ed: CK / sa: YM, PY, CS

Few years of pain to turn TPG unviable

• TPG’s business case rendered unviable by aggressive mobile virtual network operators (MVNOs)

• After 44% correction YTD, StarHub is still not attractive at 12-month forward EV/EBITDA of 6.8x versus Singtel’s core 5.4x. Too early to buy StarHub for potential sector consolidation a few years later

Prefer Singtel > StarHub. Singtel continues to beour preferred stock for its stable core EBITDA prospects vs potential decline at StarHub. Singtel is expected to resume earnings growth in FY20F, led by Bharti

Few years of pain ahead as telcos intend to minimize revenue share gains for TPG. MVNOs such as Circles.Life and MyRepublic with their low-cost model and superior customer service (100% app based), may garner a big portion of customers shifting to cheaper SIM-only plans (~10% gross revenue share in 2022). As the majority of MVNOs’ revenue will flow back to their telco partners, telcos are better off losing revenue share to MVNOs than TPG by offering flexible wholesale pricing to their MVNOs. TPG is likely to compete on cheaper pricing but will be challenged by MVNOs that offer superior network quality and differentiated services. We forecast 4% mobile industry revenue contraction over 2017-22 vs 1% contraction earlier due to higher take-up of cheaper SIM-only plans. We project TPG to show EBITDA losses versus positive EBITDA in 2022 earlier with just 4% revenue share in 2022 (vs 5.5% earlier) forcing it to seek exit opportunities.

Singtel’s core business is trading at 12-month forward EV/EBITDA of 5.4x versus 66.8x for StarHub. We argue that Singtel’s core business should trade at the regional average of 7x EV/EBITDA given its ability to stabilise core-EBITDA via cost savings and revenue share gains in Australia. We peg StarHub to trade at 5.6x 12-month forward EV/EBITDA respectively at 15% & 20% discounts to the regional average due to their declining EBITDA prospects. After recent correction, we upgrade StarHub to HOLD for potential returns of -3% including ~10% yield.

STI : 3,260.84

Analyst Sachin MITTAL +65 66823699 sachinmittal@dbs.com

Singtel’s valuation discount to M1 & StarHub has narrowed

and is likely to disappear in the future

Source: DBS Bank

DBS Group Research . Equity 26 Jun 2018

Singapore Industry Focus

Telecom SectorRefer to important disclosures at the end of this report

STOCKS

12-mth

Price Mkt Cap Target Price Performance (%)

S$ US$m S$ 3 mth 12 mth Rating

Singtel 3.11 37,283 3.70 (7.4) (17.9) BUY

StarHub 1.63 2,071 1.42 (30.6) (40.1) HOLD(upgrade from FV)

Source: DBS Bank, Bloomberg Finance L.P. Closing price as of 25 Jun 2018

Industry Focus

Telecom Sector

Page 2

Telcos pro-actively closing the gaps in the SIM-only plans via MVNOs. TPG, the fourth Mobile Network Operator (MNO) set to enter Singapore in 2H18, faces an uphill battle, amid the myriad of Mobile Virtual Network Operators (MVNO) the incumbents have partnered with. Each incumbent has partnered with at least one MVNO, with the market leader Singtel joining hands with two, taking the total number of mobile service providers in the country to seven from just three players at the end of 2015. By partnering with MVNOs the incumbents are 1) making it difficult for TPG to succeed by stirring up competition in the SIM-only segments, which TPG is likely to target first, and 2) generating wholesale

mobile revenues, offsetting any potential revenue impact in the low-end segments that is likely to be caused by TPG.

TPG has already announced plans to offer unlimited voice and 3GB of data free of charge for 24 months to senior citizens in Singapore. The telco is also offering free unlimited data for six months (A$9.99 thereafter) in Australia, where TPG entered as a MNO. We believe that TPG will likely adopt a similar strategy of offering free services at the initial stages of its entry in Singapore as well, possibly leading to price wars between operators.

MVNOs in Singapore

Circles.Life Zero Mobile Zero1 MyRepublic

Plans Base Flexi Zero X Zero XO Zero1 Uno Ultimate

-Price S$28 S$0 S$69.95 S$39.95 S$29.99 S$8 S$80

-Data 6GB 1GB Unlimited 6GB 3GB* 1GB* 80GB*

-Voice (mins) 100 30 Unlimited Unlimited 200 1000 1000

MNO Partner M1 Singtel Singtel StarHub

Launch Date 2016 2017 2018 2H18

*Unlimited data at reduced speeds once the data quota is over Source: Companies, DBS Bank

We project annual industry contraction of 4% over 2018-22 in the base case scenario. We have revised our assumptions of annual decline in the mobile industry through 2017A-2022F to 4% from 1% earlier on the back of 1) rising adoption of SIM-only plans, and 2) escalation of price wars in the industry as TPG battles it out with MVNOs.

SIM-only plans (8-9% of postpaid plans currently) are seeing rising adoption amid lengthening smartphone replacement cycles and aggressive promotions by MVNOs. Judging from Australia’ s experience, where SIM-only constitutes ~25% of the total postpaid, Singapore is likely to see a big rise in these plans. Customer spend on SIM-only plans vis-à-vis handset plans tends to be substantially lower and growing uptake would negatively impact mobile service revenues and dilute industry ARPU going forward. We also believe TPG would need to adopt very aggressive pricing strategies during the first few years of entry to snatch revenue share in an overcrowded mobile space with seven service providers. This would likely lead to steep contraction of voice and data yields, further weighing down the industry topline. Factoring these, we project an 18% contraction in industry revenues by 2022

from present levels vs our previous assumption of just 4% contraction of the industry topline over the same period. Annual industry contraction of 6% over 2018-22 if TPG is more successful than our projections under the bear-case scenario. We project that almost a quarter of the industry topline could be wiped out by 2022, if TPG, backed with a strong balance sheet, adopts heavily disruptive pricing policies, much like Reliance Jio in India, driving MVNOs out of the market and instigating severe downward adjustments to industry yields. Under this scenario, we expect the mobile industry to contract at an annual rate of 6% over 2018-2022.

Annual industry contraction of 2-3% over 2018-22 if TPG is acquired in 2020-2021 under our bull-case scenario. Under our bull case, we assume that TPG will exit the Singapore mobile market by 2021, after intense competition from MVNOs and the incumbents, via a sale of its operations to an incumbent operator. Under this scenario, we expect the mobile industry to return to a growth trajectory by 2022 and the 2017-2022 annual contraction of the mobile industry to be limited to 2% vs our base-case projection of 4%.

Page 2

Industry Focus

Telecom Sector

Page 3

3.5% and 4% revenue share grab by MVNOs and TPG, respectively, by 2022 under our base-case scenario

*We have assumed that 65% of MVNO revenue will flow back to their telco partners as MVNOs could occupy 10% gross revenue share

Source: DBS Bank

With the revision of our base-case scenario for the Singapore mobile industry, we have revised down the potential revenue share grab of TPG by 2022 to just 4.0% from 5.5% before, after factoring in the MVNOs. Under our new base-case scenario, TPG could remain cash-flow negative till 2022, four years after its entry. Negative cash flow generation in

Singapore, coupled with TPG’s on-going investments in deploying a mobile network in Australia, could heavily weigh on the telco’s balance sheet, making TPG a potential target for acquisition.

TPG may not reach EBITDA breakeven revenue of ~S$150m by FY22F (previous estimate of FY21F revenue of S$156m)

TPG- Base Case 2017 2018 2019 2020 2021 2022

Revenue market share 0.0% 0.4% 1.3% 2.2% 3.1% 4.0%

TPG revenue 0 15 47 75 102 128

EBITDA margin -150% -50% -40% -30% -20%

Cash flow (Assumptions)

EBITDA (breakeven at S$150m revenue)

0 -23 -23 -30 -31 -26

Capex (10-20% of revenue) -175 -125 -23 -23 -20 -19

Spectrum price -129

Free Cash Flow -304 -148 -47 -53 -51 -45

Source: DBS Bank

Page 3

Industry Focus

Telecom Sector

Page 4

Emerging Industry trends – Mobile

SIM-only plans gaining popularity. SIM-only subscribers already account for ~12% of M1’s postpaid subscriber base (~83k subs) and a mid-single digit portion of Singtel’s subscriber base. SIM-only sales also contributed to ~18% of total plan sales of Singtel in 4Q18, up from 15% in the previous quarter. We believe SIM-only plans will rise in popularity over the medium term, with lengthening smartphone replacement cycles and the emergence of

handset leasing plans, which could further incentivise subscribers to move away from bundled plans. Growing adoption of SIM-only plans presents a challenge to operators, with potential declines in mobile service revenues, dilution of ARPU and profitability, despite the elimination of handset subsidies. Customer spend over the life of SIM-only contracts tends to be substantially lower than handset plans, and SIM-only plans remain less profitable vis-à-vis handset plans, even after taking handset subsidies into consideration.

