Singapore Telecoms Sector - Credit Suisse
Post on 07-Jan-2022
6 Views
Preview:
Transcript
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
2 March 2017 Asia Pacific/Singapore
Equity Research Telecommunication Services
Singapore Telecoms Sector Research Analysts
Varun Ahuja, CFA
65 6212 3017
varun.ahuja@credit-suisse.com
THEME
Four is a (bigger) crowd Figure 1: TPG can be EBITDA breakeven at ~17% discount to current
sector ARPU with 6% mobile and fixed broadband subs share
Source: Credit Suisse estimates
■ Addressing key investor queries. With TPG telecom (TPG) emerging as the fourth mobile operator in Singapore, the key questions in investors’ mind are: (1) How much will it cost to build the mobile network?, (2) What are the likely operating costs?, (3) At what ARPU levels TPG can break even?, and (4) Is there more downside to StarHub’s and M1’s stock prices from current levels? In this report, we aim to address these queries. Based on inputs from various industry participants, we have developed a proprietary new operator model to look at the new operator's economics.
■ TPG likely to spend ~S$500 mn on capex by 2021E. We expect TPG to start mobile services in 2H 2018 with 775 macro sites and then to gradually ramp-up to ~1,000 sites by 2021E. On in-building coverage, we expect TPG to have coverage of 575 buildings at the beginning which is likely to expand to 930 buildings by 2021E. We expect the total capex to be ~S$500 mn by 2021E (out of which ~S$300 mn will be spent by 2018E).
■ Pricing likely to fall by 15-25% over the next three years. We forecast TPG’s steady state operating expenses to reach S$185 mn by 2022E, representing ~51% of M1’s 2016 operating cost. Our sensitivity analysis suggests that TPG would turn EBITDA breakeven at a discount of ~17% to the current service ARPU of S$33 with mobile subs share of 6% and fixed broadband subs share of 6%. The ~17% discount can come down further to ~25% if TPG can operate at 45% of M1's cost structure.
■ Remain underweight on M1 and StarHub. We think current stock prices of
M1 and StarHub are not fully factoring the increasing competitive dynamics.
We see downside risk to consensus 2018/19 EPS estimates for M1 and
StarHub. SingTel is our top pick as it has the least exposure to Singapore
mobile sector. We have cut our 2017-19E EPS for M1 and StarHub by 0-4%
as we bake in higher subsidies. As a result, our target prices for M1 and
StarHub reduce by ~3% to S$1.50 and ~4% to S$2.25, respectively.
3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%
-45.0% (115) (86) (57) (29) 0 29 58
-37.5% (107) (74) (42) (9) 24 57 89
-30.0% (99) (63) (26) 11 47 84 121
-22.5% (91) (51) (10) 30 71 112 152
-15.0% (84) (39) 6 50 95 139 184
-7.5% (76) (27) 21 70 118 167 215
0.0% (68) (15) 37 89 142 194 247
% d
isco
un
t to
cu
rre
nt
serv
ice
AR
PU
(S
$33)
Subscriber m arket share (%)
2 March 2017
Singapore Telecoms Sector 2
Focus charts and table Figure 2: TPG's capex and opex forecasts Figure 3: RoCE sensitivity analysis
Source: Credit Suisse estimates Source: Credit Suisse estimates
Figure 4: M1's current SIM only plans and EBITDA
breakeven levels for TPG
Figure 5: TPG's current spectrum portfolio should
be able support subs market share of till ~28%
Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates
Figure 6: Downside likely to consensus 2018E EPS Figure 7: Asian telcos dividend yield spread comps
Source: IBES, Credit Suisse estimates Note: Data as on 28 Feb 2017; Source: Company data, Credit Suisse estimates
Figure 8: Singapore telecoms valuation comparison
Rating CP TP % Up/ Mkt cap P/E (x) EV/EBITDA (x) FCF yield (%) Div. yield (%)
(S$) (S$) (down) (US$ m) 2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E
SingTel O 3.94 4.60 16.8% 45,861 16.0x 15.4x 7.2x 6.9x 5.2% 5.4% 4.6% 4.8%
StarHub U 2.88 2.25 -21.9% 3,551 18.0x 21.6x 9.0x 9.8x 5.5% 5.1% 5.6% 5.6%
M1 Ltd U 2.08 1.50 -27.9% 1,389 14.8x 19.6x 7.8x 8.7x 4.9% 5.7% 5.4% 4.1% Note: Prices as of 28 Feb 2017; O = OUTPERFORM, U = UNDERPERFORM; Source: Company data, Credit Suisse estimates
(S$ / mn) 2017E 2018E 2019E 2020E 2021E 2022E
Capi tal expendi ture
Total macro capex 35 33 7 6 5 2
Total IBS capex 72 135 63 36 29 14
Other capex 5 15 15 18 20 19
Total capex 112 183 85 60 54 36
Operat ing expenses
Network expenses 5 34 51 57 61 65
Transmission expenses 0 18 26 35 44 51
Sales and marketing 0 19 30 33 32 29
G&A expenses 10 20 28 34 38 41
Total operat ing expenses 15 91 135 159 175 185
3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%
-45.0% -14.7% -12.3% -9.9% -7.5% -5.1% -2.7% -0.3%
-37.5% -14.0% -11.3% -8.6% -5.8% -3.1% -0.4% 2.3%
-30.0% -13.4% -10.3% -7.3% -4.2% -1.2% 1.9% 4.9%
-22.5% -12.7% -9.3% -6.0% -2.6% 0.8% 4.2% 7.5%
-15.0% -12.0% -8.3% -4.7% -1.0% 2.7% 6.4% 10.1%
-7.5% -11.4% -7.4% -3.3% 0.7% 4.7% 8.7% 12.7%
0.0% -10.7% -6.4% -2.0% 2.3% 6.7% 11.0% 15.4%
% d
isco
un
t to
cu
rre
nt
se
rvic
e A
RP
U (
S$33)
Subscriber market share (%)
25
31
37
43
47
15
20
25
30
35
40
45
50
Data - 4GB Data - 6GB Data - 8GB Data - 10GB Data - 12GB
Current sector service ARPU (S$33/mth)
EBITDA breakeven ARPU @ 6% subs share
EBITDA breakeven ARPU @ 7.5% subs share
(S$/month)
0
50
100
150
200
250
0% 5% 10% 15% 20% 25% 30% 35% 40%
Peak hour network traffic (Mbps)
Actual network capacity @ 35% of the theoretical speed of 450Mbps
(Mbps)
(Subs market share, %)
Actual network capacity @ 35% of the theoretical speed of 600Mbps
55
60
65
70
75
80
85
90
95
100
105
Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17
M1 Consensus
STH Consensus
STEL Consensus
StarHub - Current CSe
SingTel - Current CSe
M1 - Current CSe1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
Sing
Tel
M1
Star
Hub
HKB
N
HTH
K
CH
T
Smar
Tone
FET
TWM
HKT
PCC
W
+/- 1 SD Hist average Current
2 March 2017
Singapore Telecoms Sector 3
Four is a (bigger) crowd
TPG likely to spend ~S$500 mn on capex by 2021E We believe TPG has a good mix of low band and high band spectrum which should aid in
a cost efficient roll out of the 4G network. Also, our analysis suggests that TPG’s current
spectrum portfolio should be able to support subscriber market share of ~28%. We expect
TPG to start the mobile services in 2H 2018 with 775 macro sites and then to gradually
ramp-up to ~1,000 sites by 2021E. We estimate the total capex for rolling out 1,000 macro
sites will be ~S$85 mn. Besides macro coverage, in-building coverage presents one of the
key challenges for the new entrant given significant amount of data usage happens indoor.
Though having a sizeable quantum of low band spectrum aids in providing good in-
building coverage, TPG would need to have basic building coverage to provide quality
service. Based on our checks, currently incumbents have in-building solutions (IBS) in
around 1,000 buildings. We expect TPG to start mobile services with coverage of 575
buildings which is likely to expand to 930 buildings by 2021E. We expect the total cost of
installation for IBS to be ~S$335 mn by 2021E.
Pricing likely to fall by 15-25% over the next 3 years Based on inputs from various industry participants, we forecast TPG’s steady state
operating expenses to reach S$185 mn by 2022E, representing ~51% of M1’s 2016
operating cost. Assuming a 10% variation in the operating costs, we believe the range of
operating expenses can be 45-55% of M1’s current operating cost. That said, we see
more downside risk to our operating costs base case assumptions as we have kept some
buffer in many cost items given our negative view on the sector. We think our assumptions
are reasonable given that M1 has lot of legacy costs and TPG can also drive significant
cost savings from its Australia business. Our sensitivity analysis suggests that TPG would
turn EBITDA breakeven at a discount of ~17% to the current service ARPU of S$33 with
mobile subs share of 6% and fixed broadband (BB) subs share of 6%. The ~17% discount
can come down further to ~25% if TPG can operate at 45% of M1's cost structure. We
would highlight that TPG has guided to turning to EBITDA breakeven with 5-6% subs
market share. Our forecasts appear to be in line with the guidance. While for RoCE, TPG
would turn RoCE breakeven at a discount of 9% to the current service ARPU with mobile
subscriber market share of 7.5% and 6% market share in the broadband segment.
Competition to intensify in mobile and BB segments Though the mobile sector has seen some price competition over the last 12-18 months,
we think pricing is likely to deteriorate further over the next three years as TPG is known to
disrupt the market. Also, our EBITDA breakeven analysis corroborates the same. We
believe, as part of its go-to-market strategy, TPG may only charge for data services while
offering free voice and other services. We expect TPG to capture ~6% mobile subscriber
market share by 2021E and pricing is likely to be the main lever to gain market share. We
expect TPG to launch broadband services in Singapore in 1H 2018 as it would help the
company to compete more effectively in the mobile market. Hence, we expect competition
in the broadband sector to resume with the potential entry of TPG and forecast TPG to
capture ~5% broadband subscriber market share by 2021E.
Remain underperform on M1 and StarHub Singapore mobile revenue declined by ~3% in 2016, impacted by poor data monetisation
with operators launching aggressive data add-on plans during the year. We expect sector
revenue to decline at a three-CAGR of ~4% till 2019E due to price competition. Further,
we think handset subsidies are likely to increase over the next 12-18 months as operators
look to lock in customers. We maintain UNDERPERFORM on M1 and StarHub as we
believe current stock prices are not fully baking in the increasing competitive dynamics.
