2011 apr 15 - nomura - singtel

13 April 2011 Nomura 1

Any authors named on this report are research analysts unless otherwise indicated. See the important disclosures and analyst certifications on pages 13 to 18.

Singapore Telecom ST SP

TELECOMS | SINGAPORE

Sachin Gupta, CFA +65 6433 6968 [email protected]

Neeraja Natarajan (Associate)

Third time lucky on specials Will it return a large chunk of cash to investors in May?

We expected some capital management in May last year – and there was none; we again called for some capital management in Nov last year – and management raised the payout ratio to 55-70%. Now, for the third time, we think SingTel will either increase the payout further, or undertake some form of capital management. For 9M FY11, it generated S$2.9bn in free-cash flows. Every S$1bn in capital return implies an additional 2% dividend yield, on our estimates.

Solid valuation – but not dirt cheap

SingTel is a solid diversified company, but its earnings outlook has moderated to low single-digit growth. Valuation is a key appeal and it’s now trading at 12.7x FY12F P/E, or 11.6x for Singapore and Optus combined (which are now generating a FCF yield of 7.8%). This is around a 10% discount to regional peers – compelling but not dirt cheap, in our view. We have made modest adjustment to our forecasts and also incorporated recently revised estimates for Bharti and Telkomsel. Our revised PT is S$3.42.

Market-specific issues – are they priced in?

There is uncertainty in most of its key markets. Singapore could get more aggressive in 2H as NBN gains traction and content cross-carriage measures are rolled out, but we don't expect SingTel to lose significant share or margins. In 9M11, its Singapore margins were 35.9% and for FY12F we expect these to be 33.7%. In Australia, Telstra’s aggressive push for subscribers is a risk – we assume no EBITDA growth for Optus next year. Our recent trip to India confirmed broader stability in wireless prices; however recent regulatory overhangs remain a concern. We expect NTP-11 by 2H11. Telkomsel’s 2H10 trends showed some recovery, and we anticipate further resilience for the next few quarters.

Key financials & valuations30 Mar (S$mn) FY10 FY11F FY12F FY13F

Revenue 16,966 18,160 18,718 19,145

Reported net profit 3,907 3,730 3,778 3,915

Normalised net profit 3,915 3,730 3,778 3,915

Normalised EPS (S$) 0.25 0.23 0.24 0.25

Norm. EPS growth (%) 9.8 (4.7) 1.3 3.6

Norm. P/E (x) 12.3 12.9 12.7 12.3

EV/EBITDA (x) 7.3 7.3 7.0 6.6

Price/book (x) 2.0 2.0 1.9 1.9

Dividend yield (%) 4.7 5.0 5.6 5.6

ROE (%) 17.8 15.8 15.5 15.5

Net debt/equity (%) 22.3 19.5 17.7 16.5

Earnings revisions

Previous norm. net profit 3,739 3,797 3,966

Change from previous (%) (0.2) (0.5) (1.3)

Previous norm. EPS (S$) 0.23 0.24 0.25

Source: Company, Nomura estimates

Share price relative to MSCISG

1m 3m 6m

1.7 (2.6) (2.3)

3.1 0.2 1.7

(2.1) 0.8 (3.2)

Easy

Source: Company, Nomura estimates

38,241

45.8

3.32/2.76

45.86

Absolute (S$)

Absolute (US$)

Relative to Index

Estimated free float (%)

Market cap (US$mn)

4.9

Major shareholders (%)

Temasek 54.1

52-week range (S$)

3-mth avg daily turnover (US$mn)

Capital Group

Stock borrowability

2.72.82.93.03.1

3.23.33.4

Ap

r10

Ma

y10

Jun

10

Jul1

0

Aug

10

Se

p10

Oct

10

No

v10

Dec

10

Jan

11

Fe

b1

1

Ma

r11

80

85

90

95

100

105Price Rel MSCISG(S$)

Closing price on 12 Apr S$3.01

Price target S$3.42(from S$3.35)

Upside/downside 13.6%Difference from consensus 0.9%

FY12F net profit (S$mn) 3,778Difference from consensus -7.9%Source: Nomura

Nomura vs consensus Our higher price target reflects a relatively better operating environment for wholly owned businesses.

Maintained

NEUTRAL

N O M U R A S I N G A P O R E L I M I T E D

Action SingTel shares should trade up into the full-year result in May. Operating trends

and guidance should be resilient and currently, its Singapore/Optus stub is trading at FY12F P/E of 11.6x, at a discount to regional peers. Also, unlike the past two years, we don't see many other options for cash deployment, so a large capital management is likely (we hope!). There are no acquisitions on the horizon, its associates are all self-funded, and capex risks are benign in Singapore and Australia. Every S$1bn adds 2% to yield; but to make it compelling relative to peers, up to S$2bn return is desired, which could make it a 9%-yielding stock.

