。13 February 2019 Asia Telecoms Sector 2 Focus charts and tables Figure 2: Key enablers of 5GSource: Telstra5G investor day, December 2018 Figure 3: Status of 5G in Asia Mid-band spectrumissuanceTiming/ expected timing 28GHzspectrum issued5G soft launch5G commercial launch Spectrum issued AustraliaYes2018No 20192020 ChinaYes2018No 20192020 KoreaYes2018Yes20192020 Auctions/ applications planned JapanYes2019No 20192020 Hong KongYes 2019No 2020/20212021 Plans not yet clear SingaporeNo 2020No 2020/20212021 TaiwanNo 2020No 2020/20212021 IndonesiaNoPost 2020No 2020/20212021 Thailand No Post 2020No 2020/20212021 MalaysiaNo Post 2020No 2020/20212021 IndiaNo Post 2020No Post 2021Post 2021 Source: Company data, Credit Suisse estimates Figure 4: 5G spectrum costs in Asia to date CountryOperatorMid-band spectrum Upfront cost(US$ mn) Price per MHzper pop (US$) High-band'mmWave' spectrum Upfront cost(US$ mn) Price per MHzper pop (US$) Total cost as %of market cap AustraliaTelstra1x60MHz at 3.6GHz2800.19None -- 1.0% AustraliaOptus1x100MHz at 3.5GHz*690.03None -- n.a. AustraliaVodafone/TPG JV1x60MHz at 3.6GHz1910.13None -- n.a. ChinaChina Mobile1x200MHz at 2.6GHz,1x100MHz at 4.9GHz-- None -- 0.0% ChinaUnicom 1x100MHz at 3.5GHz -- None -- 0.0% ChinaChina Telecom1x100MHz at 3.5GHz -- None -- 0.0% KoreaSKT1x100MHz at 3.5GHz1,0970.211x800MHz at 28GHz1870.0056.8% KoreaKT1x100MHz at 3.5GHz8710.171x800MHz at 28GHz1870.00515.8% KoreaLGU+1x80MHz at 3.5GHz7290.181x800MHz at 28GHz1870.00515.1% Source: Company data, Credit Suisse estimates Note: : *2x50MHz spectrum bands were purchased for A$95.3m in October 2000 by AKAL Pty Limited (Unwired), later named Vividwireless. Optus acquired Vividwireless for A$230m in February 2012, which owned the aforementioned 100MHz of spectrum in the 3.5GHz frequency and 98MHz of spectrum in the 4G 2.3GHz frequency 13 February 2019 Asia Telecoms Sector 3 5G: Counting the cost & picking the winners 5G progressing: Some markets now have spectrum... A standalone version of 5G (5G-S) was finalised by the 3GPP in July 2018, in 3GPPRelease 15. The standards are sufficient for vendors to construct end-to-end networkelements, as well as preliminary 5G devices. Operators in Korea and Australia havealready purchased 5G spectrum at auction. In China, on 7 December 2018, the MIITissued allocations of mid-band 5G spectrum to the three China telcos for nationwide‘trials’, and in Japan allocations will be awarded in March 2019. Operators are thereforebeginning to incur real costs for 5G, in the form of spectrum fees and, in 2019, capex. … though use cases are still not overly convincing After purchasing or being allocated 5G spectrum resources, operators want to use it toprovide additional low cost capacity (low cost on aper GBbasis at least), and offloadtraffic from congested 3G and 4G networks. Thuscapacity provisionis likely to be thekey initial driver for 5G rollout on the operator side. However, ‘demand pull’ use cases