Thailand Telecoms Sector

Equity Research Asia Pacific Region/Thailand Telecommunication Services (Telecommunication Services TH (Asia)) 07 October 2015

COMMENT IDEAS ENGINE SERIES

Darkest before dawn

Figure 1: Industry structure to change with the upcoming auction

■ Upgrading Thailand telecom sector to OVERWEIGHT. Thai telco stocks have underperformed YTD on rising handset subsidies, uncertainty over the timing and outcome of the upcoming auction, and concerns that competition will intensify further after the auction concludes. ■ We expect the auction to help, not hinder, stability and profitability. It is highly likely that the 1800MHz and 900MHz auctions will occur in 4Q15, not least because the government is keen to reap circa Bt63.0 bn in upfront fees. This will be positive for AIS and DTAC since it will result in lower regulatory fees, it will allow clarity of investment (including for 4G), and, crucially, this investment can drive revenue as subscribers consume more data. Very Source: Company data, Credit Suisse estimates importantly, and widely misunderstood, the auction will mark the end of the distorted industry structure which has handicapped AIS (lack of spectrum Figure 2: AIS revenue to re-accelerate after 4G 160 preventing 4G launch to date) and DTAC (lack of low-frequency spectrum for 150 coverage), and encouraged True Corp to aggressively subsidise handsets to 140 130 build revenue market share during its current 'window of opportunity'. 120 is the key beneficiary of the 1800MHz auction. We have maintained our OUTPERFORM ratings on Intouch (TP raised to Bt103.3), DTAC, Jasmine and DIF: DTAC has 74.5% potential upside to our target of Bt96. However, we rate True Corp UNDERPERFORM; it is extremely expensive and the 'window of opportunity' is coming to an end.

7.0 6.0 5.0 4.0

110 100

3.0

90

2.0

80

Revenue growth (%)

■ We upgrade AIS to OUTPERFORM, and raise our target price to Bt290; AIS

Service revenue (Bt bn)

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1.0

70 60

0.0 FY13

FY14

FY15

service revenue (Bt bn)

FY16

FY17

revenue growth (%)

Source: Company data, Credit Suisse estimates

RESEARCH ANALYSTS Colin McCallum, CA 852 2101 6514 [email protected]

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-U.S 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.

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Focus tables Figure 3: Current spectrum allocation—the NBTC is less than half way through its task of

Figure 4: Spectrum allocation post auction – AIS and DTAC are set to benefit

spectrum issuance

Spectrum format Credit Suisse categorisation AIS

Format Credit Suisse categorisation AIS

Concession

'Remedy period

'very bad'

'unclear/quite good'

2G 3G 4G DTAC

2x17.5 of 900MHz 2x12.6 of 1800MHz

2G

2x24.5 + 2x25.3 of 1800 MHz 2x10 of 850MHz

'Lease agreement' 'good'

Licence 'very good'

Concession 'Remedy period 'Lease agreement' 'very bad' 'unclear/quite 'good' good'

2G

2x5 of 1800MHz, 2x5 of 900MHz 2x15 of 2100MHz, 2x10 of 1800MHz, 2x5 of 900MHz,

3G 4G

2x15 of 2100MHz

Licence 'very good'

DTAC

3G 4G True Corp 2G 3G 4G

2G 2x10 of 2100MHz 2x5 of 2100MHz

3G

2x14.5 + 2x25.3 of 1800 MHz 2x10 of 850MHz

4G

2x10 of 1800MHz

2x10 of 2100MHz, 2x5 of 900MHz 2x5 of 2100MHz, 2x5 of 900MHz

True Corp

2x12.6 of 1800MHz

2G 3G 4G

2x15 of 850MHz 2x5 of 2100MHz 2x10 of 2100MHz

Source: Company data, Credit Suisse estimates

2x15 of 850MHz

2x5 of 1800MHz 2x5 of 2100MHz 2x10 of 2100MHz, 2x10 of 1800MHz

Source: Company data, Credit Suisse estimates

Figure 5: Thai telcos—earnings amendments and comparative multiples Ticker

Rating Target price Target price (prev rating)

DTAC.BK INTUCH.BK ADVANC.BK JAS.BK DIFu.BK TRUE.BK NJA–Integrated NJA–Mobile

O (O) O (O) O (N) O (O) O (O) U (U)

(prev TP) change (%) 96 (96) 103.3 (92) 290 (255) 7 (7) 14.2 (14.2) 4.2 (4.2)

0 12.3 13.7 0 0 0

FY16 EPS FY17 EPS change 0 1.1 2.0 0 0 -13.1

Close

Target

change price (Bt) price (Bt) 0 3.3 4.5 0 0 -12.9

55.0 73.25 225.0 5.60 12.7 9.70

96.0 103.3 290.0 7.00 14.2 4.20

Upside Normalised P/E (x)

EV/EBITDA (x)

FCF yield (%)

Div yield (%)

(%)

15E

16E

15E

16E

15E

16E

15E

16E

74.5% 41.0% 28.9% 25.0% 11.8% -56.7%

21.4 15.5 17.1 3.0 15.3 60.6 17.5 16.5

15.2 13.6 14.8 20.8 13.7 80.8 16.7 15.3

6.5 15.3 10.1 4.6 15.7 14.4 6.7 6.4

5.3 13.4 8.9 5.5 13.8 12.9 5.8 5.8

2.9% 0.0% 3.3% -9.2% 6.9% -2.1% 1.9% 2.0%

6.2% 0.0% 5.5% -2.2% 7.2% -0.1% 5.8% 6.4%

4.7% 6.4% 5.9% 32.9% 7.1% 0.0% 4.4% 3.3%

6.6% 7.3% 6.8% 2.9% 7.3% 0.2% 4.6% 3.5%

Source: Company data, Credit Suisse estimates

The author of this report wishes to acknowledge the contributions made by Ricky Chui, an employee of Evalueserve Research Hong Kong Ltd, a third-party provider to Credit Suisse of research support services.

IDEAS ENGINE Thailand Telecoms Sector

2

Darkest before dawn Competitive intensity in cellular now peaking

Fixed line remains a value-accretive growth area

Competitive pressure in the Thai cellular market has increased. While AIS has been able to maintain market share, True Corp has gained 2.5 pp of market share from DTAC in the year to 2Q15, driven by (1) DTAC's under-investment in 3G coverage (2) True Corp's agreement to use CAT Corp's 850MHz spectrum for 3G rollout in December 2010 (two years ahead of the 2100MHz 3G auction) and (3) the end of True Corp's 2G concession in September 2013.

Thailand’s broadband penetration rate is low compared with other countries in Asia, at only 30.3%. Competition at present is more benign than in cellular, partly given the ample room for growth and partly due to the fact that the two key players, Jasmine and True Corp, tend not to compete head-on in the same geographies. Given this, the market price point for broadband access has remained fairly constant for several years (though the speeds offered to customers have risen).

True Corp has aggressively used handset subsidies to drive home these structural advantages. DTAC has been forced to respond using handset subsidies and AIS has now joined in, as its own 2G concession has now come to an end (in September 2015). However, the effectiveness of True Corp's handset subsidy strategy will likely be dampened in 2016, as the fight becomes 'three-way' in nature, as DTAC's 3G network quality improves, and as AIS launches 4G services, closing True's 'window of opportunity'. Slowing revenue share gains will likely force True Corp to shift focus towards increasing the profitability of its existing subscriber base, rather than attracting those of competitors.'

Auctions will help stability and profitability The 1800MHz and 900MHz auctions are expected to occur in 4Q15, in large part because the Thai government is keen to reap circa Bt63.0 bn in upfront fees. This will be positive for AIS and DTAC since it will result in lower ongoing regulatory fees, it will allow clarity of investment (including for 4G), and, crucially, investment can drive revenue as subscribers consume more data. Very importantly, and in our view widely misunderstood, the auction will mark the end of the distorted industry structure which has handicapped AIS (lack of spectrum for 4G) and DTAC (lack of low-frequency spectrum for coverage) and encouraged True Corp to aggressively build revenue market share during its 'window of opportunity'.

At a price point of Bt590/month for speeds of 10-15Mbps, operators can generate an estimated post-tax return on investment of 16.9%, comfortably above WACC. Cellular operator AIS has entered the market, but so far construction is on a relatively small scale.

Upgrade the Thai telecom sector to OVERWEIGHT Uncertainty over the upcoming auction, and fears over competition levels before and after 4G launch, have resulted in AIS's share price declining in recent months. We view the auction as unequivocally positive for AIS; we have revised up our FY15, FY16 and FY17 earnings forecast by 2.0%, 4.5% and 7.4% respectively, and our DCF-based target price by 13.7% to Bt290. We upgrade AIS to OUTPERFORM and our rating on the Thai telecoms sector to OVERWEIGHT. We have maintained our OUTPERFORM ratings on Intouch (where we have raised our target price to Bt103.3), DTAC, Jasmine and DIF. We rate True Corp UNDERPERFORM; it is extremely expensive and its 'window of opportunity' is coming to an end.

True Corp's fee structure for 1800MHz usage will rise rather than fall and for 4G it will face a stable revenue share, on a level playing field with AIS/DTAC, rather than the declining revenue share it is currently enjoying on 850MHz 3G. Different structural conditions will lead to different behaviour by the operators, and a refocus on revenue generation, and profitability, of existing subscriber bases. We do not expect Jasmine to successfully win spectrum and enter the market as a fourth player; it lacks scale.

IDEAS ENGINE Thailand Telecoms Sector

3

Sector valuation Figure 6: Regional comparative multiples Integrated operators China Telecom China Unicom Chunghwa HTHK KDDI KT NTT Softbank PCCW HKT Trust PLDT SingTel SPK CNU TM Telstra Jasmine True Corp Link Net HKBN Asia average - integrated NJA - integrated Mobile operators AIS AXIATA Bakrie Bharti China Mobile DiGi XL FarEasTone Globe IDEA Indosat LG Uplus Maxis M1 NTT DoCoMo PT Telkom Reliance SKT SmarTone StarHub TAC Taiwan Mobile Asia average - mobile NJA - mobile Asia average - telecoms NJA - telecoms

Ticker

Ccy

Close price

Rating

Target price

Mkt cap (US$ bn)

Normalised PE 15E 16E

EV/EBITDA 15E 16E

FCF yield 15E

728 HK 762 HK 2412 TT 215 HK 9433 JP 030200 KS 9432 JP 9984 JP 8 HK 6823 HK TEL PM ST SP SPK NZ CNU NZ T MK TLS AU JAS TB TRUE TB LINK IJ 1310 HK

HK$ HK$ NT$ HK$ ¥ W ¥ ¥ HK$ HK$ P S$ NZ$ NZ$ RM A$ Bt Bt Rp HK$

3.69 9.68 99 3.18 2,779 30,500 4,353 6,010 4.15 9.48 2,304 3.76 3.04 2.69 6.85 5.70 5.60 9.70 4,410 8.99

O O U N N O O O N O U N N O N U O U O O

6.38 22.70 78 3.40 3,000 37,000 5,000 8,600 4.40 10.80 2,700 4.15 2.94 3.22 7.00 5.65 7.00 4.20 8,450 10

38.5 29.9 23.3 2.0 62.2 6.8 41.2 60.0 4.0 9.3 10.7 42.2 3.6 0.7 5.6 50.4 1.6 6.6 0.9 1.2

12.0 17.1 21.1 15.9 13.9 10.9 7.3 12.3 13.8 17.9 14.1 15.8 14.5 9.0 27.4 17.3 3.0 60.6 16.6 39.1 15.1 17.5

10.6 14.4 20.1 15.1 13.2 9.6 6.6 10.3 13.8 15.8 13.6 14.8 16.0 10.1 23.6 15.8 20.8 80.8 11.1 25.0 14.2 16.7

3.5 3.4 9.3 7.6 5.8 3.8 1.8 6.7 8.6 10.5 7.7 7.2 6.4 4.5 7.5 7.7 4.6 14.4 8.2 12.3 6.1 6.7

3.3 3.2 9.2 7.8 5.3 3.5 1.7 6.3 8.6 10.4 7.5 6.8 6.6 4.7 7.0 7.5 5.5 12.9 5.9 11.0 5.8 5.8

-7.1% -7.0% 4.9% 6.9% 7.1% 17.7% 18.3% 24.7% 7.1% 6.0% 5.0% 7.2% 4.3% -18.7% 5.6% 4.6% -9.2% -2.1% 2.1% 4.0% 7.8% 1.9%

2.7% 3.9% 5.6% 7.1% 8.4% 17.7% 20.6% 28.0% 7.2% 7.0% 5.6% 7.8% 7.4% -17.5% 6.9% 6.9% -2.2% -0.1% 5.3% 5.2% 11.1% 5.8%

3.3% 2.3% 4.6% 4.7% 2.3% 2.6% 4.6% 0.7% 5.8% 5.6% 7.1% 4.8% 6.6% 0.0% 3.4% 5.4% 32.9% 0.0% 0.0% 1.8% 3.6% 4.4%

3.8% 2.8% 5.0% 4.7% 2.5% 3.0% 4.8% 0.7% 6.3% 6.1% 7.4% 5.1% 8.2% 5.9% 3.8% 5.5% 2.9% 0.2% 1.8% 4.9% 3.7% 4.6%

ADVANC TB AXIATA MK BTEL IJ BHARTI IN 941 HK DiGi MK EXCL IJ 4904 TT GLO PM IDEA IN ISAT IJ 032640 KS MAXIS MK M1 SP 9437 JP TLKM IJ RCOM IN 017670 KS 315 HK STH SP DTAC TB 3045 TT

Bt RM Rp Rs HK$ RM Rp NT$ P INR Rp W RM S$ ¥ Rp INR W HK$ S$ Bt NT$

225 6.00 50 348.85 93.50 5.70 2,905 69.80 2,340 158.65 4,150 11,600 6.73 2.88 2,116 2,790 71.85 259,000 14.32 3.56 55 100

O O U U O O O U U U O O N N N O U O O U O U

290 7.55 16 285 133.0 6.20 5,150 61.25 1,680 115 5,400 12,000 6.50 3.85 2,100 3,250 50.0 325,000 18.50 3.95 96 90

18.5 11.8 0.1 21.3 247.1 10.1 1.7 6.9 6.7 8.7 1.6 4.3 11.5 1.9 71.9 19.7 2.7 17.9 1.9 4.3 3.6 10.4

17.1 19.4 n.m. 21.3 14.2 21.9 175.8 19.8 21.2 17.8 25.4 14.1 29.3 14.4 17.6 16.2 11.7 9.5 15.2 15.5 21.4 17.6 16.7 16.5 16.0 16.9

14.8 19.4 n.m. 21.8 13.8 21.9 13.5 18.4 19.9 20.2 18.1 10.5 28.0 13.1 15.7 14.7 18.6 8.3 14.2 15.5 15.2 16.5 14.9 15.3 14.6 15.8

10.1 7.9 11.8 7.0 5.0 13.6 5.5 9.3 8.7 9.1 3.8 4.5 14.0 8.3 5.8 7.9 6.3 5.1 6.8 8.5 6.5 9.6 6.3 6.4 6.2 6.5

8.9 7.4 11.3 6.4 4.4 13.5 4.7 9.1 8.1 7.7 3.4 4.0 14.1 8.1 5.6 7.2 6.3 4.6 7.2 8.4 5.3 9.4 5.5 5.8 5.6 5.8

3.3% 2.3% -31.6% 3.1% 2.0% 3.8% 5.1% 5.8% 1.8% -52.5% 6.3% 6.8% 4.1% 7.0% 6.2% 3.8% 22.6% 10.0% 7.0% 6.4% 2.9% 5.2% 2.6% 2.0% 5.0% 2.0%

5.5% 4.6% -30.1% 3.1% 6.8% 4.2% 8.3% 6.8% 3.5% -0.6% 6.7% 9.9% 4.0% 7.7% 6.7% 6.3% 19.8% 11.7% 7.7% 6.7% 6.2% 5.8% 6.4% 6.4% 8.5% 6.2%

5.9% 4.0% 0.0% 0.3% 3.0% 4.4% 0.3% 5.4% 3.7% 0.5% 0.4% 2.3% 4.0% 6.9% 3.3% 3.6% 0.4% 3.9% 4.9% 6.2% 4.7% 5.6% 3.3% 3.3% 3.4% 3.7%

6.8% 4.3% 0.0% 0.3% 3.1% 4.6% 4.1% 5.4% 4.1% 0.6% 2.2% 3.0% 4.0% 7.6% 3.8% 4.0% 0.3% 4.1% 5.3% 6.2% 6.6% 5.9% 3.5% 3.5% 3.6% 3.9%

16E

Div yield 15E

16E

Source: Company data, Credit Suisse estimates Notes: (1) Rating: O = Outperform; N = Neutral; U = Underperform; (2) The averages are based on market capitalisation; (3) The P/E 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 end 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 exclude contribution from Cyber Port; (6) FCF yield = (EBITDA - interest exp. - tax - capex) / mkt cap

IDEAS ENGINE Thailand Telecoms Sector

4

Competitive intensity in cellular is now peaking Structural conditions have led to a market share shift Over recent quarters, the three-player Thai cellular market has seen an uptick in competitive pressure, accompanied by a shift in revenue market share. While industry leader AIS has been able to maintain market share, the smallest cellular operator, True Corp, has been gaining ground on DTAC. In the year to 2Q15, the market share shift from DTAC to True Corp reached material proportions. True Corp's cellular revenue rose by 18.7% YoY into 2Q15, with market share expanding 2.5 pp to 18.8%, while DTAC's cellular revenue declined 5.3% YoY, with market share declining by 2.5 pp to 28.4%.

rollout in December 2010, two years ahead of the 2100MHz 3G auction. Use of the 850MHz spectrum proffered superior geographical coverage, and resulted in fewer network blind spots. True Corp also enjoyed a head-start on 4G (True Corp is using 2x10MHz of its 2100MHz spectrum for 4G services, ahead of the 1800MHz auction scheduled for 11 November 2015). True Corp has also been more aggressive than anticipated in its use of handset subsidies to drive home these near-term structural advantages and capture revenue share from the struggling DTAC. Thus, True Corp's cellular EBITDA declined 10.9% QoQ and 12.5% YoY in 2Q15, and while True Mobile Group reported a net profit of Bt207 mn in 2Q15, without the reversal of a regulatory cost provision, True Mobile Group would have been loss-making. Figure 9: Thai telco selling and marketing expenses

Figure 7: Thai telcos quarterly revenue growth YoY 1Q13 AIS TAC True Mobile Group

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

7.0% 5.3% 4.0% 11.8% 14.2% 10.2% 13.9% 10.6% 17.7%

-0.7% 5.8% 9.7%

1.8% 0.3% 9.1%

5.4% -2.1% 8.2%

5.1% 7.2% 4.6% 2.9% -4.3% -4.3% -3.6% -5.3% 5.9% 11.7% 14.5% 18.7%

Source: Company data, Credit Suisse estimates

Figure 8: Thai telcos revenue market share 1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

AIS 52.4% TAC 31.9% True Mobile Group 15.7% Total 100.0%

51.7% 32.6% 15.6% 100.0%

51.3% 31.9% 16.7% 100.0%

51.1% 32.2% 16.6% 100.0%

52.1% 31.3% 16.7% 100.0%

52.7% 30.9% 16.3% 100.0%

52.8% 29.9% 17.3% 100.0%

52.6% 29.6% 17.8% 100.0%

52.5% 29.1% 18.4% 100.0%

52.7% 28.4% 18.8% 100.0%

AIS DTAC True Corp*

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

917 1,006 3,292

1,289 1,311 3,944

1,419 1,593 4,500

1,185 1,272 2,829

1,754 1,508 3,137

1,414 1,529 3,412

1,866 1,937 4,214

1,332 1,381 3,471

1,627 1,627 3,750

That this is the case in spite of True Mobile Group no longer paying concession fees for use of the 1800MHz spectrum (which came out of concession in September 2013, and entered a 'remedy period') is illustrative of how aggressive True Corp has been on marketing costs. Figure 10: Thai telco—marketing expenses to revenue ratio 40.0% 35.0%

This market share shift has been driven by structural factors. Specifically, DTAC underinvested in 3G capacity in 2013 and 2014. Its rollout of a 2100MHz 3G network overlaying an 1800MHz 2G network was always likely to lead to some 'blind spots', given the slightly superior radio propagation of 1800MHz versus 2100MHz. However, this was exacerbated by a rapid increase in data use per subscriber, which, under the W-CDMA technology deployed by DTAC on 2100MHz, contributed to the phenomenon of 'cell-shrinkage'. As a result, network blind spots multiplied and DTAC's reputation for service quality was badly damaged through word-ofmouth, social media and the Thai press. Two changes in management followed between September 2014 and April 2015. Following the appointment of new CEO Lars-Åke Norling (announced 12 February 2015 effective 1 April), the marketing and distribution system was overhauled in 2Q15, leading to further loss of customer traction and additional 'near-term-pain'.

