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Deutsche Bank Markets Research

Asia Pan-Asia Telecommunications

Periodical

Asia-Pac Telecom Tracker

Date 21 November 2017

Relative valuation shines... investors shield their eyes

Many cheap telcos, and signs of discipline returning

________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong

This research has been prepared in association with PT Deutsche Verdhana Sekuritas Indonesia. The opinions contained in this report are those of PT Deutsche Verdhana Sekuritas Indonesia.

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.

THE CONTENT MAY NOT BE DISTRIBUTED IN THE PEOPLE’S REPUBLIC OF CHINA (“THE PRC”) (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OF PRC), EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAU.

Peter Milliken, CFA

Research Analyst

(+852 ) 2203 6190 [email protected]

Srinivas Rao, CFA

Research Analyst (+65 ) 6423 4114 [email protected]

Raymond Kosasih, CFA

PT Deutsche Verdhana Sekuritas Indonesia Research Analyst

(+62) 21 2964 4525 [email protected]

Gio Dela-Rosa, CFA

Deutsche Regis Partners, Inc. Research Analyst (+63) 2 894 6642

[email protected]

James Wang

Research Analyst

(+852 ) 2203 6145 [email protected]

Craig Wong-Pan

Research Analyst (+61) 2 8258-2848 [email protected]

Top picks

China Mobile (0941.HK),HKD78.15 Buy

Telstra Corporation (TLS.AX),AUD3.45 Buy

SK Telecom (017670.KS),KRW254,500.00 Buy

Idea Cellular Limited (IDEA.BO),INR95.00 Buy

Source: Deutsche Bank

Price, marketing, spectrum and capital discipline were on show in the quarter, and Chinese telco revenues were strong, yet sector earnings were sluggish, as some of these initiatives take time to fully flow through, and as a degree of front-loading costs appeared to occur. Value is becoming clearer, with relative P/Es at six-year lows, and relative EV/EBITDA 1 s.d. cheap, but investors need catalysts to pay attention. The risk-on mode, however, is showing signs of tiredness. High yield bond spreads have bottomed, suggest risk appetite has slowed - and generally this would have led to the telcos holding up against the market, not the substantial underperformance seen. No catalysts? Then why did low-growth Japan have another good quarter? In the last three months, Japan telcos gained 7% while APAC x JP telcos fell 5%. That has really been the story since the GFC. Over the last five years, Japanese telecoms have tripled, while APAC x JP telcos have been stationary. The success of the Japanese telecoms is based on several factors, that the APAC x JP telcos now feature (albeit to a smaller degree): 1) Minimal investor belief, 2) Low valuations, 3) Improving earnings discipline, 4) Increased shareholder friendliness, and 5) Growth beyond traditional services. The question is does the APAC x JP telco disinterest continue downwards until telecoms trade at deep value, like the Japanese did, or will there be catalysts to excite the market in 2018? We believe investors are set to see better returns, as we see emerging catalysts, such as: 1) Capex down-cycle driving a FCF boom, 2) Pricing, marketing and spectrum discipline returning to varying degrees in PH, TH, TW, HK, SG and likely CH, 3) M&A driving synergies and consolidation, 4) IoT, cloud, content, etc as growth engines, 5) Chinese telecoms becoming more commercially driven, and 6) Potential inflows on any tech or inflation scare from tech equities and bonds respectively. The sector is being priced as though the bull market will pass it by. If so, that will be the first miss since the telecom index was born in 1994, and the first time a FCF up-cycle has not been rewarded by the market. As such we believe investors should lift exposure to value names. TLS, CT, SKT, KT, LGU, and ISAT, are all trading 1+ s.d. cheap vs. 10-year valuation ranges – which is remarkable given what the market has done in that period. Valuation and risks We value the telecoms on DCF, and the holdcos on SOTP. Our WACCs are typically based on local 10-year bonds, with risk premiums of 4.5-5.5%, and terminal growth rates of 0-2%. Key downside risks include: 1) Interest rates rebounding, cutting sector value, 2) Competition deteriorating, and 3) Risk of spectrum pricing rising on competitive or regulatory change. Key upside risks include: 1) Hype on IoT, e-commerce, and data monetization driving earnings estimates and multiples, and 2) Low, and even negative, interest rates leading to an upward squeeze in valuations.

Distributed on: 20/11/2017 16:36:31 GMT

0bed7b6cf11c

21 November 2017

Telecommunications


Deutsche Bank AG/Hong Kong

Model portfolio Figure 1: DB’s APAC telecom portfolio

17-Nov-17 Return since Weighted Last rebal Sep 11 DB model Prior return

weight weight Local Last Q Local USD USDAustralia TLS.AX AUD Telstra 20% 20% 3.47 3.72 -7% -12% -2.5%China 0941.HK HKD China Mobile 25% 25% 78.15 82.35 -5% -5% -1.3%China 0728.HK HKD China Telecom 10% 0% 3.85 4.02 -4% -4% 0.0%India IDEA.BO INR Idea 20% 15% 95.00 80.60 18% 16% 2.4%Indonesia ISAT.JK IDR Indosat 5% 0% 5,525 6,500 -15% -16% 0.0%Japan 9433.T JPY KDDI 5% 0% 2,977 2,936 1% -2% 0.0%Korea 030200.KS KRW KT Corp 5% 0% 29,150 30,250 -4% -1% 0.0%Korea 017670.KS KRW SK Telecom 10% 10% 250,500 251,500 0% 3% 0.3%Cash 0% 0%DeletionsHong Kong 1883.HK HKD CITIC Telecom 0% 10% 2.23 2.30 -3% -3% -0.3%Japan 9984.T JPY Softbank 0% 10% 9,469 8,520 11% 7% 0.7%Hong Kong 6823.HK HKD HK Telecom 0% 10% 9.60 9.84 -2% -2% -0.2%Total 100% 100%DB model portfolio since rebal on 42985 -0.9%APAC telco index performance (MXAP0TC) 107.5 104.9 2.5%DB model portfolio since inception 24.4%APAC telco index (16 Oct 2015) 100.8 6.7%DB outperformance since inception (16 Oct 2015) 17.7%

Red numbers are weight reductions Blue numbers are weight increases

last rebalPrice

We select stocks based on: 1) Upside to target price, 2) Stock recommendation, 3) USD return potential, 4)Free float, 5) Relative value vs. regional telcos, 6) Short-term catalysts, 7) Sector thematics. We targetholding period of 1 year - but can go higher to achieve our key goal of the best portfolio possible at eachquarterly rebalance

Source: Deutsche Bank, Bloomberg Finance LP; Past performance may not be a reliable guide to future performance

This quarter has been the most difficult for arranging the model portfolio – as we can’t decide what to leave out. We are attracted to high earnings growth coming through in PH and TH to dividend yields 4%+ above 10-year bonds across DM leaders, to seemingly oversold operators in KR, AU and CH, actual and possible M&A stories, and to combinations of all of these. As such, the intriguing stories like DTAC, LGU, PLDT, Globe and China Telecom, failed to make our final list. The only ones eliminated were TPG, and Malaysian telcos, and we felt it easy to ignore NTT, StarHub, and Taiwanese operators. Everything else though had a case for inclusion.

Korean operators are facing negative headwinds, but their share prices have suffered significantly, and we suspect IoT can be a strong theme for them in 2018 – that should offset some political fears. While Dan Kong has a Buy on SKT and Hold on KT, we cannot ignore 2.5x EBITDA and 0.65x. Other top picks are selected based on implied upside to our TPs, plus potential catalysts.

Idea Cellular is our regional top pick,

and we see a path to it doubling, so

we lift it to 20%. We have added

names with high upside to DB TPs,

but also add Hold rated KT Corp, due

to a P/B and EV/EBITDA at levels in

line with typical sector troughs. We

cut SoftBank, as we are restricted.

21 November 2017

Telecommunications



Key issues by market

The year of discipline?

Earnings have been held back by: 1) OTT cannibalizing voice and SMS, 2) Network roll-out lifting opex, and 3) Operators cutting price to drive migration to new networks. We believe the worst is over in all three cases, and sense management teams are under pressure to deliver. In 2017 we have seen marketing expense sharply reduced in the Philippines, Thailand and cut in Taiwan, and price rises in HK wireline, and some mobile price rises in IN, SG and TW. As such, we believe earnings growth is building, while capex is coming down. With FCF rising, rising payouts or investment in new growth areas, can drive a more exciting story for the sector. The exceptions seem to be Korea and Japan, but we believe the worst is over even in these markets.

Figure 2: Key issues and top picks (of local analyst)

Market Key issue Our take Market v iewValuat ionTop p ick。TPG mobile build 。TPG unlikely to build a competitive network Challenged Good TLS。NBN impact 。TLS holding share, but margin steps down

A UD0.22+ DPS chunky, with room for FCF 。Improving alignment 。Incentivization should mean less mobile discounting Improving Good CM。Declining capex 。Networks larely built out, capex should follow CU

Rising sector FCF & shareholder f r iend l iness. 。Spot pricing rising 。HKBN fiercely aggressive / but targetting higher spend Steady Good CITIC。Mobile deflation 。Prior price cuts a headwind as users roll HKT

Value and above average poten t ial for corp act ion。Sector consolidation 。Heading for three large players, plus weak govt operator Improving Good Idea。Data and spend growth 。Jio pricing normalizing, while spending power rising

Idea/Vodafone combined market cap looks too low。Legacy contraction 。Voice and SMS revenue now negative at Tsel Steady High ISA T。Consolidation 。Minister pushing for M&A. Would help ISAT & XL

Sector rebalance poten t ial d river。Competition intensifies 。Price gap to MVNOs and sub-brands seems too wide Challenged Good KDDI。Bond to equity switch 。Docomo DY 4% > 10YR bond, 7%> including buy-back

Flat cash earn ings, bu t in a NIRP world , cou ld be 。Govt. price setting 。Govt price cuts each create 10%-like earnings impact Challenged Good SKT

。Content / IoT / profit focu。Data growth and new services may offset if disciplinedRisky, bu t low market caps seem to ref lect

。Rising competition 。#4 becoming credible threat Challenged Fair N/A。Local market tough 。High starting profitability a risk

Hard to see upside g iven rising compet i t ion。Spectrum acquisiton 。Network quality set to pick up helped by low-band Improving Good PLDT。PLDT digital pivot 。Marketing discipline is encouraging

PLDT's approx US$0.4bn 2017 NPA T too low vs. 。New entrant 。Pricing already down 3x since license issued. Priced in Steady Good Singtel。Possible TPG-failure 。Inferior network/ low big-3 prices hurt TPG's chances

Singtel stub unusual ly low. A ssociates 。Sluggishness 。Price rises, too little, too late Steady Fair FET。Consolidation 。APT and Taiwan Star consistent losses. Will one give

Rising rates ki l l ing yield compression trade; 。DTAC wins spectrum 。Now has spectrum advantage. Will push for share Challenged Fair DTAC

。True's aggression ends?。True's price aggression has failed. Better mkt. coming?Worst seems over, bu t V shaped recovery un l ikely

A ustral ia

Ch ina

HK

Ind ia

Indonesia

Japan

Ph i ls

Singapore

Taiwan

Thai land

Malaysia

Korea

Source: Deutsche Bank

21 November 2017

Telecommunications



Top picks

Idea Cellular

Jio continues driving the sector towards an oligopoly from the near perfect competition that previously existed – setting the market up for record margins in the medium-term potentially. Should Idea and Vodafone return to prior combined EBITDA of USD4bn, and synergies lift that to USD5bn, then the share will double if prior 7x EBITDA multiples return. Our top pick.