We see downside risk to consensus 2018/19 EPS estimates for M1 and StarHub. SingTel
is our preferred pick as it has the least exposure to Singapore mobile sector. We have cut
our 2017-19E EPS estimates for Singapore telcos by 0-4% as bake in higher subsidies. As
a result, our TPs for M1 and StarHub reduce by ~3% to S$1.50 and ~4% to S$2.25 resp.
We expect TPG to start mobile services in 2H18
with 775 macro sites and 575 IBS with a
likely capex spend of ~S$300mn by 2018E.
At a steady state (2022E), TPG's opex
likely to be at ~51% of M1’s 2016 opex…
…implying EBITDA breakeven at ~17% discount to current
ARPU with 6% mobile and BB subs share
We expect TPG to capture ~6% mobile
and ~5% BB subs share by 2021E
We see downside risk to consensus 2018/19
earnings estimates for M1 and StarHub
2 March 2017
Singapore Telecoms Sector 4
Regional valuation comparison
Figure 9: Asia regional valuation comparison
Note: Data as on 28-Feb-17; Source: Thomson Reuters, Bloomberg, Company data, Credit Suisse estimates
Close Target Mkt cap
Ticker Ccy price Rating price (US$ bn) 17E 18E 17E 18E 17E 18E 17E 18E 1m 6m YTD 1m 6m YTD
Asia
Integrated operators
China Telecom 728 HK HK$ 3.65 O 5.50 38.1 11.0 9.6 3.4 3.1 6.2% 7.8% 3.6% 4.7% -0.5% -2.9% -3.4% 0.4% -6.5% -21.1%
China Unicom 762 HK HK$ 9.44 O 12.85 29.1 29.6 14.2 4.6 4.1 6.4% 9.9% 1.4% 3.5% 1.5% -4.0% 6.7% 2.5% -7.5% -12.8%
Chunghwa 2412 TT NT$ 102.00 N 105.00 25.8 19.1 18.4 8.9 8.6 6.2% 6.4% 5.4% 5.6% 0.5% -4.2% -3.3% 0.8% -10.0% -16.6%
HTHK 215 HK HK$ 2.43 O 2.95 1.5 17.1 15.4 6.5 6.1 8.7% 9.2% 4.4% 4.9% -0.8% -6.5% -11.6% 0.1% -9.9% -27.8%
KT 030200 KS W 30,450.00 O 38,000.00 7.0 8.1 6.9 2.4 2.0 27.1% 28.8% 3.9% 4.9% 0.7% 2.0% 5.4% 1.2% -3.3% -3.5%
PCCW 8 HK HK$ 4.73 N 5.25 4.7 20.2 19.1 9.9 9.3 4.2% 5.7% 6.3% 6.5% 1.3% 3.7% -3.5% 2.2% 0.0% -21.1%
HKT Trust 6823 HK HK$ 10.36 O 11.95 10.1 15.3 14.5 11.0 10.5 6.9% 6.8% 6.2% 6.4% 0.8% 1.8% -5.6% 1.7% -1.9% -22.9%
PLDT TEL PM P 1,460.00 U 1,300.00 6.3 17.4 18.6 7.6 7.6 2.2% 2.3% 3.5% 3.2% 2.1% 12.3% -16.8% 3.1% 6.9% -22.4%
SingTel ST SP S$ 3.94 O 4.60 45.8 16.0 15.4 7.2 6.9 5.6% 6.5% 4.6% 4.8% -0.8% 3.4% 6.2% -0.8% -2.2% -8.0%
SPK SPK NZ NZ$ 3.57 U 3.00 4.7 16.6 16.1 7.5 7.5 6.4% 6.7% 7.0% 7.0% 2.3% 1.4% 2.2% 1.2% -1.4% -7.2%
TM T MK RM 6.16 O 7.20 5.2 26.6 24.8 7.2 6.6 0.1% 1.5% 3.4% 3.6% -0.2% 0.2% -6.8% 0.6% -3.8% -8.1%
Telstra TLS AU A$ 4.64 U 4.60 43.3 14.2 13.4 6.5 6.3 6.4% 6.4% 6.7% 6.7% -4.4% -7.3% -7.3% -2.4% -10.0% -19.2%
Jasmine JAS TB Bt 8.80 U 7.25 2.7 25.9 23.2 12.3 10.1 0.3% 1.6% 2.3% 2.6% 1.1% 15.8% 216.5% 1.5% 12.3% 173.4%
True Corp TRUE TB Bt 6.25 U 2.69 7.1 1023.1 925.7 10.0 11.0 0.0% 4.6% 0.0% 0.0% 1.6% -13.2% -14.6% 1.9% -15.8% -26.2%
Link Net LINK IJ Rp 4,860.00 O 8,300.00 1.1 12.9 10.4 6.4 5.1 6.8% 8.6% 2.3% 3.9% -2.8% 0.6% 30.8% -3.6% -2.9% 16.1%
HKBN 1310 HK HK$ 9.05 O 11.00 1.2 25.1 19.3 11.0 9.8 6.2% 7.0% 4.8% 5.6% 0.0% 3.9% -13.1% 0.0% 0.1% -29.0%
Asia average - integrated 14.9 13.6 5.9 5.7 10.8% 11.4% 3.0% 3.3% -1.0% 3.4% 9.6% 0.1% -0.4% -7.1%
NJA - integrated 17.2 14.4 6.5 6.1 6.4% 7.5% 4.5% 5.1% 0.0% -1.8% 1.0% -0.6% -5.9% -13.5%
Close Target Mkt cap
Ticker Ccy price Rating price (US$ bn) 17E 18E 17E 18E 17E 18E 17E 18E 1m 6m YTD 1m 6m YTD
Asia
Mobile operators
AIS ADVANC TB Bt 167.00 O 218.00 14.2 15.9 15.1 8.3 8.0 3.0% 5.1% 4.4% 4.6% -0.6% 16.8% -2.9% -0.3% 13.3% -16.1%
AXIATA AXIATA MK RM 4.43 N 4.80 9.0 25.7 23.0 5.8 5.4 5.2% 6.8% 1.9% 2.2% -8.7% 4.5% -25.9% -8.0% 0.3% -26.9%
Bharti BHARTI IN INR 365.15 U 295.00 21.9 32.8 27.3 7.0 6.5 3.8% 3.4% 0.9% 1.1% -2.7% 14.8% 13.9% -3.0% 6.0% -5.8%
China Mobile 941 HK HK$ 85.60 O 115.00 225.6 12.5 11.8 3.8 3.4 5.8% 7.3% 4.0% 5.1% -1.6% -0.4% 2.3% -0.6% -4.0% -16.3%
DiGi DiGi MK RM 5.04 N 5.00 8.8 23.5 23.5 14.1 14.3 3.9% 3.9% 4.2% 4.2% -1.0% 1.8% 2.2% -0.2% -2.2% 0.8%
XL EXCL IJ Rp 2,990.00 O 3,950.00 2.4 54.2 32.4 5.2 4.6 2.9% 6.9% 0.6% 2.5% -2.6% 34.7% -22.3% -3.4% 30.0% -31.0%
FarEasTone 4904 TT NT$ 74.00 O 87.00 7.9 20.1 20.2 9.4 9.9 6.9% 6.9% 5.2% 5.3% 0.5% 0.5% 6.8% 0.8% -5.6% -7.9%
Globe GLO PM P 1,828.00 O 2,200.00 4.8 18.1 16.8 7.2 7.1 1.4% 2.3% 5.0% 5.2% 2.1% 30.3% 8.6% 3.1% 24.0% 1.3%
IDEA IDEA IN INR 115.85 U 91.00 6.3 137.8 n.m. 8.1 8.6 -26.9% 3.0% 0.1% 0.0% 6.8% 59.1% 9.9% 6.5% 47.0% -9.1%
Indosat ISAT IJ Rp 7,100.00 O 7,250.00 2.9 18.7 16.4 4.3 4.0 8.0% 9.1% 2.7% 3.7% 4.4% 13.1% 35.2% 3.5% 9.2% 20.0%
LG Uplus 032640 KS W 12,800.00 O 15,000.00 4.9 9.6 9.1 3.3 3.3 17.2% 18.4% 3.2% 3.4% 1.2% 8.9% 20.2% 1.7% 3.3% 10.1%
Maxis MAXIS MK RM 6.31 U 5.60 10.7 26.2 26.4 12.9 12.8 4.5% 4.8% 3.2% 3.2% -2.2% 6.9% 1.8% -1.4% 2.7% 0.4%
M1 M1 SP S$ 2.08 U 1.50 1.4 14.8 19.4 7.9 8.8 4.9% 5.2% 5.4% 4.1% 3.0% 4.5% -18.4% 2.9% -1.1% -29.3%
NTT DoCoMo 9437 JP ¥ 2,667.00 O 3,000.00 88.8 15.2 15.2 6.2 6.2 6.9% 0.0% 3.7% 3.7% -1.2% 1.3% 1.1% 0.1% -2.0% -15.0%
PT Telkom TLKM IJ Rp 3,850.00 O 4,750.00 28.9 16.6 15.4 8.5 7.8 4.5% 5.8% 3.6% 3.9% -0.8% -0.3% 17.4% -1.6% -3.7% 4.2%
Reliance RCOM IN INR 38.90 U 30.00 1.5 15.6 11.1 6.8 6.1 22.3% 25.6% 0.3% 0.5% 12.3% 8.8% -27.7% 11.9% 0.5% -40.2%
SmarTone 315 HK HK$ 10.54 O 15.50 1.5 14.8 14.3 5.9 5.7 9.6% 9.6% 5.7% 5.8% -0.6% -2.6% -17.8% 0.4% -6.1% -32.8%
StarHub STH SP S$ 2.88 U 2.25 3.5 17.8 21.2 9.0 9.9 5.6% 5.2% 5.6% 5.6% 2.1% -0.3% -14.5% 2.0% -5.8% -26.0%
TAC DTAC TB Bt 43.50 O 66.00 2.9 34.9 12.5 4.5 4.9 6.0% 7.3% 1.4% 4.0% 0.0% 30.8% 37.0% 0.3% 26.9% 18.3%
Taiwan Mobile 3045 TT NT$ 108.00 O 128.00 12.0 19.5 19.1 9.9 9.6 5.5% 5.2% 5.3% 5.3% 0.5% 2.4% 4.3% 0.8% -3.8% -10.0%
Asia average - mobile 17.1 14.4 5.4 5.4 6.6% 6.7% 3.7% 4.3% -1.1% 3.3% 3.1% -0.4% -0.9% -12.6%
NJA - mobile 17.8 14.3 5.6 5.3 6.5% 8.2% 3.7% 4.4% 0.0% 3.8% 3.6% -0.5% -0.6% -12.1%
Asia average - telecoms 16.0 14.0 5.7 5.6 8.7% 9.0% 3.4% 3.8% -1.1% 3.3% 6.4% -0.2% 6.4% -9.9%
NJA - telecoms 17.5 14.3 5.9 5.6 6.5% 7.9% 4.0% 4.7% 0.0% 1.7% 2.7% -0.5% 2.7% -12.6%
Notes:
1) Rating: O = Outperform; N = Neutral; U = Underperform; R = Restricted
2) The averages are based on market capitalisation.
