PP 9484/12/2012 Telecommunications (Neutral

Page 1 of 18

7 January 2016

HLIB Research

PP 9484/12/2012 (031413)

Telecommunications (Neutral )

INDUSTRY INSIGHT 7 January 2016 7 January 2016

2016 Outlook

Highlights

Underperformed in 2015 with average return of -5.94% vs.

KLCI’s +1.27% due to GST, price war and stronger USD.

GST boost did not materialize due to confusions, delays and

changes in requirements. Cellcos incurred higher expenses

due to the 3-month reimbursements and network preparation

costs. No clarity on source of funding for 2016 rebate and

charging mechanism for 2017 and beyond.

MSAP expired in 2015 without revision, a boon to the sector.

But indications that fibre access pricing will be regulated in

near future, a bane to fixed telcos.

Weakening MYR led to falling foreign shareholding due to

capital flight. Also led to inflated IDD-related costs along with

higher finance cost for telcos with USD debt exposure.

Competition subsided towards end of 2015 and expected to

be more rational in 2016 considering the uncertainties ahead

including GST, access pricing, FOREX and SMS erosion.

TM-P1 is not expected to be overly value destructive to the

overall market as it focuses on high value market. Wholesale

DR rate for P1 may not be attractive.

Weighted average smartphone penetration based on the big

3’s subscriber base exceeded expectation at 61.6%, bodes

well for the telcos who are betting on data revenue to sustain

organic growth.

More spectra in the pipeline but untouchable in near term.

Increasing indications that regulators may allocate spectrums

based on auction.

Overcrowded with 8 players in a small market and ripe for

consolidation. M&A may be a way to grasp more spectra.

Catalysts Cost savings from partnerships.

Managed services / outsourcing.

Increased demand for wholesale bandwidth.

Risks Irrational competition, regulation of tariffs, FOREX.

Forecasts Unchanged.

Rating NEUTRAL ()

Positives – Low beta, defensive, strong cash-generation and

dividends should underpin share prices.

Negatives – Potential irrational competition, regulatory risks,

unable to monetize data and dumb pipes.

Top Picks Axiata (BUY, TP: RM7.59) – (1) Ncell will be an earning

accretive acquisition; (2) Celcom’s recovery; (3) XL’s fruitful

strategy transformation; (4) OpCos strong growth in other

emerging markets; (5) Tower listing; and (6) Possible merger

between Robi and Airtel Bangladesh.

DiGi (BUY, TP: RM6.22) – (1) Return to growth in a rational

market; (2) Lean operation with prudent management; (3)

Under-leveraged balance sheet for possible M&A and

spectrum auction.

Tan J Young

[email protected]

(603) 2168 1082

Axiata’s share price

1500

1600

1700

1800

1900

5.5

6.0

6.5

7.0

7.5

Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15

PtsRM

AXIATA (LHS) KLCI (RHS)

DiGi’s share price

1500

1600

1700

1800

1900

4.5

5.0

5.5

6.0

6.5

Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15

PtsRM

DIGI (LHS) KLCI (RHS)

TdC’s share price

1500

1600

1700

1800

1900

3.50

4.50

5.50

6.50

7.50

8.50


PtsRM

TDC (LHS) KLCI (RHS)

TM’s share price

1500

1600

1700

1800

1900

5.0

6.0

7.0

8.0


PtsRM

T (LHS) KLCI (RHS)

mailto:[email protected]

HLIB Research | Telecommunications

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7 January 2016

Introduction

Telcos lost its shine in 2015 after a magnificent 2014 as the sector was plagued by GST drama, price war and weakening MYR which led to capital outflows. The broader KLCI index ended the volatile 2015 with a late push by gaining a mere 1.27% (see Figure #1)

despite global crude oil price plunging to all-time low since 2009. Excluding TdC (non-index linked), telcos lost 5.94% on average with DiGi and Axiata being the leading laggards. Admittedly, our stock recommendations have yet to materialize although most of the

sectorial theme outcomes highlighted in our 2015 Outlook report did emerge.

Figure #1 Telcos’ Share Price Performance in 2014 and 2015

Year End Closing Price (RM) Change (%)

2013 2014 2015 2014 2015

KLCI 1,866.96 1,671.25 1,692.51 -10.48 1.27

Ax iata 6.90 7.05 6.41 2.17 -9.08

DiGi 4.96 6.17 5.40 24.40 -12.48

Maxis 7.27 6.85 6.80 -5.78 -0.73

TM 5.55 6.88 6.78 23.96 -1.45

TdC 3.55 4.88 7.60 37.46 55.74

Average

16.44 6.40

HLIB

Summary of telcos’ major corporate milestones in 2015 which would lead to sustainable business prospect:

Axiata – Celcom regaining subscriber market share, XL’s strategy revamp, exclusive merger discussion between Robi and Airtel Bangladesh, XL’s USD debt restructuring, edotco’s entry into Myanmar and acquisition of Nepal’s Ncell;

DiGi – Helmed by new local CEO, partnership with iflix and HyppTV; Maxis – Effective prepaid and postpaid product streamlining and rebranding yielded

positive signs of turnaround;

TM – P1 integration, HyppTV partnership with DiGi, sealed HSBB2 and SUBB pacts with government; and

TdC – Penetrated 3 new markets, namely Vietnam (CMC TI), Myanmar (Campana)

and Thailand (KIRZ). While intense competition was the main headline for the sector, this pressure had subsided

towards end of 2015 and telcos remained profitable with stable margins, generating strong operating cash flows to self-fund CAPEX and consistently reward shareholders with above-market-rate yields. Having said that, we will evaluate how Malaysian telco industry would

fare in this new year from different perspectives including GST, access pricing, FOREX, price war, products and services as well as spectrum allocations and market consolidation over the longer term.

GST: Not Over Yet

Not only the much anticipated earnings boost did not realize, GST entailed with confusions, delays, changes in requirements in 2015 and the saga continues into 2016 and potentially

2017. When introduced in April 2015, the confusion surrounding GST charging mechanism had caused prepaid subscribers to cry foul and dealers refused to sell credit reloads. As a temporary solution, cellcos have agreed to a 3-month transitional measure to lighten GST

burden whereby all prepaid subscribers who reload RM5 and above a value which is higher than the GST addition will be given free airtime minutes and SMS. This was shortly followed by the announcement of usage-based GST by the ministry, a total remodel of the

initial implementation to be ready in November 2015. Usage-based GST was perceived to be the most challenging among the methodologies available involving reconfigurations of charging and billing to accommodate real-time tax calculations and balance notifications

besides major reversal of existing structure throughout whole supply chain.

Underperformed KLCI

in 2015.

Summary of 2015

corporate milestone.

GST gain was an illusion.


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Page 3 of 18

7 January 2016

However, this had taken a turn again in 2016 Budget tabled in late October when Prime Minister proposed to give one-year GST waiver to all Malaysian prepaid users in the form

of rebates to be credited directly to their accounts. Again, the last-minute ditch on the fully prepared usage-based GST was a painful exercise for the cellcos despite it was something worth cheering by the rakyat.

Due to all these unfortunate flip-flopping, cellcos incurred higher expenses as a result of the 3-month reimbursements and network preparation costs which in turn, weighed down

FY15 earnings. At this juncture, there is still no clarity on who will fund the GST rebates in 2016, whether by the USP, cellcos or shared. Moreover, we do not discount the possibility of another round of amendments towards the end of the one-year GST waiver if policy

becomes fluid again for 2017.

Access Pricing: No News is Good News

At the time of writing, there is still no update on MCMC’s Mandatory Standard on Access

Pricing (MSAP) which effectively expired on 31 December 2015. Following the 3-year review tradition, we were expecting fixed termination rate (FTR) and mobile termination rate (MTR) to be reduced by the same quantum as the last determination. Anyway, glad

that we were wrong and a good news to the sector, for now. Should this be revived, our updated simulation suggests that DiGi will be impacted the

most (see Figure #2), followed by Celcom and Maxis albeit overall insignificant impact to earnings forecasts even at the extreme case of 20% reduction in MTR. This impact is expected to be fully offset by the continuous growth of data business as voice to data

substitution proliferates. Nonetheless, this price fixing regulation will marginally enhance tier-2 telcos’ (U Mobile, Altel, TuneTalk, XOX, REDtone, etc ) competencies and potentially drive them to cut prices further in order to gain market share.

