Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We...

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ed-TH / sa- MA Is the Stabilising Competition Priced In? Telecommunication stocks rallied last year But we see further potential upside from big operators Positive industry trend expected to sustain this year We prefer TLKM and EXCL for 2016 Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry trend. Indonesia's telecommunication sector rallied last year on the stabilising competition among operators. However, Indonesia operators' EV/EBITDA multiple are still at a 22% discount relative to their ASEAN peers. Particular for EXCL, it is still trading below its 5-year historical average multiple. We believe current positive industry trend will sustain. Stabilising competition trend will sustain ahead on the absence of pricing competition among operators, mainly from smaller players like Hutch and Smartfren. We do not see them aggressively attacking the market going forward, but on the other hand, both operators, like their larger competitors will focus on investing in 4G LTE and they will capitalise on the stabilising industry trend, as an opportunity to fix their financial positions. According to our checks, both were still facing financial difficulties last year. We like EXCL and TLKM. We believe both will benefit the most from the industry dynamics and we see further potential upside for their stock prices this year. Telkomsel , thanks to its market leader position, will benefit the most as positive data pricing trend should provide another growth driver besides its legacy voice and SMS segments in ex. Java market. We also believe TLKM should be valued at a premium relative to its smaller peers. With similar EBITDA growth outlook, capex trend and valuation (both at -1SD 5-year average EV/EBITDA) relative to ISAT (HOLD), we prefer EXCL as the new industry dynamic is in line with its new strategy. Hence, this could accelerate its business turnaround agenda. Moreover, its 2,500-tower divestment plan is also positive for its balance sheet. Key risks to our call on EXCL are its weak balance sheet. We reiterate our HOLD rating for TBIG as we see limited sites and tenants' growth potential this year given its stretched balance sheet. JCI : 4,414.13 Analyst Sachin Mittal +65 6682 3699 [email protected] William Simadiputra +62 2130034939 [email protected] STOCKS Source: DBS Bank, DBS Vickers XL Axiata: GSM telecommunications Telekomunikasi Indonesia: Fixed and cellular telecommunication services Indosat: Fixed and cellular telecommunication services Tower Bersama Infrastructure: Bersama provides telecommunication infrastructure services to Indonesian wireless carriers. PT Sarana Menara Nusantara PT Sarana Menara Nusantara Tbk, through a subsidiary, build telecommunications towers. The Company constructs, operates and rents the towers to mobile telecommunications services providers Indonesia data yield trend (1Q12-3Q15) 158 149 150 140 131 123 110 87 71 65 59 51 47 39 41 142 192 180 164 105 97 74 69 50 50 43 40 33 35 33 0 50 100 150 200 250 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 Rp per MB Revenue per MB Telkomsel XL Axiata Source: DBS Bank, DBS Vickers DBS Group Research . Equity 22 Jan 2016 Indonesia Industry Focus Telecommunication sector Refer to important disclosures at the end of this report Price Mkt Cap Target Performance (%) Rp US$m Price Rp 3 mth 12 mth Rating XL Axiata 3,680 2,273 4,970 13.6 (20.9) BUY Telekomunikasi Indonesia 3,095 22,564 3,500 13.0 6.7 BUY Indosat 5,100 2,004 4,950 24.4 17.1 HOLD Tower Bersama 5,675 1,969 6,400 (20.4) (40.7) HOLD Sarana Menara Nusantara 4,500 3,321 5,000 N.A N.A HOLD

Transcript of Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We...

Page 1: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

ed-TH / sa- MA

Is the Stabilising Competition Priced In?

Telecommunication stocks rallied last year

But we see further potential upside from big operators

Positive industry trend expected to sustain this year

We prefer TLKM and EXCL for 2016

Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry trend. Indonesia's telecommunication sector rallied last year on the stabilising competition among operators. However, Indonesia operators' EV/EBITDA multiple are still at a 22% discount relative to their ASEAN peers. Particular for EXCL, it is still trading below its 5-year historical average multiple.

We believe current positive industry trend will sustain.

Stabilising competition trend will sustain ahead on the absence of pricing competition among operators, mainly from smaller players like Hutch and Smartfren. We do not see them aggressively attacking the market going forward, but on the other hand, both operators, like their larger competitors will focus on investing in 4G LTE and they will capitalise on the stabilising industry trend, as an opportunity to fix their financial positions. According to our checks, both were still facing financial difficulties last year.

We like EXCL and TLKM. We believe both will benefit the most from the industry dynamics and we see further potential upside for their stock prices this year. Telkomsel , thanks to its market leader position, will benefit the most as positive data pricing trend should provide another growth driver besides its legacy voice and SMS segments in ex. Java market. We also believe TLKM should be valued at a premium relative to its smaller peers. With similar EBITDA growth outlook, capex trend and valuation (both at -1SD 5-year average EV/EBITDA) relative to ISAT (HOLD), we prefer EXCL as the new industry dynamic is in line with its new strategy. Hence, this could accelerate its business turnaround agenda. Moreover, its 2,500-tower divestment plan is also positive for its balance sheet. Key risks to our call on EXCL are its weak balance sheet. We reiterate our HOLD rating for TBIG as we see limited sites and tenants' growth potential this year given its stretched balance sheet.

JCI : 4,414.13

Analyst Sachin Mittal +65 6682 3699 [email protected] William Simadiputra +62 2130034939 [email protected]

STOCKS

Source: DBS Bank, DBS Vickers XL Axiata: GSM telecommunications

Telekomunikasi Indonesia: Fixed and cellular telecommunication services

Indosat: Fixed and cellular telecommunication services

Tower Bersama Infrastructure: Bersama provides telecommunication infrastructure services to Indonesian wireless carriers.

PT Sarana Menara Nusantara

PT Sarana Menara Nusantara Tbk, through a subsidiary, build telecommunications towers. The Company constructs, operates and rents the towers to mobile telecommunications services providers

Indonesia data yield trend (1Q12-3Q15)

158

149 150140

131 123110

8771 65 59 51 47 39 41

142

192 180164

105 97

74 6950 50 43 40 33 35 330

50

100

150

200

250

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

Rp per MB Revenue per MB

Telkomsel XL Axiata

Source: DBS Bank, DBS Vickers

DBS Group Research . Equity 22 Jan 2016

Indonesia Industry Focus

Telecommunication sector

Refer to important disclosures at the end of this report

Price Mkt Cap Target Performance (%)

Rp US$m Price Rp 3 mth 12 mth Rating

XL Axiata 3,680 2,273 4,970 13.6 (20.9) BUY Telekomunikasi Indonesia 3,095 22,564 3,500 13.0 6.7 BUY Indosat 5,100 2,004 4,950 24.4 17.1 HOLD Tower Bersama 5,675 1,969 6,400 (20.4) (40.7) HOLD Sarana Menara Nusantara 4,500 3,321 5,000 N.A N.A HOLD

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Industry Focus

Telecommunication sector

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We like TLKM and EXCL for 2016

We reiterate TLKM as our top pick (BUY, TP Rp3,550, FY16 EV/EBITDA of 7.9x) given its resilient growth mainly from its cellular subsidiary Telkomsel. We believe TLKM will benefit the most on the stabilising industry trend, mainly on data pricing, as it has an extra growth vehicle besides its legacy's voice and SMS business. TLKM has the strongest balance sheet and financial flexibility, which guarantee its expansion capability to maintain market share. We also like EXCL (BUY, TP Rp4,970, FY16 EV/EBITDA of 8.0x) for its undemanding valuation; despite the strong EBITDA growth performance year-to-date in 2015. We believe EXCL's business turnaround will continue this year. Both operators' valuations also look undemanding relative to their regional peers. On the other hand, we rate ISAT with HOLD as the stock price has risen 36% since our upgrade last month. 3Q15 EBITDA performance remained strong on network modernisation completion, and stabilising industry trend will benefit ISAT, given it data-centric subscribers. However, we do not see any stock price potential upside left at this point. On tower companies, we downgrade TOWR (TP Rp5,000, FY16 EV/EBITDA of 13.0x) to HOLD given limited stock price potential upside left though we still believe that it will continue to benefit from Hutch and Telkomsel BTS's expansion. Both operators have no M&A or any other internal factors to keep expanding their networks and maintain market share. On the other hand, we reiterate our HOLD call for TBIG with a TP of Rp6,400 (FY16 EV/EBITDA of 16.0x) as its valuation is demanding relative to TOWR, although both have relatively similar growth prospects.

Valuation: We are cautiously selecting our picks after

telecommunication stock prices rallied last year

Stock price rally in 3Q15-4Q15 reflected market sentiment turnaround on Indonesia's telecommunication sector as the overall industry trend is moving in a positive direction. Hence, we believe the market has partially priced in the positive trend in Indonesia telecommunication sector. Going forward, we also believe the market will pay close attention to the key industry this year like the quarterly data yield/pricing which reflect the competition dynamics among operators. At this point, however, we see ISAT and TOWR's stock prices becoming less attractive relative to TLKM and EXCL's, since both stocks rallied in the past two months and are left with only limited upside potential. We also see limited room to further upgrade our earnings forecast given that we have accounted for

the positive impact on the improving telecommunication industry trend in our forecast. TLKM is now trading at higher than its historical 5-year EV/EBITDA multiple (+2SD) and we think TLKM deserves a higher multiple relative to its historical level, given its subsidiary Telkomsel's domination in Indonesia's telecommunication industry. Telkomsel will benefit the most from the stabilising industry trend as its data business will provide a growth vehicle besides its legacy voice and SMS. We also believe Telkomsel will continue to influence the market price trend dynamics as seen so far. Moreover, historically, Telkomsel has performed well even within an unfavourable industry trend amid tight competition with its smaller competitors. Both ISAT and EXCL are trading at their -1SD 5-year historical EV/EBITDA multiple, which are undemanding, in our view. But in the meantime we prefer EXCL given that its stock price performance has been lagging relative to its sector, despite EXCL's positive quarterly EBITDA growth trend in 3Q15. On the other hand, ISAT's stock price has rallied steeply since our last upgrade. On the tower-co, we see a market switch to TOWR, sending its valuation to +1SD as the market recognises TOWR's ample room to grow its sites and tenants, thanks to its unlevered balance sheet. On the other hand, market punished TBIG on the fall-out of the Mitratel transaction, leaving its balance sheet levered and in the meantime, TBIG should pay attention to its balance sheet, not market share, implying slower growth momentum in 2016.

Stock performance: TLKM and ISAT lead the

telecommunication sector in 2015

Indonesia's telecommunication stock prices have risen by 12% YTD. The leaders so far are TLKM and ISAT, whose stock prices rose by 26% and 18% respectively in 2015, following the stabilising data pricing competition among operators. TOWR also rose by 21% in 2015 due to its solid sites and tenants growth, thanks to its unlevered balance sheet which enable TOWR to pursue more aggressive growth relative to its competitors. On the other hand, the underperformers so far are TBIG and EXCL. TBIG's share price correction was in part due to the street's disappointment that the Mitratel transaction was halted after a prolonged delay. The Mitratel transaction was one of the strongest catalysts for the stock in the past one year and consensus had accounted for the positive impact of the transaction. Moreover, TBIG's stretched balance sheet prevents it from growing as well as its smaller competitor TOWR.

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Industry Focus

Telecommunication sector

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On the other hand, we see EXCL's share price correcting on concerns over its exposure to US$ debt (67% of total loan) although it is still on track with its turnaround story. Management has also stated that they will accelerate the loan repayment, and replace it with another loan with more competitive terms. Moreover, we see that the turnaround story is on track and the new strategy will continue to be the key driver for EXCL's top line and profitability.

Stock price performance in 2015

‐40%

21%26%

‐22%

18%

‐50%

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

TBIG TOWR ISAT EXCL TLKM

2015 stock performance

Source: DBS Bank, DBS Vickers, Companies

Five-year EV/EBITDA band

TLKM

Average

+1 stdev

+2 stdev

-1 stdev

-2 stdev

3.0

4.0

5.0

6.0

7.0

8.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

(x)

EXCL

Average

+1 stdev

+2 stdev

-1 stdev

-2 stdev

4.0

6.0

8.0

10.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

(x)

TBIG

Average

+1 stdev

+2 stdev

-1 stdev

-2 stdev9.0

13.0

17.0

21.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

(x)

ISAT

Average

+1 stdev

+2 stdev

-1 stdev

-2 stdev

2.0

3.0

4.0

5.0

6.0

7.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

(x)

TOWR

Average

+1 stdev

+2 stdev

-1 stdev

-2 stdev

7.0

9.0

11.0

13.0

15.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

(x)

Source: DBS Bank, DBS Vickers, Companies

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Industry Focus

Telecommunication sector

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Key risks

Our central scenario is the stabilising competition in the industry, which we believe will positively impact operators' growth momentum, mainly TLKM and EXCL. On the other hand, we do not see any significant changes or consolidation among operators that could trigger better industry recovery this year. Moreover, we also do not see potential disruption to/worsening competition, mainly from smaller competitors since we believe all operators will focus on fixing their own financial positions in the meantime. We are also aware that our central case scenario assumption has risk potential : Worsening competition among operators, mainly on pricing.

In the event that smaller operators like Hutch start to hit back at the market with cheaper data bundle, competition may worsen, and operators may not be able to maintain such stable pricing on their products, thereby posing risk to top-line and EBITDA growth target. On the other hand, if the competition is softer than what we are expecting this year, this could potentially trigger a data pricing hike and result in better-than-expected earnings performance and capital spending.

Execution risk. Whether operators can translate the stabilising data pricing competition into top-line and earnings growth going forward. To be more specific, Telkomsel's capability to maintain its superiority in terms of market share, pricing and earnings growth going forward. On EXCL, our forecast is dependent on its capability to maintain its business turnaround post Axis acquisition.

Regulation dynamic changes. Whether any material regulation changes could affect operators or tower-co competition, pricing or any other changes.