30.0%

IDEAS ENGINE Thailand Telecoms Sector

2Q13

706 710 2,707

* True Corp only discloses 'selling and marketing expenses'. Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

It is quite clear that DTAC's problems over this 12-15 month period have handed True Corp a golden opportunity to grow scale. True Corp was much better positioned structurally for rising 3G data volumes, having signed an agreement to use CAT Corp's 850MHz spectrum for 3G

1Q13

25.0% 20.0% 15.0%

10.0% 5.0% 0.0% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 AIS

DTAC

True Corp

Source: Company data, Credit Suisse estimates

5

DTAC CEO Lars is now confident enough in both the network and the distribution overhaul to declare the transformation process 'over', and it is now time for execution. The marketing teams have clear sales targets by region and by segment and, with the network now in place and the rainy season coming to an end, the launch of DTAC's re-branding, promotion and handset subsidy plan has commenced. Heavy expenditure is already baked into DTAC's EBITDA margin guidance (31-33%) and certainly into our own forecasts (Credit Suisse EBITDA margin forecast 30.9%).

Figure 11: Thai telco—cellular EBITDA margin 70% 60% 50% 40%

AIS has also begun to respond to the rising trend of subsidisation, given that its 900MHz concession has just ended (in September 2015). While AIS still achieved positive handset margins in 1H15, it guided analysts to expect negative handset margins for FY15 to the tune of 5-6%, versus previous guidance of 'zero'; this implies that in 2H15 AIS's handset margin could reach -10-11% as it shifts its rump 2G concession subscriber base onto 3G.

30% 20% 10% 0%

1Q13

2Q13

3Q13

4Q13

1Q14

AIS

DTAC

2Q14

3Q14

4Q14

1Q15

2Q15

True Mobile Group

Source: Company data, Credit Suisse estimates

Margin pressure to remain intense 2H15: bad for all True Corp's 'success' in capturing revenue share using this strategy has triggered a response from DTAC (whose handset margin reached -17.8% in 1Q15 and -19.8% in 2Q15). We highlighted in our 19 May 2015 report Recovery plan is now in place, expect evidence of success in 4Q15-FY16 that DTAC had identified the problems that had caused market share loss (namely, poor 3G network quality, weak distribution/marketing, and aggressive handset subsidies from True Corp) and had developed a plan to address them. The plan involves investing more in the network (and DTAC has already committed to capex of Bt18-20 bn in FY15), reorganising the distribution system and, armed with better network quality, responding where necessary with promotions/handset subsidies. Some progress has been made. DTAC's team, under the new CEO, has worked particularly hard on the network side over the last six months. Firstly, DTAC has used its 2x10MHz allocation of 850MHz spectrum (under concession) to construct more than 8,346 3G BTS, with 12,500 BTS targeted by year end. This is both supporting improved network quality in DTAC's existing coverage areas (specifically by reducing blind spots caused by 'cell shrinkage' on the 2100MHz 3G network) and expanding the coverage area from circa 80% of population to currently 92% (close to the 95% claimed by competitors). DTAC has also constructed 12,500 3G BTS on 2100MHz to beef up capacity, as well as 3,400 4G BTS on 2100MHz to enable 4G launch. We note that this rollout has already been factored into our model (CS FY15 capex forecast: Bt20.0 bn).

Heavy marketing costs are therefore likely across all three operators in 2H15 as competition intensifies. True Corp looks set to continue to press its 3G and 4G advantages in the current window of opportunity, DTAC's aggressive marketing ramp-up in defence has now commenced, and, as mentioned, AIS is now joining in as well as its 900MHz concession terminates.

However, we expect a margin recovery in FY16 How long might this competitive phase last? While it may seem counter-intuitive, we believe that the more successful DTAC is in slowing subscriber and revenue market share losses, the faster industry margins as a whole might recover. True Corp's initial success in capturing revenue share from DTAC in 2Q14-2Q15, using handset subsidies to drive home near-term structural advantages (a strong 3G network following the True-CAT transaction, and a head start on 4G), has evidently encouraged True Corp to escalate its subsidy strategy. However, the effectiveness of True Corp's handset subsidy strategy will likely be dampened in relative terms, as the handset subsidy fight becomes 'three-way' in nature. Furthermore, if DTAC's 3G network quality has improved, customers may be less willing to churn to True Corp, further reducing the effectiveness of True Corp's subsidisation/ marketing strategy. As acquisition of market share, and in particular use of subsidies to capture subscribers from competitors, becomes harder, we suspect that True Corp may shift focus again towards increasing the profitability of its existing subscriber base, rather than attempting to attract those of AIS and DTAC. Should this occur, it would allow DTAC and AIS to begin ratcheting down the subsidies now being given in response to True Corp's aggression.

Second, DTAC's marketing team has been reorganised, with some 1,500 headcount in new roles, new relationships with distributors, and a revised strategy of 95 geographical target areas or 'clusters'. IDEAS ENGINE Thailand Telecoms Sector

6

Figure 12: Factors driving competitive intensity—when will it end? Aggressor True Corp True Corp True Corp True Corp

Factor

Window of opportunity

Window closing

Superior 3G coverage versus DTAC Superior 4G coverage versus DTAC Superior 4G coverage versus AIS No 1800MHz revenue share payment

2014, 1H15 2014, 1H15 2014, 2015 4Q13, 2014, 2015

4Q15 4Q15 1Q16 4Q15

Source: Company data, Credit Suisse estimates

In theory, this 'de-escalation' could occur quite quickly, across one or two quarters. Indeed, it is worth remembering that while marketing expenditure is of course sub-optimal and damaging to near term earnings (DTAC's consensus FY15 EPS has been revised down by 43.7% YTD), marketing and handset subsidies are arguably the 'least bad' way for True Corp to build scale, and for DTAC (and to a lesser extent AIS) to respond in kind. This is because these types of expenditures can be ramped down or removed quickly, whereas tariff-based competition (which True Corp Executive Director Bill Harris and DTAC CEO Lars both seem keen to avoid) is much harder to reverse; customers are averse to tariff increases. Figure 13: Cellular revenue and market share from FY10 to FY18 Bt mn

2010

Revenue -AIS Revenue -TAC Revenue TrueMove Total 3 players

88,453 54,658 23,616

2011

2012

2013

2014

2015

2016

2017

2018

98,362 108,920 113,187 118,631 122,508 130,083 138,392 144,313 58,577 63,503 70,105 68,275 67,565 69,666 72,216 74,412 27,249 31,184 35,211 38,406 44,028 49,590 54,708 56,760

166,727 184,187 203,607 218,503 225,312 234,101 249,339 265,317 275,485

Market Share - AIS 53.1% 53.4% 53.5% 51.8% 52.7% 52.3% 52.2% 52.2% 52.4% Market Share 32.8% 31.8% 31.2% 32.1% 30.3% 28.9% 27.9% 27.2% 27.0% TAC Market Share 14.2% 14.8% 15.3% 16.1% 17.0% 18.8% 19.9% 20.6% 20.6% TrueMove Total 3 players 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Company data, Credit Suisse estimates

Therefore, we conclude that a recovery in profitability is possible into 2016, should handset subsidy expenditure stabilise or decrease. The precise turning point, in our view, will be heavily dependent on DTAC's effectiveness in improving its network quality on 3G, launching 4G and, most importantly, altering customers perceptions over network quality.

IDEAS ENGINE Thailand Telecoms Sector

The faster DTAC is able to stabilise revenue market share, the faster we expect True Corp to reconsider the subsidisation strategy it ramped up in April 2014. While DTAC's management believes that the 3G network is already competitive, altering perceptions may well take until the end of the year in our view. This leads us to expect EBITDA to remain under pressure throughout 2H15, and we are below consensus on FY15 EBITDA forecasts for AIS, DTAC and True Corp. However, we expect DTAC to lose only 0.9 pp of market share in 2016, and stability in market share to be achieved in 2017, versus 3.2 pp of revenue market share lost across 2014-15. This, in turn, is expected to result in stabilisation of handset subsidy expenditure, and a refocus towards profitability of existing subscriber bases, starting in early 2016. Should this occur, overall EBITDA margin re-expansion into 2016 can also be assisted by the shift of more spectrum resources to a licensed regime following the 900MHz and 1800MHz auctions in November/December 2015; a topic we discuss in more detail in the next section. This regulatory shift, which will also allow AIS to launch 4G services by February 2016, will also contribute to the closing of True Corp's 'window of opportunity', and further dampen the effectiveness of handset subsidies as a strategy. We expect that when its 4G network is in operation, AIS, which has a clear track record of competing on the basis of superior network quality rather than price, will quickly roll back subsidy expenses deemed necessary in 2H15 (a period in which AIS's 2G concession is ending and 4G has yet to be launched). Figure 14: EBITDA and EBITDA margin from FY10 to FY18 Bt mn

2010

2011

2012

2013

2014

2015

2016

2017

2018

52,062 25,686 6,313 84,061

56,624 27,296 4,974 88,894

61,501 26,809 4,852 93,162

63,691 66,428 72,854 83,893 92,139 97,402 29,721 31,069 27,068 33,080 37,182 40,246 4,910 7,769 10,321 12,347 13,635 14,092 98,322 105,265 110,243 129,320 142,956 151,740

58.9% 47.0% 26.7% 50.4%

57.6% 46.6% 18.3% 48.3%

56.5% 42.2% 15.6% 45.8%

56.3% 42.4% 13.9% 45.0%

EBITDA AIS TAC TrueMove Total 3 players EBITDA margin (%) AIS TAC TrueMove Industry

56.0% 45.5% 20.2% 46.7%

59.5% 40.1% 23.4% 47.1%

64.5% 47.5% 24.9% 51.9%

66.6% 51.5% 24.9% 53.9%

67.5% 54.1% 24.8% 55.1%

Source: Company data, Credit Suisse estimates

7

Auctions will help stability and profitability Dates set for the 1800MHz and 900MHz auctions Secretary-General Takorn Tantasith of Thailand's National Broadcasting and Telecoms Commission (NBTC), has set out a timetable for the auction of 1800MHz and 900MHz spectrum during 2015. The 1800MHz auction will occur first; after an exhaustive public consultation process; the details have been published in the Royal Gazette, effectively becoming law, with an auction date of 11 November 2015. At present there are two potential options, with either two 15MHz pairs, or two 12.5MHz pairs set to be auctioned (though the NBTC's preferred intention is to use refarmed spectrum to top up the allocations to two 15MHz pairs). The reserve price (i.e., the starting offer price in the auction) for the 15MHz pairs is Bt13.92 bn per pair. If only 12.5MHz pairs are available, the starting price will be Bt11.6 bn per pair. The 900MHz auction is then set to occur, with a target date of November-December 2015 (exact date to be confirmed in the Royal Gazette). Available in the auction will be two 10MHz pairs, with a reserve price of Bt11.26 bn. Importantly, the auction will be open to participation by any Thai registered entity as defined by the Foreign Business Act 1999. This decision, which is consistent with the definition used in the 2100MHz auction in 2012, allows the NBTC to sidestep any controversial re-interpretation of the legal status of operators, significantly reducing the probability of hiccups or delays in the auction process. As a reminder, the Foreign Business Act 1999 states that no foreign entity can own more than 49.0% of a Thai telecoms operator. Both AIS and DTAC comply and are Thai operators according to the ‘letter of the law’ under this Act; Temasek (Not listed) and Telenor do not have respective direct equity holdings of more than 49.0% in either AIS or DTAC. Both companies are Thai registered with the Ministry of Commerce under the Foreign Business Act 1999, both companies have also previously received licences from the NBTC for various business units (e.g., fixed line/fibre rollouts), and both companies qualified to take part in the 2012 auction, successfully winning allocations of 2100MHz spectrum. True Corp and Jasmine would also quality for participation under this definition, but multinational telco operators would not. The auction method will be the same as that used in 2012, namely a Simultaneous Multiple Round Ascending Auction (SMRA) or 'Simultaneous Ascending Bid' Auction. This reduces the scope for claims of conspiracy or lack of transparency, and therefore again reduces the probability of either delays to the auctions, or legal disputes following the auctions. This method also reduces the potential for spurious bids designed to simply drive up the auction price; a player wishing to act in this way cannot determine whether other bidders are submitting a bid in the current round, and could be left holding expensive spectrum. Each bidder can only bid for one allocation in the 900MHz auction, and one allocation in the 1800MHz auction, so that the spectrum resources are not 'monopolised'. A spectrum cap of 60MHz in total also applies (but IDEAS ENGINE Thailand Telecoms Sector

this only applies to the owners of spectrum, not to spectrum currently being used under concession agreements).

Why are auctions so important and controversial in Thailand? Issuance of spectrum defines cellular industry structure, and is therefore crucial in most markets. In particular, spectrum issuance by regulators can be the catalyst for new entrants to come into a cellular industry; an event which can be extremely negative for incumbent operators. This much is true of any telecoms auction, but is less of a concern in Thailand given the aforementioned foreign ownership rules (together with the heavy capex requirements of cellular rollout, which precludes many Thai companies from participating due to lack of the necessary capital). Spectrum issuance carries particular significance in Thailand, however, due to the complex nature of the 2G environment, which arguably represented an 'accident of history' that the Thai cellular operators have been more or less locked into from 1990 through to 3G licence issuance in December 2012. Even after 3G licence issuance, as we shall see, the NBTC's job is less than half done at present, and concessions still cast a long shadow over both industry structure and competitive behaviour. As a reminder, regulatory fees paid by Thai telcos under their 2G ‘build-transfer-operate’ (BTO) concessions were the highest in the world, at 20-30% of revenue. This was due to TOT Corp and CAT Corp’s objective of profit maximisation when selling the rights to use 2G spectrum, together with over-exuberance of the operators in their initial bids for those 2G concessions in 1990. To be clear, the latter is entirely the operators’ own fault, but was in part due to the economic circumstances at the time. In the early 1990s, Thailand had been an ‘Asian tiger’ economy, with GDP growing at a double-digit clip and with an exchange rate of Bt25/US$. The operators could therefore build models which justified revenue share bids of 20-30% (plus, in the case of DTAC and True Move, access charges). Of course, when the Asian crisis struck, the Thai currency collapsed and Thai GDP declined, and these models were proven badly wrong. The result was that only one telco concessionaire of five, namely AIS, generated a return greater than the cost of capital for the twenty years up to 2010. Fixed line player TT&T is still in creditor protection and True Corp has relied on continual capital raisings to stay in business and continue servicing/paying down debts. Prior to 3G licence issuance by the NBTC in 2012, the concession structure also had an impact on teledensity and customer service levels (and is still responsible for staggered and delayed rollout of 4G services).

8

The key 'change agent' to this situation has of course been the NBTC, which was formed in 2004 and operates under a completely different mandate from TOT Corp and CAT Corp. The NBTC has no balance sheet or profit & loss account, is arms-length from the elected government, and has the responsibility of regulating the telecoms and broadcasting industries for the benefit of Thai people. As such, the NBTC is not allowed to operate telecoms services itself, and it is not allowed to extract operating fees from the operators above the amounts required for its own running costs. Thus Type III service providers (i.e., those which construct infrastructure to provide telecoms services) under licences from the NBTC are required to pay a licence fee of only 1.5% of revenues to the NBTC. In some cases they may also need to contribute to the Universal Service Obligation (USO) fund, to the tune of 3.75% of revenues, taking the potential total to 5.25%; much lower than the 20-30% revenue shares endured under the concession structure. Furthermore, service providers operating under the NBTC own and retain the assets they construct, while assets constructed under the concession system needed to be legally transferred to TOT Corp and CAT Corp. The right to operate those assets ends on the concession termination date, at which point TOT Corp and CAT Corp can start to use (or lease out) the assets. We can therefore simplistically categorise the current allocation of spectrum in the Thai market, from the viewpoint of the operators, as 'very bad', in cases where the operator is locked into a 2G concession (necessitating payment of a high revenue share and transfer of assets to TOT Corp/CAT Corp) to 'very good' for use of spectrum issued by the NBTC. Figure 15: Current spectrum allocation—the NBTC is less than half way through its task of spectrum issuance Format Credit Suisse categoriSation AIS

Concession

'Remedy period

'very bad'

'unclear/quite good'

2G 3G 4G DTAC

2x17.5 of 900MHz 2x12.6 of 1800MHz

2G

2x24.5 + 2x25.3 of 1800 MHz 2x10 of 850MHz

'Lease agreement' 'good'

Licence 'very good'

2x15 of 2100MHz

3G 4G True Corp 2G 3G 4G

2x10 of 2100MHz 2x5 of 2100MHz

Thus far, the NBTC has only issued three pairs of 2100MHz spectrum, and one allocation was won by AIS, one by DTAC and one by True Corp. AIS is using its allocation for 3G services, while both DTAC and True Corp are using their allocations for both 3G and some preliminary 4G services. However, other spectrum in Thailand is still either tied up in concession agreements, or in something of a regulatory 'no-mans-land' in which the concession has ended, but the spectrum has not yet been refarmed by the NBTC and auctioned in a licensed format. (The Thai authorities have named this a 'remedy period' under which the operators are allowed to continue providing services for the benefit of customers in lieu of the auction process being completed, but the regulatory rules during this period are extremely unclear). TOT Corp and CAT Corp 'lose' while government, telcos, consumers gain Arguably the key 'losers' of the NBTC's role in issuing spectrum in a licence have been, and will be, TOT Corp and CAT Corp, since they were the recipients of the 2G concession fees. However, even this is something of a simplification. TOT Corp and CAT Corp have received all of the monies due under the bilateral concession agreements; agreements which have a termination date. The fact that wireless technologies have evolved, and now utilise different spectrum resources than those issued under the 1990 concessions, has resulted in the initial shift in usage away from the concession bandwidth with the issuance of 2100MHz spectrum in 2012. The second and final shift away from the concession arrangements is now occurring due to the termination of those arrangements due to the end of their lifespans. While TOT Corp and CAT Corp might wish for the concession arrangements to be continued, this has not been an option under Thai law since the Frequency Act 2000, which initially laid the ground for the formation of the arms-length regulator which became the NBTC. The Thai government owns100% of both TOT Corp and CAT Corp. However, the central government must take into account broader economic impacts of policies. TOT Corp and CAT Corp are companies and they are not efficient in either their cost control or their dividend payouts. Thus, by no means all the cash received by TOT Corp and CAT Corp under concession agreements has been passed to the central government. Thus, interests are not entirely aligned. Indeed, since the central government receives all of the upfront fees garnered in the sale of spectrum, the interests of central government and TOT Corp/CAT Corp are arguably sharply diverging! At current reserve prices, the upcoming auctions are set to generate at least Bt63.0 bn (US$1.73 bn) for central government coffers. This might be deployed in pursuit of populist economic policies. Additionally, issuance of spectrum and the commencement of a further investment phase could trigger additional investment to support Thailand's moribund economy.