Figure #2 Impact of Access Pricing*

FTR Reduction (%) MTR Reduction (%) Impact Descriptions Celcom DiGi Maxis

6.0 7.4 Income loss (RMm) 8.6 10.0 7.7

% PAT** 0.50 0.53 0.40

6.0 10.0 Income loss (RMm) 12.6 14.6 11.4

% PAT** 0.74 0.78 0.58

6.0 15.0 Income loss (RMm) 20.3 23.6 18.3

% PAT** 1.19 1.26 0.94

6.0 20.0 Income loss (RMm) 28.0 32.5 25.2

% PAT** 1.64 1.74 1.29

* Using 3Q15 operating data ex cept MOU which based on most recent av ailable. ** Using extrapolated 9M15 reported PAT as denominator. HLIB

Fibre access was exempted from 2013 price regulation after strong oppositions from fixed players. Pricing based on market forces was successfully preserved with the justification of high upfront CAPEX intensity leading to long payback period. Nevertheless, in MCMC’s

public consultation report on Review of Rates Rules published on 9 October 2015, there are clear indications that fibre access pricing will be regulated in near future, just as what we have predicted in our 2015 Outlook report:

“The MCMC notes the unanimous agreement of the respondents that wholesale regulation is more appropriate to ensure that there is broadband competition at the retail level ...has a

role to play in ensuring…affordability…To achieve that, MCMC would continue to play a dual role, to work together with the industry so that higher broadband speed services are available, and at the same time, to continue its regulatory role, to monitor the prices of

broadband services (for basic as well as higher speed) and take the necessary action to ensure compliance to the CMA.”

More flip-flops ahead?

Last MSAP expired

without any revision.

Fibre access may face

price regulation…


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7 January 2016

On the surface, this is likely to impact fixed telcos negatively, especially TM who has near monopoly of the domestic fixed broadband market. If regulated fibre pricing is enforced at a

significantly lower rate, existing access seekers will be able to renegotiate for cost savings at the expense of TM. Furthermore, transparency of fibre access pricing will likely to attract new entrants into the market. Disruptive Singapore-based ISP, MyRepulic made no secret

of its desire to expand into Malaysia by early 2016 by undercutting incumbents. It plans to offer 100Mbps services at RM60-70 per month compared to TM’s entry-level Streamyx 1Mbps bundle and UniFi VIP5 5Mbps triple-play plan at RM117 and RM158 per month,

respectively. On the contrary, this is expected to be beneficial to cellcos who are in need of high speed transmission backhaul to support their LTE rollout.

MYR/USD Impacts

In 2015, expectations of rate normalization by FOMC and potentially more QE from ECB and BOJ have created greater divergence in global monetary policy leading to depreciation pressure on emerging market currencies. On average, MYR had depreciated by a

whopping 19.3% yoy from RM3.27/USD in 2014 to RM3.90/USD in 2015 (see Figure #3). This massive capital outflows had eventually led to the declining foreign shareholdings (see Figure #4-8) in telcos which partly explain their highly-correlated share price

underperformance (see Figure #9).

Figure #3 MYR/USD Rate

2.5

3.0

3.5

4.0

4.5

Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15

Bloomberg, HLIB

Figure #4 Axiata’s Foreign Shareholding

0%

5%

10%

15%

20%

25%

30%

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

Company Data, HLIB

…TM may be impacted

negatively.

MYR depreciated 19.3%

yoy.

Axiata: 15.7%.


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7 January 2016

Figure #5 DiGi’s Foreign Shareholding

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


Company Data, HLIB

Figure #6 Maxis’ Foreign Shareholding

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%


Company Data, HLIB

Figure #7 TM’s Foreign Shareholding

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%


Company Data, HLIB

DiGi: 10.6%.

Maxis: 6.3%.

TM: 12.4%.


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7 January 2016

Figure #8 TdC’s Foreign Shareholding

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%


Company Data, HLIB

Figure #9 Telcos’ Share Price Performance vs. Foreign Shareholding

Year End Closing Price (RM) Year End Foreign Shldg (% ) Change (% )

2014 2015 Dec-14 Nov-15 Price Foreign Shldg

Axiata 7.05 6.41 21.00 15.70 -9.08 -5.30

DiGi 6.17 5.40 15.60 10.60 -12.48 -5.00

Maxis 6.85 6.80 6.60 6.30 -0.73 -0.30

TM 6.88 6.78 16.70 12.40 -1.45 -4.30

TdC 4.88 7.60 7.46 6.46 55.74 -1.00

Bloomberg, Company Data, HLIB

Operationally, the weaker MYR had also resulted in inflated IDD traffic cost and FOREX losses in IDD settlements. In 3Q15 results, DiGi experienced a forex impact of RM50m and RM37m at EBITDA and PAT levels, respectively as USD appreciated by 10.8% qoq to a

quarterly average of RM4.05/USD. Besides, the unfavorable exchange rate also created great burden to telcos with substantial foreign currency debt in terms of higher finance costs and repayments. To mitigate the risk, XL had successfully addressed all its external

unhedged USD loans through early repayments and conversion to IDR. TM also has an unhedged USD300m debt, representing12% of its total debt portfolio at the end of 3Q15, but this is not a concern as it is long dated with maturity in 2025.

Going into 2016, we opine that several positive factors will support MYR, including GLC fund repatriations, abated foreign selling, resilient growth and BOP posi tion and easing

domestic issues (1MDB and political glitches). However, MYR appreciation is expected to be temporarily restrained in most of 1H16 until clarity on oil market dynamics and Zeti’s successor emerges. As such, we are forecasting MYR to trade at RM3.80-4.00 against

USD by end of CY16 with a full year average of RM4.10. With the expectation of a more stable MYR/USD in 2016, we see limited downside to share

price due to capital pullback given that telcos foreign shareholdings as of November 2015 have already recorded multiyear low, for instance Axiata’s 15.7% is lowest since October 2010 while DiGi’s 10.6% is dated back to July 2011. However, we believe that the

weakness in MYR will continue to haunt telcos in the form of higher IDD costs, at least for 1H16 before normalizing into 2H16.

TdC: 6.46%.

Inflated IDD-related

costs.

CY16 average of

RM4.10/USD.


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7 January 2016

Competition: Tamer in 2016

Singularly, cellcos was the only commercial sector to start off 2015 with high expectation of GST windfall. The expected cost savings, which cannot be attributed to managements’ KPI achievements, were eventually transformed into bullets for cellcos to engage in price war,

fighting for subscriber market share instead. Rivalry became fiercer when Celcom made a grand comeback to the market with new blockbuster postpaid and prepaid products amidst anemic market sentiment due to the nationwide GST execution. Price sensitive prepaid

subscribers were tightening their belts by reducing usage and some even discarded their secondary SIMs. Although this situation was predicted in our 2015 Outlook report, we underestimated the hostility of the rivalry.

While still feeling the residual pain, the industry will be begin the new year filled with major uncertainties, a total opposite situation of 2015:

The clarity on 2016 GST rebates funding while the charging mechanism and policy for

2017 and beyond remains fluid. Telcos may incur more outlays sponsoring the rebates,

network reconfigurations and supply chain preparations. While the new access pricing policy is not forthcoming, there is still a poss ibility that it

may be introduced in the near term. Risk remains with higher-than-expected cut in FTR

and MTR. With MYR/USD remains elevated, telcos is currently facing exaggerated cost for IDD

products which usually are the sparks of price competition.

High margin SMS products continue to be eroded (see Figure #10) by OTT as usage migrates to data and cellcos are under great pressure to find avenues to compensate that forgone earnings.