Supported by the stabilisation in data pricing sign

softening pricing wars

Operators' 4G LTE roll-out next year will be supported by the stabilising industry competition mainly on data pricing. Subscribers' behavioral change from being price sensitive (2010-2014) into service quality-conscious subscribers who are less price sensitive, also supports the operators' decision to raise prices and improve its financial performance . Competition among operators, mainly on data pricing, is cooling down as seen in 3Q15's stabilising data yield trend. EXCL's new strategy focuses on high-quality subs and has resulted in less pressure for industry data pricing. EXCL's data yield expansion is a positive indicator for Indonesia's cellular industry on healthier pricing competition ahead. EXCL initiated what we call the data

price war when it tried to aggressively expand its market share in 2010. Better industry trend is also supported by Hutch, which according to our channel check and talk with operators, that it's relatively supportive on better data pricing structure. Hutch has so far not disrupted the stabilised data market by offering attractive data packages like it used to do. On our last check on local radio advertising, Hutch was running a campaign 'Ubah Dengan Bicara', an initiative to encourage its subscribers to 'talk more and less chat, less data. We understand this is part of its initiatives to divert its subs to use more voice services which generate better yield to support Hutch's revenue and profitability performance. Our latest conference calls with TLKM and ISAT also point to the same industry trend. TLKM, via its subsidiary Telkomsel, will continue to gradually increase its data price, testing the water at the areas where Telkomsel has the strongest footprints. ISAT also signals that the industry data pricing dynamics are heading in the right direction. We believe the current stabilising data yield will be sustained next year, if not higher, as we do not see any price competition among top operators so far. Recent 4G roll-out from Smart-Fren, a shift from CDMA-centric operators, will also not disrupt the pricing as Smart-Fren does not aggressively emphasise on cheaper packages and its 4G roll-out is a company initiative to ride toward the data segment recovery mainly on the pricing trend in order to fix its prolonged financial problem. Data yield (revenue per MB)

158

149 150140

131 123110

8771 65 59 51 47 39 41

142

192 180164

105 97

74 6950 50 43 40 33 35 330

50

100

150

200

250

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

Rp per MB Revenue per MB

Telkomsel XL Axiata

Source: DBS Bank, DBS Vickers, Companies

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Industry Focus

Telecommunication sector

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Stable voice and SMS pricing led by Telkomsel

Voice and SMS Rpm (Rupiah per minute) also keep showing positive trend among big three operators. Telkomsel continues to lead voice and SMS pricing hike given its strong domination in voice and SMS market segment both in Java and ex. Java. Telkomsel's revenue per minute declined to Rp146 in 3Q15. On the other hand, EXCL raised its revenue per minute to Rp161 (see chart), meanwhile ISAT's revenue per minute is relatively stable q-o-q at Rp143. The big three operators' revenues per minute are now at a relatively similar level, which we also believe to be a sign of stabilisation of voice revenue segments. Telkomsel as the leader in this segment and has room to lower its price in order to expand its subscriber acquisition, in our view. Meanwhile EXCL raised its voice price in order to support its business turnaround which is in progress. ISAT, we believe, is benefitting from the higher voice pricing as this will soften the revenue cannibalisation effect from the emerging data revenue. Revenue per SMS is also showing a healthy trend as seen in 3Q15. Following Telkomsel, EXCL also raised its SMS price which is reflected by its doubled q-o-q revenue per SMS to Rp42 per SMS (Telkomsel's Rp77 per SMS) in 3Q15. Operators tend to raise their SMS prices to offset the structural change in SMS usage, which is being substituted by application-based messaging like WhatsApp. Lowering the SMS pricing will not trigger subscribers to communicate via SMS too. Quarterly revenue per minute trend (rpm)

0

50

100

150

200

250

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

Rp per min Revenue per Minute 

Telkomsel XL Axiata Indosat

Source: DBS Bank, DBS Vickers, Companies

Revenue per SMS (Rp per SMS)

0

10

20

30

40

50

60

70

80

90

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

Rp per SMS Revenue per SMS

Telkomsel XL Axiata

Source: DBS Bank, DBS Vickers, Companies The healthy voice and SMS services also will be sustained as we do not see any disruption potential from smaller operators. Hutch, as we previously mentioned, also looks supportive in the voice segment as it encourage its subs to use its improving voice service quality. Better data pricing outlook helps operators and tower-co to maintain stable profitability

Improving data pricing is also positive for operators' profitability and strengthens current EBITDA margin level on service revenue. Operators posted stable profitability in 2Q15 amid stabilised data yield and operators' efficiency improvement. As part of the network expense, tower sites' stable leasing rate also supports operators' stable profitability this year. EBITDA margin trend (%)

0

10

20

30

40

50

60

70

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

% EBITDA margin (on service revenue)

Telkomsel XL Axiata Indosat

Source: DBS Bank, DBS Vickers, Companies

Telkomsel has the lowest network expense, at only a single digit 7% of revenue as the company has a long established network built in early 2000 around Indonesia. ISAT and EXCL, on the other hand, have relatively high network expenses at 42% and 33% of revenue respectively. ISAT's network

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Industry Focus

Telecommunication sector

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modernisation completion this year will lower its capex on network/cellular services, but we do not see the trend reversal yet as 4G network requires updates in antenna and any other supporting infrastructure installation for bigger data capacity. Management has indicated flat capex next year while the cellular business will continue to account for a large proportion (around 80% this year) of total capital spending.

% network expense to service revenue

0

5

10

15

20

25

30

35

40

45

50

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

% Network expense (% of service revenue)

Telkomsel XL Axiata Indosat

Source: DBS Bank, DBS Vickers, Companies Site rental rate also seems to be stable as both TOWR and TBIG still hold dominant market shares and hence, the current rental rate should be maintained, in our view. Another smaller tower-co , Solusi Tunas Pratama (SUPR IJ, not rated), the third largest tower-co in Indonesia by financial performance has also relatively modest with EBITDA margin of above 70%, this is indicate smaller tower-co apply similar rental rate with TOWR and TBIG. Capex spending to maintain growth momentum Operators' capital expenditure spending will remain high, 22-25% of service revenue going forward on network expansion mainly on 4G roll-out next year. We do not see operators' capex trending lower ahead as they will need to maintain their network expansion momentum or otherwise, lose market share. Network expansion also reflects operators' initiatives and strategy to increase service quality, as an avenue to grab market share beyond price wars, in our view. Expansion uptrend is also supported by Indonesia's underpenetrated internet and mobile phone markets, which indicate further expansion potential. ISAT's capex will continue to normalise , back to 20+% of revenue after the network modernisation is completed this year, the same level with FY14, and the company will continue spending lumpy capex ahead as its 4G roll-out requires additional infrastructure investments before it can fully operate.

Capex per service revenue trend

0

10

20

30

40

50

60

FY12 FY13 FY14

% Capex (% of service revenue)

Telkomsel XL Axiata Indosat

Source: DBS Bank, DBS Vickers, Companies The implication for the tower companies are, they will continue to experience relatively soft new site orders this year. We see only Telkomsel and Hutch leading the new BTS roll-out, given the absence of M&A in the last two years. This will benefit TOWR, our Indonesian telecommunication tower top pick. Tower Bersama's site additions will only be driven by Telkomsel as Hutch's contribution to its revenue is relatively small. Moreover, TOWR's balance sheet is less levered and hence, it can grow its tower site ownerships faster than TBIG next year, in our view. Balance sheet restructuring also in the operators' agenda Operators will also continue to reduce their foreign currency fluctuation risk by reducing their exposure to foreign currency-based loans. This is positive for operators' earnings quality and balance sheet strength going forward. We will not see operators deleveraging in the short to medium term as the investment cycle still has two years to go. In our view, the only deleveraging strategy is to divest non-core assets like telecommunication towers. ISAT and EXCL are currently considering to divest their remaining 8,500 and 2,500 towers respectively this year as a back-up plan in case they need to raise extra financing for business expansion.

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Industry Focus

Telecommunication sector

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Operators debt levels (X) and exposure to US$ loan (%)

2.62.8 2.9 2.8 2.7 2.7

2.4 2.4

0.4 0.4

0.7 0.666% 67% 67% 64%53% 57%

8% 11% 14% 14% 10% 11%

0

0.5

1

1.5

2

2.5

3

3.5

FY14 1Q15 2Q15 3Q15 FY14 1Q15 2Q15 3Q15 FY14 1Q15 2Q15 3Q15

EXCL ISAT TLKM

Net Debt to EBITDA USD loan %

Source: DBS Bank, DBS Vickers, Companies

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Industry Focus

Telecommunication sector

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Company Guides

Page 9: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: MA

BUY Last Traded Price: Rp3,680 (JCI : 4,414.13) Price Target : Rp4,970 (35% upside) Potential Catalyst: Improving quarterly performance, tower divestment Where we differ: We believe the new management can turn around the company Analyst Sachin Mittal +65 6682 3699 [email protected] William Simadiputra +62 2130034939 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rpbn) 2014A 2015F 2016F 2017F Revenue 23,106 23,367 24,983 25,919 EBITDA 8,161 8,698 9,362 9,667 Pre-tax Profit (1,397) 1,246 1,722 2,128 Net Profit (1,218) 934 1,292 1,596 Net Pft (Pre Ex.) (1,218) 934 1,292 1,596 Net Pft Gth (Pre-ex) (%) (167.3) (176.8) 38.2 23.6 EPS (Rp) (143) 110 152 188 EPS Pre Ex. (Rp) (143) 110 152 188 EPS Gth Pre Ex (%) nm nm 38 24 Diluted EPS (Rp) (143) 110 152 188 Net DPS (Rp) 0.0 60.4 91.1 113 BV Per Share (Rp) 1,641 1,751 1,842 1,939 PE (X) nm 33.5 24.2 19.6 PE Pre Ex. (X) nm 33.5 24.2 19.6 P/Cash Flow (X) 4.4 7.0 3.8 3.8 EV/EBITDA (X) 6.9 6.0 5.4 5.2 Net Div Yield (%) 0.0 1.6 2.5 3.1 P/Book Value (X) 2.2 2.1 2.0 1.9 Net Debt/Equity (X) 1.8 1.4 1.3 1.1 ROAE (%) (8.3) 6.5 8.5 9.9 Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 33.8 90.7 162 Other Broker Recs: B: 20 S: 0 H: 8

Source of all data: Company, DBS Bank, DBS Vickers, Bloomberg Finance L.P

Turnaround Efforts Continue This Year New management, new strategy. We maintain a BUY rating as the new management is expected to turn around the company with its new strategy. EXCL plans to adopt the dual-brand strategy - XL will be the premium digital lifestyle brand while Axis will be a tactical brand to serve the lower-end market. EXCL also intends to change the distribution model in Indonesia. The company wants to control and deal directly with the retail outlets and end customers. The role of the big distributors will change to that of a fulfillment centre. EXCL will also benefit most if operators consolidate. New strategy to focus on profitability. Going forward, EXCL will move away from its 'minute factory' strategy (i.e. high-gross-add model) and focus on improving EBITDA instead of attracting mid- and high-value subscribers. Axiata has committed to the new strategy and is willing to sacrifice some revenues in the near term. Improving quarterly trend, in line with our expectation. Revenue and EBITDA reached Rp5.8tn (+6.4% q-o-q, -4.2% y-o-y) and Rp2.2tn (+9.2% q-o-q, +4.2% y-o-y) in 3Q15, in line with our estimates (1H15 revenue and EBITDA cover 71% of our FY15 estimates). Valuation:

We rate EXCL a BUY with a DCF-based TP of Rp4,970, assuming 9.4% WACC and 1% terminal growth rate. Our target price implies FY15 EV/EBITDA of 8.0x. Key Risks to Our View:

Disruption to benign competition. If any player gets aggressive in gaining market share, the whole sector could be affected. Weaker rupiah, leveraged balance sheet. Because of high foreign debt, a weak rupiah could adversely hurt bottom line. At A Glance Issued Capital (m shrs) 8,541 Mkt. Cap (Rpbn/US$m) 31,432 / 2,273 Major Shareholders Axiata Group (%) 66.6 Elisalat Intl (%) 13.3 Parkmix Ltd (%) 16.0 Free Float (%) 20.1 3m Avg. Daily Val (US$m) 0.88 ICB Industry : Telecommunications / Mobile Telecommunications

DBS Group Research . Equity 22 Jan 2016

Indonesia Company Guide

XL Axiata Edition 2 Version 1 | Bloomberg: EXCL IJ | Reuters: EXCL.JK Refer to important disclosures at the end of this report

37

57

77

97

117

137

157

177

197

217

2,092.5

3,092.5

4,092.5

5,092.5

6,092.5

7,092.5

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Relative IndexRp

XL Axiata (LHS) Relative JCI INDEX (RHS)

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ASIAN INSIGHTS VICKERS SECURITIES Page 10

Company Guide

XL Axiata

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

New management, new strategy. After the appointment of the new CEO, EXCL has changed its strategy to focus on profitability and accelerate Axis-EXCL integration. EXCL plans to adopt the dual-brand strategy - XL will be the premium digital lifestyle brand while Axis will be a tactical brand to serve the lower-end market. EXCL also intends to change the distribution model in Indonesia. They want to control and directly deal with the retail outlets and end customers. The role of the big distributors will change to that of a fulfillment center. Focus on profitability rather than pricing wars. Going forward, EXCL will move away from its 'minute factory' strategy (i.e. high gross add model) and focus on improving EBITDA instead of attracting mid- and high-value subscribers. Axiata has committed to the new strategy and is willing to sacrifice some revenues in the near-term. Largest beneficiary when operators consolidate. Indonesia’s telecommunication industry is bottoming out as operators now try to raise data pricing. The consolidation could take off in the next 2-3 years according to our channel checks. The government has also given the green light. Slow industry recovery, persistent data pricing pressure. Despite raising headline pricing, telco operators have failed to raise effective pricing per MB. Data plans are costing consumers more but telcos are also offering larger data volumes, which is hurting per MB data revenue. Lower data pricing is hurting Indonesian telcos more due to high reliance on SMS revenues. SMS and voice services contributed 24% and 41% of XL's services revenues respectively in 4Q14. But these will be cannibalised by rising data usage as EXCL’s subscribers and service areas are mainly in the greater Java region. Greater Java subscribers use more data than SMS services, given better network infrastructure and data services in Java area. Transformation takes time. We understand the transformation will take time, as reflected by soft 1Q15 results. Revenue came in at Rp5.4tn in 1Q15 (flat y-o-y, -7.6% q-o-q), just short of expectation at 23% of our full-year forecast, but missed consensus expectations. There was persistent data pricing pressure - effective price per MB fell 18% q-o-q to Rp33. Moreover, total user base also shrank by 24% y-o-y to 52.1m users. EBITDA reached Rp1.9tn (-15% y-o-y, -18% q-o-q; 22% of full-year forecast) to deliver 35% margin (1Q14: 39%; 4Q14: 36%).