Catalysts Operational trends in key markets and capital management are potential catalysts.

Anchor themes

Volatility, due to rising competition in regional markets, could persist, but SingTel’s associates have strong market positions, balance sheets and earnings outlooks.

This document is being provided for the exclusive use of FASILAH OMAR at SCHRODER INVESTMENT MGMT(S) LTD

Singapore Telecom Sachin Gupta, CFA


Drilling down

Implied valuations So far this year, SingTel shares are down1%, PT Telkom down 11%; conversely,

Bharti is up 1%, Globe up 5% and AIS up 2%.

Exhibit 1. SingTel and associates : YTD performances

-1%

-11%

1% 2%

5%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Sin

gT

el

PT

Tel

kom

Bh

arti

AIS

Glo

be

Source: Bloomberg, Company data, Nomura research

Following the recent declines in its associate prices, the stub value is now S$1.50, accounting for 50% of the total share price.

Exhibit 2. Singtel price breakdown

0.8

1.1

1.3

1.6

1.8

2.1

2.3

2.6

2.8

3.1

3.3

3.6

3.8

Jan

-09

Feb

-09

Mar

-09

Ap

r-09

May

-09

Jun

-09

Jul-

09

Aug

-09

Sep

-09

Oct

-09

No

v-09

Dec

-09

Jan

-10

Feb

-10

Mar

-10

Ap

r-10

May

-10

Jun

-10

Jul-

10

Aug

-10

Sep

-10

Oct

-10

No

v-10

Dec

-10

Jan

-11

Feb

-11

Mar

-11

Sing+Optus Associates SingTelS$





SingTel’s one-year forward rolling P/E is now trading marginally below its three-year average of 13x, appealing but not entirely cheap, in our view.

Exhibit 3. Singtel P/E trends

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

Jan

-08

Feb

-08

Mar

-08

Ap

r-08

May

-08

Jun

-08

Jul-

08A

ug-0

8S

e p-0

8O

ct-0

8N

ov-

08D

ec-0

8Ja

n-0

9F

eb-0

9M

ar-0

9A

pr-

09M

a y-0

9Ju

n-0

9Ju

l-09

Au g

-09

Se p

-09

Oct

-09

No

v-09

Dec

-09

Jan

-10

Feb

-10

Mar

-10

Ap

r-10

Ma y

-10

Jun

-10

Jul-

10A

u g-1

0S

ep-1

0O

ct-1

0N

ov-

10D

ec-1

0Ja

n-1

1F

eb-1

1M

ar-1

1

Average 3 year 1Yr forward PE of 13x


The one-year forward P/E for Singapore and Optus combined is currently 11.6x, which is at a 10% discount to regional telcos.

Exhibit 4. Singtel + Optus – P/E trends

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

13.0x

14.0x

15.0x

16.0x

Jan

-09

Mar

-09

May

-09

Jul-

09

Sep

-09

No

v-09

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-10

Jan

-11

Mar

-11

Singapore + Optus PE





Strong cash-flows – will cross S$4bn in the next two years

Exhibit 5. SingTel- free cash flows breakdown by business

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F

ST FCF Optus FCF Associate Dividends

Source: Company presentation, Nomura estimates

Singapore – risks/ opportunities ahead Key focus areas in Singapore market are: 1) wireless trends; 2) NBN impact; and 3) content cross carriage measures.

As seen in exhibit 8 below, SingTel has been consistently increasing its wireless revenue and subscriber share without sacrificing margins.

We believe the NBN impact will likely become more transparent in 2H11F, and we currently assume only 3.2% total revenue growth in Singapore in FY12F with 33.7% margins.

On content cross-carriage, SingTel currently has a 33% share of the pay-TV market, but only a 19% revenue share. Even if SingTel were to gain access to StarHub’s 200k customers at S$30 ARPU, it would translate to only S$72mn in additional revenue or 1.2% of its total Singapore revenues, based on our estimates. See our recent report, Content — what is mine is yours? dated 4 March 2011 for further details.