2x12.6 of 1800MHz 2x15 of 850MHz 2x5 of 2100MHz 2x10 of 2100MHz

Source: Company data, Credit Suisse estimates

IDEAS ENGINE Thailand Telecoms Sector

9

We see three positive implications for the operators of the proposed 1800MHz and 900MHz auctions: (1) Firstly, after issuance by the NBTC, use of the spectrum will be subject to the same 5.25% licence fee currently paid by all Type III (i.e., infrastructure-based) licensees of the NBTC. This, of course, represents a step-change downwards from the 30% revenue share paid to CAT Corp under concession, or, in the case of 900MHz, a 30% share for postpaid revenues and a 20% share for prepaid revenues paid to TOT Corp. (2) Second, all investments made under the licence structure are retained on balance sheet by the action winner—there is no need to transfer the assets to TOT Corp or CAT Corp. (3) Third, the NBTC’s intention is to make use of the 1800MHz spectrum “technology neutral”. This means that the spectrum can be used for LTE (4G) as well as 2G, or, indeed HSPA (3G). Given reasonable allocations of 3G spectrum in the 2012 1.9-2.1GHz auction we believe that the winners of the 1800MHz spectrum may well decide to use it for FDD LTE. (4G) This would have the advantage of improved spectral efficiency, as well as much faster data download speeds. As long as data price points in Thailand remain rational (and, in particular, fully unlimited data plans without fair usage policies continue to be avoided), the faster download speeds generated by LTE could lead to higher revenue, as has been experienced thus far in Korea, Hong Kong, China and Japan. Of course all three of these factors can also have a knock-on positive impact on consumers. Improved incentives for the operators to invest will lead to higher capex and higher data capacity. Crucially, market leader AIS, which has not yet had enough spectrum resources in the desired format, is likely to launch 4G services within months of licence receipt. And finally some, but not in our view all, of the margin benefits of lower regulatory fees will likely be passed onto consumers. With the benefit of hindsight it is clear that the 2100MHz auctions in 2012 had an extremely beneficial impact on Thailand's economy, consumers and operators. The Thai government received Bt41.6 bn in upfront fees from the auction, aggregate capex across 2012-14 accelerated to Bt171.1 bn, smartphone penetration rose 48.7 pp from 17.2% in December 2012 to 65.9% in December 2014, and cellular industry net profit rose Bt5.7 bn. Figure 16: The impact of the 2100MHz (3G) auction in October 2012 Bt mn Upfront licence fee 2012-2014 cellular capex 2014 versus 2012 cellular net profit 2014 versus 2012 smartphone penetration (%)

41,600 171,121 5,719 48.7%

There will also be an impact on the competitive environment As a reminder, our base case is that AIS will bid for (and win!) allocations of both 1800MHz and 900MHz spectrum. Our forecasts now factor in AIS paying Bt31.5 bn in upfront licence fees to win 2x15MHz of 1800MHz spectrum and 2x10MHz of 900MHz spectrum, around 25.0% above the aggregate reserve prices of Bt25.18 bn (Bt13.92 bn + Bt11.26 bn). This cost is expected to be amortised over the 15-year lifespan of the licence. Very importantly, we note that the sensitivity of AIS's valuation to, for example, Bt5 bn more in upfront licence fees to secure an auction win, is limited to only Bt1.68/share. We assume that DTAC will win the second allocation of 900MHz spectrum; we do not expect True Corp to bid aggressively for it given that its 3G network, constructed under the arrangement with CAT Corp, is at 850MHz. Our DTAC model already factors in a payment of Bt14.1 bn, again 25.0% above the reserve price of Bt11.26 bn. As in the case of AIS, DTAC is not overly sensitive to increases in the upfront fee during the auction; an additional Bt5 bn in upfront licence fees would affect its valuation to the tune of Bt2.11/share. We note that we do not expect DTAC to bid aggressively for, or win, the second allocation of 1800MHz spectrum (that True Corp held during the concession period, and has continued to use under the 'remedy period'). DTAC already has a very large allocation of 1800MHz spectrum under concession, and has recently sought, and received, approval from both CAT Corp and the NBTC to use a 10MHz pair of this spectrum for launch of TD-LTE 4G services. Together with the 2x5MHz of 2100MHz spectrum already allocated to 4G, this would give DTAC a relatively large amount of spectrum to address 4G demand for what is still a relatively small proportion of total subscribers. While use of 1800MHz spectrum under concession is sub-optimal—in that use will be subject to a revenue share of 30%, and the right to use the assets will expire in 2018—DTAC's new strategy is to look after customers and service quality first (and then enjoy margin benefits later; the 1800MHz spectrum allocated to DTAC under concession will likely be auctioned in 2018, giving DTAC the opportunity to purchase it and then enjoy a 5.25% revenue share). We expect True Corp to bid for and win the second allocation of 1800MHz spectrum, and we have factored in a payment of Bt17.4 bn, 25.0% above the reserve price, to be amortised over 15 years.

Source: Company data, Credit Suisse estimates

IDEAS ENGINE Thailand Telecoms Sector

10

Figure 17: Current spectrum allocation Format

Concession 'Remedy period'

Credit Suisse categorisation AIS 2G

'very bad'

'unclear/quite good'

2x17.5 of 900MHz

2x12.6 of 1800MHz

'Lease agreement' 'good'

3G 4G DTAC

Licence 'very good'

2x15 of 2100MHz

2G 3G 4G True Corp

2x24.5 + 2x25.3 of 1800 MHz 2x10 of 850MHz

2G

2x10 of 2100MHz 2x5 of 2100MHz 2x12.6 of 1800MHz

3G 4G

2x15 of 850MHz

2x5 of 2100MHz 2x10 of 2100MHz

Source: Company data, Credit Suisse estimates

Concession

Credit Suisse categorisation AIS

'Remedy period' 'very bad' 'unclear/quite good'

Assuming that it wins 900MHz spectrum, DTAC will be in a position to enjoy lower regulatory fees on its 3G and 4G services (we have assumed that DTAC will split the spectrum). The competitive impact may not be overly large, however, since DTAC already invested to construct 3G capacity on the 850MHz band, under concession. We would expect investment in the 850MHz network to cease immediately after the auction, leaving some 'stranded' assets and confirming that the 850MHz investment has been an inefficient 'emergency' reaction to help retain customers. At least with 900MHz spectrum, no additional capex will be 'wasted' in this way, and regulatory margin benefits can be immediate.

Revenue can expand, even if price per MB declines

Figure 18: Estimated spectrum allocation post auction Format

From a competitive standpoint, the auction is unequivocally positive for both AIS and DTAC, for two reasons. For AIS, the auction will result in a shift of the 900MHz spectrum from the concession structure to the licensed structure, helping to drive down regulatory cost. More importantly, receipt of 1800MHz and 900MHz spectrum will allow AIS to launch high quality 4G services. While AIS could have chosen to apply for approval to launch 4G on the 1800MHz spectrum held under the 'remedy period' there is no clarity over whether this would have been granted, and with the auction expected within 4Q15, the use of any assets constructed might have been limited to just a few months. AIS has therefore chosen to wait for the 4G auction, acknowledging that it is losing out competitively in the near term, in order to enjoy a clean rollout with its own network assets.

'Lease agreement' 'good'

2G

Licence 'very good'

2x5 of 1800MHz, 2x5 of 900MHz 2x15 of 2100MHz, 2x10 of 1800MHz, 2x5 of 900MHz,

3G 4G

Launch of high quality 4G services can also result in a recovery of revenue growth. This is of particular relevance to AIS, which has decided to await receipt of spectrum under licence before launching 4G services. Importantly, as previously mentioned, the recent intensification of competition has primarily focused on handset subsidies (which are relatively easy to withdraw). Fortunately, data pricing in Thailand remains relatively sensible (even so-called 'unlimited' data plans actually have a fair-usage policy), and so on the basis of core packages, customers must pay more as they use more data. This is shown in the charts below, where we have set out our standard analysis of data packages (which assumes that rational customers find the cheapest way to consume 150 minutes of voice and 250MB, 700MB, 1GB, 2.5GB and 4GB of data).

DTAC 2G 3G

2x14.5 + 2x25.3 of 1800 MHz 2x10 of 850MHz

4G

2x10 of 1800MHz

2x10 of 2100MHz, 2x5 of 900MHz 2x5 of 2100MHz, 2x5 of 900MHz

True Corp 2G 3G

2x15 of 850MHz

4G

2x5 of 1800MHz 2x5 of 2100MHz 2x10 of 2100MHz, 2x10 of 1800MHz

Source: Company data, Credit Suisse estimates

IDEAS ENGINE Thailand Telecoms Sector

11

Figure 19: Monthly fee by operator (THB)

Figure 20: Published data packages as a multiple of 2Q15A blended average ARPU standard user definition Assumed data per month Assumed "outgoing" voice per month AIS

650 600 550 500 450 400 350 300 250 200 ~250MB

~700MB AIS

~1GB DTAC

~2.5GB

~4GB

True Move

Source: Company data, Credit Suisse estimates

The good news is that the pricing curve slopes up and to the right. Though the gradient shows that the implied price per MB declines as customers commit to higher volumes of data use, the ARPU level still rises as data use expands. The table below shows that there is still an ARPU uplift being generated as customers shift from voice and SMS-only capable feature phones to data-enabled 3G and 4G smartphones. While the extent of data use among 3G smartphone customers surprised DTAC's management in 2014, and has reached 2.0GB/month for postpaid customers and circa 1.5GB/month even for prepaid customers as at 2Q15, it is highly likely that the higher throughput speeds of 4G will result in average data use rising. Should average data use among 4G users reach 2.5GB, we might expect an ARPU uplift, subscriberby-subscriber towards Bt399 for both AIS and DTAC. This would represent a clear 60.9% uplift in ARPU for AIS subscriber-by-subscriber, versus the 2Q15 blended average ARPU of Bt248. DTAC, which has only just launched 4G services, might expect an uplift of 101.5% versus its 2Q15A ARPU of Bt198, helping contribute to a revenue growth recovery.

IDEAS ENGINE Thailand Telecoms Sector

Low ~250MB 200

Low-medium ~700MB 200

Medium Medium-high ~1GB ~2.5GB 200 200

High volume ~4GB 200

Implied ARPU 2Q15A blended ARPU Uplift multiple DTAC

399 248 60.9%

399 248 60.9%

399 248 60.9%

399 248 60.9%

599 248 141.5%

Implied ARPU 2Q15A blended ARPU Uplift multiple True Move

274 198 38.4%

399 198 101.5%

399 198 101.5%

399 198 101.5%

499 198 152.0%

Implied ARPU 2Q15A blended ARPU Uplift multiple

337 177 90.1%

337 177 90.1%

350 177 97.7%

499 177 181.9%

599 177 238.4%

Source: Company data, Credit Suisse estimates

Auction is a 'double-edged sword' for True Corp On the one hand, True Corp is also a beneficiary of the shift in spectrum to a licensed environment. This will be helpful for both continuity of 2G services and also additional capacity for 4G services, at attractive fees (5.25%). However, on the other hand, we would highlight that True Corp is not actually spectrumconstrained at present given that all of its spectrum resources are outside the concession system. Thus, True Corp has been comfortable to invest in and use all of these resources since December 2010. From this perspective, the auction is less of a 'game-changing' positive for True Corp than for competitors. Indeed, most importantly in our view, the auction removes a significant competitive advantage that True Corp currently enjoys versus competitors, by moving their spectrum resources into the licensed format. This will allow competitors to invest with more confidence, and offer higher quality services, thereby closing True Corp's 'window of opportunity' to rapidly gain scale. Two other 'nuances' are also worth noting: ■

The upfront payment for the 1800MHz spectrum, and the payment of 5.25% will actually represent an increase in regulatory fees for True Corp, versus the zero revenue share paid for using the spectrum during the 'remedy period'.

■

The 850MHz spectrum arrangement with CAT Corp proffered major advantages, not least the ability to launch 3G services two years before competitors. In addition, the payment to CAT Corp is made on a 'cost-plus' basis, now totalling circa Bt4.5 bn per annum (and no longer growing rapidly). This payment clearly declines as a proportion of revenue as 3G revenues expand, but a shift of revenue onto 4G/spectrum acquired at auction could result 12

in that operational gearing becoming less powerful, and eventually reversing, if revenues on the 3G service decline.

Jasmine is unlikely to win spectrum at auction Our base case continues to be that Jasmine, which in March 2015 announced the sale of warrants to raise Bt15.0 bn in capital in order to prepare for the upcoming auction process, will not successfully outbid AIS, DTAC or True Corp for spectrum. We note that Jasmine has expressed an interest in wireless spectrum before, having applied for participation in the 2012 2100MHz (3G) auction (though the application was not successful on that occasion). We also fully understand the trend of fixed mobile convergence (please see our regional report Fixed line: Back to the future! published 7 January 2015); given accelerating growth in data use (both fixed and wireless), the digitalisation of media content, and the requirement to invest heavily in fibre backhaul, the level of integration and potential for synergy benefits between fixed line and cellular operations is clearly increasing. Against this overall backdrop, for Jasmine, which has a fibre backbone in place and a growing fixed broadband business, to look to add the potential for wireless data provision is understandable, particularly in the form of a niche 'wireless data-only' product which would offer customers a wireless version of their domestic broadband service in particular areas. An area-by-area approach might involve relatively low capital expenditure, and would not represent a dramatic shift away from Jasmine's core business; instead it would simply offer Jasmine an alternative technology for provision of similar services in different geographical regions.

As a result of the upfront fee, these spectrum blocks only makes sense for nationwide cellular use. Arguably, use of an auction will make this a fait accompli, since it will ensure that the winners will have a large customer base ready to use the spectrum; thus 'the market mechanism' will ensure efficient use of the country's scarce spectrum resources. As a reminder, DTAC had a customer base of 28.0 mn as at December 2014 and invested capital of Bt60.4 bn, while AIS had 44.3 mn customers and invested capital of Bt80.6 bn. True Corp had 23.1 mn cellular customers as at December 2014. We therefore fully expect AIS, DTAC and True Corp to win the spectrum allocations. Could Jasmine launch a nationwide cellular service, and therefore spread the spectrum costs over a much larger potential subscriber base? This is possible, but entry as a fourth player into Thailand's cellular market (which had headline penetration of 147.4% as at December 2014) would in our view be an extremely value-destructive move for Jasmine; we note that even True Corp's cellular business, with 17.8% service revenue share as at 4Q14, is still cash flow negative and generating a negative return on capital 13 years after entering the cellular market as a third player! We conclude that, with or without a foreign partner to help supply capital, the aggressiveness of Jasmine's bid for spectrum should be dramatically lower than the willingness we expect to be shown by AIS, DTAC and True Corp. While we expect Jasmine to take part in the auction, we do not expect therefore expect it to win spectrum.

However, the particular spectrum which is coming for auction in 4Q15 (1800MHz and 900MHz) is ideal for cellular usage rather than niche wireless broadband services. Furthermore, we have shown that under the current allocation of spectrum in Thailand, much of the cellular spectrum is still wrapped up in the concession structure, and the upcoming auctions represent the first opportunity in 25 years for cellular operators to purchase these spectrum blocks in a more attractive format. Given this, we have set out the view that the cellular operators will be keen to win the spectrum! The upfront fee/ reserve price of Bt13.92 bn for the 1800MHz spectrum and Bt11.26 bn for the 900MHz spectrum reflects this expected demand, and these amounts effectively preclude a niche wireless data strategy; the spectrum cost per broadband customer would be too high to generate a reasonable return on capital. With a customer base of only 1.9 mn fixed broadband subscribers, invested capital at FY14 (pre-infrastructure fund launch) of only Bt16.7 bn, and FY16 EBITDA of Bt2.9 bn (versus AIS, DTAC and True Corp's FY16 EBITDA of Bt83.8 bn, Bt37.2 bn and Bt22.4 bn respectively), the upfront fee looks too large for Jasmine to absorb, and bids above the reserve price will quickly leave Jasmine behind.

IDEAS ENGINE Thailand Telecoms Sector

13

Fixed line remains a value-accretive growth area Broadband penetration still low; demand is growing Thailand’s fixed line penetration and broadband penetration rates are low compared with other countries in Asia, at 41.6% of households for fixed line and only 30.3% of households for broadband respectively. The causes behind this lie partly with the concession structure which existed in Thailand before the advent of the National Telecommunications Commission (NTC) and the subsequent National Broadcasting and Telecoms Commission (NBTC), but heavy use of USD funding by fixed line operators in Thailand prior to the 1997 Asian financial crisis was another major contributing factor. While cellular telephony also requires an element of upfront investment for basic coverage, ongoing requirements for capacity drive the need for ongoing cellular capex commitments. In contrast, fixed line networks (and therefore broadband networks which operate over either fixed line fibre or copper networks, or hybrid fibre coax) face extremely heavy upfront capex in constructing the assets, but minimal additional capex requirements after network construction. Technology advances including ADSL over copper, and DWDM techniques over fibre have contributed to capacity upgrades on fixed line remaining relatively low-cost versus the initial investment, though clearly out-and-out replacement of copper with fibre represents a material additional investment phase. The upfront nature of the fixed line investment, and therefore the long implied payback period, proved to be extremely damaging to the balance sheets of the two fixed line concessionaires (True Corp and TT&T) in 1997, as both had borrowed in US dollars. Thus investment in additional fixed lines was effectively halted following the financial crisis, resulting in the relatively low fixed line penetration rates in Thailand. Government-owned TOT Corp, which also has a fixed line network covering some 3.7 mn homes, was also relatively reticent about fixed line investment, instead focusing on the income stream generated by the fixed line and cellular (AIS) concessions. This also acted as a major constraint on fixed line and broadband growth.

Figure 21: Fixed line penetration of households (2014) 180.0% 160.0%

148.7%

149.4%

160.2%

170.9%

140.0% 120.0% 100.0% 80.0% 60.0% 34.0%

40.0% 20.0%

11.0%

14.3%

41.6%

49.4%

17.1%

0.0%

Source: Company data, Credit Suisse estimates

Figure 22: Broadband penetration of households (2014) 132.7%

140.0% 120.0% 98.5%

100.0% 75.0%

80.0%

60.0%

43.6%

40.0% 20.0%

107.5%

30.3% 6.1%

6.3%

32.4%

9.1%

0.0%

Source: Company data, Credit Suisse estimates

However, the investment climate for fixed line sharply improved with the creation of the National Telecoms Commission (NTC) in October 2004, and the subsequent issuance of nationwide fixed line licences (subject to a 5.25% revenue share) rather than the much more restrictive fixed line concession arrangements (subject to 17% to 43% revenue shares). This has encouraged a renaissance in fixed line investment in Thailand. Not surprisingly, it has been the non-state-owned telcos which have executed best since the market was liberalised. Indeed, the historic lack of fixed line infrastructure created a better investment climate for the construction of new fixed lines, particularly given the explosion of content now available on line.

