 13 1 706 1,037 180 38 66 43 326 250 82 332 0 128 246 6 379 1,037
2014E 123 204 47 374 632 67 13 1 712 1,085 186 39 66 43 334 250 82 332 0 128 287 6 420 1,085
2015E 157 209 47 414 644 62 13 1 719 1,133 192 40 66 43 340 250 82 332 0 128 327 6 461 1,133
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Table 67: M1 cash flows

S$ mn, YE Dec Profit/(Loss) before taxation Adjustments for: Depreciation and ammortization Others (incl. tax paid) Operating cash flow before WC changes Changes in WC Trade receivables Trade payables, accruals & other payables Others Net cash from operations Purchase of PPE and intangible assets Others Net cash outflow from investing Proceeds from share issuance Dividends paid Net proceeds from loans Others Net cash outflow from financing Net change in cash Starting cash Ending cash Net debt / (cash)
2007 195 111 (73) 232 1 (2) (2) 229 (56) 0 (56) 5 (358) 35 0 (318) (146) 169 23 262
2008 185 118 (33) 270 12 (17) (10) 255 (94) (3) (97) 2 (130) (35) 0 (163) (5) 23 18 232
2009 175 122 (27) 270 (16) 1 (32) 222 (119) (13) (132) 0 (120) 19 (0) (101) (10) 18 7 262
2010 191 111 (24) 277 (91) 7 (6) 187 (120) (0) (120) 0 (121) 47 8 (66) 1 7 9 307
2011E 207 105 (36) 276 (8) 12 0 280 (105) 0 (105) 0 (165) 0 0 (165) 10 9 19 297
2012E 207 106 (35) 278 (5) 7 0 280 (107) 0 (107) 0 (140) 0 0 (140) 33 19 51 265
2013E 215 107 (37) 286 (6) 8 0 287 (111) 0 (111) 0 (140) 0 0 (140) 36 51 87 229
2014E 225 108 (38) 295 (6) 7 0 296 (114) 0 (114) 0 (146) 0 0 (146) 36 87 123 193
2015E 231 110 (39) 302 (6) 7 0 304 (118) 0 (118) 0 (151) 0 0 (151) 34 123 157 159
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M1: Summary of Financials