3) The PE for non-Asian stocks are based on Credit Suisse adjusted EPS.
4) The financial years of Softbank, KDDI, NTT, NTT DoCoMo, Bharti, Reliance and SingTel are ended in March. For the sake of comparison, FY14 of these companies in this matrix represents FY3/15 of their financial years and etc.
5) PCCW's earnings excludes contribution from Cyber Port.
6) FCF yield = (EBITDA - interest exp. - tax - capex) / mkt cap
Normalised PE EV/EBITDA FCF yield Div yield Absolute Performance Relative Performance
Relative Performance Normalised PE EV/EBITDA FCF yield Div yield Absolute Performance
2 March 2017
Singapore Telecoms Sector 5
TPG likely to spend ~S$500 mn on capex by 2021E Building a mobile network requires interactions amongst various network parameters such
as coverage area, topography of an area, spectrum availability and technology to be
deployed. Being a small city state, Singapore (with an area of 719 sq. Km) being a mostly
low lying area with small range of hill (at the center) is not difficult to cover from a macro
coverage perspective. Additionally, TPG is looking to build a 4G network with a good mix
of low band and high band of spectrum, aiding a cost efficient roll out of the network.
Below we discuss network investments in detail.
TPG has good mix of low band and high band spectrum
Though from the total spectrum quantum perspective incumbents are at an advantage (to
the new entrant), we believe TPG has a good mix of low band (2 x 10MHz of 900MHz) and
high band (40MHz of 2300MHz) spectrum to offer high quality 4G services in Singapore.
Figure 10: Spectrum holdings of Singapore telcos
900MHz1 1800MHz 2100MHz 2300MHz 2600MHz
M1 2 x 5MHz 2 x 20MHz 2 x 19.8MHz - 2 x 20MHz
StarHub 2 x 5MHz 2 x 25MHz 2 x 19.6MHz - 2 x 20MHz
SingTel 2 x 10MHz 2 x 30MHz 2 x 20MHz - 2 x 20MHz
TPG 2 x 10MHz - - 2 x 40MHz -
Note 1: 900MHz spectrum holding is based on our expectation of general spectrum auction; Source: IMDA, Company data, Credit Suisse estimates
Given the superior physical characteristics of 900MHz spectrum, TPG is likely to deploy
the same for macro coverage and 2300MHz for providing capacity. Having two carriers (2
x 5MHz each) of 900MHz provide TPG with a marginal advantage to M1 and StarHub in
providing better macro coverage till M1 and StarHub get access to the 700MHz spectrum
band. We expect SingTel to win the additional one carrier (2 x 5MHz) of 900MHz in the
upcoming spectrum auction. Our analysis suggests that TPG can offer theoretical
download speed of up to 450Mbps using two carrier aggregation (CA), 64 QAM
modulation, and 4x4 MIMO technology. The above download speed can increase further
by deploying higher technologies such as 8x8 MIMO or 256 QAM modulation etc. We note
that category 9, which is the standard most premium handsets are currently deploying, can
support maximum download speed of 450Mbps while the future categories (11 and 12)
can support maximum download speeds of 600Mbps.
Figure 11: Theoretical peak download speed for TPG (Mbps)
Without carrier aggregation
Scenario 1: CC 2300 (20MHz)
Assuming 64QAM and 2 x 2 MIMO 112 Mbps
Assuming 64QAM and 4 x 4 MIMO 224 Mbps
Scenario 2: CC 900 (2 x 10MHz)
Assuming 64QAM and 2 x 2 MIMO 73 Mbps
Assuming 64QAM and 4 x 4 MIMO 147 Mbps
With carrier aggregation
Scenario 3: CA_40C (40MHz of 2300MHz)
Assuming 64QAM and 2 x 2 MIMO 224 Mbps
Assuming 64QAM and 4 x 4 MIMO 448 Mbps
Scenario 4: CA_8A-40A (2 x 10MHz of 900MHz and 20MHz of 2300MHz) supported under Release - 12
Assuming 64QAM and 2 x 2 MIMO 185 Mbps
Assuming 64QAM and 4 x 4 MIMO 371 Mbps
Scenario 5: CA_8A-40C (2 x 10MHz of 900MHz and 40MHz of 2300MHz) not supported yet but can be in future releases
Assuming 64QAM and 2 x 2 MIMO 297 Mbps
Assuming 64QAM and 4 x 4 MIMO 595 Mbps
Source: 3GPP.org, Credit Suisse estimates
Being a small city state, Singapore is not hard
to cover from macro coverage perspective
TPG can offer peak download speed of up to 450Mbps using two
carrier aggregation
2 March 2017
Singapore Telecoms Sector 6
Additionally, our analysis suggests that TPG’s current spectrum portfolio should be able to
support market share of ~28% (at theoretical speed of 450Mbps) assuming average data
usage per subs of 7GB which is almost twice of current data usage.
Figure 12: TPG's current spectrum portfolio should be able support subs
market share of over 25%
Source: Credit Suisse estimates
TPG would need 700-900 macro sites on 900MHz for good outdoor coverage
As highlighted above, we expect TPG to deploy 900MHz spectrum band for macro
coverage given the superior coverage characteristics. The below table shows the
coverage radius and area for various spectrum bands.
Figure 13: Uplink coverage comparison
700MHz 800MHz 1800MHz 2100MHz 2300MHz 2600MHz
Uplink cell range (Km)
Dense urban 0.70 0.63 0.38 0.36 0.30 0.27
Urban 1.21 1.09 0.64 0.61 0.51 0.45
Semi urban 3.37 3.04 1.67 1.58 1.31 1.16
Rural 8.48 7.65 4.40 4.17 3.44 3.04
Coverage area (Km square)
Dense urban 0.95 0.78 0.27 0.25 0.17 0.14
Urban 2.84 2.33 0.80 0.72 0.50 0.40
Semi urban 22.16 18.06 5.42 4.87 3.35 2.63
Rural 140.37 114.22 37.71 33.84 23.08 18.06
Source: ZTE White paper, June 2013; GSMA
Assuming Singapore to be densely urban area, for the entire city state (which in our view
is a stringent condition), we get a coverage range of 0.6km (implying coverage area of 0.8
sq. Km) for the 900MHz spectrum band. Given Singapore's area is 719 sq. Km, 900 macro
sites are sufficient for coverage of Singapore using this stringent coverage condition. Our
checks with various industry participants suggest that 700-800 sites are good enough to
start services in Singapore. In our model, we expect TPG to start the mobile services in 2H
2018 with 775 macro sites and then to gradually ramp-up to ~1,000 sites by 2021E..
Assuming the cost per site of US$60,000 (including equipment, software licenses,
installation etc.), we estimate total capex for rolling out 1,000 macro sites to be S$85 mn
(out of which S$74 mn will be spent over the next three, till 2019E).
0
50
100
150
200
250
0% 3% 5% 8% 10% 13% 15% 18% 20% 23% 25% 28% 30% 33% 35% 38% 40%
Peak hour network traffic (Mbps)
Actual network capacity @ 35% of the theoretical speed of 450Mbps
(Mbps)
(Subs market share, %)
Actual network capacity @ 35% of the theoretical speed of 600Mbps
We estimate TPG to spend ~S$85 mn on
macro coverage
2 March 2017
Singapore Telecoms Sector 7
Figure 14: Coverage timelines
Coverage requirements Timeline
Nationwide outdoor service coverage By 30 Sep 2018 (18 months after the commencement of spectrum rights)
Road tunnels and in-building service coverage By 30 Sep 2019 (30 months after the commencement of spectrum rights)
Underground MRT stations/ lines service coverage By 30 Sep 2021 (54 months after the commencement of spectrum rights)
Source: IMDA
IBS capex is likely to be S$350 mn by 2021E
Besides macro coverage, in-building coverage presents one of the key challenges for the
new entrant given significant amount of data usage happens indoor. Though having a
sizeable quantum of low band spectrum (900MHz) aids in providing good in building
coverage (due to better penetration), TPG would need to have basic building coverage to
provide quality service. Based on our checks, currently incumbents have in-building
solutions (IBS) in around 1,000 buildings. We expect TPG to start mobile services in 2H
2018 with coverage of 575 buildings which is likely to expand to 930 buildings by 2021E.
We expect TPG to use 2300MHz spectrum for providing in-building coverage given the
capacity it can generate. The cost of in-building coverage varies significantly with the size
of the building. For example, the cost of doing in-building coverage for a very large
building (such as an airport) can be as high as S$15-25 mn while the same for a small
building can be S$50,000. That said, there are very few large buildings requiring that
quantum of investment. For our analysis, we have assumed 20% of the total IBS installed
are in the large buildings with average cost of installation being S$700,000 while the
remaining 80% are in the small and medium buildings with average cost of installation
S$275,000. Therefore, we expect the total cost of installation for 930 IBS by 2021E to be
S$335 mn.
Total capex spent likely to be ~S$500mn by 2021E
Besides macro and in building coverage, TPG would need to invest on building core
network, billing solutions, IT systems, technology upgrade and other maintenance capex.