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Jasmine, which was the parent of fixed line operator TT&T, therefore actually began to construct a new Fibre to the Building (FTTB) network rather than relying on copper lines previously built under concession by TT&T. True Corp has also recommenced construction of fixed lines under licence, both through rollout of fibre and elongation of its existing HFC (hybrid fibre coax) network. The issuance of 1.9-2.1GHz spectrum for 3G under licence by the NTC's successor body the National Broadcasting and Telecoms Commission (NBTC) in December 2012 has also stimulated aggressive rollout of fibre backhaul by the cellular operators (AIS and DTAC). With fibre connections to the 3G cell sites (Base Transceiver Systems or BTS) being put in place to support the wireless data networks, AIS is now extending its fibre from the cellular BTS to 'fixed line' nodes within targeted residential and commercial areas, thus entering the fixed line broadband market as a new competitor.

Competition and pricing environment Jasmine, True Corp and TOT Corp have therefore all been competing within a growing broadband space, and AIS is now entering. TOT Corp has continued to be a relatively ineffective competitor. TOT Corp’s reliance on concession revenue streams has resulted in less emphasis on fixed line operational performance, which, over a 25-year period, has contributed to a deeply engrained ‘SOE mentality’ and poor service quality. Senior management (i.e., board positions) are also routinely changed when new governments come to power, and this interferes with long-term plans. The requirement for political approvals of TOT Corp’s capex budgets also tends to cause major delays. As a result, we understand that the distance between TOT Corp’s nodes and end users is on average 5 km, allowing ADSL to function but not ADSL 2+. In contrast, for Jasmine the average distance is only 1 km. Thus, True Corp and Jasmine represent the key broadband providers in Thailand. Jasmine’s broadband subscriber base has expanded from 866,000 as at 1Q11 to 1.851mn as at 2Q15. Similarly, True Corp has expanded its broadband subscriber base from 847,000 as at 1Q11 to 2.212mn at 2Q15. Interestingly, we would highlight that the two companies tend not to compete head-on in the same geographies; around 70% of Jasmine's customers are located outside of the Bangkok Metropolitan Area, while around 75% of True Corp's customers (circa 1.659mn) are located inside Bangkok. The origin of this geographical difference in positioning lies in the 1990 concession awards; True Corp’s original fixed line concession was inside Bangkok, while Jasmine's subsidiary TT&T was awarded a concession for outside of Bangkok. Rather than a single three-player market, the Thai broadband market therefore currently more closely resembles two duopolies (True and TOT Corp inside Bangkok, and Jasmine and TOT Corp outside Bangkok). When overlaid with TOT Corp's litany of operational problems, the market structure is in fact closer to two distinct geographical monopolies at present.

internet access are shown below. The Bt590 headline price has remained unchanged since 2012, though the standard download speed was revised upwards from 7Mbps to 10Mbps in September 2012. Figure 23: Jasmine (3BB) broadband price points Technology

Download (Mbps)

Upload (Mbps)

10 15 30 50 30 50 100 200

512k 1 3 10 3 10 30 50

xDSL xDSL VDSL VDSL FTTx FTTx FTTx FTTx

Monthly fee (Bt / mth) (Home use) 590 900 1,200 2,500 1,200 2,500 5,900 9,900

Source: Company data, Credit Suisse estimates

As shown below, competitor True Corp’s price points are very similar, but while the standard price point remains set at Bt599, regardless of whether customers are using xDSL (ADSL) or True Corp’s cable-based (DOCSIS 3.0) system, the standard download speed was recently increased from 10Mbps to 15Mbps. In fact the standard download speed was raised from 4Mbps to 6Mbps in August 2010 (tariff Bt599/month), and then to 7Mbps in June 2011 (tariff Bt599/month) before the speed upgrade to 10Mbps in October 2012 (tariff Bt599/month) and subsequent increase to 15Mbps in September 2014. True Corp has also attempted to differentiate using content and its ‘quadruple play’ of broadband, voice, Pay TV and cellular services. A variety of bundled packages with various amounts of programming is available from True Corp in addition to the standard access packages below. The crucial point, however, is that within the broadband space True Corp has chosen to compete on the basis of speed, TV content and bundling rather than price; this has protected the value of the broadband market. Figure 24: True Online broadband price points Technology

Download (Mbps)

Upload (Mbps)

Monthly fee (Bt / mth)

15 30 50 100 200 1,000

1.5 3 5 10 15 100

599 1,299 2,799 4,999 9,999 19,999

xDSL xDSL VDSL FCI (Fiber Cable Internet) FCI (Fiber Cable Internet) FTTH Source: Company data, Credit Suisse estimates

Given this, the market price point for broadband access has remained fairly constant for several years, though the speeds offered to customers have risen. Jasmine’s standard price points for IDEAS ENGINE Thailand Telecoms Sector

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As a result of this price stability, we note that Jasmine's ARPU has remained fairly constant, reaching Bt563/month as at 2Q15. True Corp's ARPU reached Bt694/month in 2Q15, and broadband access revenue has proven to be a key revenue driver for True Corp over the past three years; reported broadband revenue grew by 13.1% YoY into 2Q15. Indeed, as the table below shows, we estimate that at these price points operators such as Jasmine generate an attractive return on capital. This is possible given relatively favourable capex terms from key vendor Huawei (Not listed) and the fact that in Thailand the operators deploy aerial (i.e., above ground) fibre to the node, which saves costs of digging up the streets. Given this, we estimate the capex per subscriber is currently circa Bt10,000, or US$300 per port (including xDSL modem). As a result, the Bt590/month price point for 10Mbps download results in an estimated post-tax return on investment of 16.9%, comfortably above what we estimate to be the appropriate weighted average cost of capital (WACC) for Thai telcos of circa 9-9.5%. At this price point, operators such as Jasmine can receive a payback in revenue terms of 1.4 years, and, given the current EBITDA margin of circa 50.0%, EBITDA payback of 2.8 years. Figure 25: Jasmine ROIC analysis Baht

US$

Monthly ARPU Annual revenue EBITDA margin EBITDA Depreciation (years) Depreciation EBIT Tax rate (%) Tax NOPLAT

590 7,080 50.0% 3,540 7 (1,429) 2,111 20.0% (422) 1,689

18 215 50.0% 107 7 (43) 64 20.0% (13) 51

Capex ROIC Payback revenue (years) Payback EBITDA (years)

10,000 16.9% 1.4 2.8

303

Source: Company data, Credit Suisse estimates

content over a variety of different networks (cellular, fixed line, WiFi) has finally become practical with the receipt of 3G licences and the explosion in availability of IP-based content. We also note that AIS does not seem to be adopting a price-based approach, and has chosen not to undercut the 'standard' entry-level price of Bt590. Instead, AIS is choosing to use its 'last mover advantage' through roll-out of fibre to the home to offer high speeds. Its price points for very high speeds are therefore lower than those for the incumbent operators (but still very high in absolute terms). Figure 26: AIS broadband price points Technology FTTB / FTTH

Download (Mbps)

Upload (Mbps)

Monthly fee (Bt / mth)

15 20 30 50 100 200 500 1,000

5 7 10 20 40 60 100 200

590 750 1,190 1,990 3,990 6,990 13,990 19,990

Source: Company data, Credit Suisse estimates

Furthermore, we note that AIS is being relatively cautious in the extent of its initial geographical rollout. AIS actually launched its fibre broadband service in March 2015. In the 'first phase', AIS plans to spend Bt4.8 bn in 2015 by installing 100,000 km of fiber-optic lines with the capacity to serve up to 300,000 users. However, the rollout in FY15 will amount to only Bt1 bn, targeting just 250,000 homes passed and circa 80,000 customers by year end. To put this in perspective for AIS, the company had 44.3 mn cellular subscribers in December 2014 and is spending circa Bt39.1 bn in cellular capex in FY15; thus the fixed line investment which has been announced is relatively small in scale. In fact, as at 18 July 2015, AIS had constructed 146,000 homes passed and had only 7,600 FTTB (fibre to the building) subscribers and 4,300 FTTH (fibre to the home) subscribers. We believe that the gradual nature of this progress reflects AIS's caution on overstretching its support resources. AIS does not want problems of service quality on what is a relatively small fixed broadband business to in any way affect perceptions of its overall service and (cellular) network quality.

How disruptive will AIS be? So far, not very We expect AIS to experience similar economics. While we note that a 16.9% return on capital is lower than that currently enjoyed by AIS's cellular division, it is attractive enough for AIS to enter the market, particularly given that (1) any additional revenue generated will help cover AIS's rump of fixed costs (e.g., employee and admin costs) and (2) convergence, or provision

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Broadband market still expanding Looking forward, we expect the number of broadband subscribers to grow at a compound rate of 12.3% across FY14 to FY18, and so broadband penetration is expected to reach 47.2% of households by FY18, up from the 2014 penetration rate of 30.3%. While, as mentioned, AIS is deliberately off to a modest start, it seems likely that it will become a more meaningful force in the convergence/broadband space on a four-year view. We expect AIS to have 620,000 customers, capturing 7.3% subscriber share, by 2018. With Jasmine having recently ramped up its pace of rollout (179,000 net additions in 1H15, versus 124,000 in 1H14), and given our expectation that Jasmine will not win cellular spectrum but instead continue to focus on its core broadband business, we forecast that Jasmine will increase market share, reaching 32.8% by 2018. TOT Corp is expected to be the key market share loser. We believe that the 'SOE mentality' within TOT Corp is deeply entrenched, and that the company will continue to focus on (1) lobbying efforts to elongate its concession revenue stream if possible, (2) ensuring that as many assets as possible are transferred under concession (e.g., tower assets which are currently under dispute), and (3) positioning itself favourably in any SOE restructuring involving CAT Corp. We do not expect TOT Corp's focus to be on expanding its core fixed line and broadband business. Thus, we expect TOT Corp to continue to gradually lose broadband market share through 2018. True Corp may be focused on securing its current customer base in the near term, given that True Corp's fixed line concession ends in September 2017. At this point True Corp's right to operate the fixed line assets, the legal ownership of which has already been transferred to TOT Corp, is terminated. TOT Corp will therefore begin to run those fixed line and broadband assets, while True Corp will rely on the HFC and fibre assets which it is currently constructing in parallel to its legacy concession assets. Thus, a key strategy of True Corp in 2015 is the commencement of an aggressive programme to replace the company's existing fixed line network. Circa Bt33 bn will be invested across three years starting in 2015, with a target of 4 mn homes passed in the Bangkok Metropolitan area and 10 mn homes passed nationwide, using fibre (FTTx) technology.

Figure 27: Broadband subscriber forecasts 2011 to 2018 2011

2012

2013

2014

2015

2016

2017

2018

2014-18 CAGR

1,335 1,028 1,342

1,570 1,213 1,407

1,810 1,423 1,511

2,081 1,672 1,615

2,331 1,952 1,719 80 6,082

2,581 2,232 1,823 260 6,896

2,831 2,512 1,927 440 7,710

3,081 2,792 2,031 620 8,524

10.3% 13.7% 5.9% n.m. 12.3% 0.5% 11.7% 2018-14 change

'000s True Corp Jasmine TOT Corp AIS Total

3,705 Households 17,446 Penetration 21.2% Market share (%) True Corp 36.0% Jasmine 27.7% TOT Corp 36.2% AIS 0.0%

4,190

4,744

17,527 23.9%

17,636 26.9%

17,717 17,799 30.3% 34.2%

5,368

17,882 17,964 18,047 38.6% 42.9% 47.2%

37.5% 29.0% 33.6% 0.0%

38.2% 30.0% 31.9% 0.0%

38.8% 31.1% 30.1% 0.0%

37.4% 36.7% 32.4% 32.6% 26.4% 25.0% 3.8% 5.7%

38.3% 32.1% 28.3% 1.3%

36.1% 32.8% 23.8% 7.3%

-2.6% 1.6% -6.3% 7.3%

Source: Company data, Credit Suisse estimates

From a revenue perspective, we believe that an 11.7% compound annual growth rate in fixed broadband market revenue should be possible across 2014 to 2018. This implies that ARPU levels are expected to decline only slightly (less than 1.0% compound per annum). Therefore, we are not forecasting an aggressive price war spiral, despite the entry of AIS into the broadband space. The rationale behind this forecast is two-fold. First, the fixed broadband market is still under-penetrated, allowing all of the players to grow. Second, with the upgrade to fibre occurring across True Corp's network, we expect customers to receive higher speeds for similar price points; thus the price per MB is expected to decline sharply, even if the monthly expenditure is expected to remain relatively stable. With a fibre rollout 'from scratch' we expect AIS to achieve and maintain an ARPU level of circa Bt700/month, allowing AIS to achieve 7.5% broadband revenue market share by 2018.

We note that, so far, the project is running slightly behind schedule; 4G rollout was deemed to be the top priority for the engineers to focus on, given the competitive advantage/'window of opportunity' prior to AIS's potential acquisition of spectrum in 2H15. As a result, True Corp is less than one-third of the way through its Bt33 bn rollout plan. While we expect True Corp's broadband subscriber base to expand to 3.1 mn by end 2018, the focus on fibre upgrades of existing customers may result in a small decline in market share versus operators (AIS and Jasmine) which are more focused on fresh geographical coverage areas. Furthermore, while AIS has not yet disclosed its target rollout areas, we suspect that the initial rollout may be tilted towards the Bangkok Metropolitan area; this could lead to the initial competitive impact (such as it is) being felt somewhat more by True Corp than by Jasmine. IDEAS ENGINE Thailand Telecoms Sector

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Figure 28: Broadband revenue 2011 to 2018 2011

Figure 29: Total fixed line revenue forecasts

2012

2013

2014

2015

2016

2017

2018

2014-18 CAGR

10,659 12,258 6,351 7,873 8,288 9,134 25,298 29,265

14,377 9,542 10,134 34,053

16,546 11,080 10,704 38,330

18,595 12,858 11,325 336 43,114

21,348 14,335 11,710 1,428 48,821

23,718 15,730 12,068 2,940 54,456

25,776 17,046 12,402 4,452 59,675

11.7% 11.4% 3.7% n.m. 11.7% 2018-14 change

Bt mn True Corp Jasmine TOT Corp AIS Total Market share (%) True Corp Jasmine TOT Corp AIS

42.1% 41.9% 25.1% 26.9% 32.8% 31.2% 0.0% 0.0%

42.2% 28.0% 29.8% 0.0%

43.2% 28.9% 27.9% 0.0%

43.1% 29.8% 26.3% 0.8%

43.7% 29.4% 24.0% 2.9%

43.6% 28.9% 22.2% 5.4%

43.2% 28.6% 20.8% 7.5%

True Corp Jasmine TOT Corp AIS Total

2011

2012

2013

2014

2015

2016

2017

2018

2014-18 CAGR

19,490 6,351 27,803

19,597 7,873 28,127

20,231 9,542 28,689

18,202 11,080 29,263

53,644

55,597

58,462

58,545

19,682 12,858 29,848 336 62,724

22,146 14,335 30,445 1,428 68,354

24,107 15,730 31,054 2,940 73,831

25,766 17,046 31,675 4,452 78,940

9.1% 11.4% 2.0% n.m. 7.8%

Source: Company data, Credit Suisse estimates

0.0% -0.3% -7.1% 7.5%

Source: Company data, Credit Suisse estimates

Of course, traditional PSTN (public switched telephone network) revenues are expected to continue to decline, as international, long distance and now even local voice traffic shifts onto VoIP, cellular, and Over The Top (OTT) chat and voice services. Both True Corp and TOT Corp continue to have legacy PSTN revenues which are set to decline, dragging the overall growth rate; Jasmine and AIS simply sell broadband access for a set monthly fee, and are therefore not exposed to declining legacy revenues.

IDEAS ENGINE Thailand Telecoms Sector

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Upgrade the Thai telecom sector to OVERWEIGHT Figure 30: Thai telco comparative multiples

Figure 31: AIS—summary P&L and cash flow

Close Target Upside Normalised EV/EBITDA (x) FCF yield (%) Div yield (%) P/E (x) price price (%) 15E 16E 15E 16E 15E 16E 15E 16E TAC Intuch AIS Jasmine Digital Infra Fund True Corp NJA–Integrated NJA–Mobile

55.0 96.0 74.5% 73.25 103.3 41.0% 225.0 290.0 28.9% 5.60 7.00 25.0% 12.7 14.2 11.8% 9.70 4.20 -56.7%

21.4 15.5 17.1 3.0 15.3 60.6 17.5 16.5

15.2 13.6 14.8 20.8 13.7 80.8 16.7 15.3

6.5 15.3 10.1 4.6 15.7 14.4 6.7 6.4

5.3 2.9% 6.2% 4.7% 13.4 0.0% 0.0% 6.4% 8.9 3.3% 5.5% 5.9% 5.5 -9.2% -2.2% 32.9% 13.8 6.9% 7.2% 7.1% 12.9 -2.1% -0.1% 0.0% 5.8 1.9% 5.8% 4.4% 5.8 2.0% 6.4% 3.3%

6.6% 7.3% 6.8% 2.9% 7.3% 0.2% 4.6% 3.5%

Source: Company data, Credit Suisse estimates

AIS: Upgrade to OUTPERFORM AIS is the market leader in the Thai telco market, with 52.7% market share by revenue as at 2Q15. While the overall dynamics of the Thai cellular sector are attractive, with smartphone penetration still rising and with the potential for margin expansion as operators shift customers from a concession environment (facing 20-30% revenue shares) to a licensed environment (5.25% revenue share), competitive intensity has recently increased, primarily through rising handset subsidies. Even AIS has been forced to respond to this negative competitive development, as its 900MHz concession has just come to an end in September 2015. Thus, while AIS still achieved positive handset margins in 1H15, it guided analysts to expect negative handset margins for FY15 to the tune of 5-6%, versus previous guidance of 'zero'; this implies that in 2H15 AIS's handset margin could reach -10-11%. This has created negative near term earnings momentum. However, the upcoming auction is unequivocally positive for AIS. First the auction will result in a shift of the 900MHz spectrum from the concession structure to the licensed structure, helping to drive down regulatory cost. Second, receipt of 1800MHz and 900MHz spectrum will allow AIS to launch high quality 4G services. This will allow faster growth in data volumes, which, as we have seen, is likely to drive faster revenue growth, given that AIS is avoiding 'unlimited' data plans. Third, expenditure on handset subsidies may actually decline, given that AIS will once again be able to compete on service quality, rather than handset subsidies; thus more of the regulatory benefits might be retained as competitive intensity cools.