Subscribers (m)

ARPU (Rp K)

EBITDA margins (%)

Capex (Rp tn)

EBITDA (Rpbn)

Source: Company, DBS Bank, DBS Vickers

61.4 60.8

66.369.6

73.1

0.0

9.2

18.4

27.7

36.9

46.1

55.3

64.6

73.8

2013A 2014A 2015F 2016F 2017F

26.825.9 25.3 25.6 25.3

0.0

5.5

10.9

16.4

21.8

27.3

2013A 2014A 2015F 2016F 2017F

40.6

35.337.2 37.5 37.3

0.0

8.3

16.5

24.8

33.1

41.4

2013A 2014A 2015F 2016F 2017F

8

7

6

7 7

0.00

1.01

2.02

3.02

4.03

5.04

6.05

7.05

8.06

2013A 2014A 2015F 2016F 2017F

8,6608,161

8,6989,362

9,667

0

2,000

4,000

6,000

8,000

2013A 2014A 2015F 2016F 2017F

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ASIAN INSIGHTS VICKERS SECURITIES Page 11

Company Guide

XL Axiata

Balance Sheet:

Exposure to foreign debt. This means EXCL’s earnings would be affected by movements in foreign exchange rates. EXCL will continue to deleverage its balance sheet. EXCL also plans to divest non-core assets such as towers, like what Solusi Tunas Pratama (SUPR IJ Not rated) did in October last year. Stable capex to expand BTS network. EXCL’s capex will be stable at Rp6.5tn on average for the next three years, which implies capex per sales of 29%. The bulk of the capex will be allocated for network and BTS expansion in order to maintain market share and grow revenues.

Share Price Drivers:

Stock de-rating on delayed completion of Axis network integration. The share price de-rated in the last year because of the integration with Axis’s network took longer than expected, which resulted in EXCL missing consensus earnings expectations. IDR volatility also pressuring share price. Since EXCL’s balance sheet has a larger exposure to foreign debt, the share price is also pressured by a weakening IDR as investors continue to underweight companies with high exposure to USD debt.

Key Risks:

Disruption to benign competition. If any player becomes aggressive in gaining market share and triggers a new wave of price wars, the whole sector could be hurt. Weaker rupiah. Due to high foreign debt, a weak rupiah could adversely hurt bottom line. EXCL booked net losses in the past two years due to foreign exchange translation losses. Longer-than-expected Axis integration. If the Axis network integration is delayed beyond 1H16 (our assumed completion date), EXCL’s earnings and overall financial performance will be negatively impacted.

Company Background

EXCL provides a wide range of mobile telecommunication services in Indonesia. EXCL is owned by Axiata Group Berhad through Axiata Investments (Indonesia) Sdn. Bhd. (66.5%) and the public (33.5%).

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

EV/EBITDA Band (x)

PB Band (x)

Source: Company, DBS Bank, DBS Vickers

0.4

0.5

0.5

0.6

0.6

0.00

0.50

1.00

1.50

2.00

2013A 2014A 2015F 2016F 2017F

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

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

8,000.0

9,000.0

2013A 2014A 2015F 2016F 2017F

Capital Expenditure (-)

Rp

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2013A 2014A 2015F 2016F 2017F

Average

+1 stdev

+2 stdev

-1 stdev

-2 stdev

4.0

6.0

8.0

10.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

(x)

Avg: 2.83x

+1sd: 3.41x

+2sd: 3.99x

‐1sd: 2.25x

‐2sd: 1.67x

1.2

1.7

2.2

2.7

3.2

3.7

4.2

Jan-12 Jan-13 Jan-14 Jan-15

(x)

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ASIAN INSIGHTS VICKERS SECURITIES Page 12

Company Guide

XL Axiata

Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F Subscribers (m) 61.4 60.8 66.3 69.6 73.1 ARPU (Rp K) 26.8 25.9 25.3 25.6 25.3 EBITDA margins (%) 40.6 35.3 37.2 37.5 37.3 Capex (Rp tn) 7.98 7.09 6.08 6.75 6.65 EBITDA (Rpbn) 8,660 8,161 8,698 9,362 9,667

Segmental Breakdown

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rpbn) GSM Revenue 16,634 18,445 18,933 20,417 21,214 GSM interconnect 3,033 3,007 3,067 3,190 3,317 Other GSM 208 197 201 211 222 Others 1,476 1,457 1,166 1,166 1,166 Total 21,351 23,106 23,367 24,983 25,919

Income Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 21,351 23,106 23,367 24,983 25,919 Cost of Goods Sold (3,811) (3,465) (3,483) (3,756) (3,897) Gross Profit 17,540 19,641 19,884 21,227 22,022 Other Opng (Exp)/Inc (14,639) (18,301) (17,523) (18,391) (18,779) Operating Profit 2,901 1,339 2,361 2,837 3,243 Other Non Opg (Exp)/Inc (442) (1,390) (8.7) (8.7) (8.7) Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (293) (1,346) (1,106) (1,106) (1,106) Exceptional Gain/(Loss) (776) 0.0 0.0 0.0 0.0 Pre-tax Profit 1,390 (1,397) 1,246 1,722 2,128 Tax (357) 179 (312) (431) (532) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 1,033 (1,218) 934 1,292 1,596 Net Profit before Except. 1,809 (1,218) 934 1,292 1,596 EBITDA 8,660 8,161 8,698 9,362 9,667 Growth Revenue Gth (%) 0.3 8.2 1.1 6.9 3.7 EBITDA Gth (%) (11.1) (5.8) 6.6 7.6 3.3 Opg Profit Gth (%) (37.9) (53.8) 76.2 20.2 14.3 Net Profit Gth (Pre-ex) (%) (37.1) (167.3) (176.8) 38.2 23.6 Margins & Ratio Gross Margins (%) 82.2 85.0 85.1 85.0 85.0 Opg Profit Margin (%) 13.6 5.8 10.1 11.4 12.5 Net Profit Margin (%) 4.8 (5.3) 4.0 5.2 6.2 ROAE (%) 6.7 (8.3) 6.5 8.5 9.9 ROA (%) 2.7 (2.4) 1.6 2.4 2.9 ROCE (%) 6.8 3.1 3.6 4.7 5.3 Div Payout Ratio (%) 45.0 N/A 55.0 60.0 60.0 Net Interest Cover (x) 9.9 1.0 2.1 2.6 2.9

Source: Company, DBS Bank, DBS Vickers

Modest EBITDA growth as Axis network integration is still underway. Our EBITDA forecast is within the company's guidance

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ASIAN INSIGHTS VICKERS SECURITIES Page 13

Company Guide

XL Axiata

Quarterly / Interim Income Statement (Rpbn)

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 6,089 5,933 5,610 5,481 5,831 Cost of Goods Sold (943) (801) (513) (716) (534) Gross Profit 5,146 5,132 5,097 4,765 5,297 Other Oper. (Exp)/Inc (4,995) (4,351) (5,013) (4,545) (4,781) Operating Profit 151 516 84.5 219 515 Other Non Opg (Exp)/Inc (638) (191) (146) (1,405) (390) Net Interest (Exp)/Inc (45.8) (320) (177) (163) (185) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit (533) 5.00 (238) (1,349) (59.7) Tax 159 5.00 145 253 404 Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit (456) 10.0 (92.8) (757) 344 Net profit bef Except. (456) 10.0 (92.8) (757) 344 EBITDA 2,108 2,300 1,866 2,010 2,196 Growth Revenue Gth (%) 10.5 (2.6) (5.4) (2.3) 6.4 EBITDA Gth (%) (3.2) 9.1 (18.8) 7.7 9.2 Opg Profit Gth (%) (75.7) 242.8 (83.6) 159.4 135.0 Net Profit Gth (Pre-ex) (%) (220.4) (102.2) (1,028.1) 715.7 (145.5) Margins Gross Margins (%) 84.5 86.5 90.9 86.9 90.8 Opg Profit Margins (%) 2.5 8.7 1.5 4.0 8.8 Net Profit Margins (%) (7.5) 0.2 (1.7) (13.8) 5.9

Balance Sheet (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 33,896 35,859 29,998 30,218 30,446 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 2,448 14,538 14,538 14,538 14,538 Cash & ST Invts 1,328 6,951 2,321 3,407 4,323 Inventory 32.3 77.2 40.6 43.1 44.9 Debtors 512 1,130 561 600 622 Other Current Assets 1,464 5,151 5,151 5,151 5,151 Total Assets 39,681 63,706 52,608 53,956 55,125 ST Debt 4,310 4,077 4,077 4,077 4,077 Creditor 4,440 4,444 5,593 5,933 6,178 Other Current Liab 2,346 6,877 2,296 2,527 2,629 LT Debt 11,636 27,628 19,028 19,028 19,028 Other LT Liabilities 1,634 6,720 6,720 6,720 6,720 Shareholder’s Equity 15,315 13,961 14,895 15,673 16,494 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 39,681 63,706 52,608 53,956 55,125 Non-Cash Wkg. Capital (4,777) (4,963) (2,137) (2,665) (2,989) Net Cash/(Debt) (14,618) (24,753) (20,784) (19,698) (18,782) Debtors Turn (avg days) 8.7 13.0 13.2 8.5 8.6 Creditors Turn (avg days) (796.5) (483.1) (641.9) (759.5) (874.4) Inventory Turn (avg days) (5.8) (6.0) (7.5) (5.5) (6.4) Asset Turnover (x) 0.6 0.4 0.4 0.5 0.5 Current Ratio (x) 0.3 0.9 0.7 0.7 0.8 Quick Ratio (x) 0.2 0.5 0.2 0.3 0.4 Net Debt/Equity (X) 1.0 1.8 1.4 1.3 1.1 Net Debt/Equity ex MI (X) 1.0 1.8 1.4 1.3 1.1 Capex to Debt (%) 50.1 22.4 2.1 29.2 28.8 Z-Score (X) 1.6 0.9 1.2 1.3 1.3

Source: Company, DBS Bank, DBS Vickers

Positive q-o-q financial performance

With relatively stable profitability performance

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ASIAN INSIGHTS VICKERS SECURITIES Page 14

Company Guide

XL Axiata

Cash Flow Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 1,390 (1,397) 1,246 1,722 2,128 Dep. & Amort. 5,759 6,821 6,337 6,525 6,424 Tax Paid (696) (518) (776) (371) (481) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 195 362 (2,362) 469 273 Other Operating CF 528 1,881 0.0 0.0 0.0 Net Operating CF 7,177 7,150 4,445 8,346 8,343 Capital Exp.(net) (7,981) (7,095) (475) (6,746) (6,652) Other Invts.(net) 0.0 (9,583) 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (7,981) (16,678) (475) (6,746) (6,652) Div Paid (1,106) (540) 0.0 (514) (775) Chg in Gross Debt 2,430 16,070 (8,600) 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 17.0 (370) 0.0 0.0 0.0 Net Financing CF 1,341 15,161 (8,600) (514) (775) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 536 5,633 (4,631) 1,086 916 Opg CFPS (Rp) 821 798 800 926 949 Free CFPS (Rp) (94.5) 6.51 467 188 199

Source: Company, DBS Bank, DBS Vickers

Target Price & Ratings History

Source: DBS Bank, DBS Vickers

S.No. Date Closing PriceTarget Price

Rating

1: 09 Feb 15 4950 5200 HOLD

2: 21 Apr 15 4400 5200 HOLD

3: 07 May 15 3985 4970 BUY

4: 22 Jul 15 3390 4970 BUY

5: 14 Aug 15 2600 4970 BUY

6: 28 Oct 15 3205 4970 BUY

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

1 2

3

4

5

6

2208

2708

3208

3708

4208

4708

5208

Jan-15 May-15 Sep-15 Jan-16

Rp

Page 15: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: MA

BUY Last Traded Price: Rp3,095 (JCI : 4,414.13) Price Target : Rp3,500 (13% upside) Potential Catalyst: Dividend payment, quarterly financial performance announcement Where we differ: We believe Telkomsel will continue to outperform its competitor ahad Analyst Sachin Mittal +65 6682 3699 [email protected] William Simadiputra +62 2130034939 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rpbn) 2014A 2015F 2016F 2017F Revenue 89,696 92,202 95,424 98,065 EBITDA 45,844 46,163 48,124 49,948 Pre-tax Profit 28,784 30,898 32,985 34,810 Net Profit 14,638 16,130 17,087 18,317 Net Pft (Pre Ex.) 14,638 16,130 17,087 18,317 EPS (Rp) 147 162 171 184 EPS Pre Ex. (Rp) 147 162 171 184 EPS Gth (%) 3 10 6 7 EPS Gth Pre Ex (%) 3 10 6 7 Diluted EPS (Rp) 147 162 171 184 Net DPS (Rp) 110 129 137 147 BV Per Share (Rp) 679 697 699 706 PE (X) 21.1 19.2 18.1 16.9 PE Pre Ex. (X) 21.1 19.2 18.1 16.9 P/Cash Flow (X) 8.0 7.4 7.3 7.1 EV/EBITDA (X) 7.2 7.1 6.9 6.6 Net Div Yield (%) 3.6 4.2 4.4 4.7 P/Book Value (X) 4.6 4.4 4.4 4.4 Net Debt/Equity (X) 0.0 CASH CASH CASH ROAE (%) 22.8 23.5 24.5 26.1 Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 164 N/A N/A Other Broker Recs: B: 30 S: 0 H: 5