Figure #10 Malaysia SMS Traffic

23.6 22.1 23.7 23.7 22.1 22.6 20.1 22.4 21.0 20.1 18.8 17.1 14.2 13.2 11.7 10.1 7.8 6.9

-6.2

7.5

0.0

-6.8

2.0

-11.1

11.65

-6.5

-4.2-6.2

-9.3

-16.6

-7.4

-11.1

-13.6

-23.3

-11.8

-30

-25

-20

-15

-10

-5

0

5

10

15

0

5

10

15

20

25

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

QoQ

Gro

wth

(%

)

Num

ber

of S

MS

(bn

)

SMS (bn) QoQ Growth (%)

MCMC, HLIB

The ultimate risk for market aggressiveness in 2016 boils down to TM’s P1 service launch. Nevertheless, we do not expect TM-P1 to be overly value destructive to the overall market

assuming that P1 is intended to complement TM’s existing triple-play service with mobility for quad-play enablement, thus focusing on high value market or in other word, postpaid segment. While prepaid products are expected to hit the market to complete the offering

portfolio, they may not be pushed considering their low ARPU and margin in nature and higher cost in delivering the service involving more infrastructure requirements, domestic roaming (DR) fees and possible GST rebate in 2016. Inconclusive DR pact after one-year

negotiation with market incumbents exhibits the challenges and the big-3’s prudence towards DR’s cannibalization. Hence, we perceive that the wholesale DR rate may not be attractive.

In conclusion, we have a rather contrarian view that rational competition will return in 2016 and telcos will be extra cautious in their marketing strategy bearing in mind that heavy

CAPEX investment ahead, catching up with regional peers as well as device capability.

GST savings turned in

price war ammo.

Totally different situation

in 2016.

TM may not be

aggressive.

Rational competition in

2016.


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Page 8 of 18

7 January 2016

Products and Services: Insatiable Data Demand

Smartphone penetration continued to climb in 2015 led by Maxis with 67.0% followed by Celcom and DiGi with 59.0% and 58.4%, respectively (see Figure #11). As of 3Q15, Malaysia’s weighted average smartphone penetration based on the big 3’s subscriber base

stood at 61.6%, once again exceeded our forecast of 54.3% by end of 2015. This can be explained by of more affordable smart devices (see Figure #12) such as from XiaoMi, Huawei, Lenovo and ZTE flooding the market.

Figure #11 Smartphone Penetration

0

10

20

30

40

50

60

70

80

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15

Sm

artp

hone

Pen

etra

tion

(%)

Celcom DiGi Maxis

Company Data, HLIB

Figure #12 DiGi’s Average Selling Price per Device

3Q13 4Q13* 1Q14* 2Q14 3Q14 4Q14* 1Q15* 2Q15 3Q15

Device sales (RMm) 147 156 164 178 172 172 203 134 91

Device sales volume (k) 367 90 102 328 453 200 180 281 134

Average price per device (RM) 401 1,733 1,608 543 380 860 1,128 477 679

* Due to new iPhone launches

Company Data, HLIB

The proliferation of smartphones bodes well for the telcos who are betting on data revenue

to sustain organic growth on the back of voice to data substitution trend in subscriber usage behavior. According to Ericsson Mobility Report dated November 2015, global data traffic grew about 14% qoq and 65% yoy in 3Q15, while voice traffic remained uneventful

(see Figure #13). Going beyond, Ericsson foresees that 2015-21 mobile data traffic to grow at a CAGR of around 45% (see Figure #14). The growth in mobile data traffic is due to both the rising number of smartphone subscriptions, particularly LTE smartphones, and increasing data consumption per subscriber. Regionally, Asia Pacific will have the highest

share of the total mobile traffic both in 2015 and 2021 as it is expected to expand 10 fold (see Figure #14).

Also, riding on the smartphone wave, over-the-top (OTT) players such as Facebook, Viber, Whatsapp, Skype, YouTube and more are gaining popularity among subscribers. Telcos are constantly under the increasing threat of OTT players substituting their high margin

voice and messaging products. Recognizing this threat, telcos are expected to actively explore partnership opportunities with OTT players harnessing a win-win business model rather than being a dumb pipe. This approach will ensure that telco’s brand value is not

diluted and maintain their relevance to their subscribers. Further cooperation will allow them to monetize their data capacity, either through subscription plans or billing.

Smartphone growth

continues to surprise.

3Q15: 61.6%.

Insatiable data demand.


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Page 9 of 18

7 January 2016

Figure #13 Global Mobile Traffic*

* Traffic does not include DVB-H, Wi-Fi or Mobile WiMAX, VoIP is included in data traffic. Ericsson

Figure #14 Global mobile traffic and Regional breakdown (ExaBytes)

Ericsson

Long Term Factors: Spectrum and Consolidation

Spectrum is scarce and the industry will likely to face a shortage should mobile data traffic continues to surge exponentially as projected. Though there are more spectra in the

pipeline to be refarmed or allocated for mobile broadband (MBB), they may not be released to cellcos in the near term:

900MHz refarming. MCMC aims to rebalance all cellcos’ spectrum by narrowing the gap of spectrum awarded to the big and small players as well as to strengthen service quality. It is looking at a variety of options, including auction or “beauty contest” for the

reallocation exercise. However, decision will only be made after consulting all players;

More spectra for MBB but

untouchable.


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7 January 2016

700MHz from TV broadcasting. Viewed as a long term sectorial catalyst, low frequency spectrum is crucial due to its superior propagation characteristics (see Figure #15)

which would entail technical advantages including wider coverage, improved indoor quality, as a global universal 4G spectrum enhancing services roaming and device availability. In turn, these benefits would help telcos to reduce CAPEX and OPEX

significantly (see Figure #16). According to Boston Consulting Group, Malaysia would benefit from an estimated USD17.5bn addition to GDP along with 23,000 new business activities by 2020 through allotting the 700MHz band to MBB. Currently, the entire TV

space is occupying frequencies ranging from 470MHz to 742MHz and with the introduction of digital terrestrial television broadcasting (DTTB), the range will be reduced to 470MHz to 698MHz. This will free up spectrum ranging from 698MHz to

742MHz for LTE once analogue TV broadcasting is fully migrated; and

Figure #15 Propagation Characteristics of Spectrums

BBC R&D

Figure #16 Relative CAPEX Required based on Spectrums

BBC R&D

L-band (1427-1518MHz) and lower part of C-band (3.4-3.6GHz) which recently being

reallocated by World Radiocommunication Conference 2015 in Geneva from satellite

communication to MBB as globally harmonized bands on top of 700MHz. These bands may only be distributed when telco equipment and devices achieve certain level of maturity while Malaysian spectrum plan may require reassignment by the regulators.


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Page 11 of 18

7 January 2016

Increasingly, there are indications that regulators may allocate spectrums based on auction going forward in order to adhere to the global industry practice. Firstly, the prolonged

deliberation and unconcluded decision on the 900MHz refarming may eventually lead to open tender. Secondly, based on the released TPPA text, Malaysia shall endeavor to rely on an open and transparent process that considers the public interest, including the

promotion of competition when making a spectrum allocation for commercial telco services and auction is a suggested option. Airwave tender, which may easily raise billions, is a popular avenues for governments to overcome any budget deficit but this will result in more

CAPEX outlay, subsequently put pressure on cellcos’ generous dividend payout and gearing ratio.

We continue to opine that 8 cellcos (2.6GHz spectrum licensed holders) operating in a 30m-populated market is extremely overcrowded, not to mention that it is oversaturated with about 145% mobile penetration rate as reported in 2Q15. As a result, there are some

nonperforming cellcos holding on to their spectrum allocat ions idly. Hence, the sector may be ripe for M&A in order to promote healthy and sustainable growth ahead. Furthermore, with additional spectrum hard to come by to meet the growing data demand and the risk of

auction substituting “beauty contest”, cellcos may eventually resort to M&A as alternative.

Recommendations

For 2016, we advocate a contrarian view that industry competition will be rather rational

and possibly see a gradual recovery, albeit service revenue is only expected to grow at a marginal rate of less than 5%, supported purely by data products. Fundamentally, telcos continue to enjoy stable recurring revenues strongly supported by resilient domestic

demand which is largely perceived to be recession-proof. This would also translate into dependable dividend yield, an attractive plus point should the market becomes volatile.