Exhibit 6. Revenue trends

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2009 2010 2011F 2012F 2013F 2014F

S$m

Source: Company reports, Nomura estimates

Exhibit 7. EBITDA and margin trends

28%

29%

30%

31%

32%

33%

34%

35%

36%

37%

38%

39%

-

500

1,000

1,500

2,000

2,500

2009 2010 2011F 2012F 2013F 2014F

S$m EBITDA Margin %





Exhibit 8. Quarterly trends

Jun '09 Sep '09 Dec '09 Mar '10 Jun '10 Sep '10 Dec '10 Mobile revenue market share

StarHub 34.3% 34.1% 33.3% 34.3% 33.8% 33.9% 33.1%

M1 17.8% 17.3% 17.0% 17.2% 16.6% 16.4% 16.1%

SingTel 47.9% 48.5% 49.7% 48.5% 49.6% 49.7% 50.8%

ARPU

StarHub 46 46 47 46 45 46 46

M1 47 46 46 45 44 43 43

SingTel 50 50 51 51 53 53 56

Mobile revenue

StarHub 272 277 281 286 294 298 303

M1 142 141 143 143 145 144 147

SingTel 380 394 419 405 432 437 465

TOTAL 793 812 843 835 871 879 915

Mobile revenue y-y change %

StarHub 1% 5% 3% 8% 8% 8% 6%

M1 -8% -6% -2% 2% 2% 2% 3%

SingTel 10% 11% 12% 9% 14% 11% 11%

TOTAL 3% 5% 7% 8% 10% 8% 9%

Mobile revenue q-q change %

StarHub 3% 2% 1% 2% 3% 1% 1%

M1 1% 0% 2% 0% 1% -1% 2%

SingTel 3% 4% 6% -3% 7% 1% 6%

Subscriber (k)

StarHub 1,849 1,884 1,918 1,975 2,056 2,121 2,145

M1 1,669 1,717 1,758 1,796 1,849 1,892 1,911

SingTel 2,991 3,100 3,181 3,116 3,113 3,167 3,229

Subscriber market share %

StarHub 28% 28% 28% 29% 29% 30% 29%

M1 26% 26% 26% 26% 26% 26% 26%

SingTel 46% 46% 46% 45% 44% 44% 44%

Net - adds (k)

StarHub 34 35 34 57 81 65 24

M1 50 48 41 38 53 43 19

SingTel 15 109 81 (65) (3) 54 62 Source: Company reports, Nomura research

Optus – is Telstra a risk? For more than seven consecutive quarters, Optus has surpassed expectations.

Wireless revenues have grown in excess of 7% for 10 consecutive quarters now. Obviously, with Telstra looking to win back customers at a high cost, we don't envisage these growth trends can be maintained. Nevertheless, we don't envisage a significant loss in market share either. For FY12F, we build in 3% total revenue growth with flat earnings.




Exhibit 9. Revenue trends

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

7,500

8,000

8,500

9,000

9,500

10,000

2009 2010 2011F 2012F 2013F 2014F

S$m Revenue Chg % y-y


Exhibit 10. EBITDA trends

21.5%

22.0%

22.5%

23.0%

23.5%

24.0%

24.5%

25.0%

1,950

2,000

2,050

2,100

2,150

2,200

2,250

2,300

2009 2010 2011F 2012F 2013F 2014F

S$m EBITDA (S$m) Margin %


Bharti – stable for now Domestic trends appear to be stabilizing over the last couple of quarters with price

declines moderating. On the other hand, stable pricing, if seen in the market (in the medium-term), could help growth surprise on the upside. It is still early days for data and 3G and at this stage, not much is being factored in for these in our view.

Africa is still the unknown for Bharti; however, it is confident that it can keep capex at current levels of $800-900mn p.a. Although management’s target is for 40% margins, even if Bharti reaches around 30% margins by FY13F while maintaining capex at around US$1bn, we believe it can generate US$500mn in free cash, which is a promising outcome, in our opinion. See our report Rumble in the jungle dated 9th February 2011 for further details on Bharti.

Exhibit 11. Africa - EBITDA and margin …

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Mar

-11

Mar

-12

Mar

-13

0

5

10

15

20

25

30

35

40 EBITDA (Rs mn) Margin (%) (%)

Note: Mar-11 indicates 12 months ending in March-11


Exhibit 12. India - EBITDA and margin …

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2007 2008 2009 2010 2011F 2012F 2013F

0

5

10

15

20

25

30

35

40

45 EBITDA (INR mn) Margin (%) (%)





Exhibit 13. RPM decline stabilising in India

-20%

-15%

-10%

-5%

0%

5%

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

Bharti RCOM Idea Vodafone

Source: company reports

Telkomsel – winning some share back Last year, XL again outperformed peers, while Indosat was still in a transition

phase and Telkomsel’s performance was mixed. Clearly, some of Telkomsel’s promotions / plans did not yield the expected returns – some of these have been retracted, and the company targets 7-8% wireless growth this year (we are building in 5% at this stage). Growth drivers will be: 1) potential subscriber groups that have not been addressed (~30mn); 2) opportunities offered by the ex Java region, and; 3) broadband services.