Source of all data: Company, DBS Bank, DBS Vickers, Bloomberg Finance L.P

Growth Momentum Continues Ahead Stabilised industry is positive for TLKM. The industry's stabilising data pricing will provide TLKM with another growth catalyst. Amid stabilised data price trend, Telkomsel can continue to raise its data price in the cluster where it has dominant market share. Continue to monetise ex-Java advantage via voice and SMS services. Java accounts for only 20-25% of Telkomsel's revenue versus 80-90% for Indosat and 60-70% for XL. Telkomsel is not seeing severe cannibalisation of voice and SMS revenues as ex-Java consumers continue to rely on voice and SMS to communicate. Telkomsel has been raising its voice and SMS pricing especially in the ex-Java region, where no other player has comparable 2G and 3G networks. Growth momentum remains strong in 3Q15. 3Q15 EBITDA and net income came in at Rp13.5tn (+19.7% y-o-y, +21.1% q-o-q) and Rp4.1tn (+6.2% y-o-y, -12.8% q-o-q) respectively. Profitability normalised relative to 2Q15, mainly on BTS maintenance/investments, in line with management guidance that Telkomsel’s profitability will normalise (rise) ahead. Valuation:

We rate TLKM a BUY with a target price of Rp3,500, which is derived from the discounted cash flow (DCF) model with 9.4% weighted average cost of capital (WACC) and 1.0% terminal growth. Key Risks to Our View:

Disruption to benign competition.If any player gets aggressive in gaining market share and triggers a new wave of price wars, the whole sector could be negatively impacted. At A Glance Issued Capital (m shrs) 100,800 Mkt. Cap (Rpbn/US$m) 311,976 / 22,564 Major Shareholders Govt. of Indonesia (%) 51.0 Free Float (%) 49.0 3m Avg. Daily Val (US$m) 17.0 ICB Industry : Telecommunications / Telecommunications

DBS Group Research . Equity 22 Jan 2016

Indonesia Company Guide

Telekomunikasi Indonesia Edition 2 Version 1 | Bloomberg: TLKM IJ | Reuters: TLKM.JK Refer to important disclosures at the end of this report

87

107

127

147

167

187

207

227

1,198.8

1,698.8

2,198.8

2,698.8

3,198.8

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Relative IndexRp

Telekomunikasi Indonesia (LHS) Relative JCI INDEX (RHS)

Page 16: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

ASIAN INSIGHTS VICKERS SECURITIES Page 16

Company Guide

Telekomunikasi Indonesia

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Strong growth driven by Telkomsel. Telkomsel continues to guide for double-digit revenue growth in FY15, and we believe that is sustainable for the next three years. While data pricing has declined so far, Telkomsel is willing to test the waters by raising data pricing in the near term, especially on loose-competition clusters. Telkomsel is Indonesia’s leading cellular operator. Telkomsel, TLKM's cellular business subsidiary, will remain the group’s key top-line and earnings growth driver, given its strong footprints and network infrastructure in both Java and ex-Java areas. Telkomsel account for 60% of TLKM’s top line with 85% share of the country’s cellular customer base. Telkomsel derives 70-75% of revenues from ex Java, while its peers only derive 20%. Monetising strong ex. Java footprint. Unlike Java’s data-centric subscribers, ex-Java subscribers communicate mainly through voice and SMS. Given Telkomsel’s strong network infrastructure and ability to maintain good network quality, it is able to raise prices without losing market share. Rejuvenating fixed line business. TLKM will replace its copper based fixed line network with fibre and offer the 'triple play' package (Internet, IPTV and Phone). TLKM's strong copper-based fixed-line footprint in Indonesia means there will be no infrastructure and product marketing issues. TLKM is targeting 30m users by 2015 (50:50 new users: copper-based fixed line migration). Strong profitability. We forecast TLKM's EBITDA margin to be sustainable at 50%. Our forecast accounts for profitability dilution in the early stage of the newly acquired digital businesses. TLKM's profitability is more predictable because unlike its peers, its balance sheet has no debt (net cash), and hence, no exposure to foreign exchange rate movements.

GSM Subscribers (m)

Blended ARPU (Rp k)

EBITDA Margin %

Net Capex (Rp tr)

EBITDA (Rptn)

Source: Company, DBS Bank, DBS Vickers

125

141149

157164

0

21

41

62

83

103

124

145

2013A 2014A 2015F 2016F 2017F

37.0 37.0 36.4 35.6 35.0

0.0

7.5

15.1

22.6

30.2

37.7

2013A 2014A 2015F 2016F 2017F

50.4 51.1 50.1 50.4 50.9

0.0

10.4

20.9

31.3

41.7

52.1

2013A 2014A 2015F 2016F 2017F

2019 19 19 18

0.0

2.5

5.0

7.4

9.9

12.4

14.9

17.4

19.8

2013A 2014A 2015F 2016F 2017F

42

46 4648

50

0.0

10.1

20.2

30.3

40.4

2013A 2014A 2015F 2016F 2017F

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ASIAN INSIGHTS VICKERS SECURITIES Page 17

Company Guide

Telekomunikasi Indonesia

Balance Sheet:

No exposure to foreign debt. TLKM has the strongest balance sheet among peers because of zero exposure to foreign debt, and lowest gross debt to equity ratio of 0.17x. The low leverage also means TLKM has better flexibility to acquire digital or other businesses. Capex sustainable at 20-25% of revenue. TLKM's capex will be sustainable at 20-25% of revenue, at Rp19tn. Major capex allocation for the mobile business will be mostly to add BTS in order to maintain market share. The capex also accounts for digital businesses M&A possibilities this year.

Share Price Drivers:

Defensive play with steady dividends. TLKM’s share price has been defensive amid the weakening IDR because of zero exposure to foreign debt. The stable operations also enable TLKM to offer a steady dividend payout ratio of 60%, which implies 3.5% dividend yield. We expect dividend payout to be stable ahead.

Trading at +1SD of 5-year average PE multiple. This shows the market’s confidence in its earnings delivery, given its largest market share. TLKM also pays steady dividends (60% average payout ratio) that translate into a 3.5% dividend yield.

Key Risks:

Fixed-line business. If the fixed-line business does not stabilise, TLKM may not achieve our forecast earnings and target price. Disruption to benign competition. If any player becomes aggressive in gaining market share and triggers a new wave of price wars, the whole sector could suffer.

Company Background

TLKM Indonesia is the largest telecommunication and network provider in Indonesia. The company offers a wide range of network and telecommunication services, from fixed line connection, cellular services, network and interconnection services, as well as internet and data communication services. TLKM also operates multimedia businesses such as content and applications, completing its business portfolio spanning from Telecommunication, Information, Media, Edutainment and Services (TIMES).

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, DBS Bank, DBS Vickers

0.6

0.6

0.6

0.6

0.6

0.7

0.7

0.7

0.7

0.7

0.7

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

2013A 2014A 2015F 2016F 2017F

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

18,000,000.0

18,200,000.0

18,400,000.0

18,600,000.0

18,800,000.0

19,000,000.0

19,200,000.0

19,400,000.0

2013A 2014A 2015F 2016F 2017F

Capital Expenditure (-)

Rp

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2013A 2014A 2015F 2016F 2017F

Avg: 15.3x

+1sd: 17.4x

+2sd: 19.6x

‐1sd: 13.1x

‐2sd: 11x

9.1

11.1

13.1

15.1

17.1

19.1

21.1

Jan-12 Jan-13 Jan-14 Jan-15

(x)

Avg: 3.49x

+1sd: 4.62x

+2sd: 5.74x

‐1sd: 2.36x

‐2sd: 1.23x

0.6

1.6

2.6

3.6

4.6

5.6

Jan-12 Jan-13 Jan-14 Jan-15

(x)

Page 18: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

ASIAN INSIGHTS VICKERS SECURITIES Page 18

Company Guide

Telekomunikasi Indonesia

Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F GSM Subscribers (m) 125 141 149 157 164 Blended ARPU (Rp k) 37.0 37.0 36.4 35.7 35.0 EBITDA Margin % 50.4 51.1 50.1 50.4 50.9 Net Capex (Rp tr) 19.6 18.8 18.6 18.6 18.4 EBITDA (Rptn) 41.8 45.8 46.2 48.1 50.0

Segmental Breakdown

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rpbn) Fixed Line 9,701 8,881 8,437 8,353 8,269 Wireless Voice 32,138 34,290 34,290 34,290 34,290 Interconnection 4,843 4,708 4,577 4,577 4,577 Data/Internet & SMS 31,709 36,432 38,982 41,711 43,797 Others 4,576 5,385 5,916 6,494 7,132 Total 82,967 89,696 92,202 95,424 98,065

Income Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 82,967 89,696 92,202 95,424 98,065 Cost of Goods Sold (41,191) (43,852) (46,039) (47,301) (48,117) Gross Profit 41,776 45,844 46,163 48,124 49,948 Other Opng (Exp)/Inc (15,780) (17,131) (16,712) (16,886) (16,927) Operating Profit 25,996 28,713 29,451 31,238 33,021 Other Non Opg (Exp)/Inc 1,850 664 2,099 2,099 2,099 Associates & JV Inc (29.0) (17.0) (17.7) (18.4) (19.1) Net Interest (Exp)/Inc (668) (576) (635) (333) (291) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 27,149 28,784 30,898 32,985 34,810 Tax (6,859) (7,338) (7,416) (7,917) (8,354) Minority Interest (6,085) (6,808) (7,353) (7,982) (8,139) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 14,205 14,638 16,130 17,087 18,317 Net Profit before Except. 14,205 14,638 16,130 17,087 18,317 EBITDA 41,776 45,844 46,163 48,124 49,948 Growth Revenue Gth (%) 7.5 8.1 2.8 3.5 2.8 EBITDA Gth (%) 5.1 9.7 0.7 4.2 3.8 Opg Profit Gth (%) 4.4 10.5 2.6 6.1 5.7 Net Profit Gth (Pre-ex) (%) 10.5 3.0 10.2 5.9 7.2 Margins & Ratio Gross Margins (%) 50.4 51.1 50.1 50.4 50.9 Opg Profit Margin (%) 31.3 32.0 31.9 32.7 33.7 Net Profit Margin (%) 17.1 16.3 17.5 17.9 18.7 ROAE (%) 26.5 22.8 23.5 24.5 26.1 ROA (%) 11.8 10.9 11.3 11.5 11.7 ROCE (%) 19.6 19.3 19.0 19.4 19.3 Div Payout Ratio (%) 70.0 75.0 80.0 80.0 80.0 Net Interest Cover (x) 38.9 49.8 46.4 93.7 113.4

Source: Company, DBS Bank, DBS Vickers

Stabilised data price boost TLKM's earnings growth

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ASIAN INSIGHTS VICKERS SECURITIES Page 19

Company Guide

Telekomunikasi Indonesia

Quarterly / Interim Income Statement (Rpbn)

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 22,299 23,855 23,616 25,224 26,879 Cost of Goods Sold (10,992) (11,506) (11,254) (14,046) (13,345) Gross Profit 11,307 12,349 12,362 11,178 13,534 Other Oper. (Exp)/Inc (3,873) (5,095) (5,098) (3,695) (4,711) Operating Profit 7,434 7,254 7,264 7,483 8,823 Other Non Opg (Exp)/Inc 327 227 184 37.0 207 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (178) (171) (129) (275) (274) Exceptional Gain/(Loss) 0.0 0.0 (1.0) 157 (156) Pre-tax Profit 7,583 7,310 7,318 7,402 8,600 Tax (1,941) (1,903) (1,810) (1,931) (2,242) Minority Interest (1,784) (1,974) (1,694) (1,838) (2,260) Net Profit 3,858 3,433 3,814 3,633 4,098 Net profit bef Except. 3,858 3,433 3,815 3,517 4,213 EBITDA 11,307 12,349 12,362 11,178 13,534 Growth Revenue Gth (%) 0.0 7.0 (1.0) 6.8 6.6 EBITDA Gth (%) (0.3) 9.2 0.1 (9.6) 21.1 Opg Profit Gth (%) 4.4 (2.4) 0.1 3.0 17.9 Net Profit Gth (Pre-ex) (%) 2.6 (11.0) 11.1 (7.8) 19.8 Margins Gross Margins (%) 50.7 51.8 52.3 44.3 50.4 Opg Profit Margins (%) 33.3 30.4 30.8 29.7 32.8 Net Profit Margins (%) 17.3 14.4 16.2 14.4 15.2

Balance Sheet (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 86,761 94,809 96,722 98,437 99,932 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 8,115 12,324 12,306 12,288 12,269 Cash & ST Invts 21,568 20,469 21,431 27,940 35,100 Inventory 509 474 569 585 595 Debtors 6,026 6,465 6,697 6,931 7,123 Other Current Assets 4,972 6,354 6,077 6,213 6,304 Total Assets 127,951 140,895 143,803 152,394 161,321 ST Debt 5,525 7,709 491 491 491 Creditor 11,600 11,830 12,965 13,321 13,550 Other Current Liab 11,312 12,247 12,574 13,026 13,374 LT Debt 14,731 15,743 15,298 14,853 14,408 Other LT Liabilities 7,359 7,241 7,241 7,241 7,241 Shareholder’s Equity 60,542 67,807 69,563 69,810 70,466 Minority Interests 16,882 18,318 25,671 33,652 41,791 Total Cap. & Liab. 127,951 140,895 143,803 152,394 161,321 Non-Cash Wkg. Capital (11,405) (10,784) (12,196) (12,618) (12,903) Net Cash/(Debt) 1,312 (2,983) 5,642 12,596 20,201 Debtors Turn (avg days) 23.4 25.4 26.1 26.1 26.2 Creditors Turn (avg days) 157.4 160.0 154.3 157.7 157.2 Inventory Turn (avg days) 7.6 6.7 6.5 6.9 6.9 Asset Turnover (x) 0.7 0.7 0.6 0.6 0.6 Current Ratio (x) 1.2 1.1 1.3 1.6 1.8 Quick Ratio (x) 1.0 0.8 1.1 1.3 1.5 Net Debt/Equity (X) CASH 0.0 CASH CASH CASH Net Debt/Equity ex MI (X) CASH 0.0 CASH CASH CASH Capex to Debt (%) 94.7 80.2 118.0 121.2 123.6 Z-Score (X) 5.6 5.2 5.7 5.7 5.7