At this juncture, we reiterate NEUTRAL rating for the sector with the following top picks: Axiata (BUY, TP: RM7.59) – (1) Ncell will be an earning accretive acquisition; (2)

Celcom’s recovery; (3) XL’s fruitful strategy transformation; (4) OpCos strong growths in other emerging markets; (5) Tower listing; and (6) Possible merger between Robi and Airtel Bangladesh.

DiGi (BUY, TP: RM6.22) – (1) Return to growth in a rational market; (2) Lean operation with prudent management; (3) Under-leveraged balance sheet for possible M&A and spectrum auction.

A summary of our calls and target prices are shown in Figure #17 while comparable peer valuations are shown in Figure #18.

Figure #17 HLIB Calls and Target Prices

Company Price (RM) Target (RM) Return +/-(%) DY (%) Total Return (%) Current Rec

Axiata 6.27 7.52 19.9 4.0 23.9 BUY

DiGi 5.20 6.22 19.6 4.7 24.3 BUY

Maxis 6.67 6.87 3.0 4.0 7.0 HOLD

TM 6.67 6.90 3.4 3.2 6.6 HOLD

TdC 7.49 6.53 12.8 10.5 -2.3 HOLD

HLIB

Spectrum auction?

Overcrowded market.

NEUTRAL with Axiata

and DiGi as top picks.


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7 January 2016

Figure #18 Regional Peers Comparison

Company FYE Price Market Cap (m) P/E (x) P/B (x) ROE (%) Gross DY (%)

(Local) (Local) (USD) 2015 2016 2015 2016 2015 2016 2015

Malaysia Maxis Dec MYR 6.67 50,091.5 11,384.4 26.9 25.1 11.0 11.1 40.2 43.6 3.7

Axiata Dec MYR 6.27 55,281.7 12,564.0 23.6 21.2 2.5 2.5 10.9 11.7 3.5

DiGi Dec MYR 5.20 40,430.0 9,188.6 21.6 21.0 58.4 55.3 270.3 276.8 4.6

TM Dec MYR 6.67 25,065.4 5,696.7 28.8 26.3 3.2 3.2 11.0 12.1 3.3 TIME dotCom Dec MYR 7.49 4,311.2 979.8 26.0 22.5 2.0 1.8 13.2 9.3 10.7

Average 25.4 23.2 15.4 14.8 69.1 70.7 5.2

Indonesia PT Telekom Dec IDR 3,250 327,599,988.3 23,495.7 19.8 17.7 4.3 4.0 21.8 22.3 3.2

Indosat Dec IDR 5,375 29,207,392.6 2,094.8 152.9 24.1 2.2 2.1 -0.1 8.1 0.8

XL Dec IDR 3,680 31,432,284.5 2,254.3 152.2 40.6 2.3 2.2 -1.5 4.8 0.8

Average 108.3 27.4 2.9 2.7 6.7 11.7 1.6

Singapore

Singtel Mar SGD 3.53 56,280.8 39,255.7 14.4 13.6 2.2 2.1 15.5 15.6 5.1 Starhub Dec SGD 3.58 6,186.0 4,314.7 16.9 16.9 N/A N/A N/A N/A 5.6

M1 Dec SGD 2.65 2,482.9 1,731.8 13.7 13.3 6.2 6.0 45.5 45.7 6.8

Average 15.0 14.6 4.2 4.1 30.5 30.6 5.9

South Korea

SKT Dec KRW 208,000 16,795,107.9 14,028.7 9.7 8.6 1.1 1.0 11.1 11.4 4.8

KTC Dec KRW 28,100 7,337,241.8 6,128.7 9.8 11.3 0.6 0.6 6.6 5.5 2.0

LGU Dec KRW 10,150 4,431,605.3 3,701.6 11.1 9.7 1.0 0.9 9.4 9.9 2.6 Average 10.2 9.9 0.9 0.8 9.0 9.0 3.1

Thailand

AIS Dec THB 137.50 408,800.6 11,287.2 10.6 10.5 8.5 8.2 81.5 79.2 9.5 True Dec THB 6.20 152,569.2 4,212.5 N/A N/A 2.0 2.0 N/A N/A 0.6

Average 10.6 10.5 5.3 5.1 81.5 79.2 5.0

China

China Mobile Dec HKD 82.50 1,689,227.3 257,515.9 14.7 14.0 1.8 1.7 13.0 12.5 2.9

China Telecom Dec HKD 3.49 282,454.0 43,059.0 14.5 13.7 0.9 0.9 6.5 6.4 2.4

China Unicom Dec HKD 9.03 216,242.1 32,965.2 17.4 17.6 0.9 0.9 5.3 5.2 2.1 Average 15.5 15.1 1.2 1.2 8.3 8.0 2.5

India

Bharti Mar INR 320.8 1,282,166.1 19,198.0 22.0 19.4 1.9 1.7 8.3 9.2 0.9 RCOM Mar INR 84.4 210,069.9 3,145.4 24.1 21.7 0.6 0.6 2.3 2.8 0.4

Idea Mar INR 134.5 484,068.4 7,248.0 14.5 18.8 1.8 1.7 13.4 9.1 0.5

Average 20.2 20.0 1.4 1.3 8.0 7.0 0.6 Bloomberg


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Page 13 of 18

7 January 2016

Axiata Berhad (BUY, PT: RM7.52, CP: RM6.27)

Income Statement Quarterly Financial Summary

FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 3Q14 4Q14 1Q15 2Q15 3Q15 Revenue 18,371 18,712 19,559 19,683 19,834 Revenue 4,652.9 4,813.4 4,750.7 4,707.2 5,065.1 COGS -10,896 -11,755 -12,198 -12,334 -12,489 COGS -2,959.4 -3,034.0 -2,976.0 -2,959.9 -3,152.2 EBITDA 7,475 6,957 7,361 7,349 7,345 EBITDA 1,693.5 1,779.5 1,774.7 1,747.3 1,912.9 D&A -3,435 -3,672 -3,590 -3,475 -3,292 D&A -944.2 -996.4 -983.8 -1,000.1 -1,032.2 EBIT 4,039 3,285 3,771 3,874 4,053 EBIT 749.3 783.1 791.0 747.3 880.6 Net Interest Income -412 -296 -612 -627 -617 Net Interest Income 6.5 -45.4 -77.2 -23.6 232.0 Associates 255 339 228 228 227 Associates 70.2 80.0 134.3 138.9 112.2 Exceptionals -350 -214 0 0 0 Exceptionals -78.9 22.7 -158.1 -78.4 -197.6 PBT 3,533 3,114 3,386 3,475 3,663 PBT 747.2 840.4 690.0 784.2 1,027.3 Tax -794 -770 -948 -973 -1,026 Tax -139.8 -226.7 -153.8 -154.6 -72.2 PAT 2,739 2,344 2,438 2,502 2,638 PAT 607.4 613.7 536.1 629.6 955.1 Minority Interests 188.6 -4.3 73.1 75.1 79.1 Minority Interests -23.7 18.8 -48.7 18.9 63.7 PATAMI 2,550 2,349 2,365 2,427 2,558 PATAMI 631.0 594.9 584.8 610.8 891.4 Adj PATAMI 2,762 2,249 2,365 2,427 2,558 Adj PATAMI 534.0 461.0 556.0 586.0 516.0 Basic Shares (m) 8,541 8,582 8,582 8,582 8,582 Basic Shares (m) 8,572.0 8,572.0 8,572.0 8,572.0 8,572.0 Rep. EPS sen 29.9 27.4 27.6 28.3 29.8 Rep. EPS sen 7.36 6.94 6.82 7.13 10.40 Adj. EPS sen 32.3 26.2 27.6 28.3 29.8 Adj. EPS sen 6.23 5.38 6.49 6.84 6.02 Adj. FD EPS sen 32.1 26.0 27.3 28.0 29.5 Adj. FD EPS sen 6.23 5.38 6.49 6.84 6.02