Bt mn Net service rev % YoY EBITDA % YoY Gross EBITDA margin (%) Capex Capex/sales (%) FCF % YoY Net profit % YoY

2011 98,362 11.2 56,624 8.8 44.8 (5,707) 5.8 37,686 5.4 26,600 8.1

2012 108,920 10.7 61,501 8.6 43.4

2013 113,187 3.9 63,691 3.6 44.6

2014E 118,631 4.8 66,428 4.3 44.7

2015E 122,327 3.1 72,743 9.5 48.1

2016E 129,893 6.2 83,767 15.2 52.7

2017E 138,190 6.4 92,003 9.8 55.4

2018E 144,104 4.3 97,259 5.7 56.8

(9,598) (28,460) (32,562) (39,145) (32,473) (27,638) (21,616) 8.8 25.1 27.4 32.0 25.0 20.0 15.0 25,452 24,221 22,259 21,970 36,538 48,045 58,287 (32.5) (4.8) (8.1) (1.3) 66.3 31.5 21.3 34,883 36,275 36,033 39,182 45,218 50,352 54,547 31.1 4.0 (0.7) 8.7 15.4 11.4 8.3

Source: Company data, Credit Suisse estimates

The 4G auction, together with the launch of fixed broadband services, therefore leads us to expect a re-acceleration in revenue growth into FY16, with the growth rate expected to double to 6.2%. Furthermore, we expect both regulatory cost reductions and an easing of handset subsidies to support higher EBITDA margins into 2016, resulting in our forecast of 15.2% YoY EBITDA growth. Elevated capex triggering higher depreciation, and the commencement of amortisation of the Bt30.0 bn in 4G licence costs, are expected to deprive AIS of operational gearing in 2016, but we still forecast 15.4% YoY earnings growth. We have therefore revised up our FY16 service revenue, EBITDA and net profit forecasts by 2.6%, 2.6% and 2.0% respectively. On the expectation of improving data monetisation with 4G take-up, our FY16 and FY17 earnings forecasts have been revised up by 4.5% and 7.4% respectively. Our DCF-based target price, using a WACC of 9.8% and terminal growth rate of 3.0%, has been revised up 13.7% from Bt255 to Bt290. With 28.9% potential upside to our target price, and an FY16 dividend yield of 6.8%, we upgrade AIS from Neutral to OUTPERFORM.

Intouch: A cheaper way to access AIS cash flows Intouch's key assets continue to be its 40.45% stake in AIS and a 41.14% stake in Thaicom. Sum-of-the parts (SOTP) therefore seems to be the appropriate methodology to value Intouch, and as a starting point we use our aforementioned DCF-based target price for AIS, together with a mark-to-market valuation for the Thaicom stake. We then apply a holding company discount. As the chart below shows Intouch has historically tended to trade at an average discount to its listed parts of around 20%. In some respects this makes sense, since shareholders are one step removed from AIS's cash flows.

IDEAS ENGINE Thailand Telecoms Sector

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On the other hand, we note that (1) AIS has a 100% dividend payout policy,(2) there is no tax on dividends paid from one Thai company to another and (3) Intouch has a policy of 'passing on' 100% of dividends received from subsidiaries. Taken together, and extrapolated into perpetuity, it can be argued that Intouch gives investors access to an identical set of cash flows. As such, the holding company could arguably narrow to zero. While we believe that a change in these policies is very unlikely, our target price builds in a holding company discount of 10%, to reflect the risk (albeit small) that any of these policies are changed over time. Given this, Intouch offers marginally more potential upside to our target price than that offered by AIS, and we maintain our OUTPERFORM rating. After factoring in our revised AIS forecasts, our target price from Intouch rises from Bt92 to Bt103. Intouch offers a slightly better dividend yield, and we believe it offers better risk-reward adjusted access to AIS's expanding cash flows. Figure 32: Intouch premium (discount) versus its listed parts (%) 20.0%

DTAC's team has worked particularly hard on the network side over the last six months. Firstly, as mentioned, DTAC has used its 2x10MHz allocation of 850MHz spectrum (under concession) to construct more than 8,346 3G BTS, with 12,500 BTS targeted by year end. This is both supporting improved network quality in DTAC's existing coverage areas (specifically by reducing blind spots caused by 'cell shrinkage' on the 2100MHz 3G network) and expanding the coverage area from circa 80% of population to currently 92% (close to the 95% claimed by competitors). DTAC has also constructed 12,500 3G BTS on 2100MHz to beef up capacity, as well as 3,400 4G BTS on 2100MHz to enable 4G launch. We note that this rollout has already been factored into our model (CS FY15 capex forecast: Bt20.0 bn). Second, the marketing team has been reorganised, with some 1,500 headcount in new roles, new relationships with distributors, and a revised strategy of 95 geographical target areas or 'clusters'. With the network and distribution system overhaul now in place the transformation process is now over, and DTAC has moved to the execution phase. Unfortunately, this will involve heavy marketing costs; even if the 3G network and 4G networks are 'competitive' now, it unfortunately takes both time and money to change customer perceptions. However, we believe this heavy expenditure is already baked into DTAC's EBITDA margin guidance (31-33%) and certainly into our own forecasts (Credit Suisse EBITDA margin forecast 30.9%). Importantly, we note that 2015 consensus EPS has already declined by a whopping 43.7%, from Bt5.613/share to Bt3.162/share. There may still be more downside to consensus for 2015, given that a new CEO has taken the helm, and that resuscitation is the top priority (at any cost); our forecast net profit of Bt6.1 bn is still 18.8% below consensus.

10.0% 0.0% -10.0% -20.0%

Figure 33: Consensus FY15 EPS forecasts

-30.0%

6.0

-40.0%

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

5.0

Jan-05

-60.0%

Jan-04

5.5

Jan-03

-50.0%

4.5

4.0

Source: Company data, Credit Suisse estimates

DTAC: FY16 consensus now factoring in the worst By May of 2015 DTAC's new CEO, Lars-Åke Norling, had identified the problems that had caused market share loss—namely, poor 3G network quality, weak distribution/marketing, and aggressive handset subsidies from competitor True Corp—and had developed a plan to address them. The plan involved investing more in the network, reorganising the distribution system and, armed with better network quality, responding where necessary with promotions/handset subsidies to slow market share losses.

IDEAS ENGINE Thailand Telecoms Sector

3.5 3.0 Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Bloomberg Consensus FY15 EPS

Source: Bloomberg consensus estimates

20

Figure 34: Consensus FY16 EPS forecasts

Figure 35: DTAC—summary P&L and cash flow Bt mn

6.5

6.0

5.5

5.0

4.5

4.0

3.5 Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Bloomberg Consensus FY16 EPS

Source: Bloomberg consensus estimates

However, in what we believe to be a key bull signal, we note that consensus EPS forecast for 2016 have in our view already fallen hard enough, after a 42.8% downward revision; our FY16 EPS forecast is 1.6% ahead of consensus. While DTAC's marketing expenditure is of course sub-optimal and damaging to near term earnings, marketing and handset subsidies are arguably the 'least bad' way to rebuild market share momentum. This is because these expenditures can be ramped down or removed quickly, whereas tariff-based competition (which CEO Lars is fortunately keen to avoid) is much harder to reverse; customers are averse to tariff increases. This strategy should therefore have a near term (FY15) negative impact on earnings, but protect the longer term monetisation of wireless data in Thailand—an opportunity which can in our view still be attractive. As revenue growth improves, thanks to the network quality enhancements and monetisation of the 4G launch, a strong recovery in EBITDA margins is in our view likely. With 900MHz 3G services, the downward trend in concession fees will likely resume, facilitating a 3.5 pp improvement in margins. Pressure on 'emergency' marketing costs can also reduce, allowing a further 2.3 pp improvement. Together with marginally improved operational gearing, we believe that 6.2 pp improvement in the gross EBITDA margin, from 30.9% in FY15E to 37.1% in FY16E is possible. This, in turn, is expected to drive 41.3% YoY growth in earnings.

Net service rev % YoY EBITDA % YoY Gross EBITDA margin (%) Capex Capex/sales (%) FCF % YoY Net profit % YoY

2011 58,577 7.2 27,296 6.3 34.4

2012 63,503 8.4 26,809 -1.8 30.0

2013 70,105 10.4 29,721 10.9 31.4

2014 68,275 -2.6 31,069 4.5 34.4

2015E 67,565 -1.0 27,068 -12.9 30.9

2016E 69,666 3.1 33,080 22.2 37.1

2017E 72,216 3.7 37,182 12.4 40.4

2018E 74,412 3.0 40,246 8.2 42.7

(5,800) 9.9 16,378 -3.7 11,813 8.5

(9,300) (14,400) (14,000) (20,033) (20,268) (20,157) (16,170) 14.6 20.5 20.5 29.7 29.1 27.9 21.7 13,252 10,099 13,343 3,713 8,113 11,927 17,397 -19.1 -23.8 32.1 -72.2 118.5 47.0 45.9 11,278 10,570 10,728 6,081 8,595 10,431 16,771 -4.5 -6.3 1.5 -43.3 41.3 21.4 60.8

Source: Company data, Credit Suisse estimates

Our DCF-based target price, using a WACC of 9.8% and terminal growth rate of 3.0%, remains unchanged at Bt96.0. Given this, we believe that DTAC is severely oversold, with too much emphasis having been placed on what we see as a near-term loss of revenue momentum (and the resulting impact on marketing costs to regain subscriber momentum). With 74.5% potential upside to our target price, and an FY16 dividend yield of 6.6%, we maintain our OUTPERFORM rating.

Jasmine: Failure to win spectrum actually positive We have highlighted that Thailand’s fixed broadband penetration rate is low compared with other countries in Asia, and Jasmine currently offers a pure-play way to invest in what is proving to be a value-accretive opportunity. Indeed, Jasmine's core broadband business seems to be progressing well, with 3.8% QoQ and 13.1% YoY growth in service income into 2Q15, representing an acceleration versus the 11.5% YoY growth rate delivered in 1Q15. This result looks particularly impressive in the context of Thailand's very weak macro environment, and suggests that secular demand for fixed broadband access is strong enough to outweigh both weak overall consumption and also seasonality (summer). Of course the key concern of investors is that Jasmine will dilute this focus through involvement in the upcoming spectrum auctions; in March 2015 Jasmine announced the sale of warrants to raise Bt15.0 bn in capital in order to prepare for the bids. However, we have noted that Jasmine has expressed an interest in wireless spectrum before, having applied for participation in the 2012 2100MHz (3G) auction. Just as the application was not successful on that occasion, we believe that Jasmine will not win spectrum in the upcoming 1800MHz and 900MHz auctions. Should Jasmine be interested in a niche wireless broadband product, the spectrum cost per potential customer would be too high to generate a reasonable return on capital. Entry as a fourth player into Thailand's cellular market (which had headline

IDEAS ENGINE Thailand Telecoms Sector

21

penetration of 147.4% as at December 2014) would in our view be an extremely valuedestructive move, and so the spectrum-constrained cellular operators should be prepared to comfortably outbid Jasmine, absorbing the spectrum costs over much larger subscriber bases. Should such value destruction be avoided, we might expect Jasmine's share price to recover, and to more accurately reflect the value of the core fixed broadband business, which clearly continues to perform well. While EBITDA declines sharply into FY15, this is related to the sale (and lease back) of assets to the Jasmine infrastructure fund (JasIF). We value Jasmine's 33.0% stake in the JasIF at Bt26.7 bn, in order to drive our total DCF-based target price for Jasmine of Bt7.0. With 25.0% potential upside, we maintain our OUTPERFORM rating on the stock, in anticipation of improved investor clarity following the upcoming auctions.

increased clarity on DTAC's willingness to use DIF's tower assets. While DTAC and AIS recently signed an agreement to share tower assets, this is in line with DTAC's preference to adopt an asset-light approach where possible, and we believe that the DIF tower assets can still be part of that plan. While DTAC already leases 115 slots, we expect this number to rise to around 1,000 by end 2015. Confirmation of this could prove to be a positive catalyst. Any additional leases taken in 2016/17 following the 900MHz and 1800MHz auctions would of course represent additional upside to our forecasts and DCF valuation. Figure 37: Digital Infrastructure Fund—summary P&L and cash flow Bt mn

2014

2015E

2016E

2017E

2018E

2019E

2020E

Sales

4,342.2

EBITDA

4,273.4

5,750.3 32.4% 5,615.4 31.4% 97.7%

6,582.1 14.5% 6,397.7 13.9% 97.2%

6,749.2 2.5% 6,564.0 2.6% 97.3%

6,840.4 1.4% 6,652.1 1.3% 97.2%

6,911.7 1.0% 6,722.6 1.1% 97.3%

6,986.4 1.1% 6,796.5 1.1% 97.3%

Figure 36: Jasmine—summary P&L and cash flow Bt mn

2011

2012

2013

2014

2015E

2016E

2017E

2018E

Gross EBITDA margin (%)

Broadband rev % YoY Service revenue % YoY EBITDA % YoY

6,351 29.5 9,498 -1.3 4,207 38.8

7,873 24.0 10,369 9.2 5,027 19.5

9,542 21.2 11,123 7.3 5,985 19.1

11,080 16.1 12,268 10.3 6,725 12.4

12,858 16.0 13,993 14.1 3,199 -52.4

14,335 11.5 15,420 10.2 2,945 -7.9

15,730 9.7 16,815 9.0 3,323 12.9

17,046 8.4 18,131 7.8 3,900 17.3

Source: Company data, Credit Suisse estimates

43.9 (2,860) 30.1 3,225 -238.8 1,046 2.3

47.9 (1,948) 18.8 2,177 -32.5 2,137 104.3

53.2 (3,224) 29.0 1,844 -15.3 3,003 40.5

54.2 (5,229) 42.6 440 -76.2 3,271 8.9

22.9 (4,898) 35.0 274 -37.7 16,683 410.1

19.1 (4,318) 28.0 460 67.9 2,859 -82.9

19.8 (3,699) 22.0 1,535 233.6 3,014 5.4

21.5 (3,082) 17.0 2,682 74.8 3,391 12.5

Country

EBITDA margin (%) Capex Capex/sales (%) FCF % YoY Net profit % YoY

98.4%

Our DCF-based target price is Bt14.2 /share, providing 11.8% upside. While US interest rates may rise, DIF's dividend yield, and other multiples, continue to look attractive, particularly relative to other listed tower companies in Asia, and we rate the stock OUTPERFORM. Figure 38: Tower company comparative multiples Company Closing TP Upside name price

(%)

P/E(x)

15E 16E

EV/EBITDA(x) FCF yield (%) 15E

16E

Div yield EV/tower (%) (US$ 000s) 15E 16E 15E 16E 15E

Indonesia

TOWR

3,950 3,525 -10.8 29.1 23.4

12.5

Indonesia

TBIG

6,450 5,300 -17.8 16.9 12.4

13.4

Source: Company data, Credit Suisse estimates

Thailand

Digital Telecommunication Infrastructure Fund

India

Digital Infra Fund BHARTI Infratel

The recent change in name from TrueGIF to Digital Telecommunications Infrastructure Fund (DIF) was clearly designed to improve the perception of 'independent' operations at DIF. The timing of this change makes sense. Firstly, True Corp no longer controls DIF, and holds only 28.1% of its shares. Second, with 5,137 2100MHz towers from True Corp now having been delivered to the fund (with only a further 863 to be delivered by year end), together with the recent acquisition of additional fibres and towers from True Corp, DIF's management is now very focused on driving up additional tenancy on both the towers and fibre assets in the DIF portfolio.

Note: Priced as of 6 October 2015. Source: Company data, Credit Suisse estimates

With DTAC's network recovery plan now proceeding quickly, and with the upcoming 900MHz and 1800MHz auctions (expected in November/December 2015), we believe there may be IDEAS ENGINE Thailand Telecoms Sector

10.6

12.8 14.2

10.9 15.1 13.5

15.6

- 2.9% 1.4% 1.7% 2.9% 12.4 - 1.2% 1.8% 4.0% 0.6% 13.7 7.5% 7.6% 7.2% 7.4%

426.8 400.0

-6.3 35.8 30.6

13.8

11.9 2.5% 3.2% 1.9% 2.2%

288

137

327 108

True Corp: Extremely expensive; UNDERPERFORM It is quite clear that DTAC's problems—insufficient 3G capacity in 2014 and 1H15, loss of customer traction, a management change, and a revamp of the distribution system in 2Q15— handed True Corp a golden opportunity to grow scale. Though True Corp has executed well on seizing this opportunity, helped by a strong 3G network (True Corp penned an agreement to use CAT Corp's 850MHz spectrum for 3G rollout in December 2010, two years ahead of the 2100MHz 3G auction) and a head-start on 4G (it is using 2x10MHz of its 2100MHz spectrum for 4G services, ahead of the 1800MHz auction 22

scheduled for 11 November 2015), True Corp has also been relatively aggressive in its use of handset subsidies to drive home these near-term structural advantages and capture revenue share from a struggling DTAC. Thus, True Corp's 2Q14 cellular EBITDA declined 10.9% QoQ and 12.5% YoY in 2Q15, and while True Mobile Group reported a net profit of Bt207 mn in 2Q15, without the reversal of the regulatory cost provision it would have been loss-making. DTAC's increased FY15 capex budget, revamped distribution network and aggressive promotion and handset subsidy expenditure in 2H15 are all designed to prevent further market share loss on 3G services to True Corp. DTAC's 4G launch (which has already occurred), and AIS's 4G launch post auction (most probably in 1Q16) will also act to close True Corp's 'window of opportunity' to rapidly gain scale. We have also highlighted that the upfront payment for the 1800MHz spectrum, and the payment of 5.25% will actually represent an increase in regulatory fees for True Corp versus the zero revenue share paid for using the spectrum. We have revised down our FY16 and FY17 earnings forecasts by 9.2% to reflect the amortisation of the upfront auction fees. Furthermore, the distortion caused by the 'cost-plus' nature of True Corp's arrangement with CAT Corp, under which gaining revenue rapidly on 850MHz could contribute to higher margins, is also set to be removed in the shift to 4G (where a 5.25% flat fee on revenue will be the ongoing cost). All of this is likely to dampen the effectiveness of True Corp's handset subsidy strategy in relative terms. With cellular market share gains likely to become tougher for True Corp from 4Q15 (given DTAC's change in management and distribution system, increase in capex, and increase in handset subsidy expenses) and in FY16 (if the 900MHz and 1800MHz auctions proceed in November 2015, allowing AIS to launch competing 4G services under licence), this may trigger a focus on profitability at True Corp after its current 'window of opportunity' has expired.