Source: Company, DBS Bank, DBS Vickers

Strong earnings growth momentum continue in 3Q15

Overall profitability performance also show a positive trend

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ASIAN INSIGHTS VICKERS SECURITIES Page 20

Company Guide

Telekomunikasi Indonesia

Cash Flow Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 27,149 28,784 30,898 32,985 34,810 Dep. & Amort. 15,780 17,131 16,712 16,886 16,927 Tax Paid (7,395) (6,660) (7,938) (7,791) (8,245) Assoc. & JV Inc/(loss) 29.0 17.0 17.7 18.4 19.1 Chg in Wkg.Cap. 2,429 (701) 1,935 297 175 Other Operating CF (1,418) 143 0.0 0.0 0.0 Net Operating CF 36,574 38,714 41,624 42,395 43,686 Capital Exp.(net) (19,176) (18,818) (18,625) (18,600) (18,421) Other Invts.(net) 270 2,612 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF (2,763) (12,368) 0.0 0.0 0.0 Net Investing CF (21,669) (28,574) (18,625) (18,600) (18,421) Div Paid (13,044) (12,979) (14,374) (16,840) (17,661) Chg in Gross Debt (2,151) 3,196 (7,663) (445) (445) Capital Issues 0.0 2,545 0.0 0.0 0.0 Other Financing CF 1,868 74.0 0.0 0.0 0.0 Net Financing CF (13,327) (7,164) (22,037) (17,285) (18,106) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 1,578 2,976 962 6,509 7,160 Opg CFPS (Rp) 342 395 398 422 436 Free CFPS (Rp) 174 199 230 238 253

Source: Company, DBS Bank, DBS Vickers

Target Price & Ratings History

Source: DBS Bank, DBS Vickers

S.No. Date Closing PriceTarget Price

Rating

1: 12 Feb 15 2895 3200 BUY

2: 10 Mar 15 2945 3200 BUY

3: 21 Apr 15 2835 3200 BUY

4: 30 Apr 15 2615 3200 BUY

5: 16 Jun 15 2870 3200 BUY

6: 22 Jul 15 2865 3200 BUY

7: 10 Aug 15 2965 3200 BUY

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

1

2

3

4

5

67

2470

2570

2670

2770

2870

2970

3070

3170

3270

3370

Jan-15 May-15 Sep-15 Jan-16

Rp

Modest capex requirements as TLKM invested in its infrastructure backbone in the past decade

Page 21: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: MA

HOLD Last Traded Price: Rp5,100 (JCI : 4,414.13) Price Target : Rp4,950 (3% downside) Potential Catalyst: Better-than-expected quarterly financial performance Where we differ: We believe market has priced in ISAT's brighter financial outlook Analyst Sachin Mittal +65 6682 3699 [email protected] William Simadiputra +62 2130034939 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rpbn) 2014A 2015F 2016F 2017F Revenue 24,085 26,358 27,919 29,325 EBITDA 8,758 11,275 11,951 12,566 Pre-tax Profit (1,936) 1,077 772 840 Net Profit (1,987) 666 423 458 Net Pft (Pre Ex.) (1,987) 666 423 458 Net Pft Gth (Pre-ex) (%) (42.4) (133.5) (36.5) 8.4 EPS (Rp) (366) 122 77.8 84.3 EPS Pre Ex. (Rp) (366) 122 77.8 84.3 EPS Gth Pre Ex (%) 42 nm (36) 8 Diluted EPS (Rp) (366) 122 77.8 84.3 Net DPS (Rp) 0.0 0.0 0.0 0.0 BV Per Share (Rp) 2,486 2,609 2,686 2,771 PE (X) nm 41.6 65.5 60.5 PE Pre Ex. (X) nm 41.6 65.5 60.5 P/Cash Flow (X) 4.1 2.5 2.9 2.8 EV/EBITDA (X) 5.4 4.0 3.6 3.3 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 2.1 2.0 1.9 1.8 Net Debt/Equity (X) 1.3 1.1 0.9 0.8 ROAE (%) (13.5) 4.8 2.9 3.1 Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 83.2 223 328 Other Broker Recs: B: 21 S: 0 H: 7

Source of all data: Company, DBS Bank, DBS Vickers, Bloomberg Finance L.P

Priced to Perfection Softer data revenue cannibalisation as data pricing stabilises. We have a HOLD rating on ISAT due to its limited stock price upside potential despite the company's improving performance. We still remain convinced that ISAT's SMS and voice revenues will continue to drop after it completes its network modernisation programme last year. Java-centric subscribers. ISAT has a high exposure to the Java market, which accounts for 80-90% of consolidated revenues. Java subscribers will continue to diversify beyond voice and SMS to meet their communication needs by leveraging on lower effective data pricing. ISAT is also actively restructuring its balance sheet. ISAT's balance sheet restructuring via replacing its expensive US$ loan with a series of IDR bond issuances is also positive for its balance sheet and cash flows. ISAT's US$ loan portion dropped to 11% in 3Q15, lower than its three-year historical average of 55%. Valuation:

We have a HOLD rating on ISAT with a target price of Rp4,950. Our DCF-based TP assumes 10.1% WACC and 1% terminal growth rate, as we see challenging quarters ahead. The continued weak data pricing could trigger migration to data usage. Our target price implies 3.8x FY16F EV/EBITDA. Key Risks to Our View:

Disruption to benign competition. If any player tries to be aggressive to gain market share, the whole sector could be impacted. Depreciation of Indonesian rupiah. Due to high foreign debt, a weak Indonesian rupiah could adversely impact its bottom line. At A Glance Issued Capital (m shrs) 5,434 Mkt. Cap (Rpbn/US$m) 27,713 / 1,993 Major Shareholders Qatar Telecom (%) 65.0 Govt of Indonesia (%) 14.3 Free Float (%) 20.7 3m Avg. Daily Val (US$m) 0.13 ICB Industry : Telecommunications / Telecommunications

DBS Group Research . Equity 22 Jan 2016

Indonesia Company Guide

Indosat Edition 2 Version 1 | Bloomberg: ISAT IJ | Reuters: ISAT.JK Refer to important disclosures at the end of this report

40

60

80

100

120

140

160

180

200

220

2,790.0

3,790.0

4,790.0

5,790.0

6,790.0

7,790.0

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Relative IndexRp

Indosat (LHS) Relative JCI INDEX (RHS)

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ASIAN INSIGHTS VICKERS SECURITIES Page 22

Company Guide

Indosat

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Slow industry recovery, persistent data pricing pressure. Despite raising headline pricing, telco operators have failed to raise effective pricing per MB. Data plans are costing consumers more but telcos are also offering larger data volumes, which is hurting per MB data revenue. The industry data yield declined as seen in 1Q15. Growing subscriber base, but flat ARPU. ISAT will grow its subscriber base by 5% CAGR over FY15-17, in line with industry growth. But we expect blended ARPU to be flat at Rp29k per user in FY15-17. Lower data pricing is hurting Indonesian telcos more due to higher reliance on SMS revenue. SMS and voice revenue will be cannibalised by rising data usage as ISAT’s subscribers and service areas are in the greater Java region. Java subscribers will continue to diversify beyond voice and SMS to meet their communication needs by leveraging on lower effective data pricing. Focusing on resolving internal issues. ISAT will focus on modernising its network which is expected to be completed in 4Q15, and restructuring its balance sheet. This means it does not yet have an effective strategy to improve profitability, in our view. Moreover, the modernisation will further cannibalise SMS and voice revenues as ISAT’s network is concentrated in Java. EBITDA margin sustainable at 42%, but bottom line is subject to forex fluctuations. EBITDA margin will normalise to 43% after the one-off IM2 provision charge in FY14. We estimate EBITDA will grow by 29% y-o-y to Rp11.2tn this year. However, there is downside risk to ISAT’s bottom line in anticipation of a volatile currency this year. Capex remains high, in line with industry. In line with industry trends, ISAT’s capex will reach Rp6-7tn in FY15-16 for network modernisation and to expand its BTS network in order to maintain revenue growth and market share. ISAT also plans to tap the fibre optic business, like TLKM.

Subscribers (m)

Blended ARPU (Rp k)

EBITDA Margin %

Capex (Rp tn)

EBITDA (Rpbn)

Source: Company, DBS Bank, DBS Vickers

59.663.2

66.5

72.476.4

0.0

9.6

19.3

28.9

38.6

48.2

57.9

67.5

77.2

2013A 2014A 2015F 2016F 2017F

27.729.0 28.7 28.9 28.6

0.0

5.9

11.8

17.8

23.7

29.6

2013A 2014A 2015F 2016F 2017F

43.3

36.4

42.8 42.8 42.8

0.0

8.8

17.7

26.5

35.3

2013A 2014A 2015F 2016F 2017F

6

5

8 8 8

0.00

1.05

2.10

3.15

4.20

5.26

6.31

7.36

8.41

2013A 2014A 2015F 2016F 2017F

10,326

8,758

11,27511,951

12,566

0

2,500

5,000

7,500

10,000

12,500

2013A 2014A 2015F 2016F 2017F

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ASIAN INSIGHTS VICKERS SECURITIES Page 23

Company Guide

Indosat

Balance Sheet:

Leveraged balance sheet to support expansion. ISAT’s gearing ratio remains high as capex requirements for both the existing mobile business and potential business ventures such as fibre optics. ISAT needs to speed up network modernisation and expand its BTS network in order to maintain revenue growth and market share. To cope with rising capex requirements on a stretched balance sheet, ISAT will accelerate the divestment of non-core assets, mainly towers. There is speculation that ISAT plans to open the tenders in 2016. Divestment of non-core assets. ISAT can divest its non-core assets, mainly tower assets, to raise more funds. ISAT owns 8,500 towers and may be able to raise up to US$850m.

Share Price Drivers:

Market waiting for better earnings. ISAT’s shares are trading below their 5-year average EV/EBITDA multiple (-1SD of mean) because the market is waiting for better revenues and profitability post-network modernisation. IDR volatility also pressuring share price. Since ISAT’s balance sheet has strong exposure to foreign debt, the share price will be pressured by the weakening IDR as investors continue to underweight companies with high exposure to USD debt.

Key Risks:

Disruption to benign competition. If any player tries to be aggressive to gain market share, the whole sector could be impacted. Depreciation of Indonesian rupiah. Due to high foreign debt, a weak Indonesian rupiah could adversely impact its bottom line. Indosat booked net losses in the past two years on forex translation losses and the trend may persist if the IDR continues to weaken.

Company Background

Telecommunication and information service provider in Indonesia that provides cellular services (both prepaid and postpaid), fixed data services or MIDI (Multimedia, Internet & Data Communication) and fixed voice including fixed wireless access services.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

EV/EBITDA Band (x)

PB Band (x)

Source: Company, DBS Bank, DBS Vickers

0.4

0.5

0.5

0.6

0.6

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2013A 2014A 2015F 2016F 2017F

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

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

8,000.0

9,000.0

2013A 2014A 2015F 2016F 2017F

Capital Expenditure (-)

Rp

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2013A 2014A 2015F 2016F 2017F

Average

+1 stdev

+2 stdev

-1 stdev

-2 stdev

2.0

3.0

4.0

5.0

6.0

7.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

(x)

Avg: 1.6x

+1sd: 1.84x

+2sd: 2.08x

‐1sd: 1.36x

‐2sd: 1.12x

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.5

Jan-12 Jan-13 Jan-14 Jan-15

(x)

Page 24: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

ASIAN INSIGHTS VICKERS SECURITIES Page 24

Company Guide

Indosat

Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F Subscribers (m) 59.6 63.2 66.5 72.5 76.4 Blended ARPU (Rp k) 27.7 29.0 28.7 28.9 28.6 EBITDA Margin % 43.3 36.4 42.8 42.8 42.9 Capex (Rp tn) 6.02 4.92 8.17 8.14 8.33 EBITDA (Rpbn) 10,326 8,758 11,275 11,951 12,566

Segmental Breakdown

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rpbn) FWA & IDD 1,215 1,096 1,074 1,053 1,032 Cellular 19,374 19,480 21,845 23,496 24,991 MIDI 3,266 3,509 3,438 3,370 3,302 Others 0.13 0.13 0.13 0.13 0.13 Total 23,855 24,085 26,358 27,919 29,325