We expect cumulative investment in other capex to be S$73 mn by 2021E. Therefore, we
estimate TPG to invest ~S$500 mn on capex over the next five years (till 2021E). We note
that TPG has guided for capex of S$200-300 mn by September 2018. Our capex forecast
till 2018E is S$295 mn, at the higher end of the management guidance. Below figure
provides more detailed break-up of capex over the next 5 years.
Figure 15: Total capex break-up
(S$ mn) 2017E 2018E 2019E 2020E 2021E
Total macro capex 35 33 7 6 5
Total IBS capex 72 135 63 36 29
Other capex 5 15 15 18 20
Total capex 112 183 85 60 54
Source: Credit Suisse estimates
We expect TPG to start mobile services with coverage of 575 IBS
2 March 2017
Singapore Telecoms Sector 8
Pricing likely to fall by 15-25% over the next three years
TPG can operate at ~50% of M1's 2016 operating cost
at a steady state…
Telecom is largely a fixed cost business requiring upfront investments in the form of capital
expenditure and operating expenses. In the previous section, we looked at the various
capital expenditures and in this section we detail various operating expenses. We met with
various industry participants (telecom operators, equipment vendors, and consultants) and
based on their inputs we have classified operating expenses in to followings heads –
− Network expenses,
− Transmission/traffic expenses,
− Sales and marketing expenses, and
− General and administrative expenses.
Below, we detail these operating expenses
■ Network expenses: These expenses relate to running of mobile network and include
lease rentals, utility costs, network operating costs, repair and maintenance etc.
− Rental and utility expenses: The rental cost primarily relates to leasing of space to
place macro sites on buildings. Rentals per site vary with the location of the
buildings. For example, rentals in central business district (CBD) can average
around S$4,500 per month while in remote areas it can be less than S$1,000 per
month. We have assumed an average lease rental of S$2,000 per month. We
expect TPG to start services with 775 macro sites in 2018 and to ramp up the same
to around 1,000 over the next five years. For utility and other expenses, we have
assumed an average monthly cost of S$750 per site for the macro and in building
solutions. We have also factored in average annual inflation of 1.5% in our
assumptions, leading to total rental and utility cost of S$43 mn by 2022E.
Here, we would like to highlight the importance of COPIF 2013, a regulation by
IMDA to facilitate the deployment of mobile equipment in buildings. Under COPIF,
the building owners/developers are required to provide a minimum set of mobile
deployment space (MDS) at their own cost. The COPIF standard was recently
revised to increase the MDS and IMDA had also proposed that the MDS
requirements would be applicable to both new and existing developments. Hence,
there is a strong possibility of rentals cost coming down significantly over the next
five years. Taking a conservative approach, we have not factored the same in our
forecasts. If the average lease rental cost declines by 50% (to S$1,000 per month),
then our 2022E total rental and utility cost can reduce by S$11 mn.
− Network operating costs: Network operating costs pertains to management and
operation of the access and core network. In order to estimate network operating
cost, we have assumed (1) initial employee strength to be 50 which gradually
ramps up to 75 by 2022, and (2) an average employee cost of S$8,500/month with
annual cost inflation of 2%. Additionally, we have factored in network administrative
cost at 25% of the staff cost. Total network operating cost is estimated to reach
S$22 mn by 2022E. We note that TPG can also leverage its Australian office to
save some of these costs.
Based on inputs from industry participants,
we list operating expenses in to…
… 1) network expenses – relating to running of
mobile network…
… we expect it to reach S$65 mn by 2022E
2 March 2017
Singapore Telecoms Sector 9
■ Transmission or traffic expenses: These expenses relate to carrying of mobile traffic
on an operator’s network.
− Backhaul: This cost pertains to connecting all the sites (macro and in building
solutions) to one of the operator’s exchanges with fibre. However, the amount of
bandwidth needed on each site depends on the traffic on each site. We had
assumed initially that 25% of the sites are in high traffic areas and would need
dedicated lease line to carry traffic while the remaining sites can be connected on a
shared basis. We expect percentage of dedicated sites to increase to 35% by 2022.
We estimate the cost of dedicated site to be S$2,300 per month and that of a
shared site to be S$185 (reflecting the cost of NBAP from Netlink trust). We have
also factored in inflation of 1.5% in our costs.
− Core connectivity: In a mobile network topology, the cell sites are usually connected
to small exchanges which in turn are connected to the main network centers. Also,
the redundancies are created in the connectivity so that network performance is
stable in case of disruptions in one of the connecting fibre. We estimate the core
connectivity cost to reach S$11 mn by 2022E.
− International bandwidth: International bandwidth can be a bottleneck in providing
good internet experience in case of insufficient bandwidth. We have estimated
international bandwidth requirement using the peak hour calculation factoring in
average monthly data usage of 5.5GB in 2018E (reaching 7GB by 2022E). We
have also assumed the current cost of 1Gbps international bandwidth to be
US$2,500 which is expected to decline at an annual rate of 2% over the next five
years.
− Other traffic expenses: We have assumed other traffic expenses relating to
interconnect cost etc. to reach to S$2 mn by 2022E.
■ Sales and marketing expenses: These expenses relate to go-to-market strategy and
include physical store cost, commissions and advertising expenses.
− Sales channel costs: This includes costs related to the running of physical stores.
We expect TPG to start services in 2018 with four physical stores each having 12
employees and estimate the number of stores to increase to eight by 2022. We
forecast the sales channel cost to reach S$8 mn by 2022E. We would highlight that
the sales channel cost can reduce substantially if the company decides to use
online sales as the go-to-market strategy with very little physical presence.
− Commissions: We have assumed monthly churn rate in the initial years to be 1.5-
2.0% for the postpaid customers higher than the current churn rate of 1.0%. We
expect the churn rate to settle down at 1.3% in the longer term. We forecast
postpaid commissions to start at S$40/sub in 2018 and to decline to S$32/sub by
2022E.
− Advertising expenses: M1 spent S$22 mn in advertising costs in 2016. We expect
TPG’s advertising spend to be S$20 mn in the initial years which is likely to decline
to S$18 mn by 2022E.
■ General and administrative expenses: This section includes costs related to
corporate office, license fees, managed services etc.
− Employee cost: We expect TPG to have 150 employees (excluding employees in
network management and sales channel) by 2022E with average monthly salary of
~S$9,400. We would again highlight that the company can leverage its Australia
office to reduce this cost item.
− Managed services: This cost item relates to call center, IT services and other
managed services (excluding network services). We estimate managed services to
reach S$15 mn by 2022E.
…2) Traffic expenses – relates to carrying of
mobile traffic…
… we expect it to reach ~S$50 mn by 2022E
…3) sales & marketing – relates to go-to-market strategy…
… we expect it to reach ~S$30 mn by 2022E
…3) G&A – relates to corporate office and other admin costs…
2 March 2017
Singapore Telecoms Sector 10
− Other costs: This line item factors in costs pertaining to license fees, provision for
bad debt, corporate office expense etc. We estimate other G&A cost to reach
~S$10 mn by 2022E.
Figure 16: TPG operating expenses forecasts
(S$ mn) 2017E 2018E 2019E 2020E 2021E 2022E
Network expenses 5 34 51 57 61 65
Transmission expenses 0 18 26 35 44 51
Sales and marketing 0 19 30 33 32 29
General and administrative 10 20 28 34 38 41
Total operating expenses 15 91 135 159 175 185
Source: Credit Suisse estimates
As detailed above, at a steady state the operating expenses for TPG at our base case is
likely to be around S$185 mn in 2022E, five years after the first commercial launch of
services in 2018. Assuming a 10% variation in the operating costs, we believe that the
total operating costs can vary by ~S$20 mn on the higher or lower side. However, as
highlighted above, we see more downside risks to our base operating costs assumptions
as we have kept some buffer in many cost items such as network rental expenses,
international bandwidth, sales and marketing, etc given our negative view on the sector.
Hence, TPG's operating costs can be closer to S$165 mn in 2022E at our lower cost
assumptions. On the higher side, the operating cost can be around S$205 mn.
We can also look at M1’s operating costs to sanity check our assumptions. M1 had an
operating cost (excluding handset and residential broadband business) of S$365 mn in
2016. Our base assumptions suggest that TPG’s operating cost in 2022E is likely to be
S$185 mn, representing ~51% of M1’s current operating cost while at the lower cost
structure the percentage can be ~45% and on the higher side it can be 55%. The main
difference in M1's and TPG's operating cost structure comes from the employee cost. M1
had an employee cost of S$115 mn in 2016 while we estimate in our base case TPG's
employee cost to be ~S$30 mn. The other key differences come from network costs and
traffic expenses. We think our assumptions are reasonable given that M1 has lot of legacy
costs, its operating costs also include investment in to enterprise fixed network and TPG
can also drive significant cost savings from its Australia business (especially in the
employee cost). Hence, we believe the range of TPG's operating expenses can be 45-
55% of M1's current operating cost.
…implying EBITDA breakeven at ~17% discount to
current service ARPU with 6.0% subs share
With TPG emerging as the fourth mobile operator in Singapore, one of the key questions
in investors’ mind is – At what ARPU levels TPG can break even?
We have done sensitivity analysis using the 2022E operating cost structure to find solution
to the question. We have looked at two scenarios – mobile only services and mobile and
fixed broadband services – to arrive at the answer.
Our sensitivity analysis suggests that TPG would turn EBITDA breakeven at a discount of
~11% to the current service ARPU of S$33 with a mobile subscriber market share of 6.0%.
However, the same would increase to ~17% (at 6.0% mobile market share) if the company
also gets 6% market share in the fixed broadband market. The 17% discount can come
down further to 25% if TPG can operate at 45% of M1's cost structure. We would highlight
that TPG has guided to turn EBITDA breakeven with 5-6% subs market share. Our
forecasts appear to be in line with management guidance.
… we expect it to reach ~S$40 mn by 2022E
Our base case cost assumptions
represents ~51% of M1’s 2016 operating
costs by 2022E…
…and we see more downside risks to our
cost assumptions
At what ARPU levels TPG can break even?...