Figure 39: True Corp—summary P&L and cash flow Bt mn Service revenue % YoY EBITDA % YoY EBITDA margin (%) Capex Capex/sales (%) FCF % YoY Headline profit % YoY Normalised profit % YoY

2012

2013

2014E

2015E

2016E

2017E

2018E

82,845 26.9 16,738 -2.1 20.2

91,448 10.4 16,385 -2.1 17.9

99,597 8.9 17,096 4.3 17.2

108,953 9.4 20,160 17.9 18.5

117,462 7.8 22,369 11.0 19.0

125,408 6.8 24,280 8.5 19.4

129,834 3.5 25,746 6.0 19.8

(27,126) 32.7 (18,579) 181.0 (7,428) 175.8 (7,428) 175.8

(25,623) 28.0 (20,052) 7.9 (9,063) 22.0 (14,131) 90.2

(27,460) 27.6 (7,324) -63.5 1,425 -115.7 (939) -93.4

(23,104) 21.2 (5,000) -31.7 3,934 176.0 200 -121.3

(20,386) 17.4 (280) -94.4 2,904 -26.2 2,131 964.9

(21,860) 17.4 173 -162.0 3,333 14.8 2,560 20.2

(13,218) 10.2 10,236 5805.1 4,134 24.0 3,361 31.3

Source: Company data, Credit Suisse estimates

We forecast that, due to the base effect and the head-start on 4G, True Corp will grow cellular service faster than peers in 2016, at 12.6%. However, this represents a deceleration versus 2015's 14.6% growth rate, given that the window of opportunity is now closing. True Corp is still expected to grow consolidated EBITDA at double digits in FY16, but this will only occur if marketing costs in the cellular business are better controlled (since a further acceleration in revenue growth looks unlikely, in our view). We note that our EBITDA and normalised profit forecasts exclude gains related to the 2013 creation of the Digital Telecommunication Infrastructure Fund, which in 2014, 2015 and 2016 comprise Bt3.0 bn, Bt4.7 bn and Bt1.0 bn respectively. We have trimmed our FY16 and FY17 profit forecasts by 13.1% and 12.9% respectively to reflect higher amortisation on 1800MHz spectrum, which we expect True Corp to win at auction for Bt17.4 bn, a 25% premium to the reserve price of Bt13.9 bn. We note that, on the basis of these forecasts, which we believe to be reasonable, True Corp is currently trading at 12.9x FY16 EV/EBITDA and 80.8x FY16 P/E. These multiples look extremely expensive relative to both domestic and regional peers. Our (unchanged) DCF-based target price of Bt4.2 implies 56.7% potential downside. We also note that our FY16 EBITDA and net profit forecasts are 24.2% and 50.3% respectively below consensus, and so we believe that there must be material downside risk to consensus forecasts. It is possible, for example, that some analysts may have erroneously extrapolated 'one-off' tower gains into FY16, and reversal of those assumptions would lead FY16 consensus EPS forecasts to decline sharply. UNDERPERFORM rating maintained.

IDEAS ENGINE Thailand Telecoms Sector

23

Advanced Info Service PCL (ADVANC.BK / ADVANC TB) Key beneficiary of positive structural change Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected]

■ A negative operating environment in 2015. AIS is market leader in the Thai telco market, with 52.7% market share by revenue as at 2Q15. While the overall dynamics of the Thai cellular sector are attractive, with smartphone penetration still rising and with the potential for margin expansion as operators shift customers from a concession environment to a licensed environment, competitive intensity has recently increased, primarily through rising handset subsidies. Even AIS has been forced to respond to this negative competitive development, as its 900MHz concession has just come to an end in September 2015. ■ But the upcoming auction shifts competitive dynamics for the better. The upcoming auction is unequivocally positive for AIS. First the auction will result in a shift of the 900MHz spectrum from the concession structure to the licensed structure, helping to drive down regulatory cost. Second, receipt of 1800MHz and 900MHz spectrum will allow AIS to launch high quality 4G services. This will allow faster growth in data volumes, which, as we have seen, is likely to drive faster revenue growth, given that AIS is avoiding 'unlimited' data plans. Third, expenditure on handset subsidies may actually decline, given that AIS will once again be able to compete on service quality, rather than handset subsidies; thus more of the regulatory benefits might be retained as competitive intensity cools. ■ FY16 service revenue, EBITDA and net profit revised up. The 4G auction, together with the launch of fixed broadband services, therefore leads us to expect a re-acceleration in revenue growth into FY16, with the growth rate expected to double to 6.2%. Furthermore, we expect both regulatory cost reductions and an easing of handset subsidies to support higher EBITDA margins into 2016, resulting in our forecast of 15.2% YoY EBITDA growth. Elevated capex triggering higher depreciation, and the commencement of amortisation of the Bt30.0 bn in 4G licence costs, are expected to deprive AIS of operational gearing in 2016, but we still forecast 15.6% YoY earnings growth

Rating (from Neutral) OUTPERFORM* Price (06 Oct 15, Bt) 225.00 Target price (Bt) (from 255.00) 290.00¹ Upside/downside (%) 28.9 Mkt cap (Bt mn) 668,946 (US$18,418 mn) Enterprise value (Bt mn) 736,951 Number of shares (mn) 2,973.10 Free float (%) 52.8 52-week price range 255.0-219.0 ADTO - 6M (US$ mn) 30.8 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Share price performance 280

Price (LHS)

Rebased Rel (RHS)

120 100

230

80

180 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15

60

The price relative chart measures performance against the THAILAND SET IDX which closed at 1369.67 on 06/10/15 On 06/10/15 the spot exchange rate was Bt36.32/US$1

Performance over Absolute (%) Relative (%)

1M -5.5 -5.4

3M -7.4 -0.6

12M 1.4 12.6

Financial and valuation metrics Year Revenue (Bt mn) EBITDA (Bt mn) EBIT (Bt mn) Net profit (Bt mn) EPS (CS adj.) (Bt) Change from previous EPS (%) Consensus EPS (Bt) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)

12/14A 141,963.0 66,427.7 47,505.7 36,033.4 12.12 n.a. n.a. -0.7 18.6 5.3 10.4 14.3 77.9 40.7

12/15E 145,303.1 72,743.2 50,879.5 39,181.8 13.18 0.1 13.3 8.7 17.1 5.9 10.1 14.3 83.8 145.1

12/16E 153,242.6 83,767.2 60,043.2 45,218.5 15.21 2.0 15.3 15.4 14.8 6.8 8.9 14.3 96.7 164.6

12/17E 160,254.8 92,003.4 66,740.8 50,351.7 16.94 4.5 15.9 11.4 13.3 7.5 8.1 14.3 107.7 170.5

Source: Company data, Thomson Reuters, Credit Suisse estimates.

■ Upgrade to OUTPERFORM. We have therefore revised up our FY16 service revenue, EBITDA and net profit forecasts by 2.6%, 2.6% and 2.0% respectively. On the expectation of improving data monetisation with 4G take-up, our FY16 and FY17 earnings forecasts have been revised up by 4.5% and 7.4% respectively. Our DCF-based target price, using a WACC of 9.8% and terminal growth rate of 3.0%, has been revised up 13.7% from Bt255 to Bt290. With 29% potential upside to our target price, and an FY16 dividend yield of 6.8%, we upgrade AIS from Neutral to OUTPERFORM.

IDEAS ENGINE Thailand Telecoms Sector

24

Advanced Info Service PCL (ADVANC.BK) Price (06-Oct-15,Bt) Market Cap (Btmn) Rating Target Price (Bt) EPS FY1E (Bt) EPS FY2E (Bt) EPS FY3E (Bt) Source: Credit Suisse Estimates, IBES Income Statement Sales revenue Cost of goods sold SG & A Other operating exp./(inc.) EBITDA Depreciation & amortisation EBIT Net interest expense/(inc.) Non-operating inc./(exp.) Associates/JV Recurring PBT Exceptionals/extraordinaries Taxes Profit after tax Other after tax income Minority interests Preferred dividends Reported net profit Analyst adjustments Net profit (Credit Suisse) Cash Flow EBIT Net interest Tax paid Working capital Other cash & non-cash items Operating cash flow Capex Free cash flow to the firm Disposals of fixed assets Acquisitions Divestments Associate investments Other investment/(outflows) Investing cash flow Equity raised Dividends paid Net borrowings Other financing cash flow Financing cash flow Total cash flow Adjustments Net change in cash

IDEAS ENGINE Thailand Telecoms Sector

225.0 668946.4 Current Value OUTPERFORM 290.00 13.18 15.21 16.94

Previous Value NEUTRAL 255.00 13.16 14.91 16.21 2014FYA 141,963 56,491 19,044 0 66,428 18,922 47,506 1,527 104 0 46,083 0 10,080 36,003 0 -30 0 36,033 0 36,033 2014FYA 47,506 -857 -9,354 -2,441 18,922 53,776 -32,562 22,259 0 0 27 0 83 -32,452 0 -35,052 16,392 0 -18,661 2,663 0 2,663

2015FYE 145,303 51,838 20,722 0 72,743 21,864 50,880 1,833 -69 0 48,977 0 9,795 39,182 0 0 0 39,182 0 39,182 2015FYE 50,880 -1,833 -9,795 -235 21,864 60,879 -39,145 21,970 0 0 0 0 0 -39,145 0 -39,182 32,000 0 -7,182 14,553 0 14,553

2016FYE 153,243 48,381 21,095 0 83,767 23,724 60,043 3,451 -69 0 56,523 0 11,305 45,218 0 0 0 45,218 0 45,219 2016FYE 60,043 -3,451 -11,305 -475 23,724 68,536 -32,473 36,538 0 0 0 0 0 -32,473 0 -45,218 10,000 0 -35,218 845 0 845

2017FYE 160,255 46,500 21,751 0 92,003 25,263 66,741 3,732 -69 0 62,940 0 12,588 50,352 0 0 0 50,352 0 50,352 2017FYE 66,741 -3,732 -12,588 -450 25,263 75,233 -27,638 48,045 0 0 0 0 0 -27,638 0 -50,352 2,000 0 -48,352 -757 0 -757

Balance Sheet Cash & cash equivalents Current receivables Inventories Other current assets Current assets Property, plant & equip. Investments Intangibles Other non-current assets Total assets Accounts payable Short-term debt Current provisions Other current liabilities Current liabilities Long-term debt Non-current provisions Other non-current liabilities Total liabilities Shareholders' equity Minority interests Total liabilities & equity Per Share Shares (wtd avg.) (mn) EPS (Credit Suisse) (Bt) DPS (Bt) BVPS (Bt) Operating CFPS (Bt) Growth (%) Sales revenue EBIT Net profit EPS EBITDA EBIT Pre-tax profit Net profit

2014FYA 17,967 21,159 0 0 39,127 69,441 151 15,129 2,596 126,444 40,334 2,572 0 0 42,906 34,478 0 2,101 79,486 46,750 114 126,351 2014FYA 2,973 12.12 12.00 15.72 18.09 2014FYA 7.4 0.8 -0.7 -0.7 46.8 33.5 32.5 25.4

2015FYE 1,046 21,657 0 0 22,702 88,855 151 44,471 2,630 158,809 40,651 10,509 0 0 51,160 58,541 0 2,151 111,852 46,750 114 158,716 2015FYE 2,973 13.18 13.18 15.72 20.48 2015FYE 2.4 7.1 8.7 8.7 50.1 35.0 33.7 27.0

2016FYE 1,890 22,840 1 0 24,732 101,192 151 40,883 2,710 169,668 41,391 12,031 0 0 53,422 67,019 0 2,268 122,710 46,750 114 169,574 2016FYE 2,973 15.21 15.21 15.72 23.05 2016FYE 5.5 18.0 15.4 15.4 54.7 39.2 36.9 29.5

2017FYE 1,133 23,885 2 0 25,021 107,098 151 37,352 2,782 172,404 42,023 12,335 0 0 54,358 68,715 0 2,372 125,445 46,750 114 172,309 2017FYE 2,973 16.94 16.94 15.72 25.30 2017FYE 4.6 11.2 11.4 11.4 57.4 41.6 39.3 31.4

25

Valuation P/E P/B Dividend yield (%) P/CF EV/sales EV/EBITDA EV/EBIT Returns ROE ROIC Asset turnover (x) Interest burden (x) Tax burden (x) Financial leverage (x) Gearing Net debt/equity (%) Net debt/EBITDA (x) Interest cover (x) Source: Company data, Credit Suisse Estimates

IDEAS ENGINE Thailand Telecoms Sector

2014FYA 18.6 14.3 5.3 12.4 4.8 10.4 14.5 2014FYA 77.9 61.2 1.1 1.0 0.8 2.7 2014FYA 40.7 0.29 31.11

2015FYE 17.1 14.3 5.9 11.0 5.1 10.1 14.5 2015FYE 83.8 45.0 0.9 1.0 0.8 3.4 2015FYE 145.1 0.93 27.75

2016FYE 14.8 14.3 6.8 9.8 4.9 8.9 12.4 2016FYE 96.7 40.2 0.9 0.9 0.8 3.6 2016FYE 164.6 0.92 17.40

2017FYE 13.3 14.3 7.5 8.9 4.7 8.1 11.2 2017FYE 107.7 42.6 0.9 0.9 0.8 3.7 2017FYE 170.5 0.87 17.88

26

Intouch Limited (INTUCH.BK/INTUCH TB) A cheaper way to access AIS cash flows Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected]

■ Intouch is a holding company offering exposure to AIS. Intouch's key assets continue to be its 40.45% stake in AIS and a 41.14% stake in Thaicom. Sum-of-the parts (SOTP) therefore seems to be the appropriate methodology to value Intouch, and as a starting point we use our aforementioned DCF-based target price for AIS, together with a mark-tomarket valuation for the Thaicom stake ■ The holding company discount has varied over time, but should narrow. We then apply a holding company discount. Intouch has historically tended to trade at an average discount to its listed parts of around 20%. In some respects this makes sense, since shareholders are one step removed from AIS's cash flows. On the other hand, we note that (1) AIS has a 100% dividend payout policy,(2) there is no tax on dividends paid from one Thai company another and (3) Intouch has a policy of 'passing on' 100% of dividends received from subsidiaries. Taken together, and extrapolated into perpetuity, it can be argued that Intouch gives investors access to an identical set of cash flows. As such, the holding company discount could arguably narrow to zero. ■ We use a 10% holding company discount to set our target price. While we believe that a change in these policies is very unlikely, our target price builds in a holding company discount of 10%, to reflect the risk (albeit small) that any of these policies are changed over time. Given this, Intouch offers marginally more potential upside to our target price than that offered by AIS, and we maintain our OUTPERFORM rating. ■ Target price raised to Bt103.3. After factoring in our revised AIS forecasts, our target price from Intouch rises from Bt92 to Bt103.3. Intouch offers a lightly better dividend yield, and we believe it offers better risk-reward adjusted access to AIS's expanding cash flows.

IDEAS ENGINE Thailand Telecoms Sector

Rating OUTPERFORM* Price (06 Oct 15, Bt) 73.25 Target price (Bt) (from 92.00) 103.30¹ Upside/downside (%) 41.0 Mkt cap (Bt mn) 234,870 (US$6,467 mn) Enterprise value (Bt mn) 232,244 Number of shares (mn) 3,206.42 Free float (%) 58.4 52-week price range 83.5-70.5 ADTO - 6M (US$ mn) 15.9 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Share price performance Price (LHS) Rebased Rel (RHS) 100 90 80 70 60 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15

120 100 80 60

The price relative chart measures performance against the THAILAND SET IDX which closed at 1369.67 on 06/10/15 On 06/10/15 the spot exchange rate was Bt36.32/US$1

Performance over Absolute (%) Relative (%)

1M -4.9 -4.8

3M -7.3 -0.4

12M 2.8 14.0

Financial and valuation metrics Year Revenue (Bt mn) EBITDA (Bt mn) EBIT (Bt mn) Net profit (Bt mn) EPS (CS adj.) (Bt) Change from previous EPS (%) Consensus EPS (Bt) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)

12/14A 14,458.5 13,967.8 13,951.5 13,948.1 4.35 n.a. n.a. 2.8 16.8 6.0 16.7 16.6 98.2 Net cash

12/15E 15,613.5 15,143.2 15,123.5 15,122.7 4.72 0.1 5.18 8.4 15.5 6.4 15.3 16.0 104.9 Net cash

12/16E 17,711.2 17,237.7 17,221.2 17,220.4 5.37 1.1 5.93 13.9 13.6 7.3 13.4 14.9 113.3 Net cash

12/17E 20,036.9 19,561.1 19,546.9 19,546.1 6.10 3.3 6.29 13.5 12.0 8.3 11.8 13.9 119.9 Net cash

Source: Company data, Thomson Reuters, Credit Suisse estimates.

27

Intouch Limited (INTUCH.BK) Price (06-Oct-15,Bt) Market Cap (Btmn)

73.25 234870.3 Current Value OUTPERFORM 103.30 4.72 5.37 6.10

Previous Value Rating Target Price (Bt) EPS FY1E (Bt) EPS FY2E (Bt) EPS FY3E (Bt) Source: Credit Suisse Estimates, IBES Income Statement Sales revenue Cost of goods sold SG & A Other operating exp./(inc.) EBITDA Depreciation & amortisation EBIT Net interest expense/(inc.) Non-operating inc./(exp.) Associates/JV Recurring PBT Exceptionals/extraordinaries Taxes Profit after tax Other after tax income Minority interests Preferred dividends Reported net profit Analyst adjustments Net profit (Credit Suisse) Cash Flow EBIT Net interest Tax paid Working capital Other cash & non-cash items Operating cash flow Capex Free cash flow to the firm Disposals of fixed assets Acquisitions Divestments Associate investments Other investment/(outflows) Investing cash flow Equity raised Dividends paid Net borrowings Other financing cash flow Financing cash flow Total cash flow Adjustments Net change in cash

IDEAS ENGINE Thailand Telecoms Sector

92.00 4.71 5.31 5.90 2014FYA 14,459 0 491 0 13,968 16 13,952 3 0 0 13,948 0 0 13,948 0 0 0 13,948 0 13,948 2014FYA 13,952 0 0 70 -14,442 -420 -36 -456 0 0 0 0 -194 -230 0 -14,054 -1 14,407 352 -298 0 -298

2015FYE 15,614 0 470 0 15,143 20 15,124 1 0 0 15,123 0 0 15,123 0 0 0 15,123 0 15,123 2015FYE 15,124 0 0 -1 -15,594 -472 -8 -480 0 0 0 0 0 -8 0 -14,599 0 15,613 1,013 534 0 534

2016FYE 17,711 0 474 0 17,238 16 17,221 1 0 0 17,220 0 0 17,220 0 0 0 17,220 0 17,220 2016FYE 17,221 0 0 -1 -17,695 -475 -8 -483 0 0 0 0 0 -8 0 -16,172 0 17,710 1,539 1,056 0 1,056

2017FYE 20,037 0 476 0 19,561 14 19,547 1 0 0 19,546 0 0 19,546 0 0 0 19,546 0 19,546 2017FYE 19,547 0 0 -1 -20,023 -477 -8 -485 0 0 0 0 0 -8 0 -18,383 0 20,036 1,653 1,168 0 1,168

Balance Sheet Cash & cash equivalents Current receivables Inventories Other current assets Current assets Property, plant & equip. Investments Intangibles Other non-current assets Total assets Accounts payable Short-term debt Current provisions Other current liabilities Current liabilities Long-term debt Non-current provisions Other non-current liabilities Total liabilities Shareholders' equity Minority interests Total liabilities & equity Per Share Shares (wtd avg.) (mn) EPS (Credit Suisse) (Bt) DPS (Bt) BVPS (Bt) Operating CFPS (Bt) Growth (%) Sales revenue EBIT Net profit EPS EBITDA EBIT Pre-tax profit Net profit

2014FYA 2,093 20 0 0 2,113 55 12,161 6 7 14,342 132 1 0 0 133 0 0 58 190 14,151 0 14,342 2014FYA 3,206 4.35 4.39 4.41 -0.13 2014FYA 3.6 2.8 2.8 2.8 96.6 96.5 96.5 96.5

2015FYE 2,627 20 0 0 2,647 45 12,161 6 7 14,865 132 0 0 0 132 1 0 58 190 14,675 0 14,865 2015FYE 3,206 4.72 4.72 4.58 -0.15 2015FYE 8.0 8.4 8.4 8.4 97.0 96.9 96.9 96.9

2016FYE 3,683 20 1 0 3,704 38 12,161 6 7 15,915 132 0 0 0 132 1 0 58 190 15,724 0 15,914 2016FYE 3,206 5.37 5.37 4.90 -0.15 2016FYE 13.4 13.9 13.9 13.9 97.3 97.2 97.2 97.2