SIM-Only plans on offer by three incumbents

Singtel SIM-only plans with contracts

Price S$20 S$36.05 S$46.75 S$73.5

Data 5GB 10GB 30GB 55GB

All SIM-Only plans come with 150 mins of Voice and 500 SMS

StarHub SIM-only plans with contracts

Price S$24 S$34 S$44 S$54 S$119

Data* 6GB 8GB 10GB 16GB 30GB

Voice 200 400 Unlimited

All plans are entitled to unlimited data over weekends

M1 SIM-only plans with contracts

Price S$20 S$40 S$50 S$98*

Data 5GB 15GB 30GB Unlimited

All SIM-Only plans come with 100 mins of Voice and SMS

* - Unlimited data, SMS and Voice services Sources Companies, DBS Bank

SIM-only plans translate to lower net revenue for operators (for iPhone 8 plus devices)

Singtel StarHub M1SIM-Only plan

with 5GB Combo -3 Handset

plan with 5GB XS SIM-Only

plan 4Gb "S"

plan mySIM(3)

15GB mySIM(e)

15GB

Monthly Contract Price 20.0 68.9 24.0 68.0 40.0 70.0 Upfront fee on handsets 572.0 418.0 565.0

Total customer spend over 24-months 480.0 2,225.6 576.0 2,050.0 960.0 2,245.0Handset cost* (1,177.2) (1,177.2) (1,177.2)

Net revenue over 24-months 480.0 1,048.4 576.0 872.8 960.0 1,067.8

* - Assumed to be at a 10% discount to the listed price of an iPhone 8 Plus in Singapore Sources Companies, Apple Singapore, DBS Bank

Page 4

Industry Focus

Telecom Sector

Page 5

Singtel introduces handset leasing plans. Singtel has recently introduced handset leasing for SIM-only plans over a selected range of high-end iPhone and Samsung devices. The leasing plans carry a 24-month contract term during which subscribers make monthly payments to Singtel. At the end of the 24-month period, users are expected to return the device to Singtel in “good working condition”. We believe handset leasing plans would stimulate the adoption of SIM-only plans

as the ability to lease handsets could lure subscribers on handset plans to SIM-only plans, given the zero upfront payment and lower payments over the lifetime of the contract. Whilst we believe moving towards handset leasing could potentially lower mobile revenues, our estimates indicate the impact on earnings from the adoption of handset leasing plans would be marginal.

Handset leasing plans have 10-20% adverse impact on net revenue, depending on the salvage value of the phone

iPhone 8 Plus (64GB)

Singtel 5GB SIM-only plan Combo-3 plan with 5GB

Monthly contract value 62.0 68.9

-SIM-Only plan 20.0

-Leasing plan 42.0

Upfront Fee - 572.0

Total customer spend over the 24-month contract 1,488.0 2,225.6

Salvage Value after 2 years* 650.0

Total Revenue 2,138.0 2,225.6

Handset cost (1,177.2) (1,177.2)

Net Earnings 960.8 1,048.4

* - Based on a salvage value of 50% of the listed price after two years. Used versions of the iPhone 7 Plus (32GB) model released in 2016 presently trades at a ~50% discount to the original listed price in 2016 Sources: Company, Apple Singapore, Carousell, Red While Mobile, DBS Bank

Circle.Life shakes up the marketplace with free mobile plans. Circles.Life shook the Singapore mobile space with “Flexi”, a free mobile offering loaded with 1GB of data, 30 mins talk time and 10 SMS. The SIM-only service offered with no contracts, also allows subscribers to top up data capacity with S$8 for 1GB and S$12 for 2GB. With “Flexi” plans Circles.Life is expanding its targeted segments in the low-ARPU space. The Flexi plans are targeted at low-data users, without a possible cannibalisation of its existing subscriber base on the 6GB-S$28 base plan. Whilst, the “Flexi” plan is unlikely to generate counter-offers from the major mobile operators, the MVNO is making life difficult for TPG in the battle for low-ARPU subscribers, which TPG is likely to target when it enters Singapore in the later part of 2018.

Stock Profiles Singtel to better weather the storm. StarHub likely to be most affected over the medium term. We believe Singtel would be the least affected by the projected contraction of the industry, Singapore mobile accounts for only 13% of the telco’s service revenues vs. 54% for StarHub. Rising contributions from Optus, with a growing mobile business in Australia, and the S$500m expected cost savings & avoidance in FY19F through digitalisation and other initiatives should help Singtel defend its core EBITDA vs. likely declines at StarHub.

Page 5

Industry Focus

Telecom Sector

Page 6

StarHub, however, could likely record bigger contractions in EBITDA owing to a contracting Pay-TV business, heavy competition from M1 in the broadband segment and the lack of support for mobile revenues from an MVNO. Whilst StarHub has struck a MVNO partnership with MyRepublic, we believe it could take at least 1-2 years before StarHub records any meaningful contributions from MyRepublic. It took M1 ~2 years to generate meaningful revenue contributions from Circles.Life.

We argue for 5.6x 12-month forward EV/EBITDA for StarHub and 7x for Singtel’s core EBITDA. We argue that Singtel’s core business should trade at the regional average 12-month EV/EBITDA of 7x vs. 5.5x currently, given the telco’s limited exposure to the declining mobile industry of Singapore and its ability to stabilise core-EBITDA through cost savings and support from Optus. We believe that StarHub should trade at 5.6x forward EV/EBITDA, at ~20% discounts to the regional average, given the weak EBITDA outlook of these players.

Page 6

ed: CK / sa:YM, PY, CS

BUYLast Traded Price (14 Jun 2018): S$3.19 (STI : 3,356.73)

Price Target 12-mth:S$3.70 (16% upside) (Prev S$3.85)

Analyst Sachin MITTAL+65 66823699 sachinmittal@dbs.com

What’s New • Earnings rebound likely in FY20F with the potential

recovery of Bharti; Singtel opens to partial exit

opportunities from digital businesses in 2-3 years

• Potential risk of -7% under our bear-case scenario

versus +21% reward under our base-case scenario

• BUY with a lower TP of S$3.70 as we adjust our core

EBITDA and market cap of associates

Price Relative

Forecasts and Valuation FY Mar (S$m) 2017A 2018A 2019F 2020F

Revenue 16,711 17,532 18,113 18,682 EBITDA 7,961 7,572 7,438 7,874 Pre-tax Profit 5,353 6,772 4,534 4,832 Net Profit 3,853 5,451 3,331 3,500 Net Pft (Pre Ex.) 3,885 3,538 3,331 3,500 Net Pft Gth (Pre-ex) (%) 1.9 (8.9) (5.9) 5.1 EPS (S cts) 23.6 33.4 20.4 21.4 EPS Pre Ex. (S cts) 23.8 21.7 20.4 21.4 EPS Gth Pre Ex (%) (1) (9) (6) 5 Diluted EPS (S cts) 23.6 33.4 20.4 21.4 Net DPS (S cts) 17.5 20.5 17.5 17.5 BV Per Share (S cts) 173 182 182 186 PE (X) 13.5 9.6 15.6 14.9 PE Pre Ex. (X) 13.4 14.7 15.6 14.9 P/Cash Flow (X) 14.2 12.1 10.8 12.9 EV/EBITDA (X) 7.9 8.2 8.3 7.8 Net Div Yield (%) 5.5 6.4 5.5 5.5 P/Book Value (X) 1.8 1.8 1.8 1.7 Net Debt/Equity (X) 0.4 0.3 0.3 0.3 ROAE (%) 14.5 18.8 11.2 11.7

Earnings Rev (%): (5) (8) Consensus EPS (S cts): 23.9 24.4 26.2 Other Broker Recs: B: 15 S: 0 H: 7

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P

Favorable risk-reward, -7% risk vs.

+ 21% reward

Temporary earnings decline presents an opportunity to

accumulate. We expect Singtel’s earnings to rebound by FY20F,

driven by the potential earnings recovery of Bharti (earnings

recovery may delay to FY21F under our bear case scenario for

Bharti). Excluding market cap of its associates, Singtel’s core

business is trading at only 5.5x FY19F EV/EBITDA, at ~15-20%

discount to its local peers. With 5.4% yield, we see potential

risk of -7% vs potential reward of +21%

Where we differ: Digital businesses’ monetisation may lead to

value accretion of S$0.16 per share. We argue that Digital Life!

and cyber security businesses are worth S$0.13 per share based

on ~1x revenue multiple versus market ascribing them a value

of -S$0.03 per share. Singtel is open to partial exit opportunities

from its cyber-security and Digital Life! businesses over the next

2 years via a sale to a strategic investor or public listing.

Potential Catalyst: Final DPS of S$10.7 Scts going ex in late July,

price hike by Telkomsel in 2H18F and Singtel raising stake in

regional associates. Final DPS of S$10.7 Scts will go ex on 26

July. Telkomsel, who is the biggest earnings contributor to

Singtel, may raise data pricing by 5-10% in 2H18F. Singtel may

also look to raise its stake in AIS or Bharti, enhancing its

FY19F/20F earnings.

Valuation:

BUY with a revised TP of S$3.70. We lower our sum-of-the-

parts (SOTP) valuation to S$3.70, mainly from (i) FY19F core

EBITDA growth of +1% vs +4% earlier, and (ii) recent drop in

the market capitalization of Bharti and AIS.

Key Risks to Our View:

Bear-case valuation of S$2.79 suggests -7% risk. This assumes

(i) 23% drop in valuation of the core business due to EBITDA

decline versus stable EBITDA expectations; (ii) 20% drop in

Bharti’s & Telkomsel’s valuation and 10% drop in market cap

of other associates; (iii) 15% holding company discount vs. 5%

base case

At A Glance Issued Capital (m shrs) 16,329

Mkt. Cap (S$m/US$m) 52,090 / 38,548

Major Shareholders (%)

Temasek Holdings 52.3

Free Float (%) 47.7

3m Avg. Daily Val (US$m) 58.6

ICB Industry :Telecommunications / Fixed Line Telecommunications

DBS Group Research . Equity

18 Jun 2018

SingaporeCompany Guide

Singtel Version 4 | Bloomberg: ST SP| Reuters: STEL.SI Refer to important disclosures at the end of this report

Page 7

Company Guide

Singtel

WHAT’S NEW

Short-term pain before long-term gain

When will Singtel’s earnings return to a growth trajectory?