China Mobile

China Mobile is one of the few telcos trading below its 10-year EV/EBITDA average. We believe it has an unspoken rising pay policy, as demonstrated by 2016’s payout lift, and the 1H special dividend of HK$3.20. On page two of its 2016 results announcement it wrote: “Exceeding investor expectations is our overriding priority. We hope to create better returns for shareholders and share with them the fruits of our success.” Enough said…

SK Telecom

Strong SOTP story, which we believe has a chance of being partly unlocked in 2018, plus a 4% DY. Korean telcos look oversold, for example KT Corp is on 0.65x book, and 2.5x EBITDA, levels last seen before strong rallies at NTT and Unicom.

CITIC Telecom

On 9x 2017e P/E, with a 6% DY, we think investors are being well rewarded for taking on some long-term regulatory and competition risks in Macau. Also, we believe it may be a target for Unicom in 2018, as it considers rolling up CBN and CITIC group telecom assets, to get access to low-band spectrum in particular, while satisfying the government’s SOE reform and Three Network Convergence goals.

Telstra

6.5% DY, with DPS more than covered by EPS through our forecast period. Rare combination for a large cap telco. Rerating can come through 1) Yield compression, 2) Increased belief in new areas of telco growth, 3) Cost outs and other Telstra initiatives surprising, or 4) TPG becoming over-stretched.

21 November 2017

Telecommunications



Macro drivers Figure 3: Telco relative performance vs. risk-on trade Figure 4: APAC telecom revenue growth

0

5

10

15

20

25

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Asia Pac Telco ex JPN rel to mkt US HY credit Spread

0%

2%

4%

6%

8%

10%

12%

14%

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016

Source: Deutsche Bank Bloomberg Finance LP Source: Deutsche Bank

Figure 5: 10 Yr local bond yield change and telco

performance YTD

Figure 6: Telco index vs. telco performance YTD

Indosat XL

Docomo

HKT

SingTelChunghwa

KDDI

CITIC

KTCorpCh Tel

Twn Mob

NTT

FETStarhubTel Mal

Ch Mob

Maxis

Bharti

LGUTelstra

Axiata

Ch Uni

M1

Globe

SKT

PLDT

AIS

Idea

DiGi

TRUE

TLKM

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

-40% -20% 0% 20% 40%

Loca

l 10

Year

Bon

d

Stock perf ytd

Telstra

Ch MobCh Tel

Ch Uni

HK TrustCitic

Bharti A

Idea

RCom

XL

Indosat

NTTDocomoKDDI KTCorp

LG UPlusSK Tel

MaxisTel Mal Axiata

GlobePLDT

M1SingTel Starhub

Chunghwa

Far ET

Twn Mob

AISDTAC

-60%

-40%

-20%

0%

20%

40%

60%

80%

0% 10% 20% 30% 40% 50% 60%

Stoc

k P

erf

Ytd

Index Perf Ytd

Source: Bloomberg Finance LP Source: Bloomberg Finance LP

Figure 7: 10 year bond yield local market (weighted) Figure 8: CPI and GDP 2017e

0%

1%

2%

3%

4%

5%

6%

7%

Bharti A

IdeaR

Com

XL IndosatTelkomA

xiataG

lobeP

LDT

DiG

iM

axisTel M

alC

h Mob

Ch Tel

Ch U

niSingTelSparkC

ITICKT C

orpLG

UP

lusSK TelTelstraTP

MVocusA

ISD

TAC

TrueM

1StarhubH

K TrustC

hunghwa

Far ETTw

n Mob

SoftbankN

TTD

ocomo

KDD

I

ChinaHong Kong

India

Indonesia

South Korea

Malaysia

Phillipines

Singapore

Taiwan

ThailandJapan

-1%

0%

1%

2%

3%

4%

5%

0% 2% 4% 6% 8%

CP

I Gro

wth

GDP Growth Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank

There has been a phase shift from risk on to neutral – but someone forgot to tell telco investors

Laggards

Leaders

Indian contraction

21 November 2017

Telecommunications



Street positioning One-third of the sector still has more Sell recommendations than Buys, suggesting a lack of conviction on most names. An interesting point is that HKT and Korean telcos are almost universally liked, despite significant headwinds, yet there’s little love for many operators in MY, TH, TW and AU. This suggests the market is factoring in mean reversion in EBIT margins ahead. While we have similar thinking, the herding does make us wonder if there may be surprises ahead. Perhaps the second to bottom quartile is worth spending some time on, not too troubled, but out of favour.

Figure 9: Street recommendations

0%10%20%30%40%50%60%70%80%90%

100%

HK Tel

SoftBank

Ch M

obC

h telC

ITICKT C

orpIndosatSK TelC

h Uni

TLKMLG

Uplus

NTT

Bharti A

SingTelA

ISXL D

ocomo

KDD

ITel m

alG

lobeSparkFar ETA

xiataTelstraP

LDT

IdeaD

TAC

TrueTw

n Mob

TPG

M1

RC

OM

Chunghw

aStarH

ubVocusM

axisD

iGi

Buy Hold Sell

Source: Bloomberg Finance LP

Figure 10: Upside to consensus target price

-20%

-10%

0%

10%

20%

30%

40%

50%

IndosatC

ITICSoftbankLG

Uplus

Ch M

obH

K TrustC

h Uni

KT Corp

XL CH

TelSK TelTelkomD

TAC

KDD

ITel M

alB

harti ASingtelTrueA

ISG

lobeTelstraD

ocomo

Far ETN

TTP

LDT

Spark NZ

IdeaTw

n Mob

Rcom

Axiata

TPG

Chunghw

aD

iGi

M1

Maxis

StarhubVocus

Source:, Bloomberg Finance LP

Figure 11: Points change in Bloomberg consensus recommendation last 3M

-0.4-0.3-0.2-0.10.00.10.20.30.4

Globe

Bharti A

Far ETD

TAC

RC

OM

AIS

Axiata

LG U

plusStarH

ubM

1C

h telTw

n Mob

Chunghw

aTel m

alN

TTTrueD

ocomo

TelstraC

h Mob

Ch U

niH

K TelC

ITICSK Tel#N

/AP

LDT

SparkIdeaKD

DI

SoftBank

Maxis

XL DiG

iTLKMSingTelVocusKT C

orpIndosatTP

G


The second quartile worth some

focus. We love IDEA, and like TLS;

Hold DTAC has a nice chart, and PH

telcos have the best earnings

momentum

Indosat, CITIC Tel, LGU, CM and HKT all

feature 25%+ upside to Street targets.

Majority of stocks have 10%+ upside to

street targets

Improving sector discipline and relative

value leading to more upgrades than

downgrades (17 up, 12 down)

21 November 2017

Telecommunications



Sector price performance

The narrow range-trade continues

Market heavyweights, the Japanese had a good quarter, with slight earnings beats and Docomo’s capital return, while the playing out of our Jiological Shift theme in India drove Bharti strongly upwards, due to Jio’s 20% price lift.

Figure 12: Last 3M index drivers

-1%

0%

1%

2%

3%

4%

5%

SoftbankD

ocomo

NTT

Bharti A

KDD

IC

h Uni

IdeaSingTelA

xiataM

axisStarhubP

LDT

Citic

RC

omIndosatM

1D

TAC

Globe

DiG

iTw

n Mob

Far ETTel M

alC

h TelH

K TrustXL C

hunghwa

AIS

KT Corp

Ch M

obTelstraTLKMLG

UP

lusSK Tel


Figure 13: 3M Price performance

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Bharti A

TrueIdeaStarhubN

TTSoftB

ankA

xiataD

ocomo

Ch Tel

Maxis

TPM

Chunghw

aA

ISKD

DI

Twn M

obSingTelM

1D

iGI

Ch U

niC

ITICFar ETSK TelP

LDT

Tel Mal

VocusC

h Mob

Globe

XL HK Trust

SparkKTC

orpTelstraTLKMD

TAC

IndosatLG

UP

lusR

Com


Figure 14: 12M Price performance

-80%-60%-40%-20%

0%20%40%60%80%

Bharti A

SoftBank

Globe

IdeaXL N

TTD

TAC

Ch U

niA

ISP

LDT

SK TelA

xiataD

ocomo

LG U

Plus

SparkKD

DI

TLKMC

h TelM

axisTw

n Mob

Far ETSingTelStarhubC

hunghwa

HK Trust

Ch M

obD

iGI

Tel Mal

KTCorp

M1

CITIC

IndosatTP

MTrueTelstraVocusR

Com


Japanese heavyweights have

driven the sector, helped by

increased shareholder

friendliness. Bharti has been a

leader, as Jio fears have

eased. At the other end,

Telstra, Telkom and KR telcos

have offset the positive gains

elsewhere

Telcos considered troubled,

led the charge. NTT’s

buyback also helped, but

generally it was a bad Q for

wireline leaders, Telkom,

Telstra, KT, and HKT on

competition & pricing fear

Complicated companies with

solid franchises have performed

well, helped by market

normalization in India, improved

profit discipline in PH, and fibre-

resale led earnings growth and

buy-backs at NTT

21 November 2017

Telecommunications



Figure 15: Short-term price momentum

SK Tel

NTT

KDDI

KTCorp

Docomo

LG UPlusTelstra

SingTelTwn Mob

Chunghwa

Far ETHK Trust

CITICPLDTGlobeCh Mob

AIS

Bharti A

DTAC

Idea

Ch Uni

Ch Tel

XL

Indosat

M1

Starhub

Maxis

Tel Mal

Axiata

Spark

TPM

True

TLKM

-25%

-15%

-5%

5%

15%

25%

-25% -15% -5% 5% 15% 25%

3M

1M

Slowing

Weak

Strong

Picking up


Figure 16: Medium-term price momentum

SK Tel

NTT

KDDI

KTCorp

DocomoLG UPlus

Telstra

SingTelTwn MobChunghwaFar ETHK Trust

CITIC

PLDT

Globe

Ch Mob

AISDTAC

Idea

Ch Uni

Ch Tel

XL

Indosat M1StarhubMaxis

Tel Mal

AxiataSpark

SoftBank

TLKM

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-20% -10% 0% 10% 20% 30%

!2 M

3M

Oversold?

