0527_thai telcos sector update_20130527_rhb.pdf

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Sector Update, 27 May 2013

Telecommunications Overweight (Maintained)

Thai Telecoms The Long-Term DarlingsMacro

Risks

Growth

Value

We recently shared our regional and Thai telecoms strategy with morethan 20 Thai investors. A key concern was whether the strong rally inThai telecoms stocks represents a good selling opportunity. We adviseinvestors to take profit in the short term but stay invested in the longerterm, with the yield compression implying a FV of THB350 for ADVANCand THB135 for DTAC. Maintain OVERWEIGHT on the Thai telecoms

sector, with ADVANC being our top pick.

Marketing in Bangkok. We recently marketed the regional and Thaitelecoms sector to over 20 investors from six investment firms inBangkok. The marketing trip was timely as it coincided with the launch ofthe 3G 2100MHz services in the country. The fund managers we metwere generally positive on the industrys3G prospects, specifically withregard to ADVANC & DTAC, the two telcos under our coverage.However, most were also concerned about the sharp price rally over thepast 12 months and if the upsides have been priced in.

60:40 strategy with higher target prices based on reasonable yieldcompression. We put forward to investors our strategy of takingprofiton the Thai telcos in the short term given their sharp 41%-42% re-ratingYTD, albeit investors should stay invested 60% of the time. The telcosdividend yields are compressed amid the price run-up. Assuming thedividend yields are to converge to the long-term average of 4%, it wouldtranslate into a target price of THB350 for ADVANC and THB135 forDTAC, which still offer a more than 10% upside. We expect the intereston Thai telcos to remain high for its safe haven attribute during aneconomic slowdown.

Thai telecoms sector the only OVERWEIGHT within our regionalcoverage. Thai investors generally concur with our views of: (i) thestrong earnings potential from lower regulatory fees under the new 3Gframework, as well as rapidly rising smartphone take-up amid the strongpent-up demand from 2G subscribers switching to 3G (ADVANCrevealed that it acquired 1m 2G subscribers in a matter of weeks), and (ii)rational competition (despite the advent of 3G) as the sectors average

revenue per user (ARPU) and average revenue per user (ARPM) (Figure3 & 4) are already among the lowest in the region.

Rare combination of robust earnings growth and attractive dividendyields. We maintain our OVERWEIGHT rating on the Thai telecomssector as it offers a rare combination of superior longer-term earningsgrowth and attractive dividend yields. Aside from Thailand, Indonesiapresents another growth opportunity within the ASEAN telco space owingto its modest smartphone penetration. Our other top regional pick asidefrom ADVANC (BUY, FV: THB293) is AXIATA (NEUTRAL, FV:MYR6.40).

YTD absolute share price performance (%)

-17.1

-10.7

-7.1

-6.2

5.6

7.3

20.0

22.7

27.4

36.5

41.2

41.7

-25.0 -15.0 -5.0 5.0 15.0 25.0 35.0 45.0

Indosat

DiGi

TM

XL

Axiata

Maxis

Starhub

Singtel

M1

Telkom

ADVANC

DTAC

Source: Bloomberg

YTD relative share price performance (%)

-29.4

-24.6

-17.0

-13.6

-0.3

0.0

4.9

12.0

12.6

13.6

17.3

18.7

-40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0

Indosat

XL

DiGi

TM

Maxis

Axiata

Starhub

Singtel

M1

Telkom

ADVANC

DTAC

Source: Bloomberg

P/E (x) P/B (x) Yield (%)

De c-14F Dec-14F De c-14F

Advanced Info Services THB283 THB293 20.0 17.0 5.0 BUY

Total Access Communication PCL THB121 THB122 19.7 8.9 4.6 BUY

Company Name Price Target Rating

Source: Company data, RHB Estimates

Thailand Research Team.

+66 (0) 2 862 9999 Ext.2030


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Telecommunications27 May 2013

See important disclosures at the end of this report 2

Figure 1: 1QFY13 sim penetration Figure 2: 1QFY13 smartphone penetration

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Source: RHB estimates Source: RHB estimates

Figure 3: 1QFY13 blended ARPU (USD/mth) Figure 4: 1QFY13 blended ARPM (USD/mth)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

0.00

0.02

0.04

0.06

0.08

0.10

0.12

Source: RHB estimates Source: RHB estimates

Figure 5: ADVANC's 3G-900MHz subscribers Figure 6: DTAC's 3G-850MHz subscribers

0%

2%

4%

6%

8%

10%

12%

14%

16%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1Q12 2Q12 3Q12 4Q12 1Q13

3G subscr ibers (m) Penetration (%)

0%

2%

4%

6%

8%

10%

12%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1Q12 2Q12 3Q12 4Q12 1Q13

3G subscr ibers (m) Penetration (%)

Source: ADVANC Source: DTAC


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Telecommunications27 May 2013

See important disclosures at the end of this report 3

Figure 7: Sector comparisons

Compa ny Bloombe rg Curre ncy Price Mkt Ca p

Ticker (USDm) FY1 FY2 FY1 FY2 FY1 FY2 FY1 FY2 FY1 FY2 FY1 FY2

Malaysia

Axiata AXIATA MK MYR 6.92 19,472.1 22.4 20.5 9.0 8.2 2.8 2.7 3.3 3.6 12.8 13.4 5.8 5.8

DiGi DIGI MK MYR 4.61 11,826.6 21.6 20.0 11.7 11.0 137.2 137.2 4.3 5.0 593.2 684.2 38.8 44.0

Maxis MAXIS MK MYR 6.96 17,225.3 25.0 24.8 13.0 12.8 8.5 10.0 5.7 5.7 31.7 37.0 12.0 12.3