We project Singtel’s earnings would rebound in FY20F, after

contracting in FY19F. Rebound in FY20F would be primarily

driven by the recovery of Bharti Airtel for two key reasons.

1) Airtel is set to gain revenue market share from the

ongoing Vodafone-Idea merger, which is fraught with

complications caused by vendor and staff issues.

Vodafone is also highly levered with a net debt-to-

EBITDA of 6.5x, limiting its potential to counter

aggressive pricing measures of Reliance Jio or expand

capacity, which the telco is seemingly having issues with.

Vodafone is also losing subscribers as it has not adopted

cheaper bundled plans due to the lack of capacity.

Armed with a stronger network coverage and capacity,

we project that Bharti Airtel will have the opportunity to

increase its revenue share over the next 12-15 months

on the back of Vodafone’s weakness.

2) The integration of Tata telecom’s spectrum and

subscribers, expected to take place over FY19F, should

also help Bharti Airtel’s efforts to uplift its revenue share

gains and earnings.

Hence, we expect to see a substantial improvement in

contributions from Bharti Airtel by FY20F, putting Singtel’s

earnings back in positive territory.

What could potentially delay a rebound in Singtel’s earnings

by FY20F? We see the recovery of Bharti Airtel as the key

catalyst for a rebound in earnings by FY20F. However, if

competitive pressures in the Indian telecom market persist,

with an aggressive Jio continuously driving tariffs lower in a

bid to gain revenue share, a potential recovery of Bharti Airtel

and consequently a rebound in Singtel’s earnings could be

further delayed to FY21F. Jio continues to be aggressive in

the market, maintaining ~20% lower tariffs vs. incumbents as

it continues to battle towards gaining further revenue market

share by 2021 vs 25% presently. However, much of these

market share gains will be at the expense of smaller operators

and Vodafone-Idea with minimal losses expected from Airtel.

In our base case, we have assumed that Jio will adopt a more

moderate competitive stance and move away from price

competition by 2020, once the consolidation of the industry

is completed, with the hope of monetising Jio’s subscriber

base. However, if Jio continues to maintain competitive

pressures at the present hyper-intensive levels, even after

industry consolidation, Airtel may fail to stage a recovery in

earnings, prolonging a rebound in Singtel’s bottomline.

We trim our FY19F earnings forecast by 5%. We forecast a

6% y-o-y decline in underlying earnings for FY19F on the back

of (i) projected decline in contributions from associates driven

by Bharti Airtel and Telkomsel, and (ii) intensifying competition

in the mobile and enterprise services market in Singapore, that

could weigh on core EBITDA.

Competitive pressures and the curtailment of inter-connection

charges by the regulator in India will continue to weigh on

contributions from Bharti Airtel for FY19F. Meanwhile, the

prepaid SIM registration exercise in Indonesia, which

concluded in May 2018, has also taken a toll on Indonesian

mobile operators and could likely weigh down contributions

from Telkomsel further in FY19F.

However, Telkomsel who has been the aggressor so far, plans

to raise data pricing by 5-10% post Lebaran holidays and

hopes to sustain higher pricing if other players follow suit.

Associate Pre-tax contribution base-case projections

Source: DBS Bank

We expect core EBITDA from Singapore and Australia to show

1% decline in FY19F and FY20F each due to tightening

competitive pressures in the Singaporean mobile market and

declining margins in the enterprise market with higher

Infocomm Technology (ICT) contribution.

Core business trading at 15-20% valuation discount vs local

peers is hard to justify. The market is attaching a significant

valuation discount to the core plus digital business of Singtel,

possibly over concerns on the magnitude of losses in the digital

segment in the past. This has resulted in Singtel’s core plus

digital businesses trading at only 5.5x FY19F EV/EBITDA vs 7.5x

for StarHub, despite having a much more resilient business

model.

Associate pre-tax contribution S$m FY18A FY19F FY20F

Telkomsel 1,372 1,262 1,260

Bharti Airtel 216 156 469

AIS 450 534 569

Globe 266 255 287

NetLink 82 15 20

Others 68 57 64

Overall 2,454 2,278 2,669

Y-o-y Growth FY18A FY19F FY20F

Telkomsel -4% -8% 0%

Bharti Airtel -63% -28% 200%

AIS 7% 19% 7%

Globe -8% -4% 13%

NetLink -48% -81% 31%

Others -6% -17% 13%

Overall -17% -7% 17%

Page 8

Company Guide

Singtel

Base-case valuation for Singtel

Source: DBS Bank, Reuters, Company

We have valued Singtel’s Singapore and Australia operations at FY19F EV/EBITDA valuations of 7x each. Digital Life! And Cyber-security businesses (Digital businesses) were valued at an

EV/Revenue multiple of ~1x. The valuations of regional associates are based on current share prices, while the valuation of Telkomsel is based on a FY19F PE (March YE) of 15x as we assume a 10% y-o-y drop in Telkomsel’s earnings

Associates' valuation contribution based on current market capitalisation except for Telkomsel

Associates Total shares Share price (local

Currency?)

Exchange rate Stake Value (S$ m) Per Share (S$)

Bharti Airtel 3,997 375.00 50.50 40% 11725 0.70 (Prev 0.73)

AIS 2,973 187.00 23.80 32% 7428 0.44 (Prev 0.45)

Globe* 132 1,680.00 38.90 47% 2690 0.16

SingPost 2273 1.34 1.00 22% 662 0.04

FY19F Profit (Rpm)

FY19F PE Exchange rate Stake Value (S$ m)

Telkomsel 27,963,400 (8% earnings

decline in FY19F)

15.00 10,505.00 35% 1,3975 0.84

Total 3,6481

Holdco discount (5%) -1824

Net investment holdings 3,4657 2.07

*Ownership stake of ordinary shares Source: DBS Bank, Reuters, Company

Singtel's Valuation Breakdown Value

(S$ m) Per

share(S$) Valuation Basis

Singapore core business 12,942 7x FY 19F EV/EBITDA based on regional average

Australia core business 16,910 7x FY 19F EV/EBITDA based on regional average

Digital Business 2,209 ~1x EV/Revenue multiple: Cyber-security S$648m and Digital Life! - S$1.3bn

Debt -10,278

Equity value of the core business 27,127

1.62 (Previously

1.69)

Regional investments 34,657

2.07 (Previously

2.12)

Based on closing share prices and 15x PE for Telkomsel. Drop is due to lower market cap for Bharti Airtel and AIS.

Target Price 61,784

3.70 (Previously

3.85)

Page 9

Company Guide

Singtel

Bear-case assumptions for the core business. We have assumed FY19F core EBITDA to be 4% lower than the base-case scenario with an EV to EBITDA multiple of 6x vs 7x in the base-case scenario.

Bear-case assumptions for associates. We have assumed 20% drop in Bharti’s stock price due to higher-than-expected competition, 20% drop in valuation for Telkomsel due to 15% earnings decline vs 8% decline under the base case, a 10% decline in the stock price for other associates and a wider holding company discount of 15% vs 5% under the base case.

Bear-case scenario valuation

Source: DBS Bank, Reuters, Company

Singtel's Valuation Breakdown

Value (S$ m) Per share(S$) Valuation Basis

Singapore core business 12,942 4% lower EBITDA than base case and 6x FY 19F EV/EBITDA

versus 7x in the base case

Australia core business 16,910 3% lower EBITDA than the base case and 6x FY19F

EV/EBITDA versus 7x in the base case

Digital Business 2,209 ~1x EV/Revenue multiple: Cyber-security S$648m and Digital Life! - S$1.3bn

Debt -10,278Equity value of the core business

27,127 1.25

Regional investments 1.54

20% share price drop for Bharti, 20% drop in valuation for Telkomsel, 10% drop for AIS, Globe, others and 15% holdco discount vs 5% in the base case

Bear-case Target Price 2.79

Page 10

Company Guide

Singtel

Bear case scenario associates' valuation contribution

Associates Total shares Share price Exchange rate Stake Value (S$ m) Per Share (S$)

Airtel 3,997 300.00 50.50 40% 9.380 0.56 AIS 2,973 168.30 23.80 32% 6,686 0.40 Globe* 132 1,512.00 38.90 47% 2,421 0.14 SingPost 2,273 1.18 1.00 22% 583 0.03

FY19F Profit (Rpm)

FY19F PE Exchange rate Stake Value (S$ m)

Telkomsel 25,835,750

(Assuming 15% earnings decline 13 10,505 35% 11,190

0.67

Total 36481

Holdco discount (15%) -4539 -0.27

Net investment holdings 34657 1.54

*Ownership stake of ordinary shares Source: DBS Bank, Reuters, Company

Singtel’s core business is trading at a significant discount to regional peers

Source: Reuters, DBS Bank

Page 11

Company Guide

Singtel

SINGTEL INVESTOR DAY 2018 – Q&A

Singtel – Singapore Consumer Q&A

How does Singtel differentiate its MVNO strategy? Smaller operators are shoring up customers before the entry of TPG, primarily in the SIM only space. A few more MVNOs have expressed interest in partnering with Singtel and the addition of more MVNO players will dilute the revenue pie up for grab for TPG, as MVNOs would have much better network quality.