…EBITDA at ~17% discount to current
service ARPU with 6% mobile and BB subs
share…
2 March 2017
Singapore Telecoms Sector 11
Figure 17: EBITDA sensitivity analysis with mobile
only services
Figure 18: EBITDA sensitivity analysis with mobile
and fixed broadband services
Source: Credit Suisse estimates Source: Credit Suisse estimates
While for return on capital employed (RoCE), TPG would turn RoCE breakeven at a
discount of 5% to the current service ARPU with a mobile subscriber market share of 7.5%
and the same would increase to 9% with the 6% market share in the fixed broadband
segment as well. We note that for our RoCE assumptions we have assumed a total
investment of S$1.0 bn, out of which S$500 mn will be the capital expenditure, S$105 mn
spectrum cost and the remaining investments will be to fund the operating losses.
Figure 19: RoCE sensitivity analysis with mobile
only services
Figure 20: RoCE sensitivity analysis with mobile
and fixed broadband services
Source: Credit Suisse estimates Source: Credit Suisse estimates
What about handset bundled plans?
In our operating costs, we have not factored in handset costs as our focus is on
standalone plans (SIM only plans) given they are a better reflection of the operating costs
and service revenues. Bundled plan comparison gets complicated due to variation in the
accounting treatment of handset component of the revenue. We also think that operators
usually finance the handset purchase rather than subsidise the same is reflected in the
substantial difference in the pricing of bundled plans and SIM only plans. In order to
compare with the prevalent sector ARPU, we can assume the handset component in the
service ARPU to be S$18 per postpaid subscriber. Below table provides sensitivity
analysis factoring in the handset bundled plans and TPG's presence in both the mobile
and fixed broadband markets (having 6% share in fixed broadband segment).
3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%
-45.0% (128) (99) (70) (41) (12) 17 45
-37.5% (120) (87) (54) (21) 11 44 77
-30.0% (112) (75) (38) (2) 35 72 108
-22.5% (104) (63) (23) 18 58 99 140
-15.0% (96) (52) (7) 38 82 127 171
-7.5% (88) (40) 9 57 106 154 203
0.0% (80) (28) 24 77 129 182 234
Subscriber market share (%)
% d
isco
un
t to
cu
rre
nt
se
rvic
e A
RP
U (
S$33)
3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%
-45.0% (115) (86) (57) (29) 0 29 58
-37.5% (107) (74) (42) (9) 24 57 89
-30.0% (99) (63) (26) 11 47 84 121
-22.5% (91) (51) (10) 30 71 112 152
-15.0% (84) (39) 6 50 95 139 184
-7.5% (76) (27) 21 70 118 167 215
0.0% (68) (15) 37 89 142 194 247
Subscriber market share (%)
% d
isco
un
t to
cu
rre
nt
se
rvic
e
AR
PU
(S
$33)
3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%
-45.0% -15.7% -13.3% -10.9% -8.5% -6.1% -3.7% -1.3%
-37.5% -15.0% -12.3% -9.6% -6.9% -4.2% -1.5% 1.3%
-30.0% -14.4% -11.3% -8.3% -5.3% -2.2% 0.8% 3.9%
-22.5% -13.7% -10.4% -7.0% -3.6% -0.3% 3.1% 6.5%
-15.0% -13.1% -9.4% -5.7% -2.0% 1.7% 5.4% 9.1%
-7.5% -12.4% -8.4% -4.4% -0.4% 3.7% 7.7% 11.7%
0.0% -11.8% -7.4% -3.1% 1.3% 5.6% 10.0% 14.3%
% d
isco
un
t to
cu
rre
nt
se
rvic
e A
RP
U (
S$33)
Subscriber market share (%)
3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%
-45.0% -14.7% -12.3% -9.9% -7.5% -5.1% -2.7% -0.3%
-37.5% -14.0% -11.3% -8.6% -5.8% -3.1% -0.4% 2.3%
-30.0% -13.4% -10.3% -7.3% -4.2% -1.2% 1.9% 4.9%
-22.5% -12.7% -9.3% -6.0% -2.6% 0.8% 4.2% 7.5%
-15.0% -12.0% -8.3% -4.7% -1.0% 2.7% 6.4% 10.1%
-7.5% -11.4% -7.4% -3.3% 0.7% 4.7% 8.7% 12.7%
0.0% -10.7% -6.4% -2.0% 2.3% 6.7% 11.0% 15.4%
% d
isco
un
t to
cu
rre
nt
se
rvic
e A
RP
U (
S$33)
Subscriber market share (%)
…RoCE at ~9% disc. to current service ARPU with 7.5% mobile and 6% BB subs share…
2 March 2017
Singapore Telecoms Sector 12
Figure 21: EBITDA sensitivity analysis with handset
bundled plans
Figure 22: RoCE sensitivity analysis with handset
bundled plans
Source: Credit Suisse estimates Source: Credit Suisse estimates
3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%
-45.0% (134) (114) (95) (75) (55) (36) (16)
-37.5% (124) (99) (75) (50) (25) (1) 24
-30.0% (114) (84) (55) (25) 5 34 64
-22.5% (104) (69) (34) 0 35 69 104
-15.0% (94) (54) (14) 25 65 104 144
-7.5% (84) (39) 6 50 95 139 184
0.0% (74) (24) 26 75 125 174 224
Subscriber market share (%)
% d
isco
un
t to
cu
rre
nt
AR
PU
(S
$42)
3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%
-45.0% -16.2% -14.6% -13.0% -11.3% -9.7% -8.1% -6.5%
-37.5% -15.4% -13.3% -11.3% -9.3% -7.2% -5.2% -3.1%
-30.0% -14.5% -12.1% -9.6% -7.2% -4.7% -2.3% 0.2%
-22.5% -13.7% -10.8% -8.0% -5.1% -2.2% 0.6% 3.5%
-15.0% -12.9% -9.6% -6.3% -3.0% 0.3% 3.5% 6.8%
-7.5% -12.0% -8.3% -4.7% -1.0% 2.7% 6.4% 10.1%
0.0% -11.2% -7.1% -3.0% 1.1% 5.2% 9.3% 13.5%
Subscriber market share (%)
% d
isco
un
t to
cu
rre
nt
AR
PU
(S
$42)
2 March 2017
Singapore Telecoms Sector 13
Competition to intensify in mobile and broadband markets The size of the Singapore telecom market was S$9.8 bn as of 2016; the mobile sector
accounted for S$4.4 bn of revenues, enterprise sector for S$4.3bn, fixed broadband sector
for S$0.7b n and fixed voice for S$0.4 bn. We expect TPG to target mobile and fixed
broadband market in the initial years as the enterprise segment will be hard to break into
given the investment needed in building the network and developing capabilities.
Additionally, SingTel has c.90% market share of the enterprise market and it will be
difficult for TPG, initially, to get a foothold in the market.
Figure 23: Break-up of Singapore telecom sector revenues (S$9.8bn as of 2016)
Source: Company data, Credit Suisse estimates
Mobile: TPG likely to get ~6% subs share by 2021E
from incumbents
The growth potential in the Singapore mobile market appears limited with the mobile
penetration at ~150% as of 2016. We expect mobile penetration to largely remain at that
level over the next five years. Hence, a large portion of market share gain for TPG is likely
to come from incumbent operators.
Go-to-market strategy: TPG may only charge for data while offering other services for free
TPG in Australia is known to be a disruptor as the company provides the lowest price
plans in the broadband market. TPG has consistently had the lowest price points in the
market, offering a basic unlimited broadband service with limited add on services. TPG
has an extremely efficient operating model and lean cost structure, which has enabled it to
offer the lowest prices, whilst reporting some of the highest margins of its peers
(broadband EBITDA margins of ~40% for the core TPG brand). We believe the company
is likely to carry the similar approach in Singapore to gain market share.
Though the Singapore mobile has seen some price actions (the launch of SIM only plans
and data add on plans) over the last 12-18 months, we think price competition is likely to
intensity further over the next three years with TPG looking to gain market share. Further,
Singapore mobile operators continue to draw revenue from voice overage (as there are no
unlimited voice plans) and caller id services. We believe, as part of its go-to-market
strategy, TPG may only charge for data services while offering free voice and other
services. Additionally, unlike Hong Kong, Singapore does not have a vibrant low-end
Enterprise 44%
Mobile44%
Fixed BB8%
Fixed voice4%
We expect TPG to target mobile and fixed
broadband market in the initial years
Large portion of market share gain for TPG is
likely to come from incumbents
2 March 2017
Singapore Telecoms Sector 14
segment which TPG can target as well, increasing downgrading potential. We expect TPG
to capture ~6% subscriber market share over the next five years and pricing is likely to be
main lever to gain market share.
Singapore mobile sector’s service revenue declined by c.3% in 2016 as the sector has
been impacted by the decline in roaming, IDD and excess data revenues. We expect the
decline in mobile service revenue to continue over the next three-years (at a CAGR of
~4% till 2019E) due to (1) ineffective data monetisation resulting from the launch of
aggressive data add on plans in 2017, (2) further price cuts in 2018 with the imminent
launch of mobile services by TPG, and (3) continued cannibalisation of roaming and voice
revenues by OTT services.