arelagging. There still seems to be no pressing need for nationwide 5G coverage for ‘massmarket’ consumers, in the way that video, and therefore content, e-commerce and gamingwere facilitated by stable speeds of over 4Mbps through 4G technology. This suggeststhat gradual rollout using a ‘hotspot’ approach would be the least damaging strategy forprofitability, but this strategy is unlikely to be acceptable in Japan, Korea or China. Nevertheless, 5G capex to commence in 2019 Indeed, spectrum costs are already now a fact (at least, in Australia and Korea), andcapital is being deployed on equipment during 2019. We forecast rising capex-to-salesratios in Hong Kong, Korea, Japan and China across FY19-21. Given high 4G penetration,and what currently looks to be poor prospects for 5G monetisation, we expect returns oninvested capital (ROIC) to decline in Japan, China, Australia and Hong Kong across FY19- 24. Factoring in expected spectrum costs in Hong Kong, we lower our DCF-based targetprices for SmarTone, HKT Trust and HTHK by 9.1%, 1.1% and 3.2%, respectively, toHK$11.15, HK$13.05 and HK$3.05, respectively. Stock calls: Overweight 4G ‘market repair’ situations The proximity of real costs (spectrum fees and capex) —in contrast with a lack of clarityover the prospects of monetising 5G—leads us to adopt a relatively cautious stance ontelcos in China, Australia, Korea and Japan. Our top OUTPERFORM calls—namelyDTAC, PT Telkom and SingTel—have exposure to markets that look set to adopt agradual ‘hotspot’ approach to 5G rollout, while they enjoy improving 4G dynamics. ForDTAC, the receipt of 2300MHz spectrum in April 2018, followed by acquisition of 1800MHzspectrum in August 2018 and 850/900MHz spectrum in October 2018, confirms it as a‘going concern’. Absence of Bt4.0 bn per quarter in concession-related depreciationcharges should help DTAC monetise the remaining 4G opportunity, and beat consensusforecasts in FY19. PT Telkom is the only liquid way to invest in 4G ‘market repair’ inIndonesia, and is best placed for 5G rollout in terms of both cellular and fibre networkresources. While SingTel is exposed to competition in the domestic Singapore market, dueto the entry of TPG, this represents a small proportion of SingTel’s sum-of-the parts. Itsassociates in Indonesia and Thailand, benefiting from market repair and low 5G capexrisk, and much more material drivers of SingTel. We are also less negative on SingTel’sexposure to the competitive dynamics in India as we look forward, given that Jio hasalready reached 25.0% market share by revenue. On a two-year view, it is reasonable toexpect Jio to starting behaving more like an incumbent—focused on monetising its existingsubscriber base—and less like a new entrant cutting prices to gain scale. Operators nowincurring real costsfor 5GStill no ‘killer apps’ todrive demandor revenue Spectrum paymentsincurred, capexcommencing in 2019 Top picks: DTAC,PT Telkom and SingTel 13 February 2019 Asia Telecoms