Profit and Loss Statement S$ in millions, year end Dec Revenue EBITDA Depreciation & Amortization EBIT Interest income Interest Expense Other Income Profit before tax Tax Minorities Net profit - reported Net profit - adjusted Shares Outstanding (mn) EPS (S$) (Reported) DPS (S$) DPS payout ratio Revenue growth EBITDA growth Net profit growth EPS growth DPS growth FY09 782 309 -128 181 1 -7 0 175 -25 0 150 150 895 0.17 0.13 79.6% (2.4%) -2.2% 0.3% 0.0% -9.8% FY10 980 314 -118 196 0 -6 0 191 -33 0 157 157 935 0.17 0.13 77.1% 25.3% 1.5% 4.5% 0.0% -3.1% FY11E 1,025 319 -105 214 0 -7 0 207 -36 0 171 171 911 0.19 0.18 96.4% 4.7% 1.6% 8.9% 11.8% 39.7% FY12E 1,051 320 -106 214 1 -7 0 207 -35 0 172 172 911 0.19 0.15 81.6% 2.5% 0.3% 0.6% 0.6% -14.9% Balance Sheet statement FY13E S$ in millions, year end Dec 1,085 Cash and equivalents 327 Accounts receivable -107 Others 221 Total Current assets 1 -7 ST loans 0 Others current liabilities 215 Total current liabilities -37 0 Net working capital 179 179 Net fixed assets Other long term assets 911 Total non-current assets 0.20 0.15 Total Assets 78.5% Long-term debt 3.2% Other liabilities 2.5% Total Liabilities 3.8% 3.8% Shareholders' equity -0.3% Total liabilities and equity Net debt/(cash) Cash flow statement FY13E S$ in millions, year end Dec 30.2% Cash flow from operations 16.2% Capex 49.6% Cash flow from other investing 32.6% Cash flow from financing 17.6% Change in cash for year 17.0% -10.2% Beginning cash 45.5% Closing cash 60.3% 60.39 FY09 FY10 7 9 87 178 46 47 141 234 269 225 494 -353 611 86 697 838 0 88 581 256 838 262 66 234 300 -66 601 100 701 935 250 82 632 303 935 307 FY11E 19 187 47 252 66 246 312 -60 605 95 700 952 250 82 643 309 952 297 FY11E 280 -105 -105 -165 10 9 19 FY12E 51 191 47 289 66 253 319 -30 612 90 702 991 250 82 650 341 991 265 FY12E 280 -107 -107 -140 33 19 51 FY13E 87 197 47 331 66 260 326 5 621 85 706 1,037 250 82 658 379 1,037 229 FY13E 287 -111 -111 -140 36 51 87
Ratio Analysis %, year end Dec EBITDA margin FCF margin ROE ROC ROA
FY09 39.5% 13.2% 62.8% 36.3% 18.3%
FY10 32.0% 8.9% 56.2% 34.3% 17.7% 17.5% -10.2% 51.1% 101.4% 56.00
FY11E 31.1% 17.1% 55.9% 34.3% 18.1% 17.4% -10.2% 50.6% 96.2% 48.47
FY12E 30.4% 16.5% 53.0% 33.3% 17.7% 17.0% -10.2% 48.1% 77.6% 50.66
FY09 FY10 222 187 -119 -100 -132 -120 -101 -66 -10 18 7 1 7 9
Tax rate 14.2% Capex to sales -15.2% Debt/Capital 51.2% Net debt or (cash) to equity 102.2% Interest cover (x) 53.28 Source: Company reports and J.P. Morgan estimates.
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Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Singapore Telecom, StarHub, M1. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Singapore Telecom. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Singapore Telecom.
Date 08-Nov-06 15-Jan-07
Singapore Telecom (STEL.SI) Price Chart
Rating Share Price (S$) N N N OW OW OW OW N N N 2.85 3.44 3.38 3.08 3.20 3.42 3.50 3.66 3.96 3.86 3.88 3.71 3.75 3.52 3.58 2.51 2.55 2.48 2.46 2.74 2.81 2.99 2.95 3.00 3.16
Price Target (S$) 2.94 3.50 3.55 3.55 3.80 4.00 4.23 4.28 4.35 4.27 4.26 4.20 4.24 4.06 4.00 3.20 2.75 2.63 2.80 2.85 3.05 3.40 3.45 3.40 3.60
24-Jan-07 02-Mar-07 27-Mar-07 14-Aug-07 12-Sep-07

OW S$3.607-Nov-07
N S$3.55 S$4 N S$4.35 N S$4.2 S$4 OW N 6
N S$2.63 N S$3.05
N S$3.4 N S$3.45 N S$3.4
07-May-07 OW
N S$3.5 OW S$3.8 OW S$4.28 N S$4.26S$4.06 N S$2.75 N N S$2.85 N S$2.94 S$3.55 S$4.23N S$4.27 OW OW N S$4.24 N S$3.2 N S$2.8 4 Price(S$)
05-Feb-08 11-Apr-08
09-May-08 N 14-May-08 N
2
08-Aug-08 12-Aug-08 11-Nov-08 03-Feb-09

Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11
N N N N N N
16-Mar-09 07-Apr-09
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Nov 08, 2006.
14-May-09 N 25-May-09 N 03-Feb-10 09-Feb-10 17-Feb-10 21-Oct-11 N N N OW
139
StarHub (STAR.SI) Price Chart