Overbought?

Picking up

Slowing


Figure 17: Index performance long-term

0

50

100

150

200

250

300

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

APAC x JP Telcos APAC x JP MktJP Telcos Global Telecos

Source: Deutsche Bank, Bloomberg Finance LP

Bharti perhaps too hot, and DTAC

and ISAT look oversold. Idea

gaining momentum, and True

losing it

Bharti is off the chart, but we still like

it, but it may need a breather. Telstra

a massive outlier – looks oversold.

Bharti off the charts, but we like it.

NTT looks overbought, helped by

buy-back.

AxJ telcos are a laggard over the last

10 years.

Japan – coming off ultra-deep value

and with a strong improvement in

earnings and payout is a different case,

but AxJ telcos seem to be learning

lessons from Japan and we expect will

outperform ahead

21 November 2017

Telecommunications



Financial performance last quarter

Figure 18: Service revenue YoY

-15%

-10%

-5%

0%

5%

10%

15%

SingTel

Optus

Globe

Ch M

ob

Ch Tel

Ch U

ni

True

LG U

plus

KDD

I

M1

NTT

Docom

o

AIS

Telkom

SK Tel

Maxis

Twn M

ob

KT Corp

Starhub

SoftBank

Indosat

PLD

T

DTA

C

Far ET

Chunghw

a

DiG

i

Bharti A

Idea

Source: Deutsche Bank, Company data

Figure 19: EBITDA YoY

-50%-40%-30%-20%-10%

0%10%20%30%40%50%

True

SK Tel

PLD

T

Globe

AIS

Ch M

ob

Ch U

ni

DTA

C

Maxis

SoftBank

SingTel

Optus

Ch tel

CH

T

LG U

plus

Telkom

NTT

KDD

I

M1

Docom

o

KT Corp

Starhub

far ET

Twn M

ob

Indosat

DiG

i

Bharti A

Idea


Figure 20: Net Profit YoY

-200%

-150%

-100%

-50%

0%

50%

100%

150%

200%

Ch U

ni

SK tel

True

Globe

PLD

T

NTT

Maxis

Ch M

ob

LG U

plus

CH

T

Telkom

Ch Tel

KDD

I

Optus

M1

SingTel

Twn M

ob

Docom

o

DTA

C

Far ET

Starhub

DiG

i

KT Corp

Indosat

AIS

SoftBank

Bharti A

Idea


Ex M&A, Singtel would have risen a

still solid 4% - still a DM leader. China

continued its return to growth. India

saw revenues smashed as telcos

priced to hold subs vs. Jio.

Key features: 1) Unicom

driving earnings at the cost of

a rapidly filling network, 2) Jio

pain, 3). Marketing cost being

cut to record-low levels in the

PH and TH helped

21 November 2017

Telecommunications



4Q Street beats and misses Figure 21: Prior quarter EBITDA vs. consensus Figure 22: Prior quarter revenue vs. consensus

-20%

-15%

-10%

-5%

0%

5%

10%

Docom

o

Telkom

DiG

i

True

Far ET

Softbank

XL Axiata

StarHub

Maxis

M1

KT Corp

Twm

Mob

Chunghw

a

DTA

C

LG U

plus

AIS

Ch U

ni

Ch Tel

PLD

T

Bharti A

SK Tel

KDD

I

Indosat

NTT

Idea

Rcom

-5%

0%

5%

XL Axiata

KT Corp

SingTelLG

Uplus

SK TelFar ETM

axisKD

DI

SoftbankTelkomD

iGi

Ch Tel

Twm

Mob

StarHub

Chunghw

aA

ISD

ocomo

NTT

Ch M

obM

1IdeaR

comD

TAC

Bharti A

Ch U

niIndosatTrue

Source: Deutsche Bank , Bloomberg Finance LP Source: Deutsche Bank , Bloomberg Finance LP

Solid revenue surprises starting to occur: Among larger caps, Docomo and Telkom surprised nicely. Docomo was up against a tough comp, and held up. However Telkom’s KPIs concerned despite good results. NTT beat our estimates, and rose post results, so we do not quite trust its “miss”.Indosat’s loss of market position was a concern. Unicom had a strong quarter, but the Street seemed to have got a little ahead of itself.

Jio’s second round of prices and promos hurt earnings, but operators held subs and prices are now moving up

Figure 23: Share price vs. consensus EPS Figure 24: Share price vs. recommendation change

Telstra

CMCT

HKT CITIC

Bharti

IndosatTelkom

SoftbankNTTDocomoKDDI

KT Corp

LGU

DiGiMaxis

Tel Mal

Axiata

GlobePLDT MI

SingTel

Starhub

CHTFETTWM

AISJAS Vocus

CU

Spark

-25%

-15%

-5%

5%

15%

25%

-25% -15% -5% 5% 15% 25%

3M

chan

ge in

FY17E

PS

3M change in share price

TLS CM

CT

HKT CITIC

Bharti

IdeaXL

Indosat

TLKMSoftbank

NTTDocomo

KDDI

KT Corp

LGU

SKT

DiGi Maxis

Tel Mal Axiata

Globe

PLDT

MI

SingTel

StarhubCHT

FET

TWM

AIS

JAS

DTAC

Vocus

CUTRUE

0.00

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

-25% -15% -5% 5% 15% 25%

3M

chan

ge in

Anal

yst R

ec

Po

ints

3M change in share price Source: Bloomberg Finance LP Source: Bloomberg Finance LP

Bharti and LGU have share price vs. EPS change divergences, suggesting buy side pricing in a change of prospects ahead

Globe, FET, DTAC and LGU have not reacted to increased sell-side bullishness.

21 November 2017

Telecommunications



Operating trends

EBITDA margin

Figure 25: Australia Figure 26: China Figure 27: Hong Kong

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

Telstra

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

China Mobile China Telecom

China Unicom

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

HKT Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases

Figure 28: India Figure 29: Indonesia Figure 30: Japan

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

Bharti Airtel Idea Cellular

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

XL Axiata Telkom Indosat

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

SoftBank NTT (fixed)

NTT DoCoMo KDDI Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases

Figure 31: Korea Figure 32: Malaysia Figure 33: Philippines

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

KT Corporation LG Uplus SK Telecom

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

DiGi.Com MaxisTelekom Malaysia Celcom

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

Globe Telecom PLDT Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases

Figure 34: Singapore Figure 35: Taiwan Figure 36: Thailand

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

M1 Singtel Domestic Starhub

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

CHT Far EasTone TWM

0%10%20%30%40%50%60%70%

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

AIS DTAC True Corp Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases

Picking up

No sign of bottom

Picking up

Downturn

Picking up

21 November 2017

Telecommunications



EBITDA (in local currency billions)

EBITDA growth is generally deteriorating, but picked up in ID, KR, and TH. Cost growth hurt China in 1Q, but margins are guided flat to up in 2017, so we expect better growth ahead. We think enough is being done with pricing and costs to drive a margin pickup ahead in most markets. Based on our on-the-ground analysis, we believe that operators would like to reduce competition, which has been painful for all involved, without noticeable benefits to operators in recent quarters. The exceptions may be India, due to Jio competition, Japan, where MIC pressure should keep a lid on growth, and HK, where mobile price competition should hurt. However, even in those markets we see value.

Figure 37: China Figure 38: India Figure 39: Indonesia

-40%-30%-20%-10%0%10%20%30%40%

0

20

40

60

80

100

120

140

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

CT

CU

CM

Total

-40%-30%-20%-10%0%10%20%30%40%

0

20

40

60

80

100

120

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

IDEA

BHRT

Total

-5%

0%

5%

10%

15%

20%

25%

0

5,000

10,000

15,000

20,000

25,000

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

XL

ISAT

TLKM

Total

Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases

Figure 40: Japan Figure 41: Korea Figure 42: Malaysia

-5%0%5%10%15%20%25%30%35%

0

500

1,000

1,500

2,000

2,500

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

KDDI

DOC

NTT(fixed)SB

Total

-60%

-40%

-20%

0%

20%

40%

60%

80%

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

LGU

KT

SKT

Total

-8%-6%-4%-2%0%2%4%6%8%

0

1

2

3

43Q

13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

DIGI

CEL

TM

MAX

Total


Figure 43: Philippines Figure 44: Taiwan Figure 45: Thailand

-15%

-10%

-5%

0%

5%

10%

15%

05

101520253035

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

GLO

PLDT

Total

-10%

-5%

0%

5%

10%

15%

05

10152025303540

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

TWM

FET

CHT

Total

-20%-15%-10%-5%0%5%10%15%20%25%

05

10152025303540

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

TRUE

DTAC

AIS

Total


Strong

Weak

Bottoming

Weak

Strong

Bottoming?