Telkomsel lost significant revenue and EBITDA share in 2010 – but on breaking this down further, we note that most of this happened in 1H, while in 2H it returned to a 47% incremental revenue share and a 42% EBITDA share amongst the top-three Indonesian telcos. Within this, its voice share was 44% in 2H (which is a higher-margin business) with a 48% share in data (incl. SMS) on our estimates. It has further expanded its network advantage and added another 5.5k BTSs last year to 37k in total, which is 55% of the total new build in the market. The change in frequency fee structure based on bandwidth also bode well for Telkom, in our view. Overall, we expect the company to maintain / improve its operating momentum in the coming months and, hence, we recently upgraded the stock to BUY. See our report Capturing value, seizing returns, dated 11 April 2011 for more details.

Exhibit 14. PT Telkom : 1 year forward P/E

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Mar-0

4

Aug-

04

Jan-

05

Jun-

05

Nov-

05

Apr-0

6

Sep-

06

Feb-

07

Jul-0

7

Dec-

07

May-

08

Oct-0

8

Mar-0

9

Aug-

09

Jan-

10

Jun-

10

Nov-

10

Apr-1

1

(Rp)

6x

9x

12x

15x

18x

21x

Source: Company data, Nomura research

Exhibit 15. PT Telkom : 1 year forward EV/ EBITDA

0

50,000

100,000

150,000

200,000

250,000

300,000

Apr-0

4

Oct-0

4

Apr-0

5

Oct-0

5

A pr-0

6

Oct-0

6

A pr-0

7

Oct-0

7

Apr-0

8

Oct-0

8

A pr-0

9

Oct-0

9

A pr-1

0

Oct-1

0

A pr-1

1

(Rp bn)

2x

3x

4x

5x

6x

7x





Exhibit 16. Incremental shares on half-yearly basis (sequential)

2H08 1H09 2H09 1H10 2H10

Incremental revenue

Telkomsel 253 524 2,812 (1,212) 1,231

Indosat 867 (918) 719 354 671

XL 487 (63) 1,285 871 726

Total 1,607 (457) 4,816 13 2,628

% Incremental revenue share

Telkomsel 16% nmf 58% nmf 47%

Indosat 54% nmf 15% nmf 26%

XL 30% nmf 27% nmf 28%

Incremental EBITDA

Telkomsel (886) 1,214 1,727 (1,532) 604

Indosat 493 (572) 104 169 410

XL (78) 41 1,069 793 430

Total (471) 683 2,900 (570) 1,444

% Incremental EBITDA share

Telkomsel nmf nmf 60% nmf 42%

Indosat nmf nmf 4% nmf 28%

XL nmf nmf 37% nmf 30%

Incremental voice revenues

Telkomsel 1,706 (583) 1,582 (759) 411

Indosat 609 (1,208) 251 (239) 180

XL 398 (221) 145 467 343

Total 2,713 (2,011) 1,977 (531) 934

% Incremental voice revenue share

Telkomsel 63% 29% 80% nmf 44%

Indosat 22% 60% 13% nmf 19%

XL 15% 11% 7% nmf 37%

Incremental data revenues

Telkomsel (1,453) 1,107 1,230 (453) 820

Indosat 258 290 468 593 491

XL 90 158 669 404 383

Total (1,106) 1,554 2,368 544 1,694

% Incremental data revenue share

Telkomsel nmf 71% 52% nmf 48%

Indosat nmf 19% 20% nmf 29%

XL nmf 10% 28% nmf 23%


AIS – cost controls Sequential growth in service revenues in the last quarter was higher than we

expected. While we were surprised by growth in the voice segment, non voice revenues growth was in line with our expectations. For FY10, service revenues grew 7.9% versus AIS’s target of 5%, and its share of industry service revenue rose to 52.9% (up 100 bps y-y).

At the same time, AIS’s control on SG&A expenses in FY10 was better than we expected. SG&A in 4Q10 dropped 1% q-q – the first decline in the past seven years. SG&A expenses as a percentage of total revenues excluding IC were 10.6% in FY10, a third consecutive year of decline from 12.6% in 2007. However, AIS’s management has guided that the current SG&A level is close to the bottom and it sees limited room for further decline in 2011.




Exhibit 17. AIS : service revenues trend

0

5

10

15

20

25

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

THBbn

Source: company reports

Globe – rationalising market Globe has seen some success in turning around its market share over the last

couple of quarters, and the impending market consolidation from three to two players could prove beneficial. While there could be some pullback in competitive intensity in the next six months, we still believe the market could struggle to generate material revenue growth as it transitions from voice to data.

For Globe, the bigger concern is of course earnings recovery. In addition to impact from competition, broadband margins have also declined significantly. We continue to believe earnings recovery could therefore still be >12M event.