Income Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 23,855 24,085 26,358 27,919 29,325 Cost of Goods Sold (22,346) (23,412) (24,220) (25,479) (26,613) Gross Profit 1,509 673 2,138 2,440 2,712 Other Opng (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Operating Profit 1,509 673 2,138 2,440 2,712 Other Non Opg (Exp)/Inc (2,738) (345) (106) (110) (115) Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (2,105) (2,264) (955) (1,557) (1,757) Exceptional Gain/(Loss) 668 0.0 0.0 0.0 0.0 Pre-tax Profit (2,666) (1,936) 1,077 772 840 Tax 0.0 77.9 (269) (193) (210) Minority Interest (116) (129) (142) (156) (172) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit (2,782) (1,987) 666 423 458 Net Profit before Except. (3,450) (1,987) 666 423 458 EBITDA 10,326 8,758 11,275 11,951 12,566 Growth Revenue Gth (%) 6.4 1.0 9.4 5.9 5.0 EBITDA Gth (%) (2.0) (15.2) 28.7 6.0 5.1 Opg Profit Gth (%) (33.3) (55.4) 217.7 14.1 11.2 Net Profit Gth (Pre-ex) (%) 323.2 (42.4) (133.5) (36.5) 8.4 Margins & Ratio Gross Margins (%) 6.3 2.8 8.1 8.7 9.2 Opg Profit Margin (%) 6.3 2.8 8.1 8.7 9.2 Net Profit Margin (%) (11.7) (8.3) 2.5 1.5 1.6 ROAE (%) (16.5) (13.5) 4.8 2.9 3.1 ROA (%) (5.1) (3.7) 1.2 0.7 0.8 ROCE (%) 3.4 1.5 3.6 4.0 4.5 Div Payout Ratio (%) N/A N/A 0.0 0.0 0.0 Net Interest Cover (x) 0.7 0.3 2.2 1.6 1.5

Source: Company, DBS Bank, DBS Vickers

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ASIAN INSIGHTS VICKERS SECURITIES Page 25

Company Guide

Indosat

Quarterly / Interim Income Statement (Rpbn)

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 6,104 6,368 6,093 6,527 6,962 Cost of Goods Sold (6,934) (6,143) (5,591) (5,898) (5,762) Gross Profit (830) 225 502 629 1,200 Other Oper. (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Operating Profit (830) 225 502 629 1,200 Other Non Opg (Exp)/Inc 0.0 0.0 (423) (426) (1,093) Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.0 0.0 (630) (544) (867) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit (830) 225 (551) (341) (760) Tax (53.0) (26.8) 124 102 413 Minority Interest (30.5) (42.0) (28.7) (38.5) (41.0) Net Profit (1,549) (664) (456) (278) (389) Net profit bef Except. (1,549) (664) (456) (278) (389) EBITDA 1,210 2,459 2,570 2,660 3,242 Growth Revenue Gth (%) 4.5 4.3 (4.3) 7.1 6.7 EBITDA Gth (%) (50.0) 103.2 4.5 3.5 21.9 Opg Profit Gth (%) nm nm 123.0 25.4 90.7 Net Profit Gth (Pre-ex) (%) 170.0 (57.1) (31.4) (38.9) 39.6 Margins Gross Margins (%) (13.6) 3.5 8.2 9.6 17.2 Opg Profit Margins (%) (13.6) 3.5 8.2 9.6 17.2 Net Profit Margins (%) (25.4) (10.4) (7.5) (4.3) (5.6)

Balance Sheet (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 42,190 40,776 40,560 39,940 39,164 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 5,162 3,887 3,661 3,435 3,209 Cash & ST Invts 2,234 3,480 8,994 8,349 10,100 Inventory 36.0 49.4 226 240 251 Debtors 2,268 2,094 2,109 2,234 2,346 Other Current Assets 2,631 2,968 2,752 2,885 3,004 Total Assets 54,521 53,255 58,302 57,083 58,075 ST Debt 4,800 10,947 5,000 3,000 3,000 Creditor 339 691 679 719 754 Other Current Liab 8,355 9,510 11,059 11,220 11,546 LT Debt 17,632 11,350 20,000 20,000 20,000 Other LT Liabilities 6,877 6,561 6,561 6,561 6,561 Shareholder’s Equity 15,914 13,509 14,175 14,598 15,056 Minority Interests 603 687 829 985 1,157 Total Cap. & Liab. 54,521 53,255 58,302 57,083 58,075 Non-Cash Wkg. Capital (3,759) (5,089) (6,650) (6,580) (6,699) Net Cash/(Debt) (20,198) (18,817) (16,006) (14,651) (12,900) Debtors Turn (avg days) 31.1 33.1 29.1 28.4 28.5 Creditors Turn (avg days) 11.8 12.3 16.6 16.0 16.0 Inventory Turn (avg days) 2.9 1.0 3.3 5.3 5.3 Asset Turnover (x) 0.4 0.4 0.5 0.5 0.5 Current Ratio (x) 0.5 0.4 0.8 0.9 1.0 Quick Ratio (x) 0.3 0.3 0.7 0.7 0.8 Net Debt/Equity (X) 1.2 1.3 1.1 0.9 0.8 Net Debt/Equity ex MI (X) 1.3 1.4 1.1 1.0 0.9 Capex to Debt (%) 26.8 22.1 32.7 35.4 36.2 Z-Score (X) 1.2 1.0 1.2 1.4 1.4

Source: Company, DBS Bank, DBS Vickers

Stabilising industry's data pricing trend reflected on ISAT quarterly earnings outlook

ISAT will continue to replace its US$ loan with IDR bonds to minimise future foreign exchange risk

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ASIAN INSIGHTS VICKERS SECURITIES Page 26

Company Guide

Indosat

Cash Flow Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit (3,334) (1,936) 1,077 772 840 Dep. & Amort. 8,042 8,273 8,612 8,985 9,328 Tax Paid 770 64.0 (210) (231) (202) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (3,860) 316 1,502 (31.8) 111 Other Operating CF 184 0.0 0.0 0.0 0.0 Net Operating CF 1,802 6,717 10,981 9,495 10,077 Capital Exp.(net) (6,018) (4,918) (8,171) (8,139) (8,326) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (6,018) (4,918) (8,171) (8,139) (8,326) Div Paid (602) 0.0 0.0 0.0 0.0 Chg in Gross Debt 2,731 (134) 2,703 (2,000) 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 406 (418) 0.0 0.0 0.0 Net Financing CF 2,535 (552) 2,703 (2,000) 0.0 Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (1,681) 1,246 5,514 (645) 1,752 Opg CFPS (Rp) 1,042 1,178 1,744 1,753 1,834 Free CFPS (Rp) (776) 331 517 249 322

Source: Company, DBS Bank, DBS Vickers

Target Price & Ratings History

Source: DBS Bank, DBS Vickers

S.No. Date Closing PriceTarget Price

Rating

1: 31 Mar 15 4265 4250 HOLD

2: 21 Apr 15 4150 4250 HOLD

3: 26 May 15 3705 4250 HOLD

4: 22 Jul 15 4360 4250 HOLD

5: 28 Aug 15 4150 4250 HOLD

6: 06 Nov 15 4345 4950 BUY

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

1

2

3

4

5

6

3325

3825

4325

4825

5325

5825

Jan-15 May-15 Sep-15 Jan-16

Rp

Our capex forecast is in line with management's guidance

Page 27: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: MA

HOLD Last Traded Price: Rp5,675 (JCI : 4,414.13) Price Target : Rp6,400 (13% upside) Potential Catalyst: Tower M&A Where we differ: We prefer TOWR despite TBIG's large exposure to top three operators Analyst Sachin Mittal +65 6682 3699 [email protected] William Simadiputra +62 2130034939 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rpbn) 2014A 2015F 2016F 2017F Revenue 3,307 3,700 4,089 4,615 EBITDA 2,718 3,115 3,484 3,931 Pre-tax Profit 1,431 1,143 986 1,522 Net Profit 1,302 772 620 1,051 Net Pft (Pre Ex.) 972 772 620 1,051 Net Pft Gth (Pre-ex) (%) (23.1) (20.6) (19.7) 69.5 EPS (Rp) 271 161 129 219 EPS Pre Ex. (Rp) 203 161 129 219 EPS Gth Pre Ex (%) (23) (21) (20) 70 Diluted EPS (Rp) 271 161 129 219 Net DPS (Rp) 60.0 32.2 25.9 43.8 BV Per Share (Rp) 830 959 1,062 1,237 PE (X) 20.9 35.2 43.9 25.9 PE Pre Ex. (X) 28.0 35.2 43.9 25.9 P/Cash Flow (X) 23.4 32.3 23.9 17.8 EV/EBITDA (X) 15.6 15.8 14.4 12.9 Net Div Yield (%) 1.1 0.6 0.5 0.8 P/Book Value (X) 6.8 5.9 5.3 4.6 Net Debt/Equity (X) 3.7 2.7 2.6 2.3 ROAE (%) 32.7 18.0 12.8 19.1 Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 287 332 382 Other Broker Recs: B: 3 S: 5 H: 9

Source of all data: Company, DBS Bank, DBS Vickers, Bloomberg Finance L.P

Stretched Balance Sheet Hinders Site/Tenant Growth Maintain HOLD and reduce TP to Rp6,400. We maintain a HOLD rating with a target price of Rp6,400 as we revise down our site addition assumption previously given TBIG's high gearing. We see limited catalyst ahead as TBIG is currently trading at a 17% premium relative to TOWR. On the other hand, TBIG also has FY15-17 EBITDA growth potential of 12.1% vs. TOWR's 12.7%. Telkomsel and Hutch, which we believe will lead the BTS outsourcing trend to independent tower-cos, accounted for only 48% of TBIG's total revenue (TOWR's 60%) in 9M15. Stretched balance sheet is our concern. We notice that TBIG has reached its debt covenant in 3Q15 (net senior debt and debt-to-EBITDA ratio of 2.5x and 5.1x respectively vs. covenant 5.0x). This implies that TBIG has limited room to further leverage its balance sheet to build more towers ahead. Organic growth remains stable, as seen in 3Q15 results. EBITDA reached Rp735bn in 3Q15 (+5.2% y-o-y, +2.8% q-o-q) with a stable EBITDA margin of 84.6%, in line with our estimate. Stable profitability reflects industry rental rate being sustained at Rp14-15m per month.The number of sites and tenants reached 11,291 and 18,642 respectively in 9M15, implying a tenancy ratio of 1.65x. Valuation:

Target price of Rp6,400 is based on DCF valuation (WACC 9.2%, terminal growth 4%) and implies FY16F EBITDA of 14.5x. Key Risks to Our View: Tenancy risk and rental rate pressure. Tower-co fails to find tenants for newly acquired/built towers, which would cause tenancy ratio and profitability to drop. Lower than expected rental rate also will squeeze profitability. At A Glance Issued Capital (m shrs) 4,797 Mkt. Cap (Rpbn/US$m) 27,220 / 1,969 Major Shareholders Provident Capital (%) 23.8 Wahana Anugerah (%) 23.8 Saratoga Infrastruktur (%) 17.0 Free Float (%) 35.4 3m Avg. Daily Val (US$m) 0.85 ICB Industry : Technology / Technology Hardware & Equipment

DBS Group Research . Equity 22 Jan 2016

Indonesia Company Guide

Tower Bersama Infrastructure Edition 2 Version 1 | Bloomberg: TBIG IJ | Reuters: TBIG.JK Refer to important disclosures at the end of this report

90

140

190

240

290

340

2,137.5

3,137.5

4,137.5

5,137.5

6,137.5

7,137.5

8,137.5

9,137.5

10,137.5

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Relative IndexRp

Tower Bersama Infrastructure (LHS) Relative JCI INDEX (RHS)

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ASIAN INSIGHTS VICKERS SECURITIES Page 28

Company Guide

Tower Bersama Infrastructure

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Double-digit EBITDA growth. We forecast EBITDA to grow by a 12.1% CAGR over FY15-17, driven by solid profitability and site expansion. Our assumption only accounts for organic growth (built-to-suit). EBITDA margin will remain above 80%. Stable rental rate and tenancy ratio also means TBIG's EBITDA margin will be sustainable at the c.80% level, the highest among regional peers. Almost all operational costs are passed through to the operators and the tower-co will only bear the tower maintenance costs. Double-digit tower site and tenant growth. TBIG plans to grow its tower sites and tenant base by 16.1% and 22.0% CAGR respectively over FY15-17, by leveraging on the tower outsourcing trend. Telkomsel, which accounts for 39% of TBIG’s total revenue, will remain the key tenant growth driver and keep TBIG's tenancy ratio stable at 1.6x despite the double-digit growth in tower sites over the next three years. Stable rental rate outlook. We expect tower-co's monthly rental rate, including TBIG’s, to be stable at Rp14-15m per tower. We believe the current rental rate is a win-win situation for both tower-cos and operators, and hence, there will not be rental pressure ahead. Long-term lease contracts provide visible earnings and cash flows. Operators are locked in under 7- to 10-year lease contracts with fixed terms until expiry. The long-term contract benefit creates visible earnings and cash flows, and the nature of the business also allows tower-cos to leverage up with competitive external financing to gain business scale. Tower acquisition. Given operators' stretched cash flows amid tight competition and the urgency to deleverage balance sheets, they will continue to divest non-core assets, mainly tower assets. This will benefit tower-co as it would boost tower ownership and EBITDA simultaneously, and in turn, drive up the share price. This was what happened after Indosat acquired 2,500 towers back to 2012, and after the announcement of the ongoing Mitratel transaction. The next tower tender will probably come from Indosat (ISAT IJ, HOLD).

Tower sites

DAS & shelter only sites

Tower tenants

Tower tenancy ratio

Capex (Rp tn)

Source: Company, DBS Bank, DBS Vickers

8866

10825

13225

14825

16325

0

2,100

4,200

6,300

8,400

10,500

12,600

14,700

2013A 2014A 2015F 2016F 2017F

1,466.9

993.01,040.1

1,089.51,141.3

0

300

600

900

1,200

2013A 2014A 2015F 2016F 2017F

15,309.0

18,081.0

20,296.0

24,164.8

26,120.0

0

5,300

10,600

15,900

21,200

26,500

2013A 2014A 2015F 2016F 2017F

22

22 2

0.00

0.22

0.44

0.65

0.87

1.09

1.31

1.53

1.74

2013A 2014A 2015F 2016F 2017F

3

2 2

2

2

0.00

0.52

1.05

1.57

2.09

2.62

2013A 2014A 2015F 2016F 2017F

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ASIAN INSIGHTS VICKERS SECURITIES Page 29

Company Guide

Tower Bersama Infrastructure

Balance Sheet:

Leveraged balance sheet. Given its stable and visible cash flow business model, TBIG is able to leverage its balance sheet to gain business scale. Net debt-to-EBITDA ratio is 5.0x as the debt covenants are based on rolling EBITDA - every time TBIG generates US$1 EBITDA, it is allowed to raise another US$1 from the creditors. Capex will normalise in FY16. TBIG’s capex will reach US$2.5bn-3bn per year in FY16-17, in line with average annual addition of 2,500-3,000 towers. The high capex in FY15 is due to the consolidation of Mitratel’s towers. Every tower requires US$100-110k of capex for land acquisition and tower infrastructure.