21 November 2017

Telecommunications



Service Revenue trends


-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016

-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016

-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016



-5%

0%

5%

10%

15%

20%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016

-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016

-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016



-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016

-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016

-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016



-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016

-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016

-5%

0%

5%

10%

15%

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

2013

2014

2015

2016


21 November 2017

Telecommunications



Revenue efficiency Figure 58: EBITDA margin Figure 59: Capex/ revenue

0%

10%

20%

30%

40%

50%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

2018

E

2019

EAPAC Ex Jpn Telco APAC Ex Jpn Mkt

0%

5%

10%

15%

20%

25%

30%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

2018

E

2019

E

APAC Ex Jpn Telco APAC Ex Jpn Mkt

Source: Deutsche Bank, companies Source: Deutsche Bank, companies

Figure 60: FCF as % of revenue Figure 61: Telco EBITDA and FCF growth (2016-’19)

0%

2%

4%

6%

8%

10%

12%

14%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

2018

E

2019

E

APAC Ex Jpn Telco APAC Ex Jpn Mkt

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Revenue EBITDA Capex FCF

APAC x Jpn JPN

Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, companies

Figure 62: Telco EBITDA, Capex and FCF margins (last FY)

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Tels

tra

Vocu

sTP

GC

h M

obC

h Te

lC

h U

niH

K Tr

ust

CIT

ICB

hart

i AId

eaR

com XL

Indo

sat

Telk

omSo

ftB

ank

NTT

Doc

omo

KDD

IKT

Cor

pLG

Upl

usSK

Tel

DiG

iM

axis

Tel M

alA

xiat

aG

lobe

PLD

TM

1Si

ngTe

lSt

arH

ubC

hugh

wa

Far

ETTw

n m

ob AIS

DTA

CTr

ueSp

ark

NZ

EBITDA % CAPEX % FCF %

Source: Deutsche Bank, companies

FCF forecast to outgrow broad market

21 November 2017

Telecommunications



Last quarter’s KPIs Figure 63: Mobile ARPU (US$/month) Figure 64: Data as % of mobile service revenue

0

10

20

30

40

50

60

Sep-

13

Jan-

14

May

-14

Sep-

14

Jan-

15

May

-15

Sep-

15

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Docomo US$

SmarTone US$

SingTel US$

SKT US$

FET US$

AIS US$

China Mobile US$

Telkomsel US$

PLDT US$

Bharti US$

Celcom US$

0%10%20%30%40%50%60%70%80%

Docom

o

XL SingTel

AIS

DIG

I

Ch Tel

DTAC

Indosat

Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases and management guidance

Figure 65: Mobile net adds YoY (last reported quarter) Figure 66: Mobile net add breakdown (last quarter)

-10%

-5%

0%

5%

10%

15%

20%

IDN

IND

CH

N

THL

JPN

KOR

AU

S

SGP

TWN

MLY

PH

P

OP

CMBRTI XL DOC

KT

DIGI GLO M1CHT

AIS

TLS

CT

BSNL ISAT

KDDILGU

MAXISSMART

ST

FET

DTAC

CU

IDEA

TLKM

SB SKT

AX

STHTWM

TRUE

Others

Jio

-100%-80%-60%-40%-20%

0%20%40%60%80%

100%

AU

S

CH

N

IND

I

IDN

JPN

KOR

MLY

PH

P

SGP

TWN

THL

Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases, India numbers are of May 2017

Figure 67: Mobile ARPU YoY

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Globe

Maxis

Ch U

ni

Docom

o

PLD

T

KDD

I

LG U

plus

DIG

I

Ch M

ob

M1

SK Tel

AIS

DTA

C

Chunghw

a

StarHub

Ch Tel

Softbank

True

Far ET

SingTel

Twn M

ob

SmarTO

ne

KT Corp

Telkom

Indosat

Bharti A

Idea

Source: Source: Deutsche Bank, Company releases

21 November 2017

Telecommunications



Sector valuation Figure 68: MSCI Asia Pac ex Jp Telecom rolling 4Q P/E Figure 69: MSCI Japan Telecom rolling 4Q P/E

0

5

10

15

20

25

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

0

5

10

15

20

25

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP

Japanese telcos are back near their relative P/E peaks so need to be approached more cautiously. However, the APAC x JP sector P/E relative is back at a six year low (Fig 69). There’s clear sector value, but investors complain of a lack of catalysts. We noted five major catalysts in our Five Paths Lead Up report Note here. We remind investors that 2G, ADSL, and 3G/iPhone excitement led to much higher index levels in prior cycles that we expect IoT, digital content, e-commerce and 4G data monetization will drive the next move up in telcos.

Telco dividend yields are looking attractive vs. other sectors, and while that is partly based on CM’s special, we expect another such special next year, and improved policy ahead. We believe the Chinese telcos could also get a benefit from SOE reform, as per our June 2, Shake Up? report. Against REITs, the sector is back to its normal spread.

Figure 70: Fwd DY of Asian telcos vs. utilities and REITs Figure 71: Telecom prices of Asia vs. EU vs. US vs. JPN

0%

1%

2%

3%

4%

5%

6%

Nov

-14

May

-15

Nov

-15

May

-16

Nov

-16

May

-17

Nov

-17

REITS

Telcos

Utilities

60

80

100

120

140

160

180

Nov

-13

May

-14

Nov

-14

May

-15

Nov

-15

May

-16

Nov

-16

May

-17

Nov

-17

JPN

Asia

EU

US

Source: Deutsche Bank, Bloomberg Finance LP,MSCI Asia Pac .Tel. Services Index, MSCI Asia Utilities Index, S&P Asia Pacific Select REIT 40 Source: Deutsche Bank, Bloomberg Finance LP, MSCI Asia Telecom Services Index, MSCI European

Telecom Services Index, MSCI US telecom Index, MSCI Japan Telecom Services Index

Helped by CM special & NTT/DCM 25% lifts, DY now at new high spread to utilities, and rarely narrower vs. REITS

Depreciation change/ exceptionals

21 November 2017

Telecommunications



Figure 72: Telco and market index - Asia-Pac ex Japan Figure 73: Telco and market index Japan

0

100

200

300

400

500

600

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Asia Pac ex Japan Market Asia Pac ex Japan Telcos

0

500

1,000

1,500

2,000

2,500

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Japan Market (Topix) Japan Telcos


Figure 74: P/E relative (rolling 4Q) Figure 75: EV/ EBITDA (rolling 4Q)

0.00.20.40.60.81.01.21.41.6

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

APAC Telco ex JPN PE Relative Japan Telco PE Relative

0

1

2

3

4

5

6

7

8N

ov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

APAC ex JP Telcos JPN Telco


Figure 76: FCF yield Asia-Pac ex Japan Figure 77: FCF yield Japan

0

2

4

6

8

10

12

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

APAC Ex JP Telcos APAC Ex JP Mkt

-10

-5

0

5

10

15

20

25

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

JP Telcos Jp Mkt


Coincidence? Prior two relative P/E convergences led to APxJ telcos starting to beat market and Japan telcos to UP

We forecast 12% FCF CAGR for APAC telcos in 2016-’19 – historically a key sector driver. China estimated to grow fastest

21 November 2017

Telecommunications



Sector relative valuation Figure 78: P/E point premium to MSCI Asia-Pac Telco Index (5-years)

-10

0

10

20

30

40

50

Tru

eId

ea

DTA

CB

harti A

XL A

xiataR

Co

mA

xiataC

h U

ni

Tel M

alD

iGi

Maxis

Tw

n M

ob

Starh

ub

Chung

hw

aS

oftb

ank

AIS

Glo

be

PLD

TS

park

Telko

mF

ar ET

TP

GS

ing

tel

Do

com

oM

1H

K T

el

Vo

cus

Ind

osat

NTT

KD

DI

Ch T

el

Ch M

ob

Telstra

LG

UP

lus

KT C

orp

CIT

ICS

K T

el

Current Spread Average


Telstra, China Mobile, China Tel, KT, Singtel, SK Tel, Indosat, M1, and CITIC Tel are trading at relative P/Es at the low end of their five-year P/E ranges. We believe it is time to tilt back in their direction. The wide spreads to 10-year bonds offer comfort to us, and we see strong DPS sustainability or growth at such names.

We believe telcos should trade at a premium to their local markets, given their FCF generation, shareholder friendliness and earnings stability. We find current valuations fair to attractive, and believe the switch to cyclicals ignores a strong FCF upcycle underway in the sector.

Figure 79: P/E point premium to local market (5 years)

-20

-10

0

10

20

30

40

50

TrueIdeaD

TAC

Bharti A

XL Axiata

RC

omA

xiataC

h Uni

Tel Mal

DiG

iM

axisTw

n Mob

Chunghw

aStarhubH

K TelFar ETA

ISSingtelTelkomLG

UP

lusM

1SoftbankTP

GKT C

orpG

lobeC

h TelSK TelP

LDT

Ch M

obVocusIndosatSparkD

ocomo

CITIC

NTT

KDD

ITelstra

Current Spread Average


We prefer telcos near the low end

of five-year P/E premiums to local

markets – CM, CT, ST, TLS, ISAT

M1 and CITIC Tel appear

attractive

Leaders punished – many are

trading cheaply vs. 5-year

relative levels – investors

putting much more faith in

alternative operators than

earlier in the decade. Why go

past cheap market leaders?

21 November 2017

Telecommunications



PE Relative to local country


0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

Telstra TPG Vocus

0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

Ch Mob Ch Tel Ch Uni

0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

HKT CITIC Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases


0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

Bharti Idea Rcom

0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

XL Indosat TLKM

0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

Softbank NTT Docomo KDDI Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases


0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

KT Corp LGU SKT

0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

DiGi Maxis Tel Mal Axiata

0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

Globe PLDT Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases


0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

M1 SingTel Starhub

0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

CHT FET TWM

0.5

1.0

1.5

2.0

2.5

3.0

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

AIS JAS DTAC TRUE Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases

Only cheaper when commodity prices soaring – boosting mining optimism

CM & CT strong relative value Strong relative value

Strong ISAT relative value

Elevated

21 November 2017

Telecommunications



Five-year valuation range The telecoms are typically trading below five-year valuation averages. This to us represents an opportunity as: 1) The APAC market is up in the last five years by approximately 64%; 2) Interest rates remain low, even by recent standards, providing a strong real DY; 3) Global economic growth appears to be returning, which should drive telco spending; and 4) IoT, cloud, digital content, payments, etc. is a strong emerging growth story.

We prefer stocks trading near the low end of their five-year ranges, such as: China Mobile, China Telecom Telstra, Singtel, Idea (P/B, P/S), CITIC Tel, KT, LGU, Globe, and M1.