Earnings revision and valuation mix Following our recent revisions to Bharti and Telkomsel forecasts, and modest changes to our Singapore and Optus numbers, the net impact is a modest +1% to -1% revision to our FY11-13F forecasts. Our revised price target is S$3.42 per share.

Exhibit 18. Earnings revisions

2011F 2012F

New Forecasts

Total Revenue 18,025 18,583

EBITDA (incl. Associates) 7,108 7,390

NPAT pre GW, Excepts & IDA comp 3,730 3,778

Old Forecasts

Total Revenue 17,867 18,423

EBITDA (incl. Associates) 7,141 7,467

NPAT pre GW, Excepts & IDA comp 3,739 3,797

Changes

Total Revenue 0.9% 0.9%

EBITDA (incl. Associates) -0.5% -1.0%

NPAT pre GW, Excepts & IDA comp -0.2% -0.5%

Note: Total revenues here excludes other income

Source: Nomura estimates




Exhibit 19. SoTP breakdown

Asset S$mn cps

Singapore 20,594 1.29

Optus 11,913 0.75

AIS 2,682 0.17

Globe 1,447 0.09

Bharti 14,559 0.91

Telkomsel 7,543 0.47

Warid 0 -

PBTL 0 -

Far Eastone 193 0.01

SingPost 398 0.02

Total 59,328 3.72

Less Net Debt 4,634 0.29

Equity Value 54,694

Shares on Issue 15,970

Equity Value per share S$ 3.42


Exhibit 20. Regional valuation table Bloomberg Local Mkt Cap

ticker price (US$ mn) 10 11E 12E 10 11E 12E 10 11E 12E 10 11E 12EWirelessAIS ADVANC TB Buy THB 87 8,514 11.6 12.0 11.8 5.2 5.2 5.2 14.9% 11.0% 8.2% 14.8% 11.2% 11.0%Axiata Group AXIATA MK Buy MYR 4.7 13,150 15.3 13.1 12.0 6.3 5.8 5.4 0.0% 3.4% 5.0% 12.5% 8.8% 10.6%Bharti Airtel BHARTI IN Buy INR 362 30,982 20.9 18.5 14.0 10.0 8.2 6.8 0.4% 0.8% 1.8% -39.2% 1.5% 7.3%China Mobile 941 HK Buy HK$ 73 197,000 10.9 10.2 9.6 4.4 4.0 3.6 3.9% 4.4% 4.8% 8.0% 11.6% 15.3%Digi.com Digi MK Buy MYR 30 7,608 19.6 18.3 18.1 9.6 8.9 8.6 5.5% 5.5% 5.5% 6.9% 6.3% 6.4%Far EasTone 4904 TT Neutral NT$ 44 4,880 16.1 16.3 15.9 6.2 6.2 6.2 5.6% 5.5% 5.6% 6.6% 8.5% 8.6%Globe Telecom GLO PM Reduce PHP 840 2,572 11.2 13.0 13.0 4.5 4.7 4.7 8.9% 6.9% 6.5% 8.1% 6.5% 5.4%Idea Cellular IDEA IN Reduce INR 65 4,854 28.1 21.5 15.3 9.0 7.6 6.6 0.0% 0.0% 0.0% -25.0% 1.0% 3.6%Maxis Maxis MK Neutral MYR 5.4 13,237 17.5 16.9 16.6 9.7 9.4 9.2 6.0% 6.0% 6.0% 3.8% 5.4% 5.9%MobileOne M1 SP Buy S$ 2.38 1,701 13.6 13.4 12.7 7.7 7.4 7.1 5.9% 6.0% 6.3% 3.2% 8.7% 8.9%PT XL Axiata EXCL IJ Buy IDR 5,800 5,702 16.4 12.4 10.3 6.4 5.3 5.4 0.0% 1.8% 2.8% 7.6% 9.0% 11.8%Reliance Com RCOM IN Reduce INR 107 4,978 12.9 12.4 9.2 6.9 6.0 5.1 0.9% 2.1% 5.6% -42.4% 3.1% 13.4%SK Telecom 017670 KS Buy KRW 159,500 11,804 9.2 7.6 6.4 4.2 3.8 3.5 5.9% 5.9% 5.9% 16.7% 24.5% 24.8%Taiwan Mobile 3045 TT Buy NT$ 69.5 9,085 14.7 14.4 14.2 9.2 9.3 9.2 6.1% 6.3% 6.3% 7.3% 6.4% 6.4%Total Access DTAC TB Neutral THB 49.8 3,910 11.3 12.5 14.8 4.9 5.0 5.4 7.6% 8.0% 8.6% 16.6% 10.0% 9.0%Average 15.3 14.2 12.9 6.9 6.5 6.1 4.8% 4.9% 5.3% 0.4% 8.2% 9.9%Median 14.7 13.1 13.0 6.4 6.0 5.4 5.6% 5.5% 5.6% 7.3% 8.5% 8.9%