What is Singtel’s strategy in the SIM Only space? Singtel sees a rising trend for SIM only plans in Singapore, which accounts for a single-digit proportion of the subscriber base in Singapore vs. 25% in Australia. Allowing subscribers to lease handsets over 12 months is the key differentiator of Singtel’s SIM only plans as opposed to offering cheaper data, which the other players have resorted to.

Any regulatory support for TPG’s ramp-up? Nothing much except Singtel sharing some MRT tunnel infrastructure for the first 72 months of operation as access often takes a lot of time.

What’s Singtel’s view on topline growth in Singapore? Mobile revenues are likely to decline over the course of FY19, with the entry of TPG. Over the medium term, Singtel believes that 4-players cannot survive independently and there will be room for consolidation in the market. Singtel’s IoT strategy is primarily focused on the enterprise segment, which is expected to account for ~75-80% IoT revenues of Singtel.

Singtel – Enterprise Business Q&A

What’s Singtel’s strategy for the Singapore enterprise business going forward? ~75% of EBITDA still comes from its traditional core businesses which account for ~54% of revenue. Moving forward, Singtel will focus on growing ICT revenues and undertake significant cost transformation programmes to improve EBITDA generation in the enterprise segment. A large chunk of the projected S$500m cost savings planned for FY19 will be derived through the enterprise segment.

What’s Singtel’s monetisation strategy for Trustwave? The US$ 85b cybersecurity market is growing at 8% and is a very fragmented marketplace with the top players controlling only 5-6% market share. Trustwave has been consistently ranked among the top 5 players by Gartner. The cybersecurity arm now has 10 security operation centres around the world to monitor cyber-attacks. Trustwave is now a US$500m business vs. US$200m in 2015 as Singtel has integrated a number of businesses under Trustwave. As the business is valued on a revenue multiple basis, exit opportunities through a public listing or through a sale to a strategic investor would be possible when the scale is big enough.

Page 12

Company Guide

Singtel

Singtel – Digital Life ! Q&A

Future plans of the Digital advertising business? Amobee and Turn are in a strong position, capitalising on the access to data provided by telecom operators, easy access to customers through the telcos and a strong network of advertising agencies. Amobee is expected to be EBIT positive over the next 5-6 quarters. Its strategy is to capture market share from smalleroperators and focus on growing video advertising, whichexpanded 40% y-o-y in FY18. Singtel may look to exit Amobeeover the next 2-3 years if Amobee can move towards a self-managed revenue strategy and demonstrate its leadership as aleading independent ad-tech player.

How is the OTT video service, HOOQ, progressing? HOOQ is likely to break even at US$100m revenue. Content spending last year largely revolved around Hollywood content but this year ~50% of content expenses will be directed towards local content. Some of the major Indonesian channels have signed up with HOOQ to add it as a Linear TV channel (a channel that broadcasts scheduled programmes in real time).

What’s going on with the data analytics business? DataSpark is primarily involved in ingesting data to identify potential use cases and deploying these applications. Advertising, financial services, transportation and telecom are some of the key verticals the company is looking into.

Optus – Australia Consumer Q&A

Is there a risk of TPG adopting a similar strategy to Jio? TPG has announced a free mobile plan with unlimited data for the first six months, with a monthly charge of A$10 thereafter in Australia. TPG is unlikely to have good network coverage as its planned capex spend of A$600m in Australia is just half of the annual capex spend of Optus (~A$1.5bn). Jio in India on the other hand spent nearly US$10bn and had a network similar to those of the leading players which allowed it to disrupt the market. TPG also has very few (less than 200) macro cells, which cover a radius of 5KM along with a number of small cells, which provide coverage to much smaller areas.

The entry of TPG is likely to have an impact on the price- sensitive 25% of the market, which is not targeted by Optus. Optus does see some adverse revenue impact on wholesale (MVNO) and low ARPU segments. However, Optus’s strategy of acquiring high value subscribers in the SME and regional spaces will continue to drive market share gains and Optus’s topline, offsetting any potential declines from the entry of TPG. Optus has also differentiated itself with content, with exclusive rights to broadcast National Geography and the English Premier League.

Possibility of a reduction of capex spend in Australia? Densifying metro areas and regional area network expansions will continue with Fixed Wireless Access (FWA). Optus has already recorded a reduction in capex from A$1.6 to A$1.4 in FY18.

Strategy for the upcoming 3.6GHz spectrum auction? Optus does not intend to take part for spectrum covering metropolitan

areas but may take part for coverage in regional areas. The auction is likely to see more interest from Telstra and TPG.

What is Optus’ 5G rollout strategy? Optus has acquired significant 3.4-3.6GHz bandwidth in Australia and hence is deploying FWA as a replacement for fixed bandwidth. FWA offers speeds of up to 100Mbps vs only 20Mbps in certain areas via NBN.

Regional Associates

Bharti Airtel Q&A

How has Bharti Airtel’s revenue share changed following the recent mergers? The Indian telco industry is effectively a three-player market following the Bharti Airtel-Telenor India integration and Bharti Airtel-Tata India telecoms and Vodafone-Idea mergers. Following the mergers, market share based on revenue, places Vodafone-Idea at 38%, Bharti Airtel at 32% and Reliance Jio at 20%.

Is the Indian telco sector facing revenue share stabilisation? The Vodafone-Idea merger is expected to be fraught with complications due to contracts with multiple vendors and staff issues. Vodafone is currently facing net debt to EBITDA of 6.5x while also losing customers since the telco has not adopted cheaper bundled plans due to the lack of capacity. Vodafone is also losing subscribers although it has not been evident in the revenue share as they have not lowered their pricing to the same level as Bharti’s bundled plans. The Rs49 VoLTE feature phone plan is driving Reliance Jio further towards a lower quality customer base. Taking all these into consideration, we foresee that Bharti Airtel will have the opportunity to increase its revenue share over the next 12-15 months.

Has ARPU bottomed out in India? During the last six months prices have been relatively stable. ARPU is unlikely to drop over the next 12-15 months after bottoming out at INR135 with subscribers moving from feature phones to smart phones. Bharti Airtel is opting to place products such as device insurance and free Netflix access in the post paid category rather than lowering prices to defend the telco’s revenue. Bharti Airtel is the clear leader in the over INR20,000 per device segment while it is neck-to-neck with the competition in the INR7,000-15,000 segment. What’s Bharti Airtel’s forecasted capex spend? Bharti Airtel plans to invest US$4bn as capex to drive down customer complaints.

Any proposed new business ventures? Plans are underway to launch music and TV business separately under Wink. Also, the launch of micro enterprises with fibre is expected to be a big step-up in the home fibre broadband market.

Strategy for operations in Africa? Bharti Airtel’s African operations are likely to see a 30-40% revenue growth in FY19, and a planned public listing commanding 8-12x EV/EBITDA in early 2019 is underway.

Page 13

Company Guide

Singtel

Telkomsel Q&A

Price hike potential in the post-prepaid SIM registration era? After Lebaran, Telkomsel plans to increase pricing by 5-10% to prevent further declines in data tariffs. Already there are one or two instances of competitors reducing data allowances in existing packages. More incentives are being handed out via renewal packages now as the SIM starter pack sales have slowed down due to the slow process of validation. Subscribers are only allowed to hold a maximum of three SIM cards per operator.

AIS Q&A

Is the current spectrum and network capacity sufficient? AIS finds the existing spectrum sufficient to operate efficiently over the next two years using newer technologies with higher efficiency.

Efficiency of contiguous vs. non-contiguous spectrum? The telecom regulator has stated that the winner of the1,800MHz spectrum auction will be able to freely reshuffle the spectrum with other operators’ 1,800MHz slots. Reshuffling will be carried out if AIS feels that this will lead to gain more efficiency in frequency management.

Is there evidence of rising marketing cost after the auctions? During the last two years, competition was intense since True was competing to grab the #2 spot. However, at the moment the level of competition is back to normal and benign compared to last year.

What’s AIS’s plan to counteract True’s market share gains? AIS does not intend to lose out on revenue share. The telco plans to cut back on unlimited data plans.

Projections for the fixed broadband segment? Fixed broadband ARPU has been stable at Bt600 for several years and is unlikely to change during this year. The telco is targeting a 20% share in the fixed broadband segment.

Future capex spend? AIS has already passed the time period of peak capex spend. Capex on 5G technology is expected only around FY22.

Globe Telecom Q&A

Current state of the telecom market in the Philippines? Capex is likely to remain high going forward. Population coverage at the moment hovers around 97%. Competition is rather intense in the mobile segment with PLDT leading the pricing revisions while it is more sustainable on the fixed broadband segment.

What is the key differentiator of Globe vs. PLDT? Globe’s branding strategy appeals to the millennial population, which forms a substantial segment of the market, and has been a key strength for Globe. Globe has seen many parties interested in forming partnerships because of the positioning of the Globe brand. While PLDT has closed much of its network coverage gap with Globe, the perception in the market is that Globe still possesses superior network quality, which is working well in

Globe’s favour. Even employees prefer to work at Globe compared to PLDT.

Key regulatory concerns? The government is trying to bring in a 3rd player but things are not clear at this point as any new player, if any, may not be allowed to sell its spectrum and resources to the existing players.

Several bills related to the telecom industry are also in the works.

A). Bill to declassify the telecom industry as a utility – Amendments to the Public Service Act or Commonwealth Act have been proposed to remove “telecommunication services” from the definition of “public utility”

B). Ownership Bill – The government is contemplating a readjustment of the 40% cap on foreign ownership in the telecom sector. According to reports, the cap could be increased up to 70%.

C). Removal of the franchise tax exemption – The government is also contemplating the re-imposition of a 3-8% franchise tax, that the telecom industry is currently exempted from.