Figure 92: 5Y High, Low, Current – P/Sales Figure 93: 5Y High, Low, Current – EV/ EBITDA

0

1

2

3

4

5

6

DiG

iM

AXIS

CH

TST A

ISTLKMFETTW

MD

OC

PLD

TB

RTI

HKT

TPG

Axiata

STHG

LOC

MTM SP

KXL TLSM

1KD

DI

TRU

ED

TAC

SoftbankC

ITICID

EASKTISA

TN

TTVO

CC

UC

TLG

UKT R

CO

M

Current Average

0

2

4

6

8

10

12

14D

iGi

MA

XISTW

MVO

CID

EAB

RTI

ST CH

TR

CO

MFETA

ISTR

UE

STHSoftbankH

KTSP

KTM A

xiataD

OC

CITIC

GLO

PLD

TTP

GM

1TLKMXL TLSKD

DI

NTT

SKTD

TAC

CU

LGU

ISAT

CM

CT

KT

Current Average


Figure 94: 5Y High, Low, Current – P/E Figure 95: 5Y High, Low, Current – P/B

0

10

20

30

40

TRU

EB

RTI

IDEA

XL Axiata

CU

DTA

CTM D

iGi

MA

XISVO

CFETISA

TC

HT

TWM

AIS

TLKMSTHD

OC

GLO

SPK

RC

OM

CT

HKT

PLD

TSoftbankKD

DI

M1

CM

NTT

TPG

LGU

ST TLSKT SKTC

ITIC

Current Average

0

2

4

6

8

10

DiG

iSTHA

ISM

AXIS

TWM

TLKMM

1G

LOSP

KD

TAC

FETB

RTI

TM PLD

TTLSSoftbankTP

GISA

TC

HT

ST KDD

IH

KTA

xiataD

OC

XL IDEA

TRU

EC

MLG

UN

TTSKTC

UC

ITICC

TVO

CKT R

CO

M

Current Average


21 November 2017

Telecommunications



Dividends

Real yield vs. payout – some very wide spreads to 10-year

Figure 96: DY (bubble) vs. Real Yld (X) vs. Payout (Y) -DM Figure 97: DY (bubble) vs. Real Yld (X) vs. Payout (Y) -EM

0.0

0.3

0.5

0.8

1.0

1.3

1.5

-2% -1% 0% 1% 2% 3% 4% 5% 6%

Pay

out

rat

io

Premium over local 10Y

TLSHKTSPKFETTWMM1STHCHTCITICDOCKDDISTNTTSKTSoftBankLGUVOCKTTPM

0.0

0.3

0.5

0.8

1.0

1.3

1.5

-8% -6% -4% -2% 0% 2% 4% 6% 8%

Pay

out

Rat

io

Premium over local 10Y

CMAISPLDTGLODiGiTel MalMaxisCTDTACTLKMCUTRUEAxiataXLISATIDEARCOMBRTI


Telstra, StarHub, Spark, HKT, M1 and now China Mobile, look particularly good on their real DY, but questions over DPS sustainability are valid in each case. Our preference among the yield names is CM, Telstra, SK Tel, CITIC, HKT, Singtel, and Docomo, in that order. Generally, we believe it is now worth being overweight the quality income telcos despite the risks, as generating yields 4% north of the local 10-year bond, seems a very fat cushion, at a time when risk, while not feeling extreme, has risen. There is a case for consolidation happening in AU, SG, HK, IN, ID and MY, we believe, so today’s value play can be tomorrow’s growth story.

We also note that growth tends to be picking up, after a significant period of weakness. We believe telcos have been caught out by OTT, and have been hurt by network build-out costs. We believe that capex is now cycling down – and that 5G will be a positive surprise.

Figure 98: Sectors DY spread to US 10-year Figure 99: APAC Telcos DY Spread

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

REITS Telcos Utilities

-2%

-1%

0%

1%

2%

3%

4%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

APAC Telcos Less US 10 Yr Bond

Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP, Bloomberg consensus estimates

Attractive vs. bonds

The 64% rise in MSCI APAC in last five years, not reflected in telcos – which offer a fat yield premium to bonds

21 November 2017

Telecommunications



Dividend Yield premium to local 10-year bond


-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

TLS TPG VOC

-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

CM CT CU

-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

CITIC HKT Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases


-10%

-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

RCOM IDEA BRTI

-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

TLKM Xl ISAT

-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

KDDI NTT DOC SoftBank Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases


-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

SKT KT LGU

-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

DiGi Maxis Tel Mal Axiata

-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

PLDT GLO Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases


-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

ST STH M1

-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

CHT FET TWM

-5%

0%

5%

10%

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

AIS DTAC TRUE Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases Source: Deutsche Bank, Company releases

21 November 2017

Telecommunications



Holdcos

Per share value (local currency)

Figure 112: Axiata Figure 113: Intouch

0

1

2

3

4

5

6

7

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Axiata Axiata ex listcos

-20

0

20

40

60

80

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Intouch Intouch ex AIS


Figure 114: NTT Figure 115: PCCW

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

NTT NTT ex Docomo

-2-101234567

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

PCCW PCCW ex HKT


Figure 116: SingTel Figure 117: Softbank

0

1

2

3

4

5

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Singtel Singtel ex listcos

-10,000

-5,000

0

5,000

10,000

15,000

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Softbank Softbank ex listcos


SG/Oz off 1/3 from two-year high

Discount widened by JPY6k/share in last year

Stub near low end of range

DPS lift and fibre resale has allowed JPY1k breakout

Asia-P

ac Telecom Tracker

Telecom

mu

nicatio

ns

21

No

vemb

er 20

17

Pag

e 24 D

eutsch

e Ban

k AG

/Ho

ng

Kon

g

Figure 118: Stock performance

20-Nov-17Company YTD 1W 1M 3M 6M 12M YTD 1W 1M 3M 6M 12M YTD 1W 1M 3M 6M 12M High LowTelstra Corporation -32 -0 -2 -12 -22 -30 -29 -1 -5 -16 -21 -28 -36 0 -3 -15 -25 -37 -35 2TPG Telecom -15 -2 13 3 -2 -17 -11 -3 9 -2 -1 -15 -19 -1 12 -1 -6 -26 -23 19Vocus Communications -22 2 8 -6 17 -43 -18 1 4 -10 18 -42 -26 3 7 -9 12 -49 -47 33China Mobile -5 -2 -1 -10 -9 -8 -6 -2 -2 -9 -9 -9 -28 -2 -4 -16 -21 -29 -14 0China Telecom Corp 8 -1 -4 3 2 5 7 -1 -4 4 2 4 -19 -1 -7 -4 -12 -19 -8 8China Unicom 29 -4 4 -2 13 29 28 -4 4 -2 12 27 -3 -4 1 -10 -3 -2 -6 33Dr. Peng Group -3 0 -1 22 22 -10 2 0 -1 23 27 -7 -27 0 -3 13 6 -31 -11 32Wangsu Technology 1 -0 1 -7 -5 -4 0 -0 0 -7 -5 -5 -24 -0 -2 -14 -18 -26 -53 8HK Telecom Trust 1 -0 1 -7 -5 -4 0 -0 0 -7 -5 -5 -24 -0 -2 -14 -18 -26 -14 3CITIC Telecom -4 -3 -2 -3 -7 -12 -5 -3 -2 -2 -7 -12 -28 -3 -5 -10 -20 -32 -15 0Bharti Airtel Limited 62 -1 5 17 32 62 69 -1 5 15 31 69 29 -2 2 10 21 27 -10 68Idea Cellular Limited 29 2 5 5 8 33 34 2 5 4 8 39 3 1 2 -1 -1 4 -21 41Reliance Communications -64 0 -26 -49 -60 -68 -63 1 -26 -50 -60 -67 -71 -1 -28 -52 -64 -75 -70 18XL Axiata 39 -8 -6 -7 5 37 38 -8 -6 -8 3 36 22 -9 -7 -9 0 17 -20 57Indosat -14 -2 -9 -14 -26 -12 -15 -2 -9 -15 -27 -13 -25 -3 -11 -17 -29 -24 -26 0Telkom 6 2 -2 -12 -7 6 5 3 -2 -13 -9 5 -8 2 -4 -14 -11 -10 -13 14SoftBank 23 -2 -4 9 14 41 28 -0 -3 6 13 38 6 -0 -6 -1 1 14 -9 43NTT 17 -1 8 10 10 33 22 1 10 7 9 31 1 1 6 -0 -3 8 -1 31NTT Docomo 5 -1 5 9 3 15 9 -0 6 6 2 13 -6 1 4 -1 -9 -7 -1 12KDDI Corp 1 -1 -2 1 -3 7 5 -0 -1 -2 -3 5 -13 -0 -4 -8 -14 -13 -5 5KT Corp -0 1 -2 -10 -8 -5 10 3 1 -6 -5 3 -20 0 -4 -16 -17 -26 -17 2LG Uplus 9 0 -7 -16 -15 6 20 3 -4 -13 -12 15 -13 0 -8 -22 -23 -17 -26 12SK Telecom 14 1 -4 -2 4 16 25 3 -1 2 7 25 -9 1 -6 -9 -6 -10 -10 17DiGi -2 -2 -2 -2 -5 -5 6 -1 -0 1 -2 0 -6 -1 -1 1 -3 -10 -8 2Maxis -1 -0 4 3 -9 2 7 0 5 6 -5 8 -5 1 5 6 -6 -3 -10 8Telekom Malaysia 1 -2 -2 -6 -7 -6 8 -1 -1 -3 -4 -0 -4 -1 -1 -3 -5 -11 -10 2AXIATA 12 -1 2 9 1 16 21 -0 4 12 5 22 7 -0 3 13 3 9 -3 26Spark New Zealand Limited 6 -0 -2 -8 -0 8 4 -2 -4 -14 -2 5 -9 -1 -1 -10 -9 -8 -8 8Globe Telecom 27 -4 -4 -6 -5 39 24 -4 -3 -5 -7 35 4 -4 -3 -10 -11 18 -14 41PLDT, Inc. 22 0 -3 -4 3 20 19 1 -2 -3 1 17 0 0 -2 -8 -4 2 -14 31M1 -10 -2 -1 -2 -21 -9 -4 -2 -1 -1 -20 -4 -23 -1 -3 -6 -25 -23 -22 3Singapore Telecom 1 -2 -2 -2 -1 -1 7 -1 -2 -1 1 4 -14 -1 -3 -6 -6 -17 -8 2Starhub 1 -0 5 11 5 -2 7 0 5 11 7 2 -14 1 4 6 -0 -18 -10 11Chunghwa Telecom 1 0 0 0 13 -2 9 1 1 1 -2 4 -12 0 1 -3 5 -18 -7 3Far EasTone Telecom -2 1 -2 -2 -7 -3 5 1 -2 -1 -7 3 -15 0 -2 -5 -14 -18 -10 1Taiwan Mobile 3 0 0 0 -5 1 11 1 1 1 -5 8 -11 0 0 -3 -12 -15 -7 6AIS 24 3 -5 1 2 27 35 3 -5 2 7 38 12 1 -6 -7 -8 10 -9 29Total Access Communicati 21 2 -14 -14 12 29 32 2 -13 -13 17 40 9 0 -15 -21 1 11 -22 41True Corporation -18 4 -5 15 -6 -18 -11 4 -4 16 -1 -11 -26 2 -6 5 -14 -29 -20 17Median 1 -0 -2 -2 -2 1 7 -0 -1 -2 -2 4 -1 0 0 -7 -8 -15 -11 12