2017FYE 4,850 20 2 0 4,872 33 12,161 6 7 17,079 132 0 0 0 132 1 0 58 190 16,886 0 17,077 2017FYE 3,206 6.10 6.10 5.27 -0.15 2017FYE 13.1 13.5 13.5 13.5 97.6 97.6 97.6 97.6

28

Valuation P/E P/B Dividend yield (%) P/CF EV/sales EV/EBITDA EV/EBIT Returns ROE ROIC Asset turnover (x) Interest burden (x) Tax burden (x) Financial leverage (x) Gearing Net debt/equity (%) Net debt/EBITDA (x) Interest cover (x) Source: Company data, Credit Suisse Estimates

IDEAS ENGINE Thailand Telecoms Sector

2014FYA 16.8 16.6 6.0 -558.8 16.1 16.7 16.7 2014FYA 98.2 115.3 1.0 1.0 1.0 1.0 2014FYA -14.8 -0.15 4072.85

2015FYE 15.5 16.0 6.4 -498.0 14.9 15.3 15.4 2015FYE 104.9 125.5 1.1 1.0 1.0 1.0 2015FYE -17.9 -0.17 18499.23

2016FYE 13.6 14.9 7.3 -494.7 13.1 13.4 13.4 2016FYE 113.3 143.0 1.1 1.0 1.0 1.0 2016FYE -23.4 -0.21 21065.12

2017FYE 12.0 13.9 8.3 -492.3 11.5 11.8 11.8 2017FYE 119.9 162.4 1.2 1.0 1.0 1.0 2017FYE -28.7 -0.25 23909.93

29

Total Access Communication PCL (DTAC.BK / DTAC TB) FY16 consensus now factoring in the worst Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected]

■ DTAC has a rehabilitation plan in place. By May of 2015 DTAC's new CEO, Lars-Åke Norling, had identified the problems that had caused market share loss—namely, poor 3G network quality, weak distribution/marketing, and aggressive handset subsidies from competitor True Corp—and had developed a plan to address them. The plan involved investing more in the network, reorganising the distribution system and, armed with better network quality, responding where necessary with promotions/handset subsidies to slow market share losses. ■ We fully expect margin pressure in FY15. DTAC's team has worked particularly hard on the network side over the last six months using its 2x10MHz allocation of 850MHz spectrum (under concession). DTAC has also constructed 12,500 3G BTS on 2100MHz to beef up capacity, as well as 3,400 4G BTS on 2100MHz to enable 4G launch. The distribution effort has also been reorganised, and DTAC is now moving to the execution phase, wiith a revamped marketing effort. ■ Consensus earnings for FY16 revised down enough. However, we believe this heavy expenditure is already baked into DTAC's EBITDA margin guidance (31-33%) and certainly into our own forecasts (Credit Suisse EBITDA margin forecast 30.9%). Importantly, we note that 2015 consensus EPS has already declined by a whopping 43.7%, from Bt5.613 to Bt3.162. Indeed, in what we believe to be a key bull signal, we note that consensus EPS forecasts for 2016 have in our view already fallen hard enough, after a 42.8% downward revision; our FY16 EPS forecast is 1.6% ahead of consensus. ■ We expect an earnings recovery in FY16. While DTAC's marketing expenditure is of course sub-optimal and damaging to near term earnings, marketing and handset subsidies are arguably the 'least bad' way to rebuild market share momentum, and can be withdrawn. As revenue growth improves thanks to the network quality enhancements and monetisation of the 4G launch, a strong recovery in EBITDA margins is in our view likely. With 900MHz 3G services, the downward trend in concession fees will likely resume, facilitating a 3.5 pp improvement in margins. Pressure on 'emergency' marketing costs can also reduce, allowing a further 2.3 pp improvement. Together with marginally improved operational gearing, we believe that 6.2 pp improvement in the gross EBITDA margin, from 30.9% in FY15E to 37.1% in FY16E is possible. This, in turn, is expected to drive 41.3% YoY growth in earnings.

IDEAS ENGINE Thailand Telecoms Sector

Rating OUTPERFORM* Price (06 Oct 15, Bt) 55.00 Target price (Bt) 96.00¹ Upside/downside (%) 74.5 Mkt cap (Bt mn) 130,230 (US$3,586 mn) Enterprise value (Bt mn) 174,900 Number of shares (mn) 2,367.81 Free float (%) 24.3 52-week price range 104.0-53.0 ADTO - 6M (US$ mn) 6.8 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Share price performance 140

Price (LHS)

Rebased Rel (RHS)

90 40 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15

120 100 80 60 40

The price relative chart measures performance against the THAILAND SET IDX which closed at 1369.67 on 06/10/15 On 06/10/15 the spot exchange rate was Bt36.32/US$1

Performance over Absolute (%) Relative (%)

1M -16.3 -16.3

3M -32.9 -26.1

12M -46.9 -35.6

Financial and valuation metrics Year Revenue (Bt mn) EBITDA (Bt mn) EBIT (Bt mn) Net profit (Bt mn) EPS (CS adj.) (Bt) Change from previous EPS (%) Consensus EPS (Bt) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)

12/14A 83,697.0 31,068.7 14,456.2 10,728.2 4.53 n.a. n.a. 1.5 12.1 12.6 5.1 4.0 32.9 85.4

12/15E 82,986.9 27,067.8 9,402.7 6,081.0 2.57 -0.03 3.19 -43.3 21.4 4.7 6.5 4.0 18.7 137.0

12/16E 85,087.6 33,080.0 13,294.2 8,595.3 3.63 0.25 3.79 41.3 15.2 6.6 5.3 4.0 26.4 137.4

12/17E 87,638.4 37,181.8 15,528.7 10,430.6 4.41 -0.25 4.49 21.4 12.5 8.0 4.7 4.0 32.0 131.4

Source: Company data, Thomson Reuters, Credit Suisse estimates.

30

Total Access Communication PCL (DTAC.BK) Price (06-Oct-15,Bt) Market Cap (Btmn)

55.0 130229.6 Current Value OUTPERFORM 96.00 2.57 3.63 4.41

Previous Value Rating Target Price (Bt) EPS FY1E (Bt) EPS FY2E (Bt) EPS FY3E (Bt) Source: Credit Suisse Estimates, IBES Income Statement Sales revenue Cost of goods sold SG & A Other operating exp./(inc.) EBITDA Depreciation & amortisation EBIT Net interest expense/(inc.) Non-operating inc./(exp.) Associates/JV Recurring PBT Exceptionals/extraordinaries Taxes Profit after tax Other after tax income Minority interests Preferred dividends Reported net profit Analyst adjustments Net profit (Credit Suisse) Cash Flow EBIT Net interest Tax paid Working capital Other cash & non-cash items Operating cash flow Capex Free cash flow to the firm Disposals of fixed assets Acquisitions Divestments Associate investments Other investment/(outflows) Investing cash flow Equity raised Dividends paid Net borrowings Other financing cash flow Financing cash flow Total cash flow Adjustments Net change in cash

IDEAS ENGINE Thailand Telecoms Sector

2.57 3.62 4.42 2014FYA 83,697 39,077 13,843 -292 31,069 16,613 14,456 1,175 -13 6 13,274 0 2,551 10,723 0 -5 0 10,728 0 10,728 2014FYA 14,456 -1,122 -3,546 -5,565 16,613 20,836 -14,000 13,343 0 0 0 0 87 -13,913 0 -10,775 4,204 0 -6,571 351 0 351

2015FYE 82,987 36,866 19,053 0 27,068 17,665 9,403 1,801 0 0 7,601 0 1,520 6,081 0 0 0 6,081 0 6,081 2015FYE 9,403 -1,801 -1,520 -14,461 17,665 9,285 -20,033 3,713 0 0 0 0 0 -20,033 0 -6,081 17,000 0 10,919 171 0 171

2016FYE 85,088 33,964 18,043 0 33,080 19,786 13,294 2,550 0 0 10,744 0 2,149 8,595 0 0 0 8,595 0 8,595 2016FYE 13,294 -2,550 -2,149 352 19,786 28,733 -20,268 8,113 0 0 0 0 0 -20,268 0 -8,595 -1,000 0 -9,595 -1,131 0 -1,131

2017FYE 87,638 32,583 17,874 0 37,182 21,653 15,529 2,490 0 0 13,038 0 2,608 10,431 0 0 0 10,431 0 10,431 2017FYE 15,529 -2,490 -2,608 470 21,653 32,553 -20,157 11,927 0 0 0 0 0 -20,157 0 -10,431 0 0 -10,431 1,966 0 1,966

Balance Sheet Cash & cash equivalents Current receivables Inventories Other current assets Current assets Property, plant & equip. Investments Intangibles Other non-current assets Total assets Accounts payable Short-term debt Current provisions Other current liabilities Current liabilities Long-term debt Non-current provisions Other non-current liabilities Total liabilities Shareholders' equity Minority interests Total liabilities & equity Per Share Shares (wtd avg.) (mn) EPS (Credit Suisse) (Bt) DPS (Bt) BVPS (Bt) Operating CFPS (Bt) Growth (%) Sales revenue EBIT Net profit EPS EBITDA EBIT Pre-tax profit Net profit

2014FYA 5,823 0 0 18,190 24,013 66,328 289 11,616 4,180 106,426 39,238 5,664 0 0 44,903 28,000 0 925 73,828 32,591 7 106,426 2014FYA 2,368 4.53 6.91 13.76 8.80 2014FYA -0.4 -10.0 1.5 1.5 37.1 17.3 15.9 12.8

2015FYE 5,994 0 0 18,036 24,029 70,215 289 24,556 4,058 123,148 38,905 19,664 0 0 58,570 31,000 0 917 90,487 32,591 7 123,085 2015FYE 2,368 2.57 2.57 13.76 3.92 2015FYE -0.8 -35.0 -43.3 -43.3 32.6 11.3 9.2 7.3

2016FYE 4,863 0 0 18,492 23,355 72,811 289 22,765 3,936 123,156 39,890 16,664 0 0 56,555 33,000 0 940 90,495 32,591 7 123,093 2016FYE 2,368 3.63 3.63 13.76 12.13 2016FYE 2.5 41.4 41.3 41.3 38.9 15.6 12.6 10.1

2017FYE 6,829 0 0 19,047 25,876 73,428 289 20,973 3,814 124,380 41,086 13,664 0 0 54,751 36,000 0 969 91,719 32,591 7 124,317 2017FYE 2,368 4.41 4.41 13.76 13.75 2017FYE 3.0 16.8 21.4 21.4 42.4 17.7 14.9 11.9

31

Valuation P/E P/B Dividend yield (%) P/CF EV/sales EV/EBITDA EV/EBIT Returns ROE ROIC Asset turnover (x) Interest burden (x) Tax burden (x) Financial leverage (x) Gearing Net debt/equity (%) Net debt/EBITDA (x) Interest cover (x) Source: Company data, Credit Suisse estimates

IDEAS ENGINE Thailand Telecoms Sector

2014FYA 12.1 4.0 12.6 6.3 1.9 5.1 10.9 2014FYA 32.9 19.6 0.8 0.9 0.8 3.3 2014FYA 85.4 0.90 12.30

2015FYE 21.4 4.0 4.7 14.0 2.1 6.5 18.6 2015FYE 18.7 10.9 0.7 0.8 0.8 3.8 2015FYE 137.0 1.65 5.22

2016FYE 15.2 4.0 6.6 4.5 2.1 5.3 13.2 2016FYE 26.4 13.8 0.7 0.8 0.8 3.8 2016FYE 137.4 1.35 5.21

2017FYE 12.5 4.0 8.0 4.0 2.0 4.7 11.1 2017FYE 32.0 16.3 0.7 0.8 0.8 3.8 2017FYE 131.4 1.15 6.24

32

True Corp PCL (TRUE.BK / TRUE TB) Expensive; competitive advantage set to recede Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected]

■ True Corp has executed well in attracting market share. It is quite clear that DTAC's problems—insufficient 3G capacity in 2014 and 1H15, loss of customer traction, a management change, and a revamp of the distribution system in 2Q15—handed True Corp a golden opportunity to grow scale. Though True Corp has executed well on seizing this opportunity, helped by a strong 3G network (it penned an agreement to use CAT Corp's 850MHz spectrum for 3G rollout in December 2010, two years ahead of the 2100MHz 3G auction) and a head-start on 4G (it is using 2x10MHz of its 2100MHz spectrum for 4G services, ahead of the 1800MHz auction scheduled for 11 November 2015), True Corp has also been relatively aggressive in its use of handset subsidies to drive home these nearterm structural advantages and capture revenue share from the struggling DTAC. ■ However, this has also been costly. Thus, True Corp's 2Q14 cellular EBITDA declined 10.9% QoQ and 12.5% YoY in 2Q15, and while True Mobile Group reported a net profit of Bt207 mn in 2Q15, without the reversal of the regulatory cost provision it would have been loss-making. ■ True Corp's strategy may become less effective. DTAC's recent investment and the upcoming auction are likely to dampen the effectiveness of True Corp's handset subsidy strategy in relative terms. With cellular market share gains likely to become tougher for True Corp from 4Q15 (given DTAC's change in management and distribution system, increase in capex, and increase in handset subsidy expenses) and in FY16 (if the 900MHz and 1800MHz auctions proceed in November 2015, allowing AIS to launch competing 4G services under licence), this may trigger a focus on profitability at True Corp after its current 'window of opportunity' has expired. ■ True Corp looks extremely expensive. We have trimmed our FY16 and FY17 profit forecasts by 13.1% and 12.9% respectively to reflect higher amortisation on 1800MHz spectrum, which we expect True Corp to win at auction for Bt17.4 bn, a 25% premium to the reserve price of Bt13.9 bn. We note that, on the basis of these forecasts, which we believe to be reasonable, True Corp is currently trading at 12.9x FY16 EV/EBITDA and 82.2x FY16 P/E. These multiples look extremely expensive relative to both domestic and regional peers. Our (unchanged) DCF-based target price of Bt4.2 implies 56.7% potential downside.

IDEAS ENGINE Thailand Telecoms Sector

Rating UNDERPERFORM* [V] Price (06 Oct 15, Bt) 9.70 Target price (Bt) 4.20¹ Upside/downside (%) -56.7 Mkt cap (Bt mn) 238,697 (US$6,572 mn) Enterprise value (Bt mn) 290,270 Number of shares (mn) 24,607.93 Free float (%) 49.5 52-week price range 14.8-9.3 ADTO - 6M (US$ mn) 29.0 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Share price performance Price (LHS) Rebased Rel (RHS) 20 15 10 5 0 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15

160 110 60

The price relative chart measures performance against the THAILAND SET IDX which closed at 1369.67 on 06/10/15 On 06/10/15 the spot exchange rate was Bt36.32/US$1

Performance over Absolute (%) Relative (%)

1M 2.1 2.2

3M -15.7 -8.8

12M -8.5 2.8

Financial and valuation metrics Year Revenue (Bt mn) EBITDA (Bt mn) EBIT (Bt mn) Net profit (Bt mn) EPS (CS adj.) (Bt) Change from previous EPS (%) Consensus EPS (Bt) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)

12/14A 99,596.5 17,095.5 56.6 1,425.3 0.08 n.a. n.a. n.m. 121.8 0.00 16.1 3.4 3.8 52.5

12/15E 108,953.0 20,160.3 2,972.3 3,934.3 0.16 -0.4 0.15 100.7 60.7 0.02 14.4 3.2 5.4 69.0

12/16E 117,462.3 22,369.0 3,849.0 2,903.9 0.12 -13.1 0.25 -26.2 82.2 0.18 12.9 3.1 3.8 63.9

12/17E 125,407.7 24,279.8 4,262.7 3,333.2 0.14 -12.9 0.36 14.8 71.6 0.21 11.8 3.0 4.3 58.7

Source: Company data, Thomson Reuters, Credit Suisse estimates.

33

True Corp PCL (TRUE.BK) Price (06-Oct-15,Bt) Market Cap (Btmn) Previous Value Rating Target Price (Bt) EPS FY1E (Bt) EPS FY2E (Bt) EPS FY3E (Bt) Source: Credit Suisse Estimates, IBES Income Statement Sales revenue Cost of goods sold SG & A Other operating exp./(inc.) EBITDA Depreciation & amortisation EBIT Net interest expense/(inc.) Non-operating inc./(exp.) Associates/JV Recurring PBT Exceptionals/extraordinaries Taxes Profit after tax Other after tax income Minority interests Preferred dividends Reported net profit Analyst adjustments Net profit (Credit Suisse) Cash Flow EBIT Net interest Tax paid Working capital Other cash & non-cash items Operating cash flow Capex Free cash flow to the firm Disposals of fixed assets Acquisitions Divestments Associate investments Other investment/(outflows) Investing cash flow Equity raised Dividends paid Net borrowings Other financing cash flow Financing cash flow Total cash flow Adjustments Net change in cash

IDEAS ENGINE Thailand Telecoms Sector

0.16 0.14 0.16 2014FYA 99,597 75,833 6,668 0 17,096 17,039 57 4,943 -2,023 6,220 -689 0 -2,063 1,374 0 -51 0 1,425 0 1,425 2014FYA 57 -4,943 -2,279 -6,653 13,321 -497 -27,460 15,571 0 0 0 0 264 -27,197 64,852 0 -47,859 0 16,993 -10,700 0 -10,700

2015FYE 108,953 82,042 6,751 0 20,160 17,188 2,972 2,667 2,668 1,718 4,691 0 808 3,883 0 -51 0 3,934 0 3,934 2015FYE 2,972 -2,667 -808 6,878 15,188 21,563 -40,504 -4,090 0 0 0 0 0 -40,504 0 -40 12,000 0 11,960 -6,980 0 -6,980

9.7 238696.9 Current Value UNDERPERFORM 4.20 0.16 0.12 0.14 2016FYE 117,462 87,497 7,596 0 22,369 18,520 3,849 2,734 967 1,722 3,804 0 951 2,853 0 -51 0 2,904 0 2,904 2016FYE 3,849 -2,734 -951 2,630 18,520 21,315 -20,386 18,684 0 0 0 0 0 -20,386 0 -426 -3,000 0 -3,426 -2,498 0 -2,498

2017FYE 125,408 92,859 8,269 0 24,280 20,017 4,263 2,619 967 1,726 4,336 0 1,054 3,282 0 -51 0 3,333 0 3,333 2017FYE 4,263 -2,619 -1,054 2,456 20,017 23,063 -21,860 20,607 0 0 0 0 0 -21,860 0 -512 -2,000 0 -2,512 -1,309 0 -1,309

Balance Sheet Cash & cash equivalents Current receivables Inventories Other current assets Current assets Property, plant & equip. Investments Intangibles Other non-current assets Total assets Accounts payable Short-term debt Current provisions Other current liabilities Current liabilities Long-term debt Non-current provisions Other non-current liabilities Total liabilities Shareholders' equity Minority interests Total liabilities & equity Per Share Shares (wtd avg.) (mn) EPS (Credit Suisse) (Bt) DPS (Bt) BVPS (Bt) Operating CFPS (Bt) Growth (%) Sales revenue EBIT Net profit EPS EBITDA EBIT Pre-tax profit Net profit

2014FYA 7,752 0 0 80,314 88,066 75,085 16,746 46,088 8,586 234,571 105,799 11,850 0 0 117,649 33,137 0 12,843 163,629 70,351 591 234,571 2014FYA 17,889 0.08 0.00 2.86 -0.03 2014FYA 8.9 101.7 115.7 112.8 17.2 0.1 -0.7 1.4