Page 14

Company Guide

Singtel

CRITICAL DATA POINTS TO WATCH

Associate pre-tax contribution to decline 7% in FY19F before

rising 17% in FY20F. Going forward, we expect AIS and

SingPost to drive growth in FY19F, partially offsetting weakness

from Telkomsel and Bharti. AIS benefits from benign

competition in Thailand while SingPost is likely to benefit from

rising volume of e-commerce international mail and parcels.

Meanwhile, Telkomsel and Bharti are facing earnings headwinds

due to competitive pressures and voice/SMS cannibalisation.

Bharti is likely to see some decline in FY19F earnings due to an

aggressive Jio in India before recovering on the back of revenue

share gains from Vodafone and Idea in FY20F. The prepaid SIM

registration exercise and accelerating declines in voice and SMS

services should weigh on contributions from Telkomsel for

FY19F before stabilising in FY20F.

Associate contributions to return to growth in FY20F

Source: DBS Bank

Low single-digit EBITDA growth due to growth in Australia and

lower losses in Digital Life. We expect the core business of

Singtel (Singapore + Optus) to see low single-digit EBITDA

growth in FY19F, similar to what we have seen in FY18. We

expect growing contributions from Optus and narrowing losses

in the digital segment to offset any potential declines in

Singapore consumer and enterprise segments. Singtel could also

benefit from the resumption of quarterly NBN migration fees of

~A$60-70m from 2Q19F in Australia which were halted by the

regulator in November 2017 due to technical issues. Narrowing

losses on the digital life segment, supported by growth of

Amobee, should further support EBITDA of the core business in

FY19F.

Singapore Revenue (S$m)

Singapore EBITDA Margin (%)

Optus Revenue (A$m)

Optus EBITDA Margin (%)

Associate pre-tax earnings (S$m)

Source: Company, DBS Bank

Associate Pre-tax

contributions (S$m) FY17A FY18A FY19F FY20F

Telkomsel 1,422 1,372 1,262 1,260

Bharti Airtel 580 216 156 469

AIS 420 450 534 569

Globe 288 266 255 287

NetLink 159 82 15 20

Others including SingPost 72 68 57 64

Total 2,941 2,454 2,278 2,669

YoY Growth FY18A FY19F FY20F

Telkomsel -4% -8% 0%

Bharti Airtel -63% -28% 200%

AIS 7% 19% 7%

Globe -8% -4% 13%

NetLink -48% -81% 31%

Others including SingPost -6% -17% 13%

Overall -17% -7% 17%

Page 15

Company Guide

Singtel

Appendix 1: A look at Company's listed history – what drives its share price?

EBITDA is the most critical factor followed by the Associate profits. In the critical factor analysis, we conducted over the past ~10 years, Singtel’s share price seems to follow associate profits and EBITDA. Singtel’s share price movements had a positive correlation of 0.7 with the associate profit and a positive correlation of 0.6 with EBITDA. The two factors are directly indicative of the profitability and cash flow generation of Singtel and are very importance factors in understanding the overall health of the firm.

Share price vs. associate profits

Share price vs EBITDA

Sources: Reuters, Companies, DBS Bank

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

S$ M

n

S$

Share price (LHS) Associate profits (RHS)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

S$ M

n

S$

Share price (LHS) EBITDA (RHS)

Page 16

Company Guide

Singtel

Balance Sheet:

Strong balance sheet. This is reflected in FY18 net debt-to-

EBITDA (after pre-tax profit contributions of associates) of only

~1.3x giving ample room to Singtel to invest in new business

opportunities and/or raise its earnings payout ratio from 70-

75% now. If Singtel were to leverage to 2x net debt-to-EBITDA,

it implies the company could borrow another S$5bn if it wants

to. In our view, Singtel should be able to sustain its dividends at

the current level even if earnings were to decline due to any

reason.

Share Price Drivers:

Long-term earnings growth at a bargain. The market is

seemingly worried over staggering growth in Singtel’s earnings

caused by the weakness of its regional associates, particularly

Bharti Airtel and Telkomsel. As a result, the stock is trading

cheap at 5.8x EV/EBITDA, at 15-20% discount to Singtel’s local

peers. We believe this offers an attractive opportunity for

investors to accumulate Singtel and gain exposure to its long

term potential for growth. We expect the telco’s earnings to

return to a growth trajectory in FY20F, supported by the

recovery of Bharti Airtel, which should uplift the telco’s

valuations. The counter also offers a decent yield of 5%.

Key Risks:

Bear-case valuation of S$2.79 if core, Bharti and Telkomsel

disappoint. We have assumed FY19F core EBITDA to be 4%

lower than the base-case scenario with an EV to EBITDA

multiple of 6x vs 7x in the base-case scenario. We have

assumed 20% drop in Bharti’s stock price due to higher-than-

expected competition, 20% drop in valuation for Telkomsel

due to 15% earnings decline vs 8% decline under the base

case, a 10% decline in the stock price for other associates and

a wider holding company discount of 15% vs 5% under the

base case.

Company Background

Singtel is the largest telecom operator in Singapore and its

Australian subsidiary Optus is the second largest operator in

Australia. Singtel also has substantial stakes in telcos in the

region – Telkomsel in Indonesia, Bharti Airtel in India, AIS in

Thailand and Globe in the Philippines.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, DBS Bank

Page 18

Company Guide

Singtel

Key Assumptions

FY Mar 2016A 2017A 2018A 2019F 2020F

Singapore Revenue (S$m) 7,663 7,927 8,396 8,704 9,084 Singapore EBITDA Margin (%)

28.5 27.9 26.0 24.9 23.7

Optus Revenue (A$m) 9,106 8,425 8,710 8,971 9,151

Optus EBITDA Margin (%) 30.4 31.7 31.9 31.8 31.8

Associate pre-tax earnings (S$m)

2,788 2,886 2,454 2,278 2,669

Income Statement (S$m)

FY Mar 2016A 2017A 2018A 2019F 2020F

Revenue 16,961 16,711 17,532 18,113 18,682

Cost of Goods Sold (12,097) (11,929) (12,702) (13,213) (13,736)

Gross Profit 4,864 4,782 4,830 4,901 4,946

Other Opng (Exp)/Inc (2,001) (2,024) (2,081) (2,287) (2,407)

Operating Profit 2,864 2,759 2,749 2,614 2,539

Other Non Opg (Exp)/Inc 44.0 77.4 29.0 0.0 0.0

Associates & JV Inc 2,788 2,886 2,454 2,278 2,669

Net Interest (Exp)/Inc (309) (337) (374) (358) (376)

Exceptional Gain/(Loss) 56.9 (31.9) 1,914 0.0 0.0

Pre-tax Profit 5,444 5,353 6,772 4,534 4,832

Tax (1,586) (1,522) (1,341) (1,224) (1,353)

Minority Interest 12.5 21.7 21.1 21.1 21.1

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net Profit 3,871 3,853 5,451 3,331 3,500

Net Profit before Except. 3,814 3,885 3,538 3,331 3,500

EBITDA 7,845 7,961 7,572 7,438 7,874

Growth

Revenue Gth (%) (1.5) (1.5) 4.9 3.3 3.1

EBITDA Gth (%) 1.2 1.5 (4.9) (1.8) 5.9

Opg Profit Gth (%) (2.2) (3.7) (0.4) (4.9) (2.9)

Net Profit Gth (Pre-ex) (%) (0.6) 1.9 (8.9) (5.9) 5.1

Margins & Ratio

Gross Margins (%) 28.7 28.6 27.6 27.1 26.5

Opg Profit Margin (%) 16.9 16.5 15.7 14.4 13.6

Net Profit Margin (%) 22.8 23.1 31.1 18.4 18.7

ROAE (%) 15.6 14.5 18.8 11.2 11.7

ROA (%) 9.0 8.4 11.3 6.8 6.8

ROCE (%) 5.5 4.9 5.3 4.5 4.2

Div Payout Ratio (%) 72.1 74.2 61.4 85.8 81.6

Net Interest Cover (x) 9.3 8.2 7.4 7.3 6.7

Source: Company, DBS Bank

Associate contributions to dip in FY19F before bouncing back

Page 19

Company Guide

Singtel

Quarterly / Interim Income Statement (S$m)

FY Mar 4Q2017 1Q2018 2Q2018 3Q2018 4Q2018

Revenue 4,308 4,232 4,370 4,603 4,326

Cost of Goods Sold (3,061) (3,036) (3,125) (3,391) (3,150)

Gross Profit 1,247 1,197 1,245 1,212 1,176

Other Oper. (Exp)/Inc (524) (499) (552) (505) (526)

Operating Profit 723 698 693 707 650

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 720 734 659 553 519

Net Interest (Exp)/Inc (82.0) (87.8) (91.0) (81.0) (85.0)

Exceptional Gain/(Loss) (25.0) (28.5) 1,960 (8.0) (26.0)

Pre-tax Profit 1,336 1,315 3,221 1,171 1,058

Tax (381) (429) (338) (290) (280)

Minority Interest 8.00 5.50 6.00 8.00 2.00

Net Profit 963 892 2,889 890 781

Net profit bef Except. 988 920 929 898 807

EBITDA 1,443 1,431 1,352 1,260 1,169

Growth

Revenue Gth (%) (2.3) (1.8) 3.3 5.3 (6.0)

EBITDA Gth (%) 6.7 (0.8) (5.5) (6.8) (7.2)

Opg Profit Gth (%) 9.7 (3.5) (0.7) 2.0 (8.1)