Share Price Drivers:

Share trading at 13.5x EV/EBITDA. Tower Bersama is trading at double-digit EV/EBITDA multiple, but that is justified by its stable business and cash flows, and strong earnings visibility. However, there is no re-rating potential until the Mitratel share swap transaction is completed.

Key Risks:

Tenancy risk. If tower-co fails to find additional tenants for the newly acquired/built towers, this would result in a drop in tenancy and profitability. Rental rate pressure. Change in industry's competitive landscape and bargaining power with telcos, potentially leading to rental rate pressure. Weak rupiah vs USD. High USD-denominated debt may hit earnings if the Indonesian currency depreciates. Operators' network expansion slowdown. Slower network expansion means slower BTS roll-outs, which would hurt tower-cos' site expansion outlook.

Company Background

PT Tower Bersama Infrastructure Tbk provides telecommunication infrastructure services to Indonesian wireless carriers. The company develops and operates telecommunication-supporting infrastructure including towers and in-building systems across Indonesia.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, DBS Bank, DBS Vickers

0.1

0.1

0.1

0.1

0.1

0.2

0.2

0.2

0.2

0.2

0.2

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2013A 2014A 2015F 2016F 2017F

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

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

2013A 2014A 2015F 2016F 2017F

Capital Expenditure (-)

Rp

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2013A 2014A 2015F 2016F 2017F

Avg: 35.5x

+1sd: 51.2x

+2sd: 66.9x

‐1sd: 19.8x

‐2sd: 4.1x3.6

13.6

23.6

33.6

43.6

53.6

63.6

73.6

Jan-12 Jan-13 Jan-14 Jan-15

(x)

Avg: 7.54x

+1sd: 9.6x

+2sd: 11.66x

‐1sd: 5.48x

‐2sd: 3.42x3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

Jan-12 Jan-13 Jan-14 Jan-15

(x)

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ASIAN INSIGHTS VICKERS SECURITIES Page 30

Company Guide

Tower Bersama Infrastructure

Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F Tower sites 8,866 10,825 13,225 14,825 16,325 DAS & shelter only sites 1,467 993 1,040 1,089 1,141 Tower tenants 15,309 18,081 20,296 24,165 26,120 Tower tenancy ratio 1.73 1.67 1.53 1.63 1.60 Capex (Rp tn) 2.59 2.33 2.29 1.90 1.57

Income Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 2,691 3,307 3,700 4,089 4,615 Cost of Goods Sold (396) (510) (574) (835) (774) Gross Profit 2,295 2,797 3,126 3,254 3,841 Other Opng (Exp)/Inc (242) (292) (326) (327) (369) Operating Profit 2,052 2,505 2,800 2,927 3,472 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (858) (1,404) (1,657) (1,941) (1,950) Exceptional Gain/(Loss) (16.7) 329 0.0 0.0 0.0 Pre-tax Profit 1,178 1,431 1,143 986 1,522 Tax 174 (58.5) (280) (293) (347) Minority Interest (104) (70.6) (90.6) (72.7) (123) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 1,248 1,302 772 620 1,051 Net Profit before Except. 1,265 972 772 620 1,051 EBITDA 2,205 2,718 3,115 3,484 3,931 Growth Revenue Gth (%) 57.2 22.9 11.9 10.5 12.9 EBITDA Gth (%) 57.7 23.2 14.6 11.9 12.8 Opg Profit Gth (%) 60.9 22.1 11.8 4.5 18.6 Net Profit Gth (Pre-ex) (%) 90.6 (23.1) (20.6) (19.7) 69.5 Margins & Ratio Gross Margins (%) 85.3 84.6 84.5 79.6 83.2 Opg Profit Margin (%) 76.3 75.8 75.7 71.6 75.2 Net Profit Margin (%) 46.4 39.4 20.9 15.2 22.8 ROAE (%) 30.7 32.7 18.0 12.8 19.1 ROA (%) 7.7 6.4 3.0 2.1 3.4 ROCE (%) 13.5 12.9 8.9 7.3 9.1 Div Payout Ratio (%) 20.0 22.1 20.0 20.0 20.0 Net Interest Cover (x) 2.4 1.8 1.7 1.5 1.8

Source: Company, DBS Bank, DBS Vickers

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Company Guide

Tower Bersama Infrastructure

Quarterly / Interim Income Statement (Rpbn)

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 850 875 827 845 869 Cost of Goods Sold (133) (134) (104) (106) (130) Gross Profit 717 741 723 739 739 Other Oper. (Exp)/Inc (72.7) (82.0) (78.9) (75.3) (83.7) Operating Profit 645 659 644 664 655 Other Non Opg (Exp)/Inc 367 (457) 0.0 (44.9) 147 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (372) (466) (317) (340) (466) Exceptional Gain/(Loss) (121) 431 49.9 (49.9) 0.0 Pre-tax Profit 518 166 377 228 336 Tax 7.63 (16.7) (33.8) 26.0 (90.7) Minority Interest (51.2) 13.9 (23.7) (3.7) (19.4) Net Profit 475 163 320 251 0.0 Net profit bef Except. 596 (268) 270 301 0.0 EBITDA 699 706 702 715 735 Growth Revenue Gth (%) 6.3 2.9 (5.4) 2.1 2.9 EBITDA Gth (%) 6.2 1.0 (0.6) 1.9 2.8 Opg Profit Gth (%) 6.0 2.1 (2.2) 3.0 (1.3) Net Profit Gth (Pre-ex) (%) 55.7 (144.9) (200.9) 11.4 (100.0) Margins Gross Margins (%) 84.4 84.6 87.4 87.4 85.0 Opg Profit Margins (%) 75.8 75.3 77.9 78.5 75.4 Net Profit Margins (%) 55.8 18.6 38.7 29.7 0.0

Balance Sheet (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 220 474 7,554 8,894 10,008 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 15,901 18,408 18,408 18,408 18,408 Cash & ST Invts 855 902 324 1,091 169 Inventory 328 404 451 499 563 Debtors 603 491 830 917 1,035 Other Current Assets 812 1,355 1,355 1,355 1,355 Total Assets 18,719 22,034 28,921 31,163 31,537 ST Debt 2,331 7,311 5,031 3,131 9,459 Creditor 126 178 134 144 163 Other Current Liab 1,475 1,635 1,728 1,741 1,795 LT Debt 10,650 8,740 14,750 18,300 11,308 Other LT Liabilities 24.2 38.8 38.8 38.8 38.8 Shareholder’s Equity 3,988 3,981 4,599 5,095 5,936 Minority Interests 126 150 2,641 2,714 2,837 Total Cap. & Liab. 18,719 22,034 28,921 31,163 31,537 Non-Cash Wkg. Capital 144 437 774 886 995 Net Cash/(Debt) (12,126) (15,149) (19,457) (20,340) (20,598) Debtors Turn (avg days) 64.8 60.4 65.1 78.0 77.2 Creditors Turn (avg days) 106.5 186.1 219.7 182.2 177.8 Inventory Turn (avg days) 249.1 449.3 602.8 623.0 615.6 Asset Turnover (x) 0.2 0.2 0.1 0.1 0.1 Current Ratio (x) 0.7 0.3 0.4 0.8 0.3 Quick Ratio (x) 0.4 0.2 0.2 0.4 0.1 Net Debt/Equity (X) 2.9 3.7 2.7 2.6 2.3 Net Debt/Equity ex MI (X) 3.0 3.8 4.2 4.0 3.5 Capex to Debt (%) 3.3 14.5 11.6 8.9 7.6 Z-Score (X) 1.8 1.4 1.3 1.3 1.2

Source: Company, DBS Bank, DBS Vickers

Sites and tenants growth remain solid in 3Q15

Stable profitability helped TBIG to maintain 80% EBITDA margin

Stretched balance sheet hinder sites/tenants growth

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Company Guide

Tower Bersama Infrastructure

Cash Flow Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 1,178 1,431 1,143 986 1,522 Dep. & Amort. 153 212 316 559 461 Tax Paid (102) (122) (187) (280) (293) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (676) (359) (430) (125) (163) Other Operating CF 1,033 0.0 0.0 0.0 0.0 Net Operating CF 1,586 1,162 842 1,140 1,527 Capital Exp.(net) (434) (2,335) (2,295) (1,898) (1,573) Other Invts.(net) (2,529) 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 371 0.0 0.0 0.0 0.0 Net Investing CF (2,591) (2,335) (2,295) (1,898) (1,573) Div Paid (288) (288) (154) (124) (210) Chg in Gross Debt 2,125 3,070 1,030 1,650 (663) Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (956) 0.0 0.0 0.0 0.0 Net Financing CF 881 2,783 875 1,526 (874) Currency Adjustments 273 0.0 0.0 0.0 0.0 Chg in Cash 149 1,610 (577) 768 (919) Opg CFPS (Rp) 472 317 265 264 352 Free CFPS (Rp) 240 (244) (303) (158) (9.6)

Source: Company, DBS Bank, DBS Vickers

Target Price & Ratings History

Source: DBS Bank, DBS Vickers

S.No. Date Closing PriceTarget Price

Rating

1: 06 Feb 15 9400 10400 HOLD

2: 03 Mar 15 9300 10400 HOLD

3: 27 Mar 15 9175 10400 HOLD

4: 21 Apr 15 9425 10400 HOLD

5: 25 May 15 8975 10400 HOLD

6: 22 Jul 15 8500 10400 HOLD

7: 01 Sep 15 7050 7900 HOLD

8: 01 Dec 15 6425 6400 HOLD

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

1 2 34

56

7 8

5320

5820

6320

6820

7320

7820

8320

8820

9320

9820

Jan-15 May-15 Sep-15 Jan-16

Rp

We assume sites and tenants organic growth in our forecast

Page 33: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: MA

HOLD ( Downgrade from BUY)

Last Traded Price: Rp4,500 (JCI : 4,414.13) Price Target : Rp5,000 (11% upside) Potential Catalyst: Tower M&A, new earnings guidance 2016 Where we differ: We believe market has priced its better growth prospect relative to TBIG Analyst Sachin Mittal +65 6682 3699 [email protected] William Simadiputra +62 2130034939 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rpbn) 2014A 2015F 2016F 2017F Revenue 4,106 4,726 5,396 6,180 EBITDA 3,418 3,921 4,477 5,127 Pre-tax Profit 1,211 2,145 2,595 3,149 Net Profit 839 1,608 1,946 2,361 Net Pft (Pre Ex.) 1,115 1,608 1,946 2,361 Net Pft Gth (Pre-ex) (%) (0.2) 44.3 21.0 21.3 EPS (Rp) 82.3 158 191 0.0 EPS Pre Ex. (Rp) 109 158 191 232 EPS Gth Pre Ex (%) 0 44 21 21 Diluted EPS (Rp) 82.3 158 191 0.0 Net DPS (Rp) 0.0 0.0 0.0 0.0 BV Per Share (Rp) 459 616 807 987 PE (X) 54.7 28.5 23.6 N/A PE Pre Ex. (X) 41.2 28.5 23.6 19.4 P/Cash Flow (X) 17.6 17.0 12.8 11.1 EV/EBITDA (X) 15.6 13.5 11.6 9.9 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 9.8 7.3 5.6 4.6 Net Debt/Equity (X) 1.6 1.1 0.7 0.5 ROAE (%) 20.2 29.3 26.8 25.8 Earnings Rev (%): 0 1 3 Consensus EPS (Rp): 136 164 193 Other Broker Recs: B: 11 S: 2 H: 3

Source of all data: Company, DBS Bank, DBS Securities, Bloomberg Finance L.P

Downgrade to HOLD After Share Price Rally Downgrade to HOLD with unchanged TP. We downgrade TOWR to HOLD post share price rally, as there is less than 5% potential upside left. We believe the market has priced in its better growth potential relative to TBIG given its unlevered balance sheet but see limited catalyst for the stock to further rally. Better earnings growth outlook vs. Tower Bersama. We expect double-digit EBITDA growth driven by stable rental rates and strong tenancy ratios. The double-digit site and tenant growth mainly driven by Hutch and Telkomsel (60% of TOWR's revenue). Both are expanding their network organically and they will continue to rely on independent tower-co for BTS roll-outs. Moreover, TOWR also has a better tenancy ratio of 1.8x vs. TBIG's 1.6x. Positive q-o-q revenue and EBITDA growth. TOWR booked Rp1.1tn revenue (+5.6% q-o-q, -2.8% y-o-y) and Rp952bn EBITDA (+3.4% q-o-q, -2.1% y-o-y) in 3Q15. Solid top-line growth was driven by a combination of strong tower additions and stable rental rates. Valuation:

We rate TOWR a HOLD with a higher DCF-based target price of Rp5,000 (9.2% WACC, 4% terminal growth rate) as we rolled forward our valuation year to FY16. Our target price implies 13.0x FY16 EV/EBITDA. Key Risks to Our View:

Tenancy risk and rental rate pressure. Tower-co fails to find tenants for newly acquired/built towers, which would cause tenancy ratio and profitability to drop. Lower than expected rental rate also will squeeze profitability. At A Glance Issued Capital (m shrs) 10,203 Mkt. Cap (Rpbn/US$m) 45,913 / 3,321 Major Shareholders Tricipta Mandhala Gumilang (%) 25.6 Caturguwirantna Sumapala (%) 24.6 T Rowe Price International (%) 8.6 Free Float (%) 41.3 3m Avg. Daily Val (US$m) 0.01 ICB Industry : Telecommunications / Mobile Telecommunications