IntegratedChina Telecom 728 HK Neutral HK$ 4.9 53,573 23.0 20.1 16.2 5.3 5.0 4.4 1.7% 1.7% 1.7% 7.5% 7.2% 12.0%China Unicom 762 HK Buy HK$ 14.60 46,283 53.8 33.9 24.3 6.0 5.3 4.7 1.2% 0.9% 1.2% -3.1% -3.2% 1.2%Chunghwa 2412 TT Buy NT$ 91 33,418 19.2 19.5 19.4 10.0 10.2 10.2 8.0% 5.7% 5.7% 5.9% 5.4% 5.4%KT Corp 030200 KS Buy KRW 38,550 9,226 8.0 7.3 6.3 3.8 3.7 3.6 5.2% 5.2% 5.2% 5.5% 8.1% 9.2%LG Uplus 032640 KS Neutral KRW 6,080 2,869 8.8 8.7 7.5 3.8 3.3 3.0 4.9% 4.9% 4.9% 7.3% -3.5% 2.7%PLDT TEL PM Neutral PHP 2,338 10,110 10.5 11.0 11.1 5.9 5.9 5.9 9.6% 6.5% 6.4% 11.0% 8.2% 8.6%PT Indosat ISAT IJ Buy IDR 5,250 3,296 23.1 18.6 13.5 5.3 4.9 4.7 1.1% 2.4% 3.8% 1.2% 2.6% 3.4%PT Telkom TLKM IJ Buy IDR 7,100 16,201 12.2 11.6 10.6 4.1 4.0 3.7 4.1% 4.3% 5.2% 9.1% 11.3% 12.9%SingTel ST SP Neutral S$ 3.0 38,241 12.9 12.7 12.1 7.3 7.0 6.6 5.0% 5.6% 5.6% 6.6% 6.0% 6.4%SK Broadband 033630 KS Reduce KRW 4,550 1,234 n/m 32.4 n/m 5.8 4.6 n/m 0.0% 0.0% n/m -3.8% 3.2% n/mStarHub STH SP Reduce S$ 2.8 3,820 18.2 16.9 16.2 8.9 8.2 7.9 7.1% 7.1% 7.1% 7.7% 7.3% 6.0%TM T MK Neutral MYR 4.0 4,617 36.4 22.8 21.0 5.8 5.6 6.0 5.1% 5.0% 5.0% 1.4% 6.5% 6.9%Telstra TLS AU Neutral A$ 2.8 36,366 9.0 9.8 10.9 4.5 4.8 5.0 10.0% 9.3% 8.0% 13.5% 11.8% 10.8%True TRUE TB Reduce THB 5.0 1,165 n/m n/m n/m 5.7 5.5 5.6 0.0% 0.0% n/m 2.1% 4.5% 9.0%Average 16.5 14.4 14.1 5.9 5.6 5.5 4.5% 4.2% 5.0% 5.1% 5.4% 7.3%Median 15.5 14.8 12.8 5.7 5.1 5.0 4.9% 4.9% 5.2% 6.2% 6.3% 6.9%

EV/EBITDA (x) Div Yield (%) FCF Yield (%) CurrencyRating

PE (x)

Note : prices as of April 12, 2011; Ratings and Price Targets are as of the date of the most recently published report (http://www.Nomura.com) rather than the date of this document; AIS, Total Access and True are covered by Capital Nomura Securities Public Co., Ltd.

Source: Bloomberg, Nomura estimates

Valuation methodology and risks Our price target of S$3.42 is based on our DCF sum-of-the-parts model (methodology unchanged). We use an average discount rate (WACC) of 8.26% for the Singapore and Optus businesses, with a terminal growth rate of 2.5%. Our discount rates for its associates are 10-12%, with terminal growth rates ranging from 2% to 4%.

Risks: More aggressive competition in Singapore and Australia, a macro slowdown, further appreciation of the Singapore dollar and slowing growth at associates.




We expect margins to be lower, going forward

Financial statements

Income statement (S$mn)

Year-end 30 Mar FY09 FY10 FY11F FY12F FY13F

Revenue 15,027 16,966 18,160 18,718 19,145Cost of goods sold (2,306) (2,797) (2,999) (3,149) (3,260)Gross profit 12,721 14,169 15,161 15,570 15,885SG&A (10,021) (11,199) (12,148) (12,661) (13,013)Employee share expense 2,050 2,409 2,131 2,391 2,807Operating profit 4,750 5,379 5,144 5,300 5,679

EBITDA 6,482 7,257 7,108 7,390 7,863Depreciation (1,682) (1,827) (1,912) (2,039) (2,132)