Net Profit Gth (Pre-ex) (%) 1.2 (6.9) 1.0 (3.3) (10.1)

Margins

Gross Margins (%) 28.9 28.3 28.5 26.3 27.2

Opg Profit Margins (%) 16.8 16.5 15.9 15.4 15.0

Net Profit Margins (%) 22.4 21.1 66.1 19.3 18.1

Balance Sheet (S$m)

FY Mar 2016A 2017A 2018A 2019F 2020F

Net Fixed Assets 11,154 11,893 11,801 12,079 12,301

Invts in Associates & JVs 11,086 14,235 14,788 15,536 16,413

Other LT Assets 16,160 16,249 15,684 15,281 14,885

Cash & ST Invts 462 534 525 1,731 2,776

Inventory 320 352 397 411 423

Debtors 4,366 4,924 5,035 5,202 5,366

Other Current Assets 17.5 107 23.2 23.2 23.2

Total Assets 43,566 48,294 48,254 50,264 52,186

ST Debt 686 3,134 1,824 1,824 1,824

Creditor 4,597 4,922 5,234 5,408 5,577

Other Current Liab 1,257 1,216 1,236 2,108 2,237

LT Debt 9,255 8,052 8,607 9,607 10,607

Other LT Liabilities 2,768 2,756 1,701 1,701 1,701

Shareholder’s Equity 24,967 28,191 29,657 29,641 30,285

Minority Interests 35.7 22.4 (3.2) (24.3) (45.4)

Total Cap. & Liab. 43,566 48,294 48,254 50,264 52,184

Non-Cash Wkg. Capital (1,151) (755) (1,013) (1,880) (2,002)

Net Cash/(Debt) (9,479) (10,652) (9,905) (9,700) (9,655)

Debtors Turn (avg days) 88.8 101.5 103.7 103.2 103.2

Creditors Turn (avg days) 166.2 179.3 178.9 182.1 181.1

Inventory Turn (avg days) 11.2 12.7 13.2 13.8 13.8

Asset Turnover (x) 0.4 0.4 0.4 0.4 0.4

Current Ratio (x) 0.8 0.6 0.7 0.8 0.9

Quick Ratio (x) 0.7 0.6 0.7 0.7 0.8

Net Debt/Equity (X) 0.4 0.4 0.3 0.3 0.3

Net Debt/Equity ex MI (X) 0.4 0.4 0.3 0.3 0.3

Capex to Debt (%) 31.8 22.2 35.2 21.2 20.0

Z-Score (X) 3.3 3.0 2.9 2.8 2.8

Source: Company, DBS Bank

Ample room to raise debt to fund acquisitions/dividends

Page 20

Company Guide

Singtel

Cash Flow Statement (S$m)

FY Mar 2016A 2017A 2018A 2019F 2020F

Pre-Tax Profit 5,444 5,353 6,772 4,534 4,832

Dep. & Amort. 2,149 2,239 2,340 2,546 2,667

Tax Paid (658) (834) (608) (351) (1,224)

Assoc. & JV Inc/(loss) (2,788) (2,886) (2,454) (2,278) (2,669)

Chg in Wkg.Cap. (1,031) (492) (178) (6.6) (6.5)

Other Operating CF 182 279 (1,565) 395 431

Net Operating CF 3,297 3,659 4,308 4,838 4,030

Capital Exp.(net) (3,157) (2,488) (3,667) (2,421) (2,489)

Other Invts.(net) 42.7 40.4 18.1 0.0 0.0

Invts in Assoc. & JV (200) (2,410) 606 0.0 0.0

Div from Assoc & JV 1,351 1,656 1,648 1,530 1,792

Other Investing CF 574 26.1 1,093 0.0 0.0

Net Investing CF (1,389) (3,177) (303) (891) (697)

Div Paid (2,794) (2,821) (2,862) (3,346) (2,856)

Chg in Gross Debt 1,129 1,158 (312) 1,000 1,000

Capital Issues 0.0 1,602 0.0 0.0 0.0

Other Financing CF (378) (362) (835) (395) (431)

Net Financing CF (2,044) (422) (4,009) (2,741) (2,287)

Currency Adjustments 34.8 11.9 (4.2) 0.0 0.0

Chg in Cash (101) 72.0 (8.9) 1,206 1,046

Opg CFPS (S cts) 27.2 25.4 27.5 29.7 24.7

Free CFPS (S cts) 0.88 7.17 3.92 14.8 9.44

Source: Company, DBS Bank

Target Price & Ratings History

Source: DBS Bank

Analyst: Sachin MITTAL

Moderate capex spend

Page 21

Company Guide

Singtel

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 19 Jun 2018 15:20:55 (SGT) Dissemination Date: 19 Jun 201808:20:59 (SGT)

Sources for all charts and tables are DBS Bankunless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated

corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)

redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other

factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or

warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without

notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific

investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees

only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial

advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)

arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not

to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons

associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may

not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to

update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

Page 22

Company Guide

Singtel

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public

offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage

in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the

issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real

estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the

management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or

his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the

DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates have a proprietary position in Singtel, StarHub, recommended in this report as of 31 May 2018.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.

3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued

share capital in StarHub recommended in this report as of 31 May 2018.

Compensation for investment banking services:

5. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past

12 months for investment banking services from StarHub, as of 31 May 2018.

6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of

securities for StarHub, in the past 12 months, as of 31 May 2018.

7. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

Directorship/trustee interests:

8. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 31 Mar

2018

1An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Disclosure of previous investment recommendation produced:

9. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

Page 23

ed: CK / sa:YM, PY, CS

HOLD (Upgrade from Fully Valued)

Last Traded Price ( 25 Jun 2018): S$1.63 (STI : 3,260.84) Price Target 12-mth: S$1.42 (-13% downside) (Prev S$2.05)

Analyst Sachin MITTAL +65 66823699 sachinmittal@dbs.com

What’s New Valuation premium disappears with 44% contraction in

stock price YTD

StarHub should trade at 12-month forward EV/EBITDAof 5.6x vs 7x regional average, reflecting its decliningEBITDA prospects

Upgrade to HOLD with a revised TP of S$1.42

Price Relative

Forecasts and Valuation FY Dec (S$m) 2017A 2018F 2019F 2020F Revenue 2,401 2,322 2,278 2,246 EBITDA 612 585 544 535 Pre-tax Profit 304 270 237 201 Net Profit 250 221 194 165 Net Pft (Pre Ex.) 250 221 194 165 Net Pft Gth (Pre-ex) (%) (24.6) (11.7) (12.1) (15.3) EPS (S cts) 14.4 12.8 11.2 9.52 EPS Pre Ex. (S cts) 14.5 12.8 11.2 9.52 EPS Gth Pre Ex (%) (25) (12) (12) (15)Diluted EPS (S cts) 14.4 12.7 11.2 9.49 Net DPS (S cts) 16.0 16.0 11.2 9.52 BV Per Share (S cts) 8.13 4.92 4.92 4.92 PE (X) 11.3 12.7 14.5 17.1 PE Pre Ex. (X) 11.3 12.7 14.5 17.1 P/Cash Flow (X) 5.4 6.2 6.4 6.4 EV/EBITDA (X) 6.0 6.4 7.1 7.5 Net Div Yield (%) 9.8 9.8 6.9 5.8 P/Book Value (X) 20.0 33.1 33.1 33.1 Net Debt/Equity (X) 1.8 2.4 3.0 3.4 ROAE (%) 148.8 195.9 228.5 nm

Earnings Rev (%): (3) (7) (14) Consensus EPS (S cts): 12.8 11.6 10.2 Other Broker Recs: B: 2 S: 7 H: 13

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P

Not attractive yet despite big correction

Upgrade to HOLD as StarHub is not trading at a premium anymore. With ~44% correction in StarHub’s price YTD, the valuation premium has disappeared. StarHub is likely to see an annual EBITDA contraction of 4% over FY17A-20F vs 3% for M1 as Pay TV-mobile unbundling will hurt StarHub more. We argue that StarHub should trade at 12-month forward EV/EBITDA of 5.6x, at a 20% discount to the regional average of 7x to reflect its weak prospects.

Where we differ: Expect sharp cut in dividends in FY19F. StarHub has committed to payout S$277m in annual dividends in FY18. However, we estimate that StarHub’s shareholder equity value will be wiped out in 2020 if it continues with similar magnitude of dividends. As such, we project, StarHub to bring its dividends to match the net profit level. While, we have assumed 100% payout ratio from FY19F onwards, StarHub should, ideally, retain some earnings to invest in new business opportuities in our view.

Potential Catalyst – Commercial success of MyRepublic and/or news on TPG’s launch. Execution effectiveness of MyRepublic’s partnership with StarHub and any delay in TPG’s commercial launch, which is slated for late 2018, could benefit the stock.

Valuation:

Upgrade to HOLD with a lower TP of S$1.42. Due to a lack of clarity on future free cash flows, we switch to peer multiple- based valuation. We value StarHub at 12-month forward EV/EBITDA of 5.6x at ~20% discount to the 7x regional average.

Key Risks to Our View:

Bear-case valuation is S$1.17 if TPG causes severe disruption. StarHub could see a 10% drop in FY19F EBITDA under this scenario vs our base case of 7% drop. We use 5.0x 12-month forward EV/EBITDA to derive our bear-case TP.

TPG delaying the launch by 12 months or more may lead to bull-case valuation of S$1.72. StarHub could see a 2% drop in FY19F EBITDA under this scenario vs our base case of 7% drop. We use 6.2x 12-month EV/EBITDA to derive our bull-case TP.