2015FYE 2,466 0 0 88,159 90,625 77,702 16,746 60,905 9,260 255,238 115,738 25,902 0 0 141,640 28,137 0 10,675 180,452 74,245 540 255,237 2015FYE 24,608 0.16 0.00 3.02 0.88 2015FYE 9.4 5149.0 176.0 100.7 18.5 2.7 4.3 3.6

2016FYE 1,691 0 0 95,344 97,035 83,057 16,746 57,831 9,868 264,538 124,777 27,902 0 0 152,679 23,137 0 11,508 187,325 76,723 489 264,537 2016FYE 24,608 0.12 0.02 3.12 0.87 2016FYE 7.8 29.5 -26.2 -26.2 19.0 3.3 3.2 2.5

2017FYE 2,108 0 0 102,094 104,201 88,389 16,746 54,758 10,432 274,527 133,218 30,902 0 0 164,120 18,137 0 12,287 194,543 79,544 439 274,526 2017FYE 24,608 0.14 0.02 3.23 0.94 2017FYE 6.8 10.7 14.8 14.8 19.4 3.4 3.5 2.7

34

Valuation P/E P/B Dividend yield (%) P/CF EV/sales EV/EBITDA EV/EBIT Returns ROE ROIC Asset turnover (x) Interest burden (x) Tax burden (x) Financial leverage (x) Gearing Net debt/equity (%) Net debt/EBITDA (x) Interest cover (x) Source: Company data, Credit Suisse estimates

IDEAS ENGINE Thailand Telecoms Sector

2014FYA 121.8 3.4 0.0 -349.4 2.8 16.1 4872.9 2014FYA 3.8 -0.1 0.4 -12.2 -2.0 3.3 2014FYA 52.5 2.18 0.01

2015FYE 60.7 3.2 0.0 11.1 2.7 14.4 97.7 2015FYE 5.4 2.1 0.4 1.6 0.8 3.4 2015FYE 69.0 2.56 1.11

2016FYE 82.2 3.1 0.2 11.2 2.5 12.9 74.8 2016FYE 3.8 2.3 0.4 1.0 0.8 3.4 2016FYE 63.9 2.21 1.41

2017FYE 71.6 3.0 0.2 10.3 2.3 11.8 67.0 2017FYE 4.3 2.5 0.5 1.0 0.8 3.4 2017FYE 58.7 1.93 1.63

35

Companies Mentioned (Price as of 06-Oct-2015) 21 Vianet Group Inc (VNET.OQ, $18.04) Advanced Info Service PCL (ADVANC.BK, Bt225.0, OUTPERFORM, TP Bt290.0) Axiata Group Berhad (AXIA.KL, RM6.0) Bakrie Telecom PT (BTEL.JK, Rp50) Bharti Airtel Ltd (BRTI.BO, Rs349.1) Bharti Infratel Ltd (BHRI.BO, Rs426.75) China Mobile Limited (0941.HK, HK$93.5) China Telecom (0728.HK, HK$3.69) China Unicom Hong Kong Ltd (0762.HK, HK$9.68) Chorus (CNU.NZ, NZ$2.69) ChungHwa Telecom (2412.TW, NT$98.6) DiGi.Com (DSOM.KL, RM5.7) Digital Telecom Infrastructure Fund (DIFu.BK, Bt12.7, OUTPERFORM, TP Bt14.2) Far EasTone Telecom (4904.TW, NT$69.8) Globe Telecom Inc (GLO.PS, P2340.0) HKBN (1310.HK, HK$8.99) HKT Trust (6823.HK, HK$9.48) Hutchison Telecommunications HK Holdings Ltd. (0215.HK, HK$3.18) Idea Cellular Ltd (IDEA.BO, Rs158.2) Intouch Limited (INTUCH.BK, Bt73.25, OUTPERFORM, TP Bt103.3) Jasmine International (JAS.BK, Bt5.6, OUTPERFORM, TP Bt7.0) KDDI (9433.T, ¥2,779) KT Corp (030200.KS, W30,500) LG Uplus (032640.KS, W11,600) M1 Limited (MONE.SI, S$2.88) Maxis Berhad (MXSC.KL, RM6.73) NTT DoCoMo (9437.T, ¥2,116) Nippon Telegraph and Telephone (9432.T, ¥4,353) PCCW (0008.HK, HK$4.15) PT Indosat Tbk (ISAT.JK, Rp4,150) PT Sarana Menara Nusantara (TOWR.JK, Rp3,950) PT Telkom (Telekomunikasi Indo.) (TLKM.JK, Rp2,790) Philippine Long Distance Telephone (TEL.PS, P2304.0) Pt Link Net Tbk (LINK.JK, Rp4,410) Reliance Communication Ltd (RLCM.BO, Rs71.75) SK Telecom (017670.KS, W259,000) SThree (STHR.L, 360.0p) Singapore Telecom (STEL.SI, S$3.76) SmarTone Telecom (0315.HK, HK$14.32) SoftBank Group Corp. (9984.T, ¥6,010) Spark NZ (SPK.NZ, NZ$3.04) StarHub Ltd (STAR.SI, S$3.56) Taiwan Mobile (3045.TW, NT$100.0) Telekom Malaysia (TLMM.KL, RM6.85) Telstra Corporation (TLS.AX, A$5.7) Thaicom (THMNY.PK, $6.37) Total Access Communication PCL (DTAC.BK, Bt55.0, OUTPERFORM, TP Bt96.0) Tower Bersama (TBIG.JK, Rp6,450) True Corp PCL (TRUE.BK, Bt9.7, UNDERPERFORM[V], TP Bt4.2) XL Axiata Tbk (EXCL.JK, Rp2,905)

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Disclosure Appendix Important Global Disclosures I, Colin McCallum, CA, 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 Advanced Info Service PCL (ADVANC.BK) ADVANC.BK Date 16-Oct-12 14-Jan-13 07-May-13 28-May-13 12-Sep-13 05-Nov-13 21-Nov-13 12-Feb-14 13-Mar-14 26-May-14 09-Jun-14 21-Jul-14 04-Aug-14 04-Nov-14 13-Feb-15 13-Aug-15

Closing Price (Bt) 195.00 197.50 270.00 291.00 260.00 247.00 225.00 214.00 217.00 231.00 239.00 214.00 212.00 239.00 248.00 235.00

Target Price (Bt) 240.00 246.00 295.00 305.00 300.00 295.00 280.00 270.00 266.00 259.00 259.00 253.00 253.00 258.00 258.00 255.00

Rating O

N

O U T PERFO RM N EU T RA L

O N

* Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Digital Telecom Infrastructure Fund (DIFu.BK) DIFu.BK Date 04-Feb-14 10-Jun-14 28-Oct-14 20-Jan-15 11-Mar-15 09-Sep-15

Closing Price (Bt) 9.60 10.40 10.50 11.30 12.00 12.80

Target Price (Bt) 11.70 12.70 13.60 14.00 13.60 14.20

Rating N* O

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L O U T PERFO RM

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3-Year Price and Rating History for Intouch Limited (INTUCH.BK) INTUCH.BK Date 17-Oct-12 09-Jan-13 10-Jan-13 18-Feb-13 07-May-13 28-May-13 12-Sep-13 06-Nov-13 22-Nov-13 18-Feb-14 13-Mar-14 26-May-14 13-Aug-14 12-Nov-14 14-Aug-15

Closing Price (Bt) 64.25 67.00 65.25 67.25 84.50 94.25 81.25 82.00 75.50 74.75 75.25 75.25 70.75 73.50 80.50

Target Price (Bt) 85.00 85.00 87.00 105.00 109.00 107.00 105.00 101.00 97.50 96.00 94.00 91.50 93.00 92.00

Rating O R O

O U T PERFO RM REST RICT ED

* Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Jasmine International (JAS.BK) JAS.BK Date 16-Jan-14 13-Feb-14 11-Jun-14 25-Feb-15 08-Mar-15 19-May-15

Closing Price (Bt) 6.67 6.94 7.52 8.06 6.31 4.96

Target Price (Bt) 8.38 8.56 8.83 8.83 7.12 7.00

Rating O*

N O

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM N EU T RA L

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3-Year Price and Rating History for Total Access Communication PCL (DTAC.BK) DTAC.BK Date 16-Oct-12 14-Jan-13 08-May-13 28-May-13 22-Jul-13 12-Sep-13 21-Nov-13 13-Mar-14 26-May-14 09-Jun-14 16-Jun-14 21-Jul-14 22-Oct-14 13-Feb-15 27-Apr-15 19-May-15 13-Aug-15

Closing Price (Bt) 85.00 84.50 128.00 124.00 118.00 111.50 100.00 108.50 120.00 127.50 113.50 110.00 102.50 93.50 87.00 89.25 66.75

Target Price (Bt) 115.00 118.00 134.00 140.00 150.00 146.00 140.00 137.00 133.00 133.00 133.00 131.00 126.00 116.00 113.00 111.00 96.00

Rating O

N O

O U T PERFO RM N EU T RA L

* Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for True Corp PCL (TRUE.BK) TRUE.BK Date 16-Oct-12 15-Feb-13 25-Jul-13 04-Feb-14 03-Mar-14 09-Jun-14 19-May-15 13-Aug-15

Closing Price (Bt) 4.91 5.84 7.83 6.37 6.41 6.59 12.30 10.30

Target Price (Bt) 2.39 2.53 2.48 2.21 4.00 4.30 4.20

Rating U R U

* Asterisk signifies initiation or assumption of coverage. U N D ERPERFO RM REST RICT ED

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. IDEAS ENGINE Thailand Telecoms Sector

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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 ana lyst'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 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 represen ting the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country o r 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 12-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 Outperf orm and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which 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. 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 cov er 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* 56% (32% banking clients) Neutral/Hold* 29% (41% banking clients) Underperform/Sell* 13% (31% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d 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 o r sell a security should be based on investment objectives, current holdings, and other individual factors.

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: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.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. Price Target: (12 months) for Advanced Info Service PCL (ADVANC.BK) Method: Our target price of Bt290.00 for Advanced Info Service is based on discounted cash flow (DCF) analysis, based on an estimated 9.8% weighted average cost of capital and a 3.0% terminal growth rate. At Bt290.00, AIS would trade at an FY15 enterprise value-to-earnings before interest, taxes, depreciation, and amortisation (EV/EBITDA) multiple of 12.8x. Risk:

AIS is a cellular operator within what is effectively a three-player market. The risks that may impede achievement of our target price of Bt290.00 for Advanced Info Service are: (1) either faster-than-expected, or slower-than-expected growth in the cellular market, from the current penetration level; (2) the prospect that competitors take a larger or smaller proportion of the market share of net additions; (3) capex forecasts IDEAS ENGINE Thailand Telecoms Sector

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prove higher or lower than expected; (4) competition leads to higher or lower attrition of revenue per user than expected, for example through a price war; (5) the timing of issuance of 4G licences may not be as expected. Price Target: (12 months) for Digital Telecom Infrastructure Fund (DIFu.BK) Method: Our target price of Bt14.2 per share of DIFu.BK is based on a DCF (discounted cash flow) valuation with a 8.8% weighted average cost of capital (WACC) and 1.5% terminal growth rate. At our target price, DIFu.BK would be trading at an FY15E EV/EBITDA of 17.1x. Risk:

Risk to our Bt14.2 target price for Digital Telecommunication Infrastructure Fund (DIFu): On establishment, initial revenues and cash flows received by DIFu are mostly sourced from True group.

Price Target: (12 months) for Intouch Limited (INTUCH.BK) Method: Our target price of Bt103.3 for Intouch is based on a sum-of-the parts valuation, comprising values for Intouch's listed parts (based on our target prices for AIS and mark-to-market price for Thaicom) and applying a holding company discount. The discounted cash flow (DCF) analysis for Intouch's largest asset, AIS, is based on an estimated 9.8% weighted average cost of capital and a 3.0% terminal growth rate. At Bt103.3, Intuch would trade at an FY15E price to earnings ratio of 21.9x and a dividend yield of 4.6%. Risk:

A key risk to our Intouch target price of Bt103.3 is the market's perception of the appropriate holding company discount, which is liable to change with the market's implied risk premium. A second, and more quantifiable, risk is that the market should value Shin Corp.'s largest asset, AIS, differently. AIS is a cellular operator within what is effectively a three-player market. The risks that may impede achievement of our Bt290.00 target price for the asset are: (1) either faster-than-expected, or slower-than-expected growth in the cellular market, from the current penetration level; (2) the prospect that competitors take a larger or smaller proportion of the market share of net additions; (3) that capex forecasts prove higher or lower than expected; (4) that competition leads to higher or lower attrition of revenue per user than expected, for example through a price war.

Price Target: (12 months) for Jasmine International (JAS.BK) Method: Our target price of Bt7.0 per share for Jasmine is based on a DCF (discounted cash flow) valuation with 9.3% weighted average cost of capital (WACC) and a 3.8% terminal growth rate. At our target price, Jasmine would be trading at an FY16 EV/EBITDA of 10.6x. Risk:

Risks to our target price of Bt7.0 per share for Jasmine include: (1) either faster-than-expected, or slower-than-expected growth in the broadband market, from the current level; (2) the prospect that competitors take a larger or smaller proportion of the market of net additions; (3) that capex forecasts prove higher or lower than expected; (4) that competition leads to higher or lower attraction of revenue per user than expected; and (5) regulatory risks e.g. change in laws that lead to lower revenue and/or higher costs than expected.

Price Target: (12 months) for Total Access Communication PCL (DTAC.BK) Method: Our discounted cash flow (DCF) analysis, based on an estimated 9.8% weighted average cost of capital and a 3.0% terminal growth rate, supports our Bt96 target price for TAC. At our target price of Bt96, TAC would trade at an FY15 enterprise value to earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiple of 10.0x and a price to earnings ratio (P/E) of 37.4x. Risk:

TAC is a cellular operator within what is effectively a three-player market. The risks that may impede achievement of our Bt96 target price are: (1) either faster-than-expected, or slower-than-expected growth in the cellular market, from the current penetration level; (2) the prospect that competitors take a larger or smaller proportion of the market share of net additions; (3) capex forecasts prove higher or lower than expected; (4) competition leads to higher or lower attrition of revenue per user than expected, for example through a price war; (5) the fee structure for 4G

Price Target: (12 months) for True Corp PCL (TRUE.BK) Method: Discounted cash-flow based sum of the parts calculation, using an estimated 9.2% weighted average cost of capital and a 1.2% terminal growth rate for True's Fixed line business (TrueOnline), a 2.0% terminal growth rate for True's Cellular business (TrueMove), and a 2.0% terminal growth rate for True's Pay TV business (TrueVisions). At our target price of Bt4.2, True Corp would trade at an FY15 proportionally consolidated EV/EBITDA of 6.9x. Risk:

Key risks to achievement of our Bt4.2 target price for True Corp include: (1) faster or slower cannibalisation of voice revenue per line by cellular competition; (2) faster or slower rollout of broadband lines than expected; (3) more or less success in lowering capex requirements; (4) faster- or slower-than-expected progress in dealing with piracy of Pay TV content; (5) faster- or slower-than-expected integration of the Pay TV and fixed line businesses; (6) higher- or lower-than-expected Pay TV revenues per customer. Cellular subsidiary True Move is the third player within what is effectively a three-player market. The risks that may impede achievement of our forecasts and valuation for the cellular operation of True Move are: (1) either faster-than-expected, or slower-than-expected growth in the cellular market, from the current penetration IDEAS ENGINE Thailand Telecoms Sector

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level; (2) the prospect that competitors take a larger or smaller proportion of the market share of net additions; (3) capex forecasts prove higher or lower than expected; (4) that competition leads to higher or lower attrition of revenue per user than expected, for example through a price war; (5) the fee structure for 3G, and the timing of issuance of 3G licences, may not be as expected. 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 (ADVANC.BK, DIFu.BK, INTUCH.BK, TLS.AX, VNET.OQ, TBIG.JK, TEL.PS, TLMM.KL, SPK.NZ, RLCM.BO, LINK.JK, ISAT.JK, GLO.PS, 017670.KS, 0215.HK, 030200.KS, 0315.HK, 1310.HK, 9432.T, 9984.T, AXIA.KL, BTEL.JK, CNU.NZ, DSOM.KL, EXCL.JK, STEL.SI) 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 (ADVANC.BK, DIFu.BK, TLS.AX, TEL.PS, RLCM.BO, LINK.JK, GLO.PS, 030200.KS, 1310.HK, 9984.T, DSOM.KL) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (RLCM.BO, LINK.JK, 9984.T, DSOM.KL) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (ADVANC.BK, DIFu.BK, TLS.AX, TEL.PS, RLCM.BO, LINK.JK, GLO.PS, 030200.KS, 1310.HK, 9984.T, DSOM.KL) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ADVANC.BK, DIFu.BK, INTUCH.BK, TLS.AX, VNET.OQ, TBIG.JK, TEL.PS, TLMM.KL, SPK.NZ, RLCM.BO, LINK.JK, ISAT.JK, GLO.PS, 017670.KS, 0215.HK, 030200.KS, 0315.HK, 032640.KS, 0728.HK, 0762.HK, 1310.HK, 3045.TW, 9432.T, 9433.T, 9984.T, AXIA.KL, BHRI.BO, BRTI.BO, BTEL.JK, CNU.NZ, DSOM.KL, EXCL.JK, MONE.SI, STEL.SI) within the next 3 months. As of the date of this report, Credit Suisse makes a market in the following subject companies (9432.T). Credit Suisse may have interest in (TLKM.JK, TBIG.JK, TOWR.JK, LINK.JK, ISAT.JK, BTEL.JK, EXCL.JK) Credit Suisse may have interest in (TLMM.KL, MXSC.KL, AXIA.KL, DSOM.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 (RLCM.BO, IDEA.BO, BHRI.BO, BRTI.BO) As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (LINK.JK, 030200.KS, 0728.HK). Credit Suisse has a material conflict of interest with the subject company (TOWR.JK) . Credit Suisse is financial advisor to iForte Solusi Infotek (private) relating to the acquisition by PT Profesional Telekomunikasi Indonesia, a 99.999% owned subsidiary of PT Sarana Menara Nunsatara Tbk. Credit Suisse has a material conflict of interest with the subject company (GLO.PS) . Kaikhushru Nargolwala, a Member of the Executive Board of Credit Suisse, is a non-executive and independent Director of Singapore Telecommunications Ltd. Credit Suisse has a material conflict of interest with the subject company (9984.T) . . 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.

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).

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Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (DIFu.BK, INTUCH.BK, TLKM.JK, RLCM.BO, LINK.JK, 017670.KS, 9984.T, DSOM.KL) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. 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: Advanced Info Service PCL (Very Good) , Digital Telecom Infrastructure Fund () , Total Access Communication PCL (Very Good) , Intouch Limited (Excellent) , Jasmine International () , True Corp PCL (Very Good) Credit Suisse has entered into a strategic partnership with First NZ Capital ("FNZC"). Pursuant to this agreement, (SPK.NZ, CNU.NZ) is jointly covered by Credit Suisse and First NZ Capital. 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 NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse (Hong Kong) Limited .......................................................................................................................................... Colin McCallum, CA 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.

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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.

IDEAS ENGINE Thailand Telecoms Sector

TL1141

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