Figure 24: Singapore mobile market share forecasts
2015 2016 2017E 2018E 2019E 2020E 2021E 2022E
Cellular subs ('000)
SingTel 4,102 4,088 4,102 4,094 4,087 4,083 4,083 4,089
StarHub 2,187 2,307 2,336 2,316 2,291 2,267 2,245 2,228
M1 1,928 2,019 2,044 2,018 1,981 1,944 1,912 1,885
TPG - - - 70 205 350 495 620
Total cellular subs 8,217 8,414 8,482 8,498 8,564 8,644 8,735 8,822
Mobile penetration (%) 147.6% 148.8% 148.9% 147.9% 148.0% 148.2% 148.7% 149.1%
Cellular subs market share (%)
SingTel 49.9% 48.6% 48.4% 48.2% 47.7% 47.2% 46.7% 46.4%
StarHub 26.6% 27.4% 27.5% 27.3% 26.8% 26.2% 25.7% 25.3%
M1 23.5% 24.0% 24.1% 23.7% 23.1% 22.5% 21.9% 21.4%
TPG - - - 0.8% 2.4% 4.0% 5.7% 7.0%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cellular revenue (S$ m)
SingTel 2,392 2,334 2,227 2,123 2,069 2,057 2,067 2,089
StarHub 1,240 1,215 1,192 1,120 1,077 1,057 1,051 1,053
M1 842 815 790 743 711 690 682 680
TPG - - - 11 45 95 150 210
Total cellular revenue 4,474 4,364 4,209 3,997 3,901 3,900 3,950 4,033
- % change YoY 0.0% -2.5% -3.5% -5.0% -2.4% 0.0% 1.3% 2.1%
Cellular revenue market share (%)
SingTel 53.5% 53.5% 52.9% 53.1% 53.0% 52.8% 52.3% 51.8%
StarHub 27.7% 27.8% 28.3% 28.0% 27.6% 27.1% 26.6% 26.1%
M1 18.8% 18.7% 18.8% 18.6% 18.2% 17.7% 17.3% 16.9%
TPG - - - 0.3% 1.1% 2.4% 3.8% 5.2%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: IMDA, Company data, Credit Suisse estimates
Fixed broadband: Competition in the segment to also
revive with the potential entry of TPG
We expect TPG to launch broadband services in Singapore as it would help the company
to bundle mobile and broadband services and hence, compete more effectively in the
mobile market. Given TPG does not need to build infrastructure for residential broadband
(as it owned by NGBN), the company can launch broadband services earlier than mobile
services in order to establish a brand in the market.
However, with fixed broadband penetration at c.104% as of 2016E, we see limited growth
potential in the fixed broadband segment. We expect fixed broadband penetration to
improve marginally to c.105% over the next five years (until 2021E). Hence, we forecast
fixed broadband subs to witness a five-year CAGR of 2% until 2021E, largely mirroring the
growth in Singapore residential households.
We expect mobile sector service revenue
to decline at a three year CAGR of ~4%
2 March 2017
Singapore Telecoms Sector 15
Residential broadband market is dominated by SingTel (46%) and StarHub (36%) with
~83% combined subscriber share as of 2016E. The new entrants (M1, MyRepublic, etc.)
together have captured ~17% of overall Singapore fixed broadband subscriber market
share by 2016E, at the expense of both STH and SingTel. We expect TPG to launch fixed
broadband services in 1H 2018 and capture ~5% market share by 2021E.
After witnessing heightened competition from 2011-13, the competitive dynamics in the
fixed broadband sector largely stabilised during 2015 and 2016 with no major changes in
prices. However, we expect the competition in the broadband sector to resume with the
potential entry of TPG in the sector. We expect sector’s ARPU to decline at a CAGR of
1.5% over the next three years. In terms of revenue market share, we expect SingTel and
StarHub to lose ~7% revenue market share to new players (including M1) over the next
five years.
Figure 25: Singapore fixed broadband market share forecasts
2015 2016 2017E 2018E 2019E 2020E 2021E 2022E
Fixed broadband subs ('000)
SingTel 597 605 605 603 600 599 601 603
StarHub 476 473 470 465 461 459 458 458
M1 128 160 188 212 231 247 259 269
TPG - - - 6 23 44 68 89
Others 49 66 74 79 80 76 72 72
Total fixed broadband subs 1,250 1,304 1,337 1,365 1,394 1,424 1,457 1,491
- Fixed broadband penetration (%) 102.0% 104.1% 104.6% 104.6% 104.9% 105.3% 105.9% 106.8%
Fixed broadband subs market share (%)
SingTel 47.7% 46.4% 45.3% 44.2% 43.0% 42.1% 41.2% 40.5%
StarHub 38.1% 36.3% 35.2% 34.1% 33.1% 32.2% 31.4% 30.7%
M1 10.2% 12.3% 14.1% 15.5% 16.6% 17.3% 17.8% 18.0%
TPG 0.0% 0.0% 0.0% 0.5% 1.7% 3.1% 4.7% 6.0%
Others 3.9% 5.0% 5.5% 5.8% 5.7% 5.3% 4.9% 4.8%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Fixed broadband revenue (S$ m)
SingTel 410 422 422 413 407 402 398 395
StarHub 200 217 220 218 217 215 213 213
M1 65 78 90 99 105 111 116 121
TPG - - - 1 6 14 24 33
Others 22 30 34 36 36 34 32 31
Total fixed BB revenue 696 746 765 767 770 776 783 794
- % change YoY 5.1% 7.2% 2.5% 0.2% 0.4% 0.7% 1.0% 1.3%
Fixed broadband revenue market share (%)
SingTel 58.8% 56.5% 55.1% 53.9% 52.8% 51.8% 50.8% 49.8%
StarHub 28.8% 29.0% 28.7% 28.5% 28.1% 27.7% 27.2% 26.8%
M1 9.3% 10.4% 11.7% 12.9% 13.6% 14.3% 14.8% 15.2%
TPG 0.0% 0.0% 0.0% 0.2% 0.8% 1.8% 3.0% 4.2%
Others 3.1% 4.0% 4.5% 4.6% 4.6% 4.4% 4.1% 3.9%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: IMDA, Company data, Credit Suisse estimates
We expect TPG to launch fixed broadband services in 1H 2018 and
capture ~5% market share by 2021E
2 March 2017
Singapore Telecoms Sector 16
Remain underweight on M1 and StarHub M1's and StarHub's stock prices not baking in increasing competitive dynamics
Given mobile is a scale business, the first objective of TPG would be to gain subscriber
market share in order to turn EBITDA breakeven before looking at return ratios. And
pricing is one of the key levers (in any market) to gain subscribers, in our view. The above
strategy has played out in many markets with India being the most recent one. That said,
we do not expect pricing in Singapore to be as irrational as in India given the different
market dynamics. We expect the competitive intensity to worsen further in the Singapore
mobile sector with the imminent launch of mobile services by TPG in 2018.
Additionally, we think handset subsidies will also be the other key tool deployed by telcos
to gain or defend market share. We think handset subsidies are likely to increase in the
sector over the next 12-18 months as operators look to lock in customers before TPG
launches services. StarHub’s 2017E EBITDA margin guidance of 26-28% (vs 31%
margins in 2016) partially bakes in higher handset subsidies, in our view. Besides the
mobile market, we expect competitive dynamics to worsen in the broadband market over
the next 12-18 with the likely entry of TPG.
What about M&A? possible but sector needs to witness the pain first
While we expect Singapore mobile sector to be a three-player market in the long term
(three years and beyond), we do not think that the sector is likely to witness consolidation
in the next 3-5 years as the regulator would like to see TPG launch its own network.
Hence, the sector needs to pass through a heightened competitive phase before we can
witness consolidation.
However, despite M1's and StarHub's share prices correcting by ~22% and ~21%
respectively since the announcement (1 Sep'16) of new entrant in Singapore mobile
sector, we believe that the current stock prices are not fully baking in the increasing
competitive dynamics. Hence, we reiterate our UNDERPERFORM stance on M1 and
StarHub. SingTel is our preferred pick as it has the least exposure to Singapore mobile
sector.
While we have been factoring in 15-20% decline in service ARPU over the next three
years (by 2019E), we have further trimmed our 2017-19 EPS estimates for M1 and
StarHub by 0-4% as we factor in higher subsidies. As a result, our target prices for M1 and
StarHub reduces by 3.2% to S$1.50 (from S$1.55) and 4.3% to S$2.25 (from S$2.35)
respectively. The impact on SingTel's earnings and target price is negligible.
Figure 26: Singapore Telcos changes in estimates
Rating Target Price % Year % change in revenue % change in EBITDA % change in earnings % change in dividends
New Previous New Previous chng T T+1 T+2 T+3 T+1 T+2 T+3 T+1 T+2 T+3 T+1 T+2 T+3
SingTel O O 4.60 4.60 0.0% 03/16 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -0.7% 0.0% 0.0% 0.0% 0.0% 0.0%
StarHub U U 2.25 2.35 -4.3% 12/16 -0.4% -0.3% -0.2% -0.4% -0.8% -1.7% -0.7% -1.7% -3.6% 0.0% 0.0% 0.0%
M1 Ltd U U 1.50 1.55 -3.2% 12/16 -0.1% -0.2% -1.2% -0.2% -0.7% -2.2% -0.4% -1.2% -3.6% -0.4% -1.2% -3.6%
Source: Credit Suisse estimates
We see downside to consensus estimates
We see significant downside risk to consensus 2018 and 2019 earnings estimates for M1
and StarHub as we do not think consensus is fully building in competitive dynamics for the
Singapore mobile sector.
We think handset subsidies are likely to increase over the next
12-18 months
We have trimmed our 2017-19E EPS
estimates for M1 and Singapore as we factor
in higher subsidies
2 March 2017
Singapore Telecoms Sector 17
Figure 27: M1 – CS vs consensus estimates
(S$ mn, Y/E December) 2017E 2018E 2019E
Revenue - CS 1,081 1,067 1,050
Revenue - Consensus 1,048 1,010 994
- % difference 3.1% 5.6% 5.6%
EBITDA - CS 300 270 258
EBITDA - Consensus 312 298 280
- % difference -4.0% -9.2% -7.8%
PAT - CS 130 99 84
PAT - Consensus 142 131 112
- % difference -8.2% -24.9% -25.0%
Dividend - CS 11.22 8.48 7.25
Dividend - Consensus 12.30 10.90 9.10
- % difference -8.8% -22.2% -20.3%
Source: IBES, Credit Suisse estimates
Figure 28: StarHub – CS vs consensus estimates
(S$ mn, Y/E December) 2017E 2018E 2019E
Revenue - CS 2,391 2,325 2,286
Revenue - Consensus 2,395 2,366 2,354
- % difference -0.2% -1.7% -2.9%
EBITDA - CS 630 579 558
EBITDA - Consensus 635 628 629
- % difference -0.8% -7.8% -11.2%
PAT - CS 277 230 211
PAT - Consensus 284 276 264
- % difference -2.3% -16.6% -20.3%
Dividend - CS 16.00 16.00 16.00
Dividend - Consensus 16.10 16.00 15.80
- % difference -0.6% 0.0% 1.3%
Source: IBES, Credit Suisse estimates
Figure 29: SingTel – CS vs consensus estimates
(S$ mn, Y/E March) FY17E FY18E FY18E
Revenue - CS 16,463 16,935 17,346
Revenue - Consensus 16,572 17,009 17,357
- % difference -0.7% -0.4% -0.1%
EBITDA - CS 4,958 5,075 5,141
EBITDA - Consensus 5,467 5,623 5,704
- % difference -9.3% -9.7% -9.9%
Net profit - CS 3,766 4,014 4,176
Net profit - Consensus 3,919 4,185 4,375
- % difference -3.9% -4.1% -4.6%
Dividend - CS 17.8 18.2 18.9
Dividend - Consensus 17.7 18.5 19.6
- % difference 0.5% -1.7% -3.5%
Source: IBES, Credit Suisse estimates
We see significant downside risk to
consensus 2018 and 2019 EPS estimates for
M1 and StarHub
2 March 2017
Singapore Telecoms Sector 18
Singapore telcos valuation not compelling from regional perspective
Additionally, the M1's and StarHub's valuations are not attractive as they are offering one
of the lowest dividend yield spread compared to regional peers and also historically.