At A Glance Issued Capital (m shrs) 1,730 Mkt. Cap (S$m/US$m) 2,821 / 2,071 Major Shareholders (%) Temasek Holdings Private Ltd 55.8 NTT 9.9 Blackrock 5.0

Free Float (%) 29.2 3m Avg. Daily Val (US$m) 9.8 ICB Industry : Telecommunications / Fixed Line Telecommunications

DBS Group Research . Equity 26 Jun 2018

Singapore Company Guide

StarHub Version 12 | Bloomberg: STH SP | Reuters: STAR.SI Refer to important disclosures at the end of this report

34

54

74

94

114

134

154

174

194

214

1.4

1.9

2.4

2.9

3.4

3.9

4.4

4.9

Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

Relative IndexS$

StarHub (LHS) Relative STI (RHS)

Page 2

Company Guide

StarHub

CRITICAL DATA POINTS TO WATCH

ARPU dilution likely with growing adoption of SIM-only plans. We believe SIM-only plans will rise in popularity over the medium term, with lengthening smartphone replacement cycles and aggressive promotions by MVNOs. StarHub’s 1Q18 postpaid ARPU declined ~4% with the rising uptake of SIM-only plans and higher uptake of unlimited weekend data plans. We expect StarHub’s postpaid ARPU will contract ~3.5% annually over FY18-20F, reflecting the growing uptake of SIM-only plans and tightening price competition in the industry with the entry of TPG in 2H18. We have also assumed StarHub to record 5% annual contraction of mobile revenues over FY18-20F, in line with our industry base case, vs our previous assumption of ~2% annual contraction of mobile revenues.

Hubbing strategy under pressure. StarHub’s go-to market strategy of bundling mobile, broadband and Pay-TV services is under pressure from the proliferation of over-the top (OTT) TV services. As at the end of FY17, nearly 24,000 customers with subscriptions to three or more services have downgraded since 1Q16, representing ~7% of subscriptions with three or more services. Majority of these customers are moving away from Pay-TV to cheaper alternatives such as Netflix, despite losing the discount available on bundled services in the process. We believe downgrades of hubbing subscriptions would accelerate amid the increasing appeal of OTT TV services among high-end Pay TV customers and rising pressure on the broadband segment from MyRepublic. As this is a critical success factor for StarHub, there could be near term impact on the company's share price as the structural decline is unlikely to reverse.

Strengthening enterprise business is a positive. StarHub managed to expand revenues from the enterprise segment 18% y-o-y in FY18, largely driven by the consolidation of Accel Systems and D’Crypt. The acquisitions made in the cyber-security and cryptographic technology space should further augment StarHub’s ICT service portfolio, which continues to drive the telco’s enterprise segment. The newly acquired capabilities would also pave way for StarHub to capitalise on major government and commercial cyber security tenders pertaining to the ongoing Smart City projects. Our channel checks also indicate that StarHub is competing aggressively on the ICT front with the market leader, and we expect some market share grab by StarHub through competitive pricing. As such, we believe the enterprise segment would remain a key driver of StarHub’s topline going forward. However, as ICT services carry lower margins, we do not expect the incremental EBITDA to be substantial enough to offset any potential EBITDA losses in the Pay-TV and mobile segments.

Mobile EBITDA Margins

CATV & Broadband EBITDA Margins

Fixed Network EBITDA Margins

Source: Company, DBS Bank

33.2

28.9

37.1

32.7 31.6

0.0

5.3

10.7

16.0

21.4

26.7

32.1

37.4

2016A 2017A 2018F 2019F 2020F

18 18 17.9 17.9 17.9

0.0

3.7

7.3

11.0

14.7

18.4

2016A 2017A 2018F 2019F 2020F

36.6 36.6 36.5 36.5 36.5

0.00

7.47

14.93

22.40

29.87

37.33

2016A 2017A 2018F 2019F 2020F

Page 32

Page 3

Company Guide

StarHub

Appendix 1: A look at Company's listed history – what drives its share price?

Hubbing households and changes in postpaid ARPU are key determinants of StarHub’s share price. In our critical factor analysis conducted to understand the share price drivers of Singaporea telcos over the past 10 years, we have identified that StarHub’s hubbing subscriber base to be an indicator of StarHub’s share price performance. Hubbing, or the offering of Mobile, Broadband and Pay TV services bundled together, was the go-to-market strategy of StarHub and allowed the

company to develop subscriber base loyal to the StarHub brand. Hence, changes in Hubbing subscribers (with subscriptions to all three services), which exhibit a correlation of 0.58 with StarHub’s share price, provide valuable cues on the effectiveness of StarHub’s strategy to investors. Changes in postpaid ARPU, an indicator of topline and subscriber growth, exhibits a correlation of 0.55 with StarHub’s share price.

StarHub’s stock price shows high correlation with number of hubbing households with three services

Source: StarHub, DBS Bank

StarHub’s stock price shows decent correlation with mobile postpaid ARPU

Source: Starhub, Reuters, DBS Bank

Page 33

Page 4

Company Guide

StarHub

Balance Sheet:

Balance sheet will need to be managed carefully. StarHub raised S$300m through medium-term notes in 2Q16. We assume another S$250m of borrowings during FY18/19 to fund spectrum acquisitions. While this will stretch StarHub’s balance sheet in the near term, potential capex savings from network sharing agreement signed earlier with M1 will help to shore up cash flows in the medium term. StarHub’s annual DPS also could be cut to 14 Scts in FY19F to stay below 2.0x net debt to EBITDA in the long term.

Share Price Drivers:

Dim outlook warrants a valuation discount. StarHub is likely to see an annual EBITDA contraction of 4.4% from FY17A-20F. Whilst StarHub has struck a MVNO partnership with MyRepublic, which could support the telco’s contracting mobile business, we believe it could take at least 1-2 years before StarHub records any meaningful contributions from MyRepublic. We argue that StarHub should trade at 12-month forward EV/EBITDA of 5.6x vs. its current valuation of 6.8x, reflecting StarHub’s weak business model and its likelihood of been the most affected over the medium term from the impending contraction of the mobile industry. Whilst the counter offers an attractive FY18F yield of ~10%, we believe StarHub would need to cut its DPS to S$14cts by FY19F from S$16cts currently to stay below a net debt to EBITDA of 2x.

Key Risks:

Bear-case valuation is S$1.17 if TPG causes severe disruption. In case, TPG causes server disruption with its free mobile plans, StarHub could see a 10% drop in FY19F EBITDA under this scenario vs our base case of 7% drop. We use 5.0x 12-month EV/EBITDA to derive our bear-case valuation.

TPG delaying the launch by 12-months may lead to bull-case valuation to S$1.72. StarHub could see 2% drop in FY19F EBITDA under this scenario vs our base case of 7% drop. We use 6.2x 12-month forward EV/EBITDA to derive our bull-case TP.

Company Background

StarHub is the second largest of the three telecom operators in Singapore. The company provides mobile services, pay TV, fixed broadband and fixed voice services, popularly known as quadruple play services.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, DBS Bank

0.9

1.0

1.0

1.1

1.1

1.2

1.2

0.00

1.00

2.00

3.00

4.00

5.00

2016A 2017A 2018F 2019F 2020F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

2016A 2017A 2018F 2019F 2020F

Capital Expenditure (-)

S$m

0.0%

50.0%

100.0%

150.0%

200.0%

2016A 2017A 2018F 2019F 2020F

Avg: 20x

+1sd: 21.6x

+2sd: 23.1x

‐1sd: 18.5x

‐2sd: 16.9x

12.0

14.0

16.0

18.0

20.0

22.0

24.0

26.0

Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

(x)

Avg: 35.69x

+1sd: 44.05x

+2sd: 52.42x

‐1sd: 27.32x

‐2sd: 18.96x17.0

22.0

27.0

32.0

37.0

42.0

47.0

52.0

57.0

Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

(x)

Page 34

Page 5

Company Guide

StarHub

Key Assumptions

FY Dec 2016A 2017A 2018F 2019F 2020F

Mobile EBITDA Margins 33.2 28.9 37.1 32.7 31.6 CATV & Broadband 18.0 18.0 17.9 17.9 17.9 Fixed Network EBITDA 36.6 36.6 36.5 36.5 36.5

Segmental Breakdown

FY Dec 2016A 2017A 2018F 2019F 2020F

Revenues (S$m) Mobile 1,215 1,197 840 793 742 Cable TV & Broadband 595 563 538 521 517 Fixed Network 400 437 485 525 569 Equipment sale 188 204 460 440 419

Total 2,397 2,401 2,322 2,278 2,246EBITDA (S$m) Mobile 403 346 311 259 235 Cable TV & Broadband 107 101 96.3 93.2 92.5 Fixed Network 146 160 177 192 208 Equipment sale 32.2 4.40 0.0 0.0 0.0

Total 689 612 585 544 535EBITDA Margins (%) Mobile 33.2 28.9 37.1 32.7 31.6 Cable TV & Broadband 18.0 18.0 17.9 17.9 17.9 Fixed Network 36.6 36.6 36.5 36.5 36.5 Equipment sale 17.2 2.2 0.0 0.0 0.0