TM T MK MYR 5.48 6,468.5 27.1 24.9 7.5 7.0 3.3 3.2 3.6 3.6 11.3 13.1 3.4 3.8

Time dotCom TDC MK MYR 4.76 900.1 18.7 18.1 15.2 12.6 1.0 1.0 0.0 0.0 5.6 5.6 4.7 4.7

Singapore

SingTel ST SP SGD 3.96 49,942.7 15.9 15.0 13.4 13.0 2.5 2.3 4.2 4.2 16.1 15.8 9.8 10.0

StarHub STH SP SGD 4.26 5,793.9 22.4 19.7 10.7 9.7 306.3 150.8 4.7 4.7 968.9 1,027.9 17.9 19.9

M1 M1 SP SGD 3.25 2,368.5 18.3 15.4 10.2 9.0 7.8 6.7 4.5 4.4 44.4 47.0 16.2 18.7

Indonesia

Telkom TLKM IJ IDR 12,200 25,148.5 17.0 14.5 5.9 5.0 4.2 3.8 3.3 4.4 26.4 27.7 12.5 13.3

XL Axiata EXCL IJ IDR 5,100 4,450.5 19.1 15.2 6.1 5.4 2.6 2.4 2.1 2.7 14.3 16.4 6.1 7.2

Indosat ISAT IJ IDR 5,400 3,000.3 18.9 31.1 4.4 4.4 1.4 1.4 0.9 0.7 2.5 2.0 1.0 0.8

Thailand

ADVANC ADVANC TB THB 283.00 28,110.9 22.6 20.0 13.1 11.7 17.8 17.0 4.4 5.0 82.4 87.1 35.5 36.7

DTAC DTAC TB THB 121.00 9,572.2 21.7 19.7 10.7 9.2 9.5 8.9 4.2 4.6 40.6 46.6 11.9 12.2

Simple Avg. - Malaysia Telcos 22.9 21.7 11.3 10.3 30.6 30.8 3.4 3.6 130.9 150.7 12.9 14.1

Simple Avg. - Singapore Telcos 18.9 16.7 11.5 10.6 105.5 53.3 4.5 4.4 343.1 363.6 14.6 16.2

Simple Avg. - Indonesia Telcos 18.3 20.3 5.5 5.0 2.8 2.5 2.1 2.6 14.4 15.4 6.5 7.1

Simple Avg. - Thailand Telcos 22.1 19.8 11.9 10.5 13.7 12.9 4.3 4.8 61.5 66.9 23.7 24.5

Simple Avg. - Regional Telcos 20.8 19.9 10.1 9.2 38.8 26.7 3.5 3.7 142.3 155.7 13.5 14.6

Note: Share prices as at 23 May 2013

ROA (%)P/E (x) EV/EBITDA (x) P/BV (x) DPS (%) ROE (%)

Source: Bloomberg


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RHB Guide to Investment Ratings

Buy:Share price may exceed 10% over the next 12 monthsTrading Buy:Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertainNeutral:Share price may fall within the range of +/- 10% over the next 12 monthsTake Profit:Target price has been attained. Look to accumulate at lower levelsSell:Share price may fall by more than 10% over the next 12 monthsNot Rated:Stock is not within regular research coverage

Disclosure & Disclaimer

All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation orwarranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offerto transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared forinformation purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report doesnot have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for theinformation of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal orfinancial advice to independently evaluate the particular investments and strategies.

RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or have positions insecurities of the company(ies) covered in this research report or any securities related thereto, and may from t ime to time add to, or dispose off, or may bematerially interested in any such securities. Further, RHB, its affiliates and related companies do and seek to do business with the company(ies) coveredin this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies),may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or

underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity mentioned in thisresearch report.

RHB and its employees and/or agents do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or damages that may arisefrom any reliance based on this report or further communication given in relation to this report, including where such losses, loss of profits or damagesare alleged to have arisen due to the contents of such report or communication being perceived as defamatory in nature.

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Malaysia

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Singapore

This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No. 200808705N), a wholly-owned subsidiary of DMG &Partners Securities Pte Ltd, a joint venture between Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group) and OSK InvestmentBank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB, which in turn is a wholly -owned subsidiary of RHB Capital Berhad). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG &Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; thisreport is therefore classified as a non-independent report.

As of 26 May 2013, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd do not have proprietary positionsin the securities covered in this report, except for:a) -

As of 26 May 2013, none of the analysts who covered the securities in this report has an interest in such securities, except for:a) -

Special Distribution by RHB

Where the research report is produced by an RHB entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, it is only distributedto "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are notan "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this researchreport in its entirety. In respect of any matters arising from, or in connection with this research report, you are to contact our Singapore Office, DMG &Partners Securities Pte Ltd.

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This report is published and distributed in Hong Kong by RHB OSK Securities Hong Kong Limited (RHBSHK) (formerly known as OSK Securities HongKong Limited), a subsidiary of OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity isreferred to as RHBIB), which in turn is a wholly-owned subsidiary of RHB Capital Berhad.

RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company.RHBSHK, RHBIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtaincompensation for investment banking services from the subject company.


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Risk Disclosure Statements

The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely thatlosses will be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. RHBSHKdoes not maintain a predetermined schedule for publication of research and will not necessarily update this report

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subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-ownedsubsidiary of RHB Capital Berhad.

Thailand

This report is published and distributed in Thailand by RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL), asubsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-ownedsubsidiary of RHB Capital Berhad.

Other Jurisdictions

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Kuala Lumpur Hong Kong Singapore

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0527_thai telcos sector update_20130527_rhb.pdf