Abs. Performance (%) Abs. Performance (%) (US$ terms) Relative Performance (%) % From 12M

Source: Deutsche Bank, Reuters Financial LP

Asia-P

ac Telecom Tracker

Telecom

mu

nicatio

ns

21

No

vemb

er 20

17

Deu

tsche B

ank A

G/H

on

g K

ong

P

age 25

Figure 119: Comps

20-Nov TSR MCap EVCompany Price Target (%) Rtng USDm USDm 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018Telstra Corporation 3.45 4.05 23.6 ||||||||||| Buy 31,002 42,887 7.2 6.0 5.3 16 13 11 4.7 6.7 9.9 5.8 6.2 6.6TPG Telecom 5.80 5.80 1.2 Hold 4,052 4,888 10.7 8.6 8.7 22 14 19 3.9 3.4 1.2 1.2 1.2 0.5Vocus Communications 3.03 2.62 -12.6 |||||| Hold 1,427 2,189 11.4 9.2 7.8 25 14 15 2.4 1.2 1.1 1.6 0.9 0.2China Mobile 78.15 112.00 51.6 |||||||||||||||||Buy 204,456 136,375 4.4 3.3 3.1 14 12 11 4.2 6.5 9.2 3.2 8.3 8.8China Telecom 3.85 5.40 43.1 |||||||||||||||||Buy 39,885 54,167 3.7 3.6 3.3 15 13 12 2.3 3.9 7.9 2.9 2.8 4.0China Unicom 11.66 14.80 27.5 ||||||||||||| Buy 45,764 49,021 4.2 3.9 3.3 292 70 32 -9.5 12.6 10.0 0.0 0.5 1.2Dr. Peng Group 21.30 15.00 -28.8 |||||||||||||| Sell 4,577 3,993 9.2 8.2 7.2 36 39 35 2.1 6.5 1.4 0.8 0.8 0.9Wangsu Technology 9.36 8.90 -4.3 || Sell 3,407 2,923 10.0 19.4 14.7 13 28 28 2.8 -0.1 3.9 1.2 0.6 0.6HK Telecom Trust 9.60 11.50 26.4 ||||||||||||| Buy 7,885 12,443 9.2 7.5 7.4 17 15 14 4.1 4.8 5.1 5.7 6.6 6.7CITIC Telecom 2.23 3.20 49.8 |||||||||||||||||Buy 974 1,757 8.1 6.5 6.3 12 8 9 10.6 11.2 11.0 4.6 6.3 6.7Bharti Airtel Limited 492.30 580.00 18.1 ||||||||| Buy 30,346 45,400 6.6 7.8 7.1 22 30 24 -6.4 0.0 2.7 0.3 0.3 0.2Idea Cellular Limited 95.00 144.00 51.6 |||||||||||||||||Buy 5,257 12,547 7.8 8.6 7.0 55 -27 -192 13.2 3.2 -3.2 0.2 0.0 0.3XL Axiata 3,210 4,000 25.0 |||||||||||| Buy 2,019 2,967 6.7 4.6 4.0 -39 -6,791 24 8.0 4.7 12.0 0.0 0.4 1.2Indosat 5,525 8,900 62.4 |||||||||||||||||Buy 2,219 3,537 4.3 3.6 3.3 n.a. 20 16 7.5 16.1 13.6 0.4 1.3 1.7Telkom 4,200 5,250 28.3 |||||||||||||| Buy 30,634 30,836 6.6 6.2 5.8 19 18 17 7.6 7.5 7.4 3.0 3.3 3.9NTT 5,744 6,000 7.2 ||| Hold 112,055 160,785 5.0 5.6 5.7 13 12 14 7.4 6.9 6.1 2.5 2.8 2.6NTT Docomo 2,797 3,200 18.0 |||||||| Buy 103,424 102,615 7.0 7.5 7.4 16 13 14 3.3 6.0 6.4 2.9 3.6 3.4KDDI Corp 2,984 4,000 37.0 |||||||||||||||||Buy 71,613 79,921 5.9 5.9 5.7 14 13 12 6.4 8.0 8.1 2.6 3.0 3.3KT Corp 29,300 31,000 9.2 |||| Hold 6,989 11,124 2.7 2.5 2.4 11 11 11 17.6 11.1 13.5 2.6 3.4 3.3LG Uplus 12,500 14,000 15.1 ||||||| Hold 4,986 7,691 3.5 3.3 3.0 10 10 9 15.5 13.7 16.7 3.2 3.1 3.5SK Telecom 254,500 310,000 25.7 |||||||||||| Buy 18,773 14,325 3.2 3.2 2.6 10 7 7 4.5 3.1 5.4 4.6 3.9 3.9DiGi 4.74 4.30 -5.4 || Sell 8,856 9,351 13.5 13.6 14.4 23 25 27 2.0 3.5 3.5 4.3 3.8 3.5Maxis 5.93 5.70 -0.5 Hold 10,687 12,915 12.0 11.7 11.7 23 23 25 3.6 5.0 6.4 3.3 3.4 3.4Telekom Malaysia 5.99 6.75 16.1 |||||||| Buy 5,149 6,213 7.7 6.5 6.2 31 24 22 -1.7 2.6 5.9 3.2 3.4 3.7Spark NZ 3.63 4.00 17.1 |||||||| Buy 4,522 5,252 7.2 7.5 7.3 17 16 15 4.3 4.9 5.4 7.0 6.8 6.9Globe Telecom 1,915 2,100 14.4 ||||||| Hold 4,996 6,329 6.5 6.0 5.7 17 16 15 -9.4 1.9 5.2 4.5 4.8 4.9PLDT, Inc. 1,660 1,700 6.6 ||| Hold 7,056 8,025 7.3 5.8 5.4 14 14 17 2.1 6.5 8.0 5.9 4.2 3.6M1 1.77 2.30 36.6 |||||||||||||||||Buy 1,169 1,480 8.5 6.3 6.9 15 12 14 8.9 5.0 -2.2 5.3 6.7 5.8Singapore Telecom 3.68 4.30 21.9 |||||||||| Buy 43,299 24,598 7.9 6.8 6.1 16 15 13 4.5 5.0 6.3 4.5 5.0 5.8Starhub 2.83 3.50 29.3 |||||||||||||| Buy 3,587 4,145 9.6 8.1 7.7 18 15 15 3.1 4.6 8.0 5.8 5.7 5.7Chunghwa Telecom 103.00 105.00 6.7 ||| Hold 26,572 26,057 10.3 9.8 9.0 21 21 21 4.9 3.8 5.3 4.7 4.7 4.6Far EasTone Telecom 70.90 80.00 18.1 ||||||||| Hold 7,683 8,558 9.4 9.2 7.7 21 21 20 9.7 7.8 7.9 5.1 5.3 5.3Taiwan Mobile 107.50 100.00 -1.8 Hold 9,637 11,255 10.0 10.3 9.9 19 19 20 6.1 5.1 6.5 5.2 5.2 5.2AIS 182.50 184.00 5.6 || Hold 16,435 19,119 9.2 8.9 7.9 15 18 16 5.4 4.3 5.1 6.4 4.7 4.5TAC 45.75 62.00 35.5 |||||||||||||||||Buy 3,296 4,083 4.1 4.9 5.6 39 -255 120 10.4 4.7 -0.4 1.2 0.0 0.4True Corporation 5.85 7.00 19.7 ||||||||| Hold 4,380 6,176 11.2 5.8 6.6 -87 -47 -53 -2.8 -4.3 -6.0 0.0 0.0 0.0Sector median 7.7 6.7 6.7 16.2 14.3 15.3 4.3 4.9 6.0 3.1 3.4 3.5

EV/EBITDA (x) * P/E (x)* Div. Yield (%) *FCF Yield (%) *

Source: Deutsche Bank estimates, Bloomberg Finance LP

21 November 2017

Telecommunications



Plan pricing compared Figure 120: Mobile prices

Data Voice Cost / Cost / NoteGB minutes month USD

AustraliaTelstra 2.0 500 39 30 SIM only plan Optus 3.0 no limit 30 23 SIM only plan VHA 2.0 no limit 30 23 SIM only plan

ChinaChina Mobile 1.0 300 88 13.3China Unicom 1.0 100 25 3.8 Data within province onlyChina Unicom 3.5 300 50 7.5 Data within province only + 2GB off-peak data China Telecom 2.0 300 50 7.5 Data within province only (Shanghai)

HKHKT CSL 2.5 Unlimited 238 31SunMobile 3.0 3000 178 23SmarTone 2.5 3000 238 31Hutchison 2.5 218 28 4.5G Data SIM Monthly Plan; 24 month contract

IndiaBharti 1.5 0 146 2.2 28 days validityBharti 28 (1GB/day) Unlimited 349 5.4 28 days validityIdea 28 (1GB/day) Unlimited 179 2.8 28 days validityIdea 45 (1.5GB/day) Unlimited 357 5.5 28 days validityVodafone 2.0 0 175 2.7 28 days validityVodafone 5.5 0 397 6.1 28 days validityJio 4.2 (0.15GB day) Unlimited 149 2.3 28 days validityJio 49 (1GB day limit) Unlimited 309 4.8 28 days validity

IndonesiaTelkomsel 5.0 n/a 25,000 1.85 1GB normal quota + 2GB FB and BBM +2GB VideomaxIndosat 2.0 n/a 25,000 1.85 1.5GB normal quota + 0.5GB midnightXL 3.0 15 30,000 2.22 1GB normal quota + 1GB on 4G network + 1GB Youtube Hutch Tri 2.0 n/a 25,000 1.85 1GB normal quota + 1GB on 4G network

JapanNTT Docomo 2.0 no limit 6,200 55 Includes handset discountKDDI 3.0 6,200 55 Includes handset discountSoftbank 3.0 7,000 63 Includes handset discount

KoreaSK Telecom 2.2 Unlimited 42,000 38KT Corp 2.0 Unlimited 39,900 36LG Uplus 2.3 Unlimited 41,900 38

MalaysiaCelcom 10.0 NA 50 12 Free 10GB of Facebook and instagramMaxis 8.0 Unlimited 60 14 30GB happy hour Digi 10.0 NA 48 12 30GB bonus dataU-Mobile 12.0 Unlimited 50 12 Unlimited Waze, music onz, app onz, video onzWebe Unlimited Unlimited 79 19 Free 10GB LTE hotspot

SingaporeSingTel 2.5 800 27 20 PromotionStarHub 3.0 200 24 18 6GB for 12 month contract + unlimited weekend dataM1 5.0 100 40 29