4
OW S$3
OW S$2.9
OW S$2.3
OW
N S$2.7
Date
Price(S$)2
Rating Share Price (S$) OW OW OW N 2.22 1.88 1.93 2.34 2.82
Price Target (S$) 3.00 2.90 2.30 -2.70
05-Nov-08 26-Nov-09
07-May-09 OW
1
28-Apr-10 21-Oct-11
0 Aug 08 Nov 08 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage Apr 28, 2010 - Oct 21, 2011.
M1 (MONE.SI) Price Chart

4
N S$2.5
Price(S$)2
Date 09-Oct-08 21-Oct-11
Rating Share Price (S$) N N 1.91 2.51
Price Target (S$) -2.50
0 Aug 08 Nov 08 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage Oct 09, 2008 - Oct 21, 2011.
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N= Neutral, UW = Underweight Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] In our Asia (ex-Australia) and UK small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.morganmarkets.com. Coverage Universe: Sullivan, James: 21Vianet Group Inc. (VNET), AXIATA Group Berhad (AXIA.KL), Advanced Info Services (ADVA.BK), Digi (DSOM.KL), Globe Telecom (GLO.PS), M1 (MONE.SI), Maxis Berhad (MXSC.KL), PT Indosat Tbk (ISAT.JK), PT
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Telekomunikasi Indonesia Tbk (TLKM.JK), PT XL Axiata Tbk (EXCL.JK), Philippine Long Distance Telephone Company (TEL.PS), Singapore Telecom (STEL.SI), StarHub (STAR.SI), Telekom Malaysia (TLMM.KL), Total Access Communication (DTAC.BK) J.P. Morgan Equity Research Ratings Distribution, as of September 30, 2011
Overweight (buy) 47% 51% 45% 70% Neutral (hold) 42% 44% 47% 60% Underweight (sell) 11% 33% 7% 52%
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.
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Coverage of NGNBN by JP Morgan

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Asia Pacific Equity Research

Singapore Asian Telecommunications James R. Sullivan, CFA

(65) 6882-2374 james.r.sullivan@jpmorgan.com J.P. Morgan Securities Singapore Private Limited

Christopher Gee, CFA

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

SingTel 60.0 (3.8) (6.0) (25.0) 25.3 42.1%

StarHub 60.0 (15.0) (6.0) (25.0) 14.0 23.3%

M1 60.0 (15.0) (6.0) (25.0) 14.0 23.3%

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 1: Singapore Pay TV market share (LHS) vs. ARPU (RHS)

Figure 2: Singapore residential broadband market share trends

60.0% 50.0% 40.0% 30.0% 20.0% 10.0%

SingTel sub share

StarHub sub share

Source: Company reports and J.P. Morgan estimates.

Source: Company reports and J.P. Morgan estimates.

Figure 4: Yearly savings from 10bps of churn reduction (S$ mn)

1.0 0.0 SingTel StarHub M1

Fixed line household penetration

Broadband household penetration-fixed

Pay TV household penetration

Source: Company reports and J.P. Morgan estimates.

Source: J.P. Morgan estimates.

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 5: Life cycle profitability of a bundled fixed line customer

Source: J.P. Morgan.

Source: J.P. Morgan.

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 8: Singapore Telecom Industry revenue growth

Figure 9: Operator revenue contribution from Singapore

Source: Company reports and J.P. Morgan estimates.

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Source: J.P. Morgan, ATiC Consulting

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Table 2: Singapore Telcos: Valuation summary

Source: Bloomberg and J.P. Morgan estimates. Priced as at 20 October

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Table 4: Singapore Telcos: DCF summary

Source: Bloomberg, J.P. Morgan estimates. Priced as at 20 October

Valuation Methodology / Setting Target Prices

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 13: StarHub: Dividend yield spread to government bonds

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 14: M1: Dividend yield spread to government bonds

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Figure 16: StarHub: Street 1 year forward P/E

Figure 2: StarHub: Street 1 year forward EPS

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com

Asia Pacific Equity Research 21 October 2011

Key risks to our view

James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com