Total 28.7 25.5 25.2 23.9 23.8

Income Statement (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F

Revenue 2,397 2,401 2,322 2,278 2,246 Cost of Goods Sold (2,004) (2,072) (2,018) (1,998) (2,003) Gross Profit 393 329 304 280 243Other Opng (Exp)/Inc 32.2 4.40 0.0 0.0 0.0 Operating Profit 425 334 304 280 243Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (1.6) (2.2) (2.2) (2.2) (2.2) Net Interest (Exp)/Inc (22.7) (26.2) (32.4) (40.7) (39.9) Exceptional Gain/(Loss) 9.50 (0.7) 0.0 0.0 0.0 Pre-tax Profit 410 304 270 237 201Tax (68.9) (54.8) (48.5) (42.7) (36.1) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 341 250 221 194 165Net Profit before Except. 332 250 221 194 165 EBITDA 689 612 585 544 535 Growth Revenue Gth (%) (1.9) 0.2 (3.3) (1.9) (1.4)EBITDA Gth (%) (3.4) (11.2) (4.4) (7.0) (1.7)Opg Profit Gth (%) (3.7) (21.5) (8.8) (8.0) (13.3) Net Profit Gth (Pre-ex) (%) (7.1) (24.6) (11.7) (12.1) (15.3)Margins & Ratio Gross Margins (%) 16.4 13.7 13.1 12.3 10.8Opg Profit Margin (%) 17.7 13.9 13.1 12.3 10.8Net Profit Margin (%) 14.2 10.4 9.5 8.5 7.3ROAE (%) 178.5 148.8 195.9 228.5 nmROA (%) 16.6 11.0 9.1 7.8 6.7ROCE (%) 29.9 19.3 15.8 13.7 11.9Div Payout Ratio (%) 101.4 110.8 125.1 100.0 100.0Net Interest Cover (x) 18.7 12.7 9.4 6.9 6.1

Source: Company, DBS Bank

SFRS based accounting from 2018 onwards leads to sharp drop in mobile revenue but raises equipment revenue. We have not restated 2016 and 2017 numbers

Page 35

Page 6

Company Guide

StarHub

Quarterly / Interim Income Statement (S$m)

FY Dec 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018

Revenue 589 579 580 649 561Cost of Goods Sold (429) (399) (407) (553) (409)Gross Profit 160 180 173 96.1 152Other Oper. (Exp)/Inc (66.5) (67.6) (71.5) (70.4) (69.9)Operating Profit 93.1 112 102 25.8 81.9Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0Associates & JV Inc (0.2) (0.9) (1.5) (0.3) (0.2)Net Interest (Exp)/Inc (6.3) (7.4) (6.3) (6.2) (6.4)Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0Pre-tax Profit 86.6 104 93.8 19.3 75.3Tax (14.2) (18.3) (17.3) (4.9) (12.5)Minority Interest 0.0 0.0 0.0 (0.3) 0.0Net Profit 72.3 85.7 76.5 14.1 62.8Net profit bef Except. 72.3 85.7 76.5 14.1 62.8EBITDA 160 178 175 96.6 152

Growth Revenue Gth (%) (7.3) (1.6) 0.2 11.8 (13.6)EBITDA Gth (%) 17.9 11.6 (2.0) (44.7) 57.3Opg Profit Gth (%) 35.5 20.6 (9.5) (74.6) 217.4 Net Profit Gth (Pre-ex) (%) 33.9 18.5 (10.7) (81.6) 345.4 Margins Gross Margins (%) 27.1 31.1 29.8 14.8 27.1Opg Profit Margins (%) 15.8 19.4 17.5 4.0 14.6Net Profit Margins (%) 12.3 14.8 13.2 2.2 11.2

Balance Sheet (S$m) FY Dec 2016A 2017A 2018F 2019F 2020F

Net Fixed Assets 918 870 906 970 1,011 Invts in Associates & JVs 25.9 23.7 21.5 19.3 17.1 Other LT Assets 511 626 562 647 723 Cash & ST Invts 285 345 531 370 244 Inventory 49.6 71.9 69.6 68.2 67.3 Debtors 172 202 195 191 189 Other Current Assets 234 214 214 214 214 Total Assets 2,196 2,352 2,499 2,480 2,464

ST Debt 10.0 120 120 120 120 Creditor 708 737 712 699 689 Other Current Liab 138 136 113 107 101 LT Debt 978 858 1,108 1,108 1,108 Other LT Liabilities 168 157 157 157 157 Shareholder’s Equity 195 341 285 285 285 Minority Interests 0.0 4.40 4.40 4.40 4.40 Total Cap. & Liab. 2,196 2,352 2,499 2,480 2,464

Non-Cash Wkg. Capital (390) (385) (347) (333) (320)Net Cash/(Debt) (702) (632) (697) (857) (984)Debtors Turn (avg days) 24.8 28.4 31.2 30.9 30.9 Creditors Turn (avg days) 146.4 147.2 152.4 148.7 148.2 Inventory Turn (avg days) 10.9 12.4 14.9 14.5 14.5 Asset Turnover (x) 1.2 1.1 1.0 0.9 0.9 Current Ratio (x) 0.9 0.8 1.1 0.9 0.8 Quick Ratio (x) 0.5 0.6 0.8 0.6 0.5 Net Debt/Equity (X) 3.6 1.8 2.4 3.0 3.4 Net Debt/Equity ex MI (X) 3.6 1.9 2.4 3.0 3.5 Capex to Debt (%) 37.1 30.1 20.8 33.8 33.4Z-Score (X) 2.5 2.2 2.1 2.0 1.8

Source: Company, DBS Bank

Potential cut-back in dividends owing to high leverage.

Page 36

Page 7

Company Guide

StarHub

Cash Flow Statement (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Profit 410 304 270 237 201Dep. & Amort. 265 280 283 266 294Tax Paid (53.7) (65.3) (71.6) (48.5) (42.7)Assoc. & JV Inc/(loss) 1.60 2.20 2.20 2.20 2.20Chg in Wkg.Cap. (60.2) (5.4) (15.1) (8.6) (6.1)Other Operating CF (12.3) 0.90 (10.0) (10.0) (10.0)Net Operating CF 551 517 458 438 438Capital Exp.(net) (366) (294) (255) (414) (411)Other Invts.(net) (18.0) (15.0) 0.0 0.0 0.0Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0Other Investing CF (5.4) (18.1) 0.0 0.0 0.0Net Investing CF (389) (327) (255) (414) (411)Div Paid (346) (294) (277) (194) (165)Chg in Gross Debt 300 0.0 250 0.0 0.0 Capital Issues (12.3) 0.0 0.0 0.0 0.0Other Financing CF 8.90 164 10.0 10.0 10.0Net Financing CF (49.6) (130) (16.6) (184) (155)Currency Adjustments 0.0 0.0 0.0 0.0 0.0Chg in Cash 112 60.0 186 (160) (127)Opg CFPS (S cts) 35.4 30.2 27.3 25.8 25.7Free CFPS (S cts) 10.7 12.9 11.7 1.38 1.61

Source: Company, DBS Bank

Target Price & Ratings History

Source: DBS Bank

Analyst: Sachin MITTAL

S.No.Date of Report

Closing Price

12-mthTarget Price

Rat ing

1: 03 Aug 17 2.67 2.33 FULLY VALUED

2: 16 Oct 17 2.69 2.20 FULLY VALUED

3: 03 Nov 17 2.72 2.20 FULLY VALUED

4: 25 Jan 18 2.97 2.20 FULLY VALUED

5: 19 Feb 18 2.60 2.20 FULLY VALUED

6: 07 May 18 2.26 2.05 FULLY VALUED

Note : Share price and Target price are adjusted for corporate actions.

1

2

3

4

5

6

1.52

1.72

1.92

2.12

2.32

2.52

2.72

2.92

3.12

Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18

S$

Elevated capex due to spectrum outlays.

Page 37

Industry Focus

Telecom Sector

Page 7

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 26 Jun 2018 16:00:32 (SGT) Dissemination Date: 26 Jun 2018 16:31:53 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated

corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)

redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other

factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or

warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without

notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific

investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees

only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial

advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)

arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not

to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons

associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may

not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to

update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Page 38

Industry Focus

Telecom Sector

Page 8

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public

offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage

in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the

issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real

estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the

management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or

his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the

DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), DBSV HK or their subsidiaries and/or other affiliates have

proprietary positions in Singtel, StarHub, recommended in this report as of 31 May 2018.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.

3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued

share capital in StarHub, recommended in this report as of 31 May 2018.

Compensation for investment banking services:

4. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past

12 months for investment banking services from StarHub, as of 31 May 2018.

5. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of

securities for StarHub, in the past 12 months, as of 31 May 2018.

6. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

Directorship/trustee interests:

7. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 31 Mar 2018

Disclosure of previous investment recommendation produced:8. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding

12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published

by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 39

Industry Focus

Telecom Sector

Page 9

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946.

DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. DBSVS is regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at equityresearch@dbs.com.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

Page 40

Industry Focus

Telecom Sector

Page 10

United Kingdom

This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore.

This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai International Financial Centre

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United Arab Emirates

This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Page 41

Industry Focus

Telecom Sector

Page 11

DBS Regional Research Offices

HONG KONG DBS Vickers (Hong Kong) Ltd Contact: Paul Yong 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: equityresearch@dbs.comParticipant of the Stock Exchange of Hong Kong

MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: 603 2604 3333 Fax: 603 2604 3921 e-mail: general@alliancedbs.com

SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: equityresearch@dbs.comCompany Regn. No. 196800306E

INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: research@id.dbsvickers.com

THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 857 7831 Fax: 66 2 658 1269 e-mail: research@th.dbs.comCompany Regn. No 0105539127012Securities and Exchange Commission, Thailand

Page 42