TaiwanChunghwa 3.0 15 399 13Far EasTone 3.0 20 399 13

PhilippinesGlobe 1.5 50mins 600 12 Free Facebook, Free 10GB streaming (YouTube, Netflix, etc.)PLDT 3.0 20mins 400 8 Free Facebook, Whatsapp, Viber

Source: Deutsche Bank, company websites

21 November 2017

Telecommunications



Figure 121: Broadband prices

Speed Tech Cost Cost NoteMbps local USD

AustraliaTelstra 15 Fibre 70 53 24 month plan, pay as you go callsOptus 12 Fibre 60 45 24 month plan, pay as you go callsTPG 10 Fibre 60 45 18 month plan, pay as you go calls

ChinaChina Mobile 50 Fibre 25 4 12 mth plan. Jiangsu provinceChina Unicom 100 Fibre 99 15 Free IPTV and also RMB100 voucherChina Telecom 50 Fibre 117 18 Shanghai

HKHKT 300 Fibre 398 51 Can be HK$100, depending on locationHKBN 100 Fibre 158 20 my TV SUPER + Home phone+ 100 mins IDDi-Cable 200 CATV 88 11 36 mth plan

IndiaBharti 40 Fibre 2199 34 100GB data limit, unlimited callsMTNL 100 Fibre 4999 77 100 Mbps* Download Speed & 5 Mbps Upload Speed till 500GBJio 100 Fibre 2000 31 30 days validity, 1000GB data limit

IndonesiaTelkom 10 Fibre 250000 18 no commitment, pays upfront installation fee Linknet 12 CATV 299000 22 no commitment, upfront installation fee

JapanNTT Docomo 1,000 Fibre 3800 34KDDI 1,000 Fibre 5100 46Softbank 1,000 Fibre 3800 34

KoreaSK Telecom 500 Fibre 30000 27 All three tend to add IPTV for 35k bundled contractKT Corp 500 Fibre 30000 27LG Uplus 500 Fibre 28000 25

MalaysiaTelekom 300 Fibre 199 48

SingaporeSingTel 1,000 Fibre 50 37StarHub 1,000 Fibre 40 29M1 1,000 Fibre 39 29

TaiwanChunghwa 100 675 22

PhilippinesGlobe 10 DSL 1300 25 100 GB allowance/monthPLDT 10 DSL 1300 25 100 GB allowance/monthPLDT 20 Fibr 1900 37

Source: Deutsche Bank, company websites

21 November 2017

Telecommunications



Sector balance Figure 122: Market cap breakdown country-wise (last FY) Figure 123: Profit share breakdown country-wise (last

FY)

TLS

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AUS CHN HKG IND IDN JPN KOR PHP SGP TWN THL MLY Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP

We believe risk is higher in the markets where profits are high, and skewed to a single operator. We therefore remain cautious on high-profit markets, particularly Malaysia, from a regional top-down level, while we see KR, IN, CH and ID as having more potential.

We view mobile operators in MY, TH, CH, JP and SG as over-earning, and Bharti, CT/CU, and Telekom Malaysia as under-earning. We see greater profit focus at operators in India, Korea, China and the Philippines, which we find encouraging, and hence our regional preference for such markets.

Figure 124: Listed telco net profit/GDP Figure 125: ROE (rolling four-quarters)

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21 November 2017

Telecommunications



Rolling forward P/E Figure 126: Australia: Telstra Figure 127: Australia: TPG Figure 128: Australia: Vocus

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Figure 129: China Mobile Figure 130: China Telecom Figure 131: China Unicom

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Figure 132: Hong Kong Telecom Figure 133: HK: CITIC Figure 134: India: Bharti Airtel

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Figure 135: India: Idea Figure 136: India: RCom Figure 137: Indonesia: Indosat

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Overbought?

1 s.d cheap

1 s.d cheap

21 November 2017

Telecommunications



Figure 138: Indonesia: Telkom Figure 139: Indonesia: XL Axiata Figure 140: Japan: Docomo

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Figure 141: Japan: KDDI Figure 142: Japan: NTT Figure 143: Japan: SoftBank

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Figure 144: Korea: KT Corp Figure 145: Korea: LG UPlus Figure 146: Korea: SK Telecom

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Figure 147: Malaysia: Axiata Figure 148: Malaysia: DiGi Figure 149: Malaysia: Maxis

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1 s.d. cheap

Overbought?

1 s.d. cheap

Overbought?

21 November 2017

Telecommunications



Figure 150: Telekom Malaysia Figure 151: Spark New Zealand Figure 152: Philippines: Globe

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Figure 153: Philippines: PLDT Figure 154: Singapore: M1 Figure 155: Singapore Telecom

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Figure 156: Singapore: StarHub Figure 157: Taiwan: CHT Figure 158: Taiwan: FET

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Figure 159: Taiwan Mobile Figure 160: Thailand: AIS Figure 161: Thailand: DTAC

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21 November 2017

Telecommunications



Rolling EV/EBITDA

Many sharp rerates and derates in last two years

Figure 162: Australia: Telstra Figure 163: Australia: TPG Figure 164: Australia: Vocus

02468

101214

No

v-0

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v-0

8

No

v-0

9

No

v-1

0

No

v-1

1

No

v-1

2

No

v-1

3

No

v-1

4

No

v-1

5

No

v-1

6

No

v-1

7

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17


Figure 165: China Mobile Figure 166: China Telecom Figure 167: China Unicom

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17


Figure 168: Hong Kong Telecom Figure 169: HK: CITIC Figure 170: India: Bharti Airtel

02468

101214

No

v-0

7

No

v-0

8

No

v-0

9

No

v-1

0

No

v-1

1

No

v-1

2

No

v-1

3

No

v-1

4

No

v-1

5

No

v-1

6

No

v-1

7

02468

101214

No

v-0

7

No

v-0

8

No

v-0

9

No

v-1

0

No

v-1

1

No

v-1

2

No

v-1

3

No

v-1

4

No

v-1

5

No

v-1

6

No

v-1

7

02468

101214

No

v-0

7

No

v-0

8

No

v-0

9

No

v-1

0

No

v-1

1

No

v-1

2

No

v-1

3

No

v-1

4

No

v-1

5

No

v-1

6

No

v-1

7


21 November 2017

Telecommunications



Figure 171: India: Idea Figure 172: India: RCom Figure 173: Indonesia: Indosat

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17


Figure 174: Indonesia: Telkom Figure 175: Indonesia: XL Axiata Figure 176: Japan: Docomo

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17


Figure 177: Japan: KDDI Figure 178: Japan: NTT Figure 179: Japan: SoftBank

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17


Figure 180: Korea: KT Corp Figure 181: Korea: LG UPlus: Figure 182: Korea: SK Telecom:

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17


Extreme low valuation

Earnings crunch hurts

1 s.d. cheap

Overbought?

21 November 2017

Telecommunications



Figure 183: Malaysia: Axiata Figure 184: Malaysia: DiGi Figure 185: Malaysia: Maxis

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17


Figure 186: Telekom Malaysia Figure 187: Spark New Zealand Figure 188: Philippines: Globe

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17


Figure 189: Philippines: PLDT Figure 190: Singapore: M1 Figure 191: Singapore Telecom

02468

101214

No

v-0

7

No

v-0

8

No

v-0

9

No

v-1

0

No

v-1

1

No

v-1

2

No

v-1

3

No

v-1

4

No

v-1

5

No

v-1

6

No

v-1

7

02468

101214

No

v-0

7

No

v-0

8

No

v-0

9

No

v-1

0

No

v-1

1

No

v-1

2

No

v-1

3

No

v-1

4

No

v-1

5

No

v-1

6

No

v-1

7

02468

101214

No

v-0

7

No

v-0

8

No

v-0

9

No

v-1

0

No

v-1

1

No

v-1

2

No

v-1

3

No

v-1

4

No

v-1

5

No

v-1

6

No

v-1

7


Figure 192:Singapore: StarHub Figure 193:Taiwan: CHT Figure 194: Taiwan: FET

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17


21 November 2017

Telecommunications



Figure 195:Taiwan Mobile Figure 196: Thailand: AIS Figure 197:Thailand: DTAC

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17


Figure 198: Thailand: TRUE

02468

101214

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Nov

-14

Nov

-15

Nov

-16

Nov

-17

Source: Deutsche Bank, Bloomberg Finance LP

21 November 2017

Telecommunications



Other data Figure 199: Ranking of telco GDP growth (2017E) Figure 200: Net Debt/EBITDA

0

2

4

6

8

10

12

14

Bha

rti A

Idea

Rco

mC

h M

obC

h Te

lC

h U

niG

lobe

PLD

TA

xiat

aD

iGi

Max

isTe

l Mal

CIT

IC XLIn

dosa

tTe

lkom

Sing

Tel

AIS

DTA

CTr

ueH

K Tr

ust

KT C

orp

LG U

plus

SK T

elSp

ark

NZ

M1

Star

Hub

Tels

tra

Vocu

sTP

GC

hugh

wa

Far E

TTa

wn

Mob

Soft

Ban

kN

TTD

ocom

oKD

DI

GDP Growth Inflation

-4

-2

0

2

4

6

8

10

CM

Vocu

sC

HT

Doc

omo

TLKM

KDD

ID

iGi

CT

Spar

k N

ZFE

TSt

arhu

bKT

Cor

pSK

TJA

SN

TTTP

GD

TAC

Tel M

al MI

TWM AIS

LGU

TLS

Ave

rage

Indo

sat

CU

Glo

beM

axis

Axi

ata

XLSi

ngTe

lP

LDT

TRU

EH

KTB

hart

iC

ITIC

Soft

bank

Idea

Rco

m

Source: Deutsche Bank Source: Deutsche Bank, Companies

Figure 201: Revenue Beats vs Misses Figure 202: EBITDA Beat vs ,Misses

-3%

-2%

-1%

0%

1%

2%

3%

4%

12Q

312

Q4

13Q

113

Q2

13Q

313

Q4

14Q

114

Q2

14Q

314

Q4

15Q

115

Q2

15Q

315

Q4

16Q

116

Q2

16Q

316

Q4

17Q

117

Q2

17Q

3

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%12

Q3

12Q

413

Q1

13Q

213

Q3

13Q

414

Q1

14Q

214

Q3

14Q

415

Q1

15Q

215

Q3

15Q

416

Q1

16Q

216

Q3

16Q

417

Q1

17Q

217

Q3


21 November 2017

Telecommunications



Acknowledgement:

We would like to thank Sravya Kuntamukkula, of CRISIL, for her substantial contribution to this report

21 November 2017

Telecommunications



Appendix 1

Important Disclosures *Other information available upon request Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing. Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Peter Milliken Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.

Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock

Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.

Newly issued research recommendations and target prices supersede previously published research.

56 %

33 %

11 %17 % 17 % 11 %0

100

200

300

400

500

600

Buy Hold Sell

Asia-Pacific Universe

Companies Covered Cos. w/ Banking Relationship

21 November 2017

Telecommunications



Additional Information

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness. Hyperlinks to third-party websites in this report are provided for reader convenience only. Deutsche Bank neither endorses the content nor is responsible for the accuracy or security controls of those websites. If you use the services of Deutsche Bank in connection with a purchase or sale of a security that is discussed in this report, or is included or discussed in another communication (oral or written) from a Deutsche Bank analyst, Deutsche Bank may act as principal for its own account or as agent for another person. Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own account or with customers, in a manner inconsistent with the views taken in this research report. Others within Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis, equity-linked analysis, quantitative analysis and trade ideas. Recommendations contained in one type of communication may differ from recommendations contained in others, whether as a result of differing time horizons, methodologies, perspectives or otherwise. Deutsche Bank and/or its affiliates may also be holding debt or equity securities of the issuers it writes on. Analysts are paid in part based on the profitability of Deutsche Bank AG and its affiliates, which includes investment banking, trading and principal trading revenues. Opinions, estimates and projections constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank provides liquidity for buyers and sellers of securities issued by the companies it covers. Deutsche Bank research analysts sometimes have shorter-term trade ideas that may be inconsistent with Deutsche Bank's existing longer-term ratings. Trade ideas for equities can be found at the SOLAR link at http://gm.db.com. A SOLAR idea represents a high-conviction belief by an analyst that a stock will outperform or underperform the market and/or a specified sector over a time frame of no less than two weeks and no more than six months. In addition to SOLAR ideas, analysts may occasionally discuss with our clients, and with Deutsche Bank salespersons and traders, trading strategies or ideas that reference catalysts or events that may have a near-term or medium-term impact on the market price of the securities discussed in this report, which impact may be directionally counter to the analysts' current 12-month view of total return or investment return as described herein. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof if an opinion, forecast or estimate changes or becomes inaccurate. Coverage and the frequency of changes in market conditions and in both general and company-specific economic prospects make it difficult to update research at defined intervals. Updates are at the sole discretion of the coverage analyst or of the Research Department Management, and the majority of reports are published at irregular intervals. This report is provided for informational purposes only and does not take into account the particular investment objectives, financial situations, or needs of individual clients. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst’s judgment. The financial instruments discussed in this report may not be suitable for all investors, and investors must make their own informed investment decisions. Prices and availability of financial instruments are subject to change without notice, and investment transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Performance calculations exclude transaction costs, unless otherwise indicated. Unless otherwise indicated, prices are current as of the end of the previous trading session and are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is also sourced from Deutsche Bank, subject companies, and other parties. The Deutsche Bank Research Department is independent of other business divisions of the Bank. Details regarding organizational arrangements and information barriers we have established to prevent and avoid conflicts of interest with respect to our research are available on our website under Disclaimer, found on the Legal tab.

21 November 2017

Telecommunications



Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise to pay fixed or variable interest rates. For an investor who is long fixed-rate instruments (thus receiving these cash flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation (including changes in assets holding limits for different types of investors), changes in tax policies, currency convertibility (which may constrain currency conversion, repatriation of profits and/or liquidation of positions), and settlement issues related to local clearing houses are also important risk factors. The sensitivity of fixed-income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to FX depreciation, or to specified interest rates – these are common in emerging markets. The index fixings may – by construction – lag or mis-measure the actual move in the underlying variables they are intended to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. Funding in a currency that differs from the currency in which coupons are denominated carries FX risk. Options on swaps (swaptions) the risks typical to options in addition to the risks related to rates movements. Derivative transactions involve numerous risks including market, counterparty default and illiquidity risk. The appropriateness of these products for use by investors depends on the investors' own circumstances, including their tax position, their regulatory environment and the nature of their other assets and liabilities; as such, investors should take expert legal and financial advice before entering into any transaction similar to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than the amount of funds initially deposited – up to theoretically unlimited losses. Trading in options involves risk and is not suitable for all investors. Prior to buying or selling an option, investors must review the "Characteristics and Risks of Standardized Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the website, please contact your Deutsche Bank representative for a copy of this important document. Participants in foreign exchange transactions may incur risks arising from several factors, including: (i) exchange rates can be volatile and are subject to large fluctuations; (ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government-imposed exchange controls, which could affect the value of the currency. Investors in securities such as ADRs, whose values are affected by the currency of an underlying security, effectively assume currency risk. Deutsche Bank is not acting as a financial adviser, consultant or fiduciary to you or any of your agents with respect to any information provided in this report. Deutsche Bank does not provide investment, legal, tax or accounting advice, and is not acting as an impartial adviser. Information contained herein is being provided on the basis that the recipient will make an independent assessment of the merits of any investment decision, and is not meant for retirement accounts or for any specific person or account type. The information we provide is directed only to persons we believe to be financially sophisticated, who are capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies, and who understand that Deutsche Bank has financial interests in the offering of its products and services. If this is not the case, or if you or your agent are an IRA or other retail investor receiving this directly from us, we ask that you inform us immediately. Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. Aside from within this report, important risk and conflict disclosures can also be found at https://gm.db.com on each company’s research page and under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing. United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and SIPC. Analysts located outside of the United States are employed by non-US affiliates that are not subject to FINRA regulations, including those regarding contacts with issuer companies. Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporated in the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized under

21 November 2017

Telecommunications



German Banking Law and is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal Financial Supervisory Authority. United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at Winchester House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by the Prudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and Financial Conduct Authority. Details about the extent of our authorisation and regulation are available on request. Hong Kong: Distributed by Deutsche Bank AG, Hong Kong Branch or Deutsche Securities Asia Limited. India: Prepared by Deutsche Equities India Private Limited (DEIPL) having CIN: U65990MH2002PTC137431 and registered office at 14th Floor, The Capital, C-70, G Block, Bandra Kurla Complex Mumbai (India) 400051. Tel: + 91 22 7180 4444. It is registered by the Securities and Exchange Board of India (SEBI) as a Stock broker bearing registration nos.: NSE (Capital Market Segment) - INB231196834, NSE (F&O Segment) INF231196834, NSE (Currency Derivatives Segment) INE231196834, BSE (Capital Market Segment) INB011196830; Merchant Banker bearing SEBI Registration no.: INM000010833 and Research Analyst bearing SEBI Registration no.: INH000001741. DEIPL may have received administrative warnings from the SEBI for breaches of Indian regulations. Deutsche Bank and/or its affiliate(s) may have debt holdings or positions in the subject company. With regard to information on associates, please refer to the “Shareholdings” section in the Annual Report at: https://www.db.com/ir/en/annual-reports.htm. Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for certain categories of investment advice, products and services. Recommended investment strategies, products and services carry the risk of losses to principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan. Target prices set by Deutsche Bank's equity analysts are based on a 12-month forecast period.. Korea: Distributed by Deutsche Securities Korea Co. South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Singapore: This report is issued by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles Quay #18-00 South Tower Singapore 048583, +65 6423 8001), which may be contacted in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated by Deutsche Bank in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), they accept legal responsibility to such person for its contents. Taiwan: Information on securities/investments that trade in Taiwan is for your reference only. Readers should independently evaluate investment risks and are solely responsible for their investment decisions. Deutsche Bank research may not be distributed to the Taiwan public media or quoted or used by the Taiwan public media without written consent. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation to trade in such securities/instruments. Deutsche Securities Asia Limited, Taipei Branch may not execute transactions for clients in these securities/instruments.

21 November 2017

Telecommunications



Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre Regulatory Authority. Deutsche Bank AG - QFC Branch may undertake only the financial services activities that fall within the scope of its existing QFCRA license. Its principal place of business in the QFC: Qatar Financial Centre, Tower, West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available only to Business Customers, as defined by the Qatar Financial Centre Regulatory Authority. Russia: The information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation. Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company (registered no. 07073-37) is regulated by the Capital Market Authority. Deutsche Securities Saudi Arabia may undertake only the financial services activities that fall within the scope of its existing CMA license. Its principal place of business in Saudi Arabia: King Fahad Road, Al Olaya District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia. United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may undertake only the financial services activities that fall within the scope of its existing DFSA license. Its principal place of business in the DIFC: Dubai International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been distributed by Deutsche Bank AG. Related financial products or services are available only to Professional Clients, as defined by the Dubai Financial Services Authority. Australia: Retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Please refer to Australia-specific research disclosures and related information at https://australia.db.com/australia/content/research-information.html Australia and New Zealand: This research is intended only for "wholesale clients" within the meaning of the Australian Corporations Act and New Zealand Financial Advisors Act, respectively. Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published without Deutsche Bank's prior written consent. Copyright © 2017 Deutsche Bank AG

David Folkerts-Landau

Group Chief Economist and Global Head of Research

Raj Hindocha Global Chief Operating Officer

Research

Michael Spencer Head of APAC Research

Global Head of Economics

Steve Pollard Head of Americas Research

Global Head of Equity Research

Anthony Klarman Global Head of Debt Research

Paul Reynolds Head of EMEA

Equity Research

Dave Clark Head of APAC

Equity Research

Pam Finelli Global Head of

Equity Derivatives Research

Andreas Neubauer Head of Research - Germany

Spyros Mesomeris Global Head of Quantitative

and QIS Research

International locations Deutsche Bank AG Deutsche Bank Place Level 16 Corner of Hunter & Phillip Streets Sydney, NSW 2000 Australia Tel: (61) 2 8258 1234

Deutsche Bank AG Mainzer Landstrasse 11-17 60329 Frankfurt am Main Germany Tel: (49) 69 910 00

Deutsche Bank AG Filiale Hongkong International Commerce Centre, 1 Austin Road West,Kowloon, Hong Kong Tel: (852) 2203 8888

Deutsche Securities Inc. 2-11-1 Nagatacho Sanno Park Tower Chiyoda-ku, Tokyo 100-6171 Japan Tel: (81) 3 5156 6770

Deutsche Bank AG London 1 Great Winchester Street London EC2N 2EQ United Kingdom Tel: (44) 20 7545 8000

Deutsche Bank Securities Inc. 60 Wall Street New York, NY 10005 United States of America Tel: (1) 212 250 2500

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