Figure 30: Asian telecoms dividend yield spread
Note 1: Yield spread calculated as 12M forward dividend yield minus respective 10-year gov't bond yield; Note 2: Historical mean excludes the Global Financial crisis period. Note 3: Prices as of 28 Feb 2017; Source: Bloomberg, Reuters, Company data, Credit Suisse estimates
Stock views
■ M1 (UNDERPERFORM, TP S$1.50): M1 remains the most vulnerable to the entry of
the fourth mobile operator in Singapore, given 90% of its service revenue comes from
the mobile segment. M1’s 2016 result performance reflects the same as the
competitive intensity rose in 2016 with incumbents looking to pre-empt the entry of new
operator. We expect pricing in the mobile sector to decline further over the next 2-3
years as TPG launches services in 2H 2018. As a result, we expect M1 earnings and
dividend to decline over the next three years. Our new target price of S$1.50 (from
S$1.55) is DCF-based wherein we have assumed a WACC of 7.2% and terminal
growth of 0%. Our target price implies a 2017E/18E of EV/EBITDA of 6.0x/6.7x and
dividend yield of 7.4%/5.6%.
■ StarHub (UNDERPERFORM, TP S$2.25): StarHub is also impacted by the rising
competition in the mobile sector as ~55% of its service revenue comes from the mobile
market. However, compared to M1, StarHub is better placed given its better bundling
proposition and its much stronger footing in fixed-network services. That said, we think
StarHub’s bundling proposition is likely to lose sheen in the medium to longer term with
the emergence of IP TV boxes and OTT services. StarHub has cut its 2017 dividend
guidance to S¢16/sh (from S¢20/sh), reflecting the challenging medium-term outlook.
Our target price of S$2.25 (from S$2.35) is based on SOTP. In our SOTP valuation, we
value the cellular, fixed line, and pay TV/broadband businesses separately using DCF
methodology. We have assumed a WACC of 7.2% and terminal growth of 0% for our
DCF. Our target price implies a 2017E/18E of EV/EBITDA of 7.3x/7.9x and dividend
yield of 7.1%/7.1%.
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
Sin
gT
el
M1
Sta
rHub
HK
BN
HT
HK
CH
T
Sm
arT
one
FE
T
TW
M
HK
T
PC
CW
+/- 1 SD Hist average Current
M1 and StarHub are offering one of the
lowest dividend yield spread compared to
regional peers
2 March 2017
Singapore Telecoms Sector 19
■ SingTel (OUTPERFORM, TP S$4.60): SingTel is our preferred pick in the Singapore
telecom sector as we have a positive view on most of the company's businesses
except for Bharti Airtel (India business). We believe the stock offers a unique
combination of yield and growth (coming from international associates). Further, the
company is least exposed to the potentially rising competitive scenario in the
Singapore cellular market as ~5% of our target price comes from the cellular market.
Additionally, the expectations of special dividends from the Netlink Trust IPO, over the
next 12-15 months, will limit the downside potential in the stock, in our view. We value
Singapore and Australia businesses using DCF methodology and the international
associates at their respective CS target prices. Singapore accounts for ~19% of our
target price while Optus contributes ~22%, Telkomsel ~27%, Airtel ~12%, AIS ~8%,
Globe ~5%, Intouch ~3%, and others account for the remaining ~4%.
Figure 31: SingTel SoTP based valuation
(S$ mn) Equity value SingTel's stake Equity value Equity value
/share (S$)
% contribution
Singapore 13,993 100.0% 13,993 0.86 18.6%
Australia 16,339 100.0% 16,339 1.00 21.8%
Total Core 30,332 30,332 1.86 40.4%
Telkomsel - Indonesia 57,473 35.0% 20,116 1.23 26.8%
Bharti - India 25,328 36.3% 9,189 0.56 12.2%
AIS - Thailand 26,501 23.3% 6,175 0.38 8.2%
Globe - Philippines 8,612 47.2% 4,065 0.25 5.4%
Intouch - Thailand 10,141 21.0% 2,130 0.13 2.8%
Others 3,079 0.19 4.1%
Total Associates 44,753 2.74 59.6%
Total SingTel Group 75,085 4.60 100.0%
CS TP (Rounded) 4.60
Source: Credit Suisse estimates
2 March 2017
Singapore Telecoms Sector 20
Companies Mentioned (Price as of 28-Feb-2017) Advanced Info Service PCL (ADVANC.BK, Bt167.0) Axiata Group Berhad (AXIA.KL, RM4.43) Bharti Airtel Ltd (BRTI.BO, Rs365.15) China Mobile Limited (0941.HK, HK$85.6) China Telecom (0728.HK, HK$3.65) China Unicom Hong Kong Ltd (0762.HK, HK$9.44) ChungHwa Telecom (2412.TW, NT$102.0) DiGi.Com (DSOM.KL, RM5.04) Far EasTone Telecom (4904.TW, NT$74.0) Globe Telecom (GLO.PS, P1828.0) HKBN (1310.HK, HK$9.05) HKT Trust (6823.HK, HK$10.36) Hutchison Telecommunications HK Holdings Ltd. (0215.HK, HK$2.43) Idea Cellular Ltd (IDEA.BO, Rs115.45) Jasmine International (JAS.BK, Bt8.8) KT Corp (030200.KS, W30,450) LG Uplus (032640.KS, W12,800) M1 Limited (MONE.SI, S$2.08, UNDERPERFORM, TP S$1.5) Maxis Berhad (MXSC.KL, RM6.31) PCCW (0008.HK, HK$4.73) PT Indosat Tbk (ISAT.JK, Rp7,100) PT Telkom (Telekomunikasi Indo.) (TLKM.JK, Rp3,850) Philippine Long Distance Telephone Company (TEL.PS, P1460.0) Pt Link Net Tbk (LINK.JK, Rp4,860) Reliance Communication Ltd (RLCM.BO, Rs38.9) Singapore Telecom (STEL.SI, S$3.94, OUTPERFORM, TP S$4.6) SmarTone Telecom (0315.HK, HK$10.54) Spark NZ (SPK.NZ, NZ$3.59) StarHub Ltd (STAR.SI, S$2.88, UNDERPERFORM, TP S$2.25) Taiwan Mobile (3045.TW, NT$108.0) Telekom Malaysia (TLMM.KL, RM6.16) Telstra Corporation (TLS.AX, A$4.82) Total Access Communication PCL (DTAC.BK, Bt43.5) True Corp PCL (TRUE.BK, Bt6.25) XL Axiata Tbk (EXCL.JK, Rp2,990)
Disclosure Appendix
Analyst Certification I, Varun Ahuja, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for KT Corp (030200.KS)
030200.KS Closing Price Target Price
Date (W) (W) Rating
10-Mar-14 28,800 35,000 N
08-Apr-14 31,250 37,000
08-Jul-14 30,700 36,000
13-Feb-15 29,200 36,000 O
04-May-15 32,250 40,000
07-May-15 31,100 37,000
30-Oct-15 29,550 37,000 *
07-Mar-16 28,500 36,000 *
30-Jun-16 29,650 37,000
01-Aug-16 32,600 38,000
* Asterisk signifies initiation or assumption of coverage.
N EU T RA L
O U T PERFO RM
2 March 2017
Singapore Telecoms Sector 21
3-Year Price and Rating History for LG Uplus (032640.KS)
032640.KS Closing Price Target Price
Date (W) (W) Rating
28-Apr-14 10,150 13,000 O
22-Sep-14 12,250 15,000
26-Jan-15 12,500 16,000
07-May-15 9,850 12,000
28-Oct-15 11,350 13,000 *
07-Mar-16 10,300 12,800 *
01-Aug-16 11,400 13,000
31-Oct-16 11,800 13,800
02-Feb-17 11,550 15,000
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
3-Year Price and Rating History for M1 Limited (MONE.SI)
MONE.SI Closing Price Target Price
Date (S$) (S$) Rating
15-Jul-14 3.59 3.73 N
19-Jan-15 3.62 3.85
07-Oct-15 2.92 2.35 U *
19-Jan-16 2.50 2.15
13-Apr-16 2.48 2.05
02-Sep-16 2.51 2.00
19-Sep-16 2.43 1.75
18-Oct-16 2.33 1.65
24-Jan-17 2.17 1.55
* Asterisk signifies initiation or assumption of coverage.
N EU T RA L
U N D ERPERFO RM
3-Year Price and Rating History for Singapore Telecom (STEL.SI)
STEL.SI Closing Price Target Price
Date (S$) (S$) Rating
03-Apr-14 3.67 3.90 N
05-Jun-14 3.86 3.84
15-Aug-14 3.91 4.00
12-Feb-15 4.18 4.15
08-Oct-15 3.77 4.25 O *
13-Nov-15 3.86 4.40
14-Jan-16 3.50 4.20
12-Apr-16 3.69 4.35
12-May-16 3.89 4.40
20-Jun-16 3.85 4.45
11-Aug-16 4.27 4.75
05-Sep-16 3.95 4.65
19-Sep-16 3.97 4.55
10-Nov-16 3.84 4.50
09-Feb-17 3.88 4.60
* Asterisk signifies initiation or assumption of coverage.