DBS Group Research . Equity 22 Jan 2016

Indonesia Company Guide

Sarana Menara Nusantara Edition 2 Version 1 | Bloomberg: TOWR IJ | Reuters: TOWR.JK Refer to important disclosures at the end of this report

90

140

190

240

290

340

390

990.0

1,490.0

1,990.0

2,490.0

2,990.0

3,490.0

3,990.0

4,490.0

4,990.0

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Relative IndexRp

PT Sarana Menara Nusantara (LHS) Relative JCI INDEX (RHS)

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ASIAN INSIGHTS VICKERS SECURITIES Page 34

Company Guide

Sarana Menara Nusantara

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Strong earnings growth. We forecast TOWR's EBITDA to grow by 12.7% CAGR over FY15-17F, on the back of solid site additions, and stable rents and tenancy ratios. For the same reasons, we expect EBITDA margins to remain strong ahead at ~80%. Tenancy ratio will remain high. We believe TOWR's tenancy ratio will be stable at 1.9x despite steady site expansion (organic growth) given the incoming new BTS from operators. Indonesia’s tower companies also still has room to increase tenancy ratio up to 2.5x and gain better economies of scale. Stable rental outlook. Indonesia’s monthly rental lease rate will be sustainable at Rp14-15m per month as the current rents offer a win-win situation for both the tower-cos and operators. Our channel checks also suggest that overall rental rates have remained stable despite minor changes to contract terms, like passing through electricity costs to the operators. This will have little impact on revenues and profitability. Double-digit site and tenant growth. We forecast TOWR’s sites to grow by 10.6% CAGR over FY15-17F. This will be driven by the big four telco operators in Indonesia as all of them will continue to expand revenues and market share amid the competitive telecommunication market in Indonesia. Tower outsourcing trend to continue ahead. Telcos will continue to outsource their requirements by leasing tower infrastructure from third parties instead of building their own, as telcos want to reserve capex to improve/expand network and maintain market share. But the competitive pricing market will result in low profitability and returns on investment. Non-organic growth. Indonesia’s operators’ (ex. Telkom) balance sheets are highly leveraged, which is why they have been divesting non-core assets, mainly tower assets. These divestments provide non-organic growth opportunities for tower-cos. A higher number of towers will be followed by higher revenues, EBITDA and share price. iForte acquisition is earnings-accretive, despite small size. iForte is a small-sized tower company (450 towers) that also operates a 700-km fibre network and seven BTS hotels. This acquisition will strengthen TOWR’s current tower business while offering access to new businesses.

Towers

Total tenants

Tenancy ratio

Capex (Rp tn)

EBITDA margin (%)

Source: Company, DBS Bank, DBS Securities

9746

11346

12818

14618

16328

0

2,100

4,200

6,300

8,400

10,500

12,600

14,700

2013A 2014A 2015F 2016F 2017F

18,322.0

21,822.0

24,797.0

28,434.9

31,334.9

0

6,400

12,800

19,200

25,600

2013A 2014A 2015F 2016F 2017F

1.9 1.9 1.9 1.9 1.9

0.00

0.40

0.79

1.19

1.59

1.98

2013A 2014A 2015F 2016F 2017F

22

33

2

0.00

0.35

0.69

1.04

1.39

1.74

2.08

2.43

2.78

2013A 2014A 2015F 2016F 2017F

83 83 83 83 83

0.0

16.8

33.6

50.5

67.3

84.1

2013A 2014A 2015F 2016F 2017F

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ASIAN INSIGHTS VICKERS SECURITIES Page 35

Company Guide

Sarana Menara Infrastructure

Balance Sheet:

Unlevered balance sheet. TOWR has better growth potential relative to TBIG given its unlevered balance sheet. TOWR has lower net debt-to-EBITDA of around 3.5x vs. TBIG's 5.0x in 3Q15. This means TOWR is more better positioned for site and tenant growth, whether organically or inorganically this year.

Share Price Drivers:

Share price trading at 13.0x EV/EBITDA. TOWR is trading at double-digit EBITDA multiple but that is justified by its stable business and cash flows. TOWR’s EV/EBITDA multiple is at 9% discount to TBIG's despite both registering good performance. But TOWR has low trading liquidity because of its low free float. EBITDA growth is the key share price driver. It does not matter whether growth is derived organically or through tower acquisitions, as the market has pegged the stock to tower companies’ valuation (EV/EBITDA multiple).

Key Risks:

Tenancy risk. Tower-co fails to find additional tenants for newly acquired/built towers, causing tenancy and profitability to drop. Rental rate pressure. Tower rental rates could drop if competition among tower-cos intensify. The resulting shift in bargaining power towards operators also means tower-cos will not be able to pass through higher costs, and margins would contract. Operators rein in network expansion, weak rupiah vs USD. Slower network expansion means slower BTS roll-out, which would derail tower-co's site expansion plans.

Company Background

PT Sarana Menara Nusantara Tbk, through a subsidiary, builds telecommunication towers. The Company constructs, operates and rents the towers to mobile telecommunications service providers.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, DBS Bank, DBS Securities

0.2

0.2

0.2

0.3

0.3

0.3

0.00

0.50

1.00

1.50

2.00

2.50

2013A 2014A 2015F 2016F 2017F

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

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

2013A 2014A 2015F 2016F 2017F

Capital Expenditure (-)

Rp

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2013A 2014A 2015F 2016F 2017F

Avg: 23.8x

+1sd: 27.6x

+2sd: 31.4x

‐1sd: 20x

‐2sd: 16.2x14.4

19.4

24.4

29.4

34.4

Jan-12 Jan-13 Jan-14 Jan-15

(x)

Avg: 7.37x

+1sd: 10.4x

+2sd: 13.43x

‐1sd: 4.34x

‐2sd: 1.31x0.6

2.6

4.6

6.6

8.6

10.6

12.6

14.6

Jan-12 Jan-13 Jan-14 Jan-15

(x)

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ASIAN INSIGHTS VICKERS SECURITIES Page 36

Company Guide

Sarana Menara Nusantara

Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F Towers 9,746 11,346 12,818 14,618 16,328 Total tenants 18,322 21,822 24,797 28,435 31,335 Tenancy ratio 1.88 1.92 1.93 1.95 1.92 Capex (Rp tn) 2.40 2.21 2.75 2.57 1.98 EBITDA margin (%) 82.9 83.3 83.0 83.0 83.0

Income Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 3,197 4,106 4,726 5,396 6,180 Cost of Goods Sold (1,135) (1,322) (1,413) (1,630) (1,839) Gross Profit 2,062 2,784 3,313 3,767 4,341 Other Opng (Exp)/Inc (339) (449) (499) (570) (653) Operating Profit 1,724 2,335 2,814 3,197 3,689 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (547) (849) (669) (601) (540) Exceptional Gain/(Loss) (948) (275) 0.0 0.0 0.0 Pre-tax Profit 228 1,211 2,145 2,595 3,149 Tax (63.3) (371) (536) (649) (787) Minority Interest 3.85 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 169 839 1,608 1,946 2,361 Net Profit before Except. 1,117 1,115 1,608 1,946 2,361 EBITDA 2,651 3,418 3,921 4,477 5,127 Growth Revenue Gth (%) 41.1 28.4 15.1 14.2 14.5 EBITDA Gth (%) 39.9 28.9 14.7 14.2 14.5 Opg Profit Gth (%) 31.9 35.5 20.5 13.6 15.4 Net Profit Gth (Pre-ex) (%) 66.6 (0.2) 44.3 21.0 21.3 Margins & Ratio Gross Margins (%) 64.5 67.8 70.1 69.8 70.2 Opg Profit Margin (%) 53.9 56.9 59.5 59.2 59.7 Net Profit Margin (%) 5.3 20.4 34.0 36.1 38.2 ROAE (%) 5.9 20.2 29.3 26.8 25.8 ROA (%) 1.3 5.1 8.4 8.5 9.0 ROCE (%) 10.1 10.9 12.2 11.6 11.6 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 22.3 Net Interest Cover (x) 3.1 2.8 4.2 5.3 6.8

Source: Company, DBS Bank, DBS Securities

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Company Guide

Sarana Menara Infrastructure

Quarterly / Interim Income Statement (Rpbn)

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 1,165 1,031 1,069 1,073 1,133 Cost of Goods Sold (348) (321) (341) (337) (363) Gross Profit 817 711 728 735 770 Other Oper. (Exp)/Inc (121) (119) (126) (122) (137) Operating Profit 696 592 601 613 634 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (159) (370) (131) (129) (139) Exceptional Gain/(Loss) (130) (200) (236) (77.3) (471) Pre-tax Profit 407 22.1 234 407 24.0 Tax (98.9) (72.4) (64.1) (102) (11.0) Minority Interest 0.60 (1.6) (1.5) 0.02 (1.1) Net Profit 309 (51.9) 169 305 11.9 Net profit bef Except. 439 148 405 382 483 EBITDA 972 1,117 889 903 952 Growth Revenue Gth (%) 16.9 (11.5) 3.6 0.4 5.6 EBITDA Gth (%) 19.4 14.9 (20.3) 1.6 5.4 Opg Profit Gth (%) 26.7 (15.0) 1.6 1.9 3.4 Net Profit Gth (Pre-ex) (%) 28.6 (66.3) 173.6 (5.7) 26.4 Margins Gross Margins (%) 70.1 68.9 68.1 68.5 68.0 Opg Profit Margins (%) 59.7 57.4 56.3 57.1 55.9 Net Profit Margins (%) 26.5 (5.0) 15.8 28.4 1.0

Balance Sheet (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 11,152 12,392 13,496 14,968 16,103 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 2,167 2,197 2,145 2,093 2,041 Cash & ST Invts 1,506 2,010 4,380 6,208 8,260 Inventory 0.51 0.65 0.75 0.86 0.98 Debtors 674 574 996 1,137 1,302 Other Current Assets 34.6 62.4 62.4 62.4 62.4 Total Assets 15,534 17,235 21,081 24,470 27,770 ST Debt 1,086 203 1,086 1,086 1,086 Creditor 485 472 592 684 770 Other Current Liab 849 1,365 1,358 1,471 1,609 LT Debt 8,221 9,151 10,151 11,151 12,151 Other LT Liabilities 1,250 1,376 1,615 1,854 2,093 Shareholder’s Equity 3,648 4,677 6,286 8,232 10,068 Minority Interests (5.0) (7.9) (7.9) (7.9) (7.9) Total Cap. & Liab. 15,534 17,235 21,081 24,470 27,770 Non-Cash Wkg. Capital (625) (1,199) (892) (955) (1,014) Net Cash/(Debt) (7,802) (7,344) (6,857) (6,029) (4,977) Debtors Turn (avg days) 47.3 55.5 60.6 72.1 72.0 Creditors Turn (avg days) 585.0 732.7 634.1 666.1 662.8 Inventory Turn (avg days) 2.2 0.9 0.8 0.8 0.8 Asset Turnover (x) 0.2 0.3 0.2 0.2 0.2 Current Ratio (x) 0.9 1.3 1.8 2.3 2.8 Quick Ratio (x) 0.9 1.3 1.8 2.3 2.8 Net Debt/Equity (X) 2.1 1.6 1.1 0.7 0.5 Net Debt/Equity ex MI (X) 2.1 1.6 1.1 0.7 0.5 Capex to Debt (%) 15.4 25.7 19.7 22.5 19.4 Z-Score (X) 3.1 3.2 3.0 3.0 3.0

Source: Company, DBS Bank, DBS Securities

Strong and stable quarterly financial performance, thanks to stable rental rate and exposure to Telkomsel and Hutch

Balance sheet relatively unlevered vs. TBIG

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Company Guide

Sarana Menara Nusantara

Cash Flow Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 228 1,211 2,145 2,595 3,149 Dep. & Amort. 928 1,084 1,107 1,280 1,439 Tax Paid (194) (26.4) (335) (536) (649) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (314) 266 (509) (49.7) (79.0) Other Operating CF 1,782 75.2 291 291 291 Net Operating CF 2,430 2,609 2,698 3,581 4,150 Capital Exp.(net) (1,434) (2,404) (2,211) (2,752) (2,573) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF (343) 0.0 0.0 0.0 0.0 Net Investing CF (1,776) (2,404) (2,211) (2,752) (2,573) Div Paid 0.0 0.0 0.0 0.0 (526) Chg in Gross Debt (143) 46.4 1,883 1,000 1,000 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (495) 0.0 0.0 0.0 0.0 Net Financing CF (638) 46.4 1,883 1,000 474 Currency Adjustments 360 0.0 0.0 0.0 0.0 Chg in Cash 376 251 2,370 1,828 2,052 Opg CFPS (Rp) 269 230 314 356 415 Free CFPS (Rp) 97.7 20.0 47.7 81.2 155

Source: Company, DBS Bank, DBS Securities

Target Price & Ratings History

Source: DBS Bank, DBS Securities

S.No. Date Closing PriceTarget Price

Rating

1: 06 Feb 15 4095 4700 HOLD

2: 27 Mar 15 3950 4700 HOLD

3: 21 Apr 15 4000 4700 HOLD

4: 21 May 15 3980 4700 BUY

5: 22 Jul 15 4000 4700 BUY

6: 31 Aug 15 3960 4700 BUY

7: 30 Nov 15 4200 5000 BUY

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

1

2

3

4

5

6

7

3534

3734

3934

4134

4334

4534

4734

4934

Jan-15 May-15 Sep-15

Rp

Page 39: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

Industry Focus

Telecommunication sector

Page 39

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

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

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

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

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

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

* Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings

or risk assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 22 January 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Dec 2015.

2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Page 40: Is the Stabilising Competition Priced - DBS Bank Is the stabilising competition priced in? We believe the market has only partially priced in the recent positive industry ... 2,500-tower

Industry Focus

Telecommunication sector

Page 40

3.

Compensation for investment banking services: DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Indosat as of 31 Dec 2015. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

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Dubai

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Industry Focus

Telecommunication sector

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