Sector 4 Sector valuations Figure 5: Asia telco comparative multiples CloseTargetMkt capP/EEV/EBITDAFCF yieldDiv yield TickerCcypriceRatingprice(US$ bn)19E20E19E20E19E20E19E20E China Tower788 HKHK$1.67O1.8336.744.929.77.36.73.2%4.0%1.1%2.0% Integrated operators PT TelkomTLKM IJRp3,930.00O4,500.0027.617.816.58.37.62.9%6.0%4.4%5.5% China Telecom728 HKHK$4.26N3.9543.912.411.73.23.26.8%4.9%4.0%5.5% China Unicom762 HKHK$9.05N9.9535.317.213.93.43.211.2%8.5%2.9%4.3% Chunghwa2412 TTNT$106.50U90.0026.725.025.110.510.44.7%4.6%4.0%4.0% HTHK215 HKHK$3.11N3.051.936.535.518.417.90.6%0.9%2.1%2.1% KDDI9433 JP2,656O3,30057.911.211.24.74.711.1%11.1%3.4%3.4% KT030200 KSW28,700N32,0006.710.49.52.52.320.2%18.9%3.5%3.5% Softbank9984 JP10,015O11,70098.89.119.97.37.34.5%9.1%0.4%0.4% PCCW8 HKHK$4.76O5.554.740.533.810.09.710.1%10.8%6.9%7.3% HKT Trust6823 HKHK$11.88O13.0511.517.517.110.910.67.7%8.0%6.0%6.4% PLDTTEL PMP1,216U1,1505.011.911.75.95.7-0.9%-0.2%5.1%6.9% SingTelST SPS$3.05O3.8536.615.313.36.45.26.8%7.4%5.7%5.7% TMT MKRM2.85O3.202.616.115.14.74.44.5%5.3%3.1%3.3% TelstraTLS AUA$3.24N3.1027.417.613.06.35.46.8%9.1%5.2%5.2% True CorpTRUE TBBt5.20U3.455.564.759.96.96.78.6%8.5%0.0%0.0% Link NetLINK IJRp4,380.00O8,350.000.98.77.64.53.88.6%10.3%5.7%7.9% HKBN1310 HKHK$12.04O14.751.528.620.910.57.95.8%6.1%5.7%7.1% Dr Peng600804 CHRmb8.34N9.001.836.419.05.54.75.1%1.3%0.8%1.6% Asia average - integrated14.515.75.75.45.7%6.6%2.8%3.1% NJA - integrated18.716.76.45.96.9%6.9%4.4%5.0% CloseTargetMkt capP/EEV/EBITDAFCF yieldDiv yield TickerCcypriceRatingprice(US$ bn)19E20E19E20ETickerCcypriceRating Mobile operators AISADVANC TBBt181.00O230.0017.116.716.18.08.27.7%8.2%4.2%6.2% AXIATAAXIATA MKRM3.83O4.608.522.019.24.74.69.5%10.0%3.6%4.2% BhartiBHARTI INRs312.20N320.0017.5105.828.38.17.5-5.5%-10.6%0.1%0.4% China Mobile941 HKHK$82.25N82.50214.512.612.63.23.15.8%5.1%4.3%4.4% DiGiDIGI MKRM4.55U3.408.723.724.512.612.82.2%2.2%4.2%4.1% XLEXCL IJRp2,130O3,3001.6110.928.53.73.17.9%14.0%0.8%3.2% FarEasTone4904 TTNT$72.00N77.007.623.623.29.29.16.8%6.3%5.2%5.2% GlobeGLO PMP1,980N2,0005.013.712.85.85.81.6%3.5%4.6%5.2% IDEAIDEA ININR31.15U28.501.6n.m.n.m.11.79.6-98.6%-139.4%0.0%0.0% IndosatISAT IJRp3,520O4,0001.4n.m.n.m.4.54.3-8.7%-6.7%0.0%0.0% LG Uplus 032640 KSW15,100N14,8005.913.912.23.73.65.7%5.1%2.6%2.6% MaxisMAXIS MKRM5.70U4.5010.923.123.412.913.13.6%3.6%3.5%3.5% NTT DoCoMo9437 JP2,552N2,70087.412.312.36.06.05.4%5.4%4.3%4.3% SKT017670 KSW261,000O315,00018.79.17.54.84.57.0%5.7%4.2%4.2% SmarTone315 HKHK$9.62O11.151.415.915.36.17.78.0%7.2%4.7%4.9% StarHubSTH SPS$1.91U1.552.416.621.67.37.88.1%6.7%5.2%5.2% TACDTAC TBBt47.75O71.003.616.316.25.14.89.1%9.8%3.1%3.1% Taiwan Mobile3045 TTNT$109.50N110.0012.123.323.29.69.66.1%5.7%5.1%5.1% Asia average - mobile18.514.95.15.04.9%4.2%4.1%4.2% NJA - mobile19.414.94.94.84.8%3.9%4.0%4.2% Asia average - telecoms16.415.35.45.25.3%5.5%3.4%3.6% NJA - telecoms19.115.65.55.35.7%5.1%4.2%4.5% Source: Company data, Credit Suisse estimates 。。。。。。