Balance Sheet Valuation Ratios

FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E Cash 6,433 5,116 4,475 4,463 5,139 PER (x) 21.0 22.9 22.8 22.2 21.0 Receivables 2,680 3,062 3,107 3,143 3,165 Adj. PER (x) 19.4 23.9 22.8 22.2 21.0 Inventories 63 80 81 82 83 FD PER (x) 19.6 24.1 23.0 22.4 21.2 Investments 0 0 0 0 0 Net DPS sen 22.0 23.0 25.0 26.9 24.0

Fixed Assets 17,107 19,933 20,715 20,755 20,463 Net DY (% ) 3.5 3.7 4.0 4.3 3.8 Intangibles 9,549 12,816 12,816 12,816 12,816 Book/share sen 250 263 266 269 275 Other Assets 7,666 8,121 8,349 8,577 8,804 P/Book (x) 2.5 2.4 2.4 2.3 2.3 Ttl Assets 43,497 49,127 49,542 49,835 50,469 FCF/share sen 13.2 15.9 20.3 26.8 31.9 Payables 6,109 8,375 8,497 8,596 8,656 FCF y ield (% ) 2.1 2.5 3.2 4.3 5.1 Short Term Debt 1,137 1,949 1,949 1,949 1,949 Mkt Cap 53,550 53,809 53,809 53,809 53,809 Long Term Debt 12,300 11,945 11,945 11,945 11,945 Net Cash(Debt) -7,003 -8,778 -9,418 -9,431 -8,754 Other Liabilities 2,573 4,302 4,302 4,302 4,302 EV 60,553 62,587 63,228 63,240 62,564 Ttl Liab 22,118 26,570 26,692 26,791 26,851 EV/EBITDA (x) 8.1 9.0 8.6 8.6 8.5 Shareholders' Funds 19,622 20,745 20,964 20,923 21,387 ROE (% ) 12.9 10.0 10.3 10.5 10.8 Minority Interests 1,757 1,813 1,886 2,120 2,231 Current Ratio (x) 1.23 0.79 0.72 0.72 0.78 Total S/H Equity 21,379 22,558 22,850 23,044 23,618 Quick Ratio (x) 1.22 0.78 0.72 0.71 0.77 Ttl Liab&S/H Funds 43,497 49,127 49,542 49,835 50,469 Interest Cover (x) 5.6 4.4 4.8 5.0 5.2

Cashflow Analysis Other Ratios

FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E EBITDA 7,475 6,957 7,361 7,349 7,345 Sales Growth (% ) 4.0 1.9 4.5 0.6 0.8 Net Interest -412 -296 -612 -627 -617 EBITDA Growth (% ) 0.0 -6.9 5.8 -0.2 -0.1 Tax Paid -397 -909 -948 -973 -1,026 EBIT Growth (% ) -1.8 -18.7 14.8 2.7 4.6 Working Capital Chgs 129 1,867 77 62 37 PBT Growth (% ) -6.1 -11.8 8.7 2.6 5.4 Other -1,146 -2,035 241 0 0 Net Profit Growth (% ) 1.5 -7.9 0.7 2.6 5.4 Operating CF 5,648 5,584 6,118 5,811 5,739 EBITDA Margin (% ) 40.7 37.2 37.6 37.3 37.0 FCF 1,128 1,367 1,746 2,296 2,739 EBIT Margin (% ) 22.0 17.6 19.3 19.7 20.4 CAPEX -4,117 -3,748 -4,372 -3,515 -3,000 PBT Margin (% ) 19.2 16.6 17.3 17.7 18.5 Asset Sales 47 115 0 0 0 Net Profit Margin (% ) 13.9 12.6 12.1 12.3 12.9 Acquisitions -404 -469 0 0 0 Net Debt/Equity (% ) 32.8 38.9 41.2 40.9 37.1 Other -893 -2,246 0 0 0 CAPEX/Sales (% ) 22.4 20.0 22.4 17.9 15.1 Investing CF -5,367 -6,347 -4,372 -3,515 -3,000 Div idends -1,874 -1,966 -2,146 -2,309 -2,063 Debt Chgs 778 457 0 0 0 Other -1,038 1,112 0 0 0 Financing CF -2,134 -397 -2,146 -2,309 -2,063 Net Cashflow -1,853 -1,160 -400 -12 676


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Page 14 of 18

7 January 2016

DiGi.Com Berhad (BUY, PT: RM6.22, CP: RM5.20)

Income statement Quarterly financial summary

FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 3Q14 4Q14 1Q15 2Q15 3Q15 Revenue 6,733.4 7,018.5 7,022.9 7,312.9 7,581.1 Revenue 1,756.1 1,798.6 1,791.2 1,723.3 1,674.7 COGS -3,714.0 -3,868.0 -3,910.4 -4,100.8 -4,223.1 COGS -972.1 -997.2 -1,014.0 -943.6 -933.6 EBITDA 3,019.4 3,150.5 3,112.5 3,212.1 3,358.0 EBITDA 784.1 801.4 777.2 779.7 741.0 D&A -878.1 -492.5 -590.6 -648.8 -695.8 D&A -126.8 -132.3 -139.4 -149.9 -169.7 EBIT 2,141.3 2,658.0 2,521.9 2,563.2 2,662.2 EBIT 657.3 669.1 637.8 629.8 571.3 Net Interest Income -1.4 -13.4 -13.9 -17.8 -36.3 Net Interest Income -0.7 -16.8 -11.7 -3.4 -34.3 Associates 0.0 0.0 0.0 0.0 0.0 Associates 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 PBT 2,140.0 2,644.6 2,508.0 2,545.4 2,625.9 PBT 656.5 652.3 626.0 626.3 537.0 Tax -434.3 -614.1 -627.0 -610.9 -630.2 Tax -169.6 -100.1 -146.8 -162.0 -140.4 Net Profit 1,705.7 2,030.5 1,881.0 1,934.5 1,995.7 Net Profit 486.9 552.2 479.2 464.4 396.6 Minority Interests 0.0 0.0 0.0 0.0 0.0 Minority Interests 0.0 0.0 0.0 0.0 0.0 Reported PATAMI 1,705.7 2,030.5 1,881.0 1,934.5 1,995.7 Reported PATAMI 486.9 552.2 479.2 464.4 396.6 Adjusted PATAMI 1,625.3 1,976.0 1,881.0 1,934.5 1,995.7 Adjusted PATAMI 486.9 505.0 479.2 464.4 459.6 Basic Shares (m) 7,775.0 7,775.0 7,775.0 7,775.0 7,775.0 Basic Shares (m) 7,775.0 7,775.0 7,775.0 7,775.0 7,775.0 Rep. EPS sen 21.9 26.1 24.2 24.9 25.7 Rep. EPS sen 6.3 7.2 6.2 6.0 5.1 Adj. EPS sen 20.9 25.4 24.2 24.9 25.7 Adj. EPS sen 6.3 6.5 6.2 6.0 5.9 Adj. FD EPS sen 20.9 25.4 24.2 24.9 25.7 Adj. FD EPS sen 6.3 6.5 6.2 6.0 5.9

Balance sheet Valuation Ratios

FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E Cash 411 519 388 173 305 PER (x) 23.7 19.9 21.5 20.9 20.3 Receivables 697 744 635 661 685 Adj. PER (x) 24.9 20.5 21.5 20.9 20.3 Inventories 58 65 77 80 83 FD PER (x) 24.9 20.5 21.5 20.9 20.3 Investments 1 0 0 0 0 Net DPS sen 21 26 24 25 26 Fixed Assets 1,947 2,382 2,690 2,956 3,170 Net DY (% ) 4.1 5.0 4.7 4.8 4.9 Intangibles 526 502 502 502 502 Book/share sen 9 9 9 9 9 Other Assets 112 95 95 95 95 P/Book (x) 61.2 58.9 58.9 58.9 58.9 Ttl Assets 3,752 4,308 4,387 4,467 4,840 FCF/share sen 17.0 23.1 22.1 21.8 23.3 Payables 1,737 1,844 1,924 2,004 2,077 FCF y ield (% ) 3.3 4.5 4.3 4.2 4.5 Short Term Debt 303 804 804 804 804 Mkt Cap 40,430 40,430 40,430 40,430 40,430 Long Term Debt 446 244 244 244 544 Net Cash(Debt) -338 -528 -660 -875 -1,043 Other Liabilities 605 730 730 730 730 EV 40,768 40,958 41,090 41,305 41,473 Ttl Liab 3,091 3,622 3,701 3,781 4,154 EV/EBITDA (x) 13.5 13.0 13.2 12.9 12.4 Shareholders' Funds 661 686 686 686 686 ROE (% ) 245.9 288.0 274.1 281.9 290.9 Minority Interests 0 0 0 0 0 Current Ratio (x) 0.5 0.5 0.4 0.3 0.4 Total S/H Equity 661 686 686 686 686 Quick Ratio (x) 0.5 0.4 0.4 0.3 0.3 Ttl Liab&S/H Funds 3,752 4,308 4,387 4,467 4,840 Interest Cover (x) 49.3 68.9 60.2 61.2 49.4


FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E EBITDA 3,019 3,151 3,112 3,212 3,358 Sales Growth (% ) 5.9 4.2 0.1 4.1 3.7 Tax Paid -466 -501 -627 -611 -630 EBITDA Growth (% ) 3.9 4.3 -1.2 3.2 4.5 Working Capital Chgs -577 -39 177 50 46 EBIT Growth (% ) 35.8 24.1 -5.1 1.6 3.9 Other 82 89 -42 -42 -54 PBT Growth (% ) 34.5 23.6 -5.2 1.5 3.2 Operating CF 2,059 2,699 2,620 2,609 2,720 Net Profit Growth (% ) 41.5 19.0 -7.4 2.8 3.2 FCF 1,318 1,800 1,721 1,695 1,810 EBITDA Margin (% ) 44.8 44.9 44.3 43.9 44.3 CAPEX -741 -900 -899 -914 -910 EBIT Margin (% ) 31.8 37.9 35.9 35.1 35.1 Asset Sales 0 0 0 0 0 PBT Margin (% ) 31.8 37.7 35.7 34.8 34.6 Acquisitions 0 0 0 0 0 Net Profit Margin (% ) 25.3 28.9 26.8 26.5 26.3 Other 22 20 28 24 18 Net Debt/Equity (% ) 51.2 77.0 96.2 127.5 152.0 Investing CF -718 -880 -871 -890 -892 CAPEX/Sales (% ) 11.0 12.8 12.8 12.5 12.0

Div idends -1,306 -2,006 -1,881 -1,935 -1,996 Debt Chgs -332 295 0 0 300 Other 0 0 0 0 0 Financing CF -1,638 -1,711 -1,881 -1,935 -1,696 Net Cashflow -298 108 -132 -215 132


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Page 15 of 18

7 January 2016

Maxis Berhad (HOLD, PT: RM6.87, CP: RM6.67)


FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 3Q14 4Q14 1Q15 2Q15 3Q15 Revenue 9,084 8,389 8,573 8,752 8,957 Revenue 2,065.0 2,123.0 2,149.0 2,110.0 2,166.0 COGS -4,774 -4,160 -4,141 -4,227 -4,326 COGS -995.0 -1,123.0 -1,102.0 -1,009.0 -1,145.0 EBITDA 4,310 4,229 4,432 4,525 4,631 EBITDA 1,070.0 1,000.0 1,047.0 1,101.0 1,021.0 D&A -1,485 -1,413 -1,359 -1,261 -1,222 D&A -328.0 -395.0 -355.0 -363.0 -336.0 EBIT 2,825 2,816 3,073 3,264 3,408 EBIT 742.0 605.0 692.0 738.0 685.0 Net Interest Income -329 -380 -344 -363 -353 Net Interest Income -99.0 -103.0 -102.0 -107.0 -119.0 Associates 0 0 0 0 0 Associates 0.0 0.0 0.0 0.0 0.0 Exceptionals 0 0 0 0 0 Exceptionals 0.0 0.0 0.0 0.0 0.0 PBT 2,496 2,436 2,729 2,901 3,055 PBT 643.0 502.0 590.0 631.0 566.0 Tax -724 -711 -752 -802 -892 Tax -192.0 -167.0 -178.0 -188.0 -144.0 PAT 1,772 1,725 1,977 2,099 2,163 PAT 451.0 335.0 412.0 443.0 422.0 Minority Interests 7 7 0 0 0 Minority Interests 2.0 -4.0 2.0 2.0 2.0 PATAMI 1,765 1,718 1,977 2,099 2,163 PATAMI 449.0 339.0 410.0 441.0 420.0 Adj PATAMI 2,090 1,859 1,977 2,099 2,163 Adj PATAMI 448.0 423.0 453.0 483.0 524.8 Basic Shares (m) 7,500 7,500 7,500 7,500 7,500 Basic Shares (m) 7,500 7,500 7,500 7,500 7,500 Rep. EPS sen 23.53 22.91 26.36 27.98 28.85 Rep. EPS sen 5.987 4.520 5.467 5.880 5.600 Adj. EPS sen 27.87 24.79 26.36 27.98 28.85 Adj. EPS sen 5.973 5.640 6.040 6.440 6.997 Adj. FD EPS sen 27.87 24.79 26.36 27.98 28.85 Adj. FD EPS sen 5.973 5.640 6.040 6.440 6.997


FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E Cash 808 1,531 1,042 1,292 1,534 PER (x) 28.3 29.0 25.2 23.8 23.1 Receivables 947 971 822 839 859 Adj. PER (x) 23.9 26.8 25.2 23.8 23.1 Inventories 70 12 70 72 74 FD PER (x) 23.9 26.8 25.2 23.8 23.1 Investments 0 0 0 0 0 Net DPS sen 40.0 40.0 26.4 28.0 28.8 Fixed Assets 4,038 4,008 4,082 3,952 3,832 Net DY (% ) 6.0 6.0 4.0 4.2 4.3 Intangibles 11,167 11,176 11,028 10,939 10,852 Book/share sen 80.2 63.2 63.2 63.2 63.2 Other Assets 300 411 411 411 411 P/Book (x) 8.3 10.5 10.5 10.5 10.5 Ttl Assets 17,330 18,109 17,456 17,505 17,561 FCF/share sen 31.5 38.8 19.8 31.3 32.1 Payables 2,434 3,002 2,349 2,398 2,454 FCF y ield (% ) 4.7 5.8 3.0 4.7 4.8 Short Term Debt 910 880 880 880 880 Mkt Cap 49,875 49,875 49,875 49,875 49,875 Long Term Debt 6,613 8,118 8,118 8,118 8,118 Net Cash(Debt) -6,715 -7,467 -7,956 -7,706 -7,464 Other Liabilities 1,357 1,371 1,371 1,371 1,371 EV 56,590 57,342 57,831 57,581 57,339 Ttl Liab 11,314 13,371 12,718 12,767 12,823 EV/EBITDA (x) 13.1 13.6 13.0 12.7 12.4 Shareholders' Funds 6,001 4,716 4,716 4,716 4,716 ROE (% ) 34.7 39.2 41.7 44.3 45.7 Minority Interests 15 22 22 22 22 Current Ratio (x) 0.51 0.62 0.57 0.63 0.70 Total S/H Equity 6,016 4,738 4,738 4,738 4,738 Quick Ratio (x) 0.49 0.61 0.55 0.61 0.68 Ttl Liab&S/H Funds 17,330 18,109 17,456 17,505 17,561 Interest Cover (x) 7.89 6.64 7.59 8.06 8.42


FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E EBITDA 4,310 4,229 4,432 4,525 4,631 Sales Growth (% ) 1.3 -7.6 2.2 2.1 2.3 Net Interest -329 -380 -344 -363 -353 EBITDA Growth (% ) -1.1 -1.9 4.8 2.1 2.3 Tax Paid -724 -711 -752 -802 -892 EBIT Growth (% ) -1.4 -0.3 9.1 6.2 4.4 Working Capital Chgs -176 602 -563 31 35 PBT Growth (% ) -3.1 -2.4 12.0 6.3 5.3 Other 396 367 0 0 0 Net Profit Growth (% ) -4.7 -2.7 14.6 6.2 3.1 Operating CF 3,477 4,107 2,774 3,390 3,421 EBITDA Margin (% ) 47.4 50.4 51.7 51.7 51.7 FCF 2,366 2,913 1,488 2,349 2,406 EBIT Margin (% ) 31.1 33.6 35.8 37.3 38.1 CAPEX -1,111 -1,194 -1,286 -1,042 -1,015 PBT Margin (% ) 27.5 29.0 31.8 33.1 34.1 Asset Sales 0 0 0 0 0 Net Profit Margin (% ) 19.5 20.6 23.1 24.0 24.2 Acquisitions 0 0 0 0 0 Net Debt/Equity (% ) 111.6 157.6 167.9 162.7 157.5 Other 310 -38 0 0 0 CAPEX/Sales (% ) 12.2 14.2 15.0 11.9 11.3

Investing CF -801 -1,232 -1,286 -1,042 -1,015 Div idends -3,000 -3,000 -1,977 -2,099 -2,163 Debt Chgs 1,067 1,475 0 0 0 Other -902 -627 0 0 0 Financing CF -2,835 -2,152 -1,977 -2,099 -2,163 Net Cashflow -159 723 -489 250 242


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Page 16 of 18

7 January 2016

TM Berhad (HOLD, PT: RM6.90, CP: RM6.67)


FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 3Q14 4Q14 1Q15 2Q15 3Q15 Revenue 10,629 11,235 11,706 12,087 12,428 Revenue 2,636.0 3,157.3 2,774.1 2,840.6 2,922.5 COGS -7,219 -7,754 -7,895 -8,143 -8,375 COGS -1,792.6 -2,234.5 -1,958.9 -1,940.6 -1,914.0 EBITDA 3,410 3,481 3,812 3,944 4,053 EBITDA 843.4 922.8 815.2 900.0 1,008.5 D&A -2,160 -2,341 -2,618 -2,534 -2,448 D&A -570.2 -631.0 -604.2 -623.9 -588.7 EBIT 1,250 1,140 1,194 1,410 1,605 EBIT 273.2 291.8 211.0 276.1 419.8 Net Interest Income -103 4 3 24 32 Net Interest Income 3.0 0.0 -3.2 -11.8 -13.9 Associates 4 9 0 0 0 Associates 1.3 5.1 5.5 6.3 6.4 Exceptionals -105 -48 0 0 0 Exceptionals -14.7 -43.2 -41.2 -14.5 -153.3 PBT 1,046 1,106 1,198 1,434 1,637 PBT 262.8 253.7 172.1 256.1 259.0 Tax 2 -263 -299 -344 -393 Tax -71.3 -46.0 -56.2 -74.1 -123.8 PAT 1,048 843 898 1,090 1,244 PAT 191.5 207.7 115.9 182.0 135.2 Minority Interests 36 11 20 20 20 Minority Interests 2.7 -10.6 -13.0 -30.1 -31.6 PATAMI 1,012.2 831.8 878.2 1,070.2 1,224.2 PATAMI 188.8 218.3 128.9 212.1 166.8 Adj PATAMI 1,038.5 941.2 878.2 1,070.2 1,224.2 Adj PATAMI 191.6 350.2 171.3 240.6 200.2 Basic Shares (m) 3,719 3,719 3,719 3,719 3,719 Basic Shares (m) 3,719.0 3,719.0 3,719.0 3,719.0 3,719.0 Rep. EPS sen 27.22 22.37 23.61 28.78 32.92 Rep. EPS sen 5.077 5.870 3.466 5.703 4.485 Adj. EPS sen 27.92 25.31 23.61 28.78 32.92 Adj. EPS sen 5.152 9.417 4.606 6.469 5.383 Adj. FD EPS sen 27.92 25.31 23.61 28.78 32.92 Adj. FD EPS sen 5.152 9.417 4.606 6.469 5.383


FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E Cash 2,515 2,986 3,214 3,326 3,578 PER (x) 24.5 29.8 28.2 23.2 20.3 Receivables 2,289 2,825 3,169 3,274 3,370 Adj. PER (x) 23.9 26.4 28.2 23.2 20.3 Inventories 154 116 132 137 141 FD PER (x) 23.9 26.4 28.2 23.2 20.3 Investments 0 0 0 0 0 Net DPS sen 26.1 22.9 21.2 25.9 29.7 Fixed Assets 14,572 14,785 14,585 14,390 14,066 Net DY (% ) 3.9 3.4 3.2 3.9 4.4 Intangibles 320 582 582 582 582 Book/share sen 191.9 203.6 203.3 206.1 209.4 Other Assets 1,297 1,329 1,329 1,329 1,329 P/Book (x) 3.5 3.3 3.3 3.2 3.2 Ttl Assets 21,147 22,623 23,012 23,038 23,066 FCF/share sen 10.2 24.6 27.7 28.9 36.5 Payables 3,173 3,605 4,225 4,366 4,493 FCF y ield (% ) 1.5 3.7 4.1 4.3 5.5 Short Term Debt 1,590 197 197 197 197 Mkt Cap 24,806 24,806 24,806 24,806 24,806 Long Term Debt 4,865 6,251 6,251 6,251 6,251 Net Cash(Debt) -3,940 -3,463 -3,234 -3,122 -2,870 Other Liabilities 4,219 4,610 4,370 4,130 3,890 EV 28,746 28,268 28,040 27,928 27,676 Ttl Liab 13,847 14,663 15,043 14,944 14,831 EV/EBITDA (x) 8.4 8.1 7.4 7.1 6.8 Shareholders' Funds 7,137 7,571 7,560 7,666 7,786 ROE (% ) 14.6 12.4 11.6 14.0 15.7 Minority Interests 163 389 409 429 449 Current Ratio (x) 0.99 1.33 1.29 1.30 1.33 Total S/H Equity 7,299 7,960 7,968 8,095 8,235 Quick Ratio (x) 0.96 1.31 1.27 1.27 0.00 Ttl Liab&S/H Funds 21,147 22,623 23,012 23,038 23,066 Interest Cover (x) 3.37 3.91 4.41 5.21 5.93


FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E EBITDA 3,410 3,481 3,812 3,944 4,053 Sales Growth (% ) 6.4 5.7 4.2 3.3 2.8 Net Interest -103 4 3 24 32 EBITDA Growth (% ) 11.2 2.1 9.5 3.5 2.8 Tax Paid -164 -220 -299 -344 -393 EBIT Growth (% ) 22.4 -8.8 4.7 18.1 13.8 Working Capital Chgs -373 -66 260 31 28 PBT Growth (% ) -2.2 5.7 8.3 19.8 14.1 Other 26 -185 -329 -240 -240 Net Profit Growth (% ) -19.8 -19.6 6.6 21.4 14.1 Operating CF 2,796 3,014 3,447 3,415 3,480 EBITDA Margin (% ) 32.1 31.0 32.6 32.6 32.6 FCF 381 914 1,029 1,076 1,356 EBIT Margin (% ) 11.8 10.1 10.2 11.7 12.9 CAPEX -2,415 -2,101 -2,418 -2,339 -2,124 PBT Margin (% ) 9.8 9.8 10.2 11.9 13.2 Asset Sales 0 0 0 0 0 Net Profit Margin (% ) 9.9 7.5 7.7 9.0 10.0 Acquisitions 0 0 0 0 0 Net Debt/Equity (% ) 54.0 43.5 40.6 38.6 34.9 Other 53 -62 0 0 0 CAPEX/Sales (% ) 22.7 18.7 20.7 19.3 17.1

Investing CF -2,362 -2,162 -2,418 -2,339 -2,124 Div idends -787 -932 -790 -964 -1,104 Debt Chgs -685 -7 0 0 0 Other -183 547 0 0 0 Financing CF -1,655 -391 -790 -964 -1,104 Net Cashflow -1,222 461 239 112 252


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7 January 2016

Time dotCom Berhad (HOLD, PT: RM6.53, CP: RM7.49)


FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 3Q14 4Q14 1Q15 2Q15 3Q15 Revenue 548.2 596.3 667.7 780.2 801.8 Revenue 150.6 158.1 171.7 163.8 173.4 COGS -358.1 -377.1 -422.4 -465.2 -484.0 COGS -87.2 -102.0 -112.1 -110.9 -114.4 EBITDA 190.1 219.2 245.3 315.0 317.8 EBITDA 63.4 56.0 59.6 52.9 58.9 D&A -75.2 -85.0 -91.0 -98.8 -104.3 D&A -21.3 -22.0 -22.3 -23.3 -23.8 EBIT 114.9 134.2 154.3 216.2 213.5 EBIT 42.1 34.1 37.3 29.6 35.1 Net Interest Income 33.0 45.0 17.9 9.9 13.1 Net Interest Income 9.2 16.9 20.2 287.4 24.6 Associates 0.0 0.0 0.0 0.0 0.0 Associates 0.0 0.0 0.0 0.0 0.0 Exceptionals 349.4 0.1 274.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 PBT 497.3 179.3 446.2 226.1 226.6 PBT 51.3 50.9 57.5 317.0 59.7 Tax 144.0 -6.9 -22.3 -11.3 -11.3 Tax -1.7 -1.1 -1.7 -2.3 -1.4 PAT 641.3 172.4 423.9 214.8 215.3 PAT 49.6 49.9 55.9 314.6 58.3 Minority Interests 0.0 1.5 3.7 1.9 1.9 Minority Interests 0.4 0.7 0.7 0.8 0.8 PATAMI 641.3 173.9 427.7 216.7 217.2 PATAMI 50.0 50.5 56.6 315.4 59.0 Adj PATAMI 139.9 154.1 153.7 216.7 217.2 Adj PATAMI 39.0 41.7 47.6 35.1 40.0 Basic Shares (m) 573.0 573.0 573.0 573.0 573.0 Basic Shares (m) 573.0 573.0 573.0 573.0 573.0 Rep. EPS sen 111.93 30.35 74.64 37.82 37.90 Rep. EPS sen 8.72 8.82 9.87 55.05 10.30 Adj. EPS sen 24.42 26.89 26.82 37.82 37.90 Adj. EPS sen 6.80 7.28 8.31 6.13 6.99 Adj. FD EPS sen 24.42 26.89 26.82 37.82 37.90 Adj. FD EPS sen 6.80 7.28 8.31 6.13 6.99


FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E Cash 228 311 404 473 567 PER (x) 6.7 24.7 10.0 19.8 19.8 Receivables 157 178 220 257 264 Adj. PER (x) 30.7 27.9 27.9 19.8 19.8 Inventories 0 0 0 0 0 FD PER (x) 30.7 27.9 27.9 19.8 19.8 Investments 0 0 0 0 0 Net DPS sen 0.0 5.6 78.9 7.6 7.6 Fixed Assets 812 966 1,309 1,421 1,501 Net DY (% ) 0.0 0.7 10.5 1.0 1.0 Intangibles 214 211 211 211 211 Book/share sen 349.7 411.6 358.9 388.8 418.8 Other Assets 941 1,080 656 656 656 P/Book (x) 2.1 1.8 2.1 1.9 1.8 Ttl Assets 2,352 2,745 2,799 3,017 3,198 FCF/share sen -5.86 9.96 -31.22 19.57 23.90 Payables 176 218 274 321 330 FCF y ield (% ) -0.78 1.33 -4.17 2.61 3.19 Short Term Debt 35 52 52 52 52 Mkt Cap 4,292 4,292 4,292 4,292 4,292 Long Term Debt 130 88 388 388 388 Net Cash(Debt) 62 171 -36 33 127 Other Liabilities 6 28 28 28 28 EV 4,230 4,121 4,328 4,259 4,165 Ttl Liab 348 387 743 789 798 EV/EBITDA (x) 22.2 18.8 17.6 13.5 13.1 Shareholders' Funds 2,004 2,358 2,056 2,228 2,400 ROE (% ) 7.0 6.5 7.5 9.7 9.0 Minority Interests 0 1 -2 -4 -6 Current Ratio (x) 2.0 1.8 1.9 2.0 2.2 Total S/H Equity 2,004 2,358 2,056 2,228 2,400 Quick Ratio (x) 2.0 1.8 1.9 2.0 2.2 Ttl Liab&S/H Funds 2,352 2,745 2,799 3,017 3,198 Interest Cover (x) -14.9 -18.4 -11.1 -10.2 -10.1


FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E FYE 31 Dec (RMm) 2013A 2014A 2015E 2016E 2017E EBITDA 190.1 219.2 245.3 315.0 317.8 Sales Growth (% ) 30.8 8.8 12.0 16.8 2.8 Net Interest 33.0 45.0 17.9 9.9 13.1 EBITDA Growth (% ) 43.4 15.3 11.9 28.4 0.9 Tax Paid 144.0 -6.9 -22.3 -11.3 -11.3 EBIT Growth (% ) 68.4 16.8 15.0 40.1 -1.3 Working Capital Chgs -47.7 21.5 14.2 9.2 1.8 PBT Growth (% ) 216.7 -63.9 148.8 -49.3 0.2 Other -175.6 0.0 0.0 0.0 0.0 Net Profit Growth (% ) 231.0 -72.9 145.9 -49.3 0.2 Operating CF 143.8 278.8 255.1 322.8 321.4 EBITDA Margin (% ) 34.7 36.8 36.7 40.4 39.6 FCF -33.6 57.1 -178.9 112.2 136.9 EBIT Margin (% ) 21.0 22.5 23.1 27.7 26.6 CAPEX -177.4 -221.8 -434.0 -210.7 -184.4 PBT Margin (% ) 90.7 30.1 66.8 29.0 28.3 Asset Sales 0.2 0.0 0.0 0.0 0.0 Net Profit Margin (% ) 117.0 28.9 63.5 27.5 26.8 Acquisitions 0.0 0.0 0.0 0.0 0.0 Net Debt/Equity (% ) NetCash NetCash 1.7 NetCash NetCash Other 37.8 0.0 0.0 0.0 0.0 CAPEX/Sales (% ) 32.4 37.2 65.0 27.0 23.0

Investing CF -139.5 -221.8 -434.0 -210.7 -184.4 Div idends 0.0 -32.1 -451.9 -43.3 -43.4 Debt Chgs 36.3 58.5 300.0 0.0 0.0 Other -36.8 0.0 423.9 0.0 0.0 Financing CF -0.6 26.4 272.0 -43.3 -43.4 Net Cashflow 3.8 83.4 93.1 68.8 93.5


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7 January 2016

Disclaimer

The information contained in this report is based on data obtained from sources believed to be reliable. However, the data and/or sources have not been independently verified and as such, no representation, express or implied, are made as to the accuracy, adequacy, completeness or reliability of the info or opinions in the report.

Accordingly, neither Hong Leong Investment Bank Berhad nor any of its related companies and associates nor person connected to it accept any liability whatsoever for any direct, indirect or consequential losses (including loss of profits) or damages that may arise from the u se or reliance on the info or opinions in this publication.

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Equity rating definitions

BUY Positiv e recommendation of stock under coverage. Expected absolute return of more than +10% ov er 12-months, with low risk of sustained downside.

TRADING BUY Positiv e recommendation of stock not under coverage. Expected absolute return of more than +10% ov er 6-months. Situational or arbitrage trading opportunity . HOLD Neutral recommendation of stock under coverage. Expected absolute return betw een -10% and +10% over 12-months, with low risk of sustained downside. TRADING SELL Negativ e recommendation of stock not under coverage. Expected absolute return of less than -10% ov er 6-months. Situational or arbitrage trading opportunity. SELL Negativ e recommendation of stock under coverage. High risk of negative absolute return of more than -10% ov er 12-months. NOT RATED No research coverage, and report is intended purely for informational purposes.

Industry rating definitions

OVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% ov er 12-months.

NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return betw een –5% and +5% over 12-months. UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than –5% ov er 12-months.

Documents

PP 9484/12/2012 Telecommunications (Neutral