Amortisation (50) (51) (51) (51) (51)EBIT 4,750 5,379 5,144 5,300 5,679Net interest expense (228) (334) (303) (223) (219)Associates & JCEs - - - - Other income (140) (3) - - - Earnings before tax 4,382 5,042 4,842 5,077 5,460Income tax (933) (1,136) (1,110) (1,298) (1,544)Net profit after tax 3,449 3,906 3,731 3,779 3,916Minority interests (1) 1 (1) (1) (1)Other items 118 8 - - - Preferred dividends - - - - - Normalised NPAT 3,566 3,915 3,730 3,778 3,915Extraordinary items (118) (8) - - - Reported NPAT 3,448 3,907 3,730 3,778 3,915

Dividends (1,996) (2,268) (2,395) (2,715) (2,715)Transfer to reserves 1,452 1,639 1,335 1,064 1,200

Valuation and ratio analysisFD normalised P/E (x) 13.5 12.3 12.9 12.7 12.3 FD normalised P/E at price target (x) 15.3 13.9 14.6 14.5 14.0 Reported P/E (x) 13.9 12.3 12.9 12.7 12.3 Dividend yield (%) 4.2 4.7 5.0 5.6 5.6 Price/cashflow (x) 9.3 9.0 8.8 9.2 9.0 Price/book (x) 2.3 2.0 2.0 1.9 1.9 EV/EBITDA (x) 8.3 7.3 7.3 7.0 6.6 EV/EBIT (x) 11.4 9.8 10.1 9.8 9.1 Gross margin (%) 84.7 83.5 83.5 83.2 83.0 EBITDA margin (%) 43.1 42.8 39.1 39.5 41.1

EBIT margin (%) 31.6 31.7 28.3 28.3 29.7 Net margin (%) 22.9 23.0 20.5 20.2 20.4 Effective tax rate (%) 21.3 22.5 22.9 25.6 28.3 Dividend payout (%) 57.9 58.0 64.2 71.9 69.3 Capex to sales (%) 13.1 11.5 12.7 12.6 11.9 Capex to depreciation (x) 1.2 1.1 1.2 1.2 1.1

ROE (%) 16.5 17.8 15.8 15.5 15.5 ROA (pretax %) 14.5 15.7 14.1 14.3 15.0

Growth (%)Revenue 0.7 12.9 7.0 3.1 2.3 EBITDA (8.5) 12.0 (2.1) 4.0 6.4

EBIT (8.7) 13.2 (4.4) 3.0 7.2

Normalised EPS (7.2) 9.8 (4.7) 1.3 3.6

Normalised FDEPS (7.2) 9.8 (4.7) 1.3 3.6

Per shareReported EPS (S$) 0.22 0.24 0.23 0.24 0.25Norm EPS (S$) 0.22 0.25 0.23 0.24 0.25Fully diluted norm EPS (S$) 0.22 0.25 0.23 0.24 0.25Book value per share (S$) 1.28 1.47 1.49 1.56 1.61DPS (S$) 0.13 0.14 0.15 0.17 0.17Source: Nomura estimates




Cashflow (S$mn)

Year-end 30 Mar FY09 FY10 FY11F FY12F FY13F

EBITDA 6,482 7,257 7,108 7,390 7,863Change in working capital (246) 823 117 (18) (33)Other operating cashflow (1,073) (2,751) (1,751) (2,142) (2,472)Cashflow from operations 5,163 5,329 5,473 5,229 5,358Capital expenditure (1,962) (1,952) (2,310) (2,368) (2,286)Free cashflow 3,201 3,377 3,163 2,861 3,072Reduction in investments 117 (9) - - - Net acquisitions (268) (90) - - - Reduction in other LT assets 14 21 - - -

Addition in other LT liabilities - - - - Adjustments (292) (150) - - - Cashflow after investing acts 2,772 3,150 3,163 2,861 3,072Cash dividends (1,990) (2,085) (2,268) (2,395) (2,715)Equity issue (51) (54) - - - Debt issue (603) (204) - - - Convertible debt issue - - - - - Others (425) (270) (303) (223) (219)Cashflow from financial acts (3,069) (2,613) (2,570) (2,618) (2,934)Net cashflow (296) 537 593 243 138Beginning cash 1,372 1,076 1,614 2,207 2,450Ending cash 1,076 1,613 2,207 2,450 2,588Ending net debt 6,399 5,227 4,634 4,391 4,253Source: Nomura estimates

Balance sheet (S$mn)

As at 30 Mar FY09 FY10 FY11F FY12F FY13F

Cash & equivalents 1,076 1,614 2,207 2,450 2,588

Marketable securities 11 - - - - Accounts receivable 2,532 3,172 3,389 3,494 3,574Inventories 173 346 369 381 390Other current assets 2 13 14 14 14Total current assets 3,794 5,144 5,979 6,339 6,566LT investments 236 256 256 256 256Fixed assets 9,123 10,750 10,649 10,979 11,132Goodwill 9,561 9,561 9,561 9,561 9,561Other intangible assets 466 639 342 291 240Other LT assets 10,075 11,601 11,955 12,491 13,197Total assets 33,255 37,952 38,742 39,917 40,952Short-term debt 1,427 1,513 1,513 1,513 1,513Accounts payable 3,268 4,650 4,515 4,605 4,634

Other current liabilities 408 672 1,165 1,174 1,201Total current liabilities 5,103 6,835 7,193 7,292 7,349Long-term debt 6,048 5,328 5,328 5,328 5,328Convertible debt - - - - - Other LT liabilities 1,604 2,273 2,387 2,431 2,479Total liabilities 12,754 14,436 14,908 15,051 15,156Minority interest 24 23 24 25 26Preferred stock - - - - - Common stock 2,606 2,616 2,616 2,616 2,616Retained earnings 17,871 20,877 21,193 22,224 23,154Proposed dividends - - - - -

Other equity and reserves - - - - Total shareholders' equity 20,476 23,493 23,810 24,841 25,770

Total equity & liabilities 33,255 37,952 38,742 39,917 40,952

Liquidity (x)

Current ratio 0.74 0.75 0.83 0.87 0.89 Interest cover 20.8 16.1 17.0 23.8 25.9

LeverageNet debt/EBITDA (x) 0.99 0.72 0.65 0.59 0.54

Net debt/equity (%) 31.3 22.3 19.5 17.7 16.5

Activity (days)Days receivable 61.6 61.4 65.9 67.1 67.4

Days inventory 23.5 33.9 43.5 43.5 43.1 Days payable 524.5 516.7 557.7 528.6 517.2 Cash cycle (439.4) (421.4) (448.2) (418.0) (406.7) Source: Nomura estimates




Other Team Members:

Neeraja Natarajan (Associate) — All enquiries arising from this note should be directed to Sachin Gupta.

Any Authors named on this report are Research Analysts unless otherwise indicated

Analyst Certification We, Sachin Gupta and Neeraja Natarajan, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures Mentioned companies Issuer name Ticker Price Price date

Stock rating

Sector rating Disclosures

Singapore Telecom ST SP 3.01 SGD 12-Apr-2011 Neutral Not Rated 4

Disclosures required in the European Union

4 Market maker Nomura International plc or an affiliate in the global Nomura group is a market maker or liquidity provider in the securities / related derivatives of the issuer.

Previous Rating Issuer name Previous Rating Date of change Singapore Telecom Buy 12-Nov-2010

Singapore Telecom (ST SP) 3.01 SGD (12-Apr-2011) Rating and target price chart (three year history)

Neutral (Sector rating: Not Rated)

Date Rating Target price Closing price 11-Jan-2011 3.35 3.07 12-Nov-2010 3.45 3.27 12-Nov-2010 Neutral 3.27 16-Apr-2010 3.50 3.12 05-Nov-2009 3.45 2.89 30-Jul-2009 3.65 3.40 14-May-2009 3.15 2.74 10-Feb-2009 2.90 2.48 04-Nov-2008 3.27 2.30 09-Oct-2008 3.35 2.94 05-Aug-2008 4.20 3.55 15-May-2008 4.34 3.69 08-Apr-2008 4.46 3.92 08-Apr-2008 Buy 3.92

For explanation of ratings refer to the stock rating keys located after chart(s)

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Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008 The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation.




A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008) STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector - Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A 'Strong buy' recommendation indicates that upside is more than 20%. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Neutral' recommendation indicates that upside or downside is less than 10%. A 'Reduce' recommendation indicates that downside is between 10% and 20%. A 'Sell' recommendation indicates that downside is more than 20%. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Explanation of CNS rating system for Thailand companies under coverage published from 2 March 2009: Stocks: Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price) / Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value.




Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A "Buy" recommendation indicates that potential upside is 15% or more. A "Neutral" recommendation indicates that potential upside is less than 15% or downside is less than 5%. A "Reduce" recommendation indicates that potential downside is 5% or more. Explanation of CNS rating system for Thailand companies under coverage published prior to 28 February 2009: Stocks: Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price) / Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A "Strong Buy" recommendation indicates that upside is more than 20%. A "Buy" recommendation indicates that upside is between 10% and 20%. A "Neutral" recommendation indicates that upside or downside is less than 10%. A "Reduce" recommendation indicates that downside is between 10% and 20%. A "Sell" recommendation indicates that downside is more than 20%. Sectors: (No change) A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Target Price A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. 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