N EU T RA L
O U T PERFO RM
2 March 2017
Singapore Telecoms Sector 22
3-Year Price and Rating History for StarHub Ltd (STAR.SI)
STAR.SI Closing Price Target Price
Date (S$) (S$) Rating
15-Jul-14 4.14 3.95 U
08-Oct-15 3.58 3.10 *
21-Jan-16 3.33 3.05
17-Feb-16 3.56 3.00
19-Sep-16 3.46 2.65
06-Feb-17 2.80 2.35
* Asterisk signifies initiation or assumption of coverage.
UN D ERPERFO RM
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 45% (64% banking clients) Neutral/Hold* 39% (60% banking clients) Underperform/Sell* 14% (53% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with
2 March 2017
Singapore Telecoms Sector 23
the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com . Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit-suisse.com/sites/disclaimers-ib/en/managing-conflicts.html . Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
Target Price and Rating Valuation Methodology and Risks: (12 months) for M1 Limited (MONE.SI)
Method: Our 12-month target price of S$1.50 for M1 Ltd is based on discounted cash flow valuation based on a 7.2% weighted average cost of capital (WACC) and a 0.0% terminal growth rate. Our 7.2% WACC is based on a 8.0% cost of equity and a 3.7% cost of debt (post tax shield). At our target price, M1 would be trading at an FY17E/18E EV/EBITDA of 6.0x/6.7x below its historical range as we expect entry of fourth cellular operator in Singapore market leading to pressure on earnings and hence dividend and accordingly we maintain our UNDERPERFORM rating.
Risk: Risks to our 12-month target price of S$1.50 and UNDERPERFORM rating for M1 Ltd include: (1) absence of fourth cellular operator from Singapore Telecoms sector, (2) more severe than expected competition among the telcos in Singapore, (3) slower than expected growth in key business segments in Singapore and (4) changes in regulatory environment.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Singapore Telecom (STEL.SI)
Method: Our target price of S$4.60 for Singapore Telecom is based on a sum-of-the parts calculation. The core Singapore and Australia operations within the sum-of-the-parts, which contribute S$1.86 of the total, are valued using discounted cash flow (DCF) analysis. For Singapore, we use an estimated 6.8% weighted average cost of capital (WACC) and we use a terminal growth rate of 0.0% for mobile and 0.0% for fixed line, For Australia, we use an estimated 7.5% WACC and we use 0.5% terminal growth. The associates, which contribute S$2.74 within our sum-of-the-parts, are also valued using DCF. For Singtel's 35% stake in Telkomsel, we value at S$1.23. For Singtel's 36% stake in Bharti Airtel, we value at S$0.56. For Singtel's 23% stake in AIS, we value at S$0.38. For SingTel's 21% stake in Intouch, we value at S$0.13. For Singtel's 47% stake in Globe, we value at S$0.25. We also value Singtel's 26% stake in SingPost at S$0.04 and 100% stake in NetLink Trust at S$0.14. We have an OUTPERFORM rating on SingTel primarily due to its international exposure.
Risk: The key risks to our S$4.60 target price and OUTPERFORM rating for Singtel include: (1) Foreign currency fluctuations, (2) more severe than expected competition among the telcos in Singapore and Australia, as well as key regional markets, (3) slower than expected growth in key business segments in key regional markets, (4) changes in regulatory environment, and (5) acquisition risk.
Target Price and Rating Valuation Methodology and Risks: (12 months) for StarHub Ltd (STAR.SI)
Method: Our target price of S$2.25 for Starhub is derived from discounted cash flow (DCF) based on weighted average cost of capital (WACC) of 7.2%, 0.0% terminal growth rate for mobile, 0.0% for cable & broadband, and 0.0% for Fixed network services respectively. Our 7.2% WACC is based on a 8.0% cost of equity and a 3.7% cost of debt (post tax shield). At our target price, StarHub would be trading at an 2017E/18E EV/EBITDA of 7.3x/7.9x below its historical range as we expect entry of fourth cellular operator in Singapore market leading to pressure on earnings and accordingly maintain our UNDERPERFORM rating.
Risk: Key risks to achievement of our S$2.25 target price and UNDERPERFORM rating for StarHub include: (1) less severe than expected competition among the telcos in Singapore, (2) higher than expected growth in key business segments in Singapore and (3) lower than expected capital expenditure and higher than expected savings from infrastructure sharing arragement with M1.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names The subject company (STEL.SI, STAR.SI, 6823.HK, SPK.NZ, ISAT.JK, TLS.AX, EXCL.JK, 1310.HK, GLO.PS, TRUE.BK, DSOM.KL, LINK.JK, TLMM.KL, RLCM.BO, 0215.HK, AXIA.KL, TLKM.JK, TEL.PS, 0008.HK, ADVANC.BK, 030200.KS, 0315.HK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (STEL.SI, EXCL.JK, 1310.HK, GLO.PS, DSOM.KL, AXIA.KL, TLKM.JK, TEL.PS, ADVANC.BK) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (STEL.SI, DSOM.KL, TLKM.JK) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (STEL.SI, EXCL.JK, 1310.HK, GLO.PS, DSOM.KL, AXIA.KL, TLKM.JK, TEL.PS, ADVANC.BK) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (STEL.SI, MONE.SI, STAR.SI, 6823.HK, BRTI.BO, SPK.NZ, ISAT.JK, DTAC.BK, TLS.AX, EXCL.JK, 1310.HK, 0762.HK, GLO.PS, TRUE.BK, 3045.TW, IDEA.BO,
2 March 2017
Singapore Telecoms Sector 24
DSOM.KL, LINK.JK, TLMM.KL, RLCM.BO, 0215.HK, AXIA.KL, TLKM.JK, 2412.TW, 032640.KS, 0728.HK, TEL.PS, 0008.HK, ADVANC.BK, 030200.KS, 0315.HK) within the next 3 months. Credit Suisse may have interest in (DSOM.KL, TLMM.KL, AXIA.KL, MXSC.KL) Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014 Credit Suisse may have interest in (BRTI.BO, IDEA.BO, RLCM.BO) As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (0762.HK, 2412.TW, 0728.HK, 4904.TW). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (TRUE.BK, 032640.KS, 030200.KS).
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=287574&v=49p4figxbn5lt9oejuftcrv59 .
Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. The following disclosed European company/ies have estimates that comply with IFRS: (TLMM.KL). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (STEL.SI, DSOM.KL, LINK.JK, RLCM.BO, TLKM.JK) within the past 3 years. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Jasmine International () , Total Access Communication PCL (Excellent) , True Corp PCL (Very Good) , Advanced Info Service PCL (Excellent) Taiwanese Disclosures: This research report is for reference only. Recipients should carefully consider their own investment risk and note they may be subject to the applicable rules and regulations in Taiwan, including the requirements under the Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers ("Taiwan Recommendation Rules") on conflicts of interest. Investment results are the responsibility of the individual investor. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Recommendation Rules. Reports may not be reproduced without the permission of Credit Suisse. Credit Suisse has entered into a strategic partnership with First NZ Capital ("FNZC"). Pursuant to this agreement, (SPK.NZ) is jointly covered by Credit Suisse and First NZ Capital. This research report is authored by: Credit Suisse AG, Singapore Branch ........................................................................................................................................... Varun Ahuja, CFA To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the FINRA 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse AG, Singapore Branch ........................................................................................................................................... Varun Ahuja, CFA
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
2 March 2017
Singapore Telecoms Sector 25
This report is produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who-we-are This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates.The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk.
This report is issued and distributed in European Union (except Switzerland): by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Germany: Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). United States and Canada: Credit Suisse Securities (USA) LLC; Switzerland: Credit Suisse AG; Brazil: Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; Mexico: Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); Japan: by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau ( Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; Hong Kong: Credit Suisse (Hong Kong) Limited; Australia: Credit Suisse Equities (Australia) Limited; Thailand: Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok10500, Thailand, Tel. +66 2614 6000; Malaysia: Credit Suisse Securities (Malaysia) Sdn Bhd; Singapore: Credit Suisse AG, Singapore Branch; India: Credit Suisse Securities (India) Private Limited (CIN no.U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India as Research Analyst (registration no. INH 000001030) and as Stock Broker (registration no. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777; South Korea: Credit Suisse Securities (Europe) Limited,
Seoul Branch; Taiwan: Credit Suisse AG Taipei Securities Branch; Indonesia: PT Credit Suisse Securities Indonesia; Philippines:Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Additional Regional Disclaimers Hong Kong: Credit Suisse (Hong Kong) Limited ("CSHK") is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an Australian financial services licence (AFSL) and is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (the Act) under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Act). Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Australia (to the extent services are offered in Australia): Credit Suisse Securities (Europe) Limited (“CSSEL”) and Credit Suisse International (“CSI”) are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority under UK laws, which differ from Australian Laws. CSSEL and CSI do not hold an Australian Financial Services Licence (“AFSL”) and are exempt from the requirement to hold an AFSL under the Corporations Act (Cth) 2001 (“Corporations Act”) under Class Order 03/1099 published by the Australian Securities and Investments Commission (“ASIC”), in respect of the financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act). This material is not for distribution to retail clients and is directed exclusively at Credit Suisse's professional clients and eligible counterparties as defined by the FCA, and wholesale clients as defined under section 761G of the Corporations Act. Credit Suisse (Hong Kong) Limited (“CSHK”) is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an AFSL and is exempt from the requirement to hold an AFSL under the Corporations Act under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act). Credit Suisse Securities (USA) LLC (CSSU) and Credit Suisse Asset Management LLC (CSAM LLC) are licensed and regulated by the Securities Exchange Commission of the United States under the laws of the United States, which differ from Australian laws. CSSU and CSAM LLC do not hold an AFSL and is exempt from the requirement to hold an AFSL under the Corporations Act under Class Order 03/1100 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act). Malaysia: Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. Singapore: This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore Branch to overseas investors (as defined under the Financial Advisers Regulations). Credit Suisse AG, Singapore Branch may distribute reports produced by its foreign entities or affiliates pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact Credit Suisse AG, Singapore Branch at +65-6212-2000 for matters arising from, or in connection with, this report. By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore Branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the “FAA”), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore Branch may provide to you. UAE: This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available to Professional Clients or Market Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United Arab Emirates. EU: This report has been produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-US customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. US customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the US. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials,management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2017 CREDIT SUISSE AG and/or its affiliates. All rights reserved.
Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
top related