Price Objective Change

M1

BUY

Equity | Singapore | Telecom Equipment-Wireless/Cellular 15 April 2014

Reasonable 1Q14 reaffirms positive medium-term outlook B. Roshan Raj >>

reaffirms favorable earnings and dividend outlook  1Q14 M1’s 1Q14 results were reasonable on key operational and financial metrics. Importantly, the ongoing tweaks in its mobile data pricing are likely to aid its revenue and earnings over the next few quarters. There could be an added boost from its ability to step-up on fixed telephony/broadband/TV. While our revised estimates lead to a lower PO of S$3.60 (from S$3.70), we reiterate our Buy rating on M1’s rising EPS / DPS trend.

1Q14 earnings ride on service revenue growth, margin uplift The company’s 1Q14 service revenue grew 2% YoY to S$204mn. The offsetting 17% drop in device sales led to a 1% decline in total revenue to S$240mn. Devices costs fell 8% YoY and helped EBITDA grow by 3% to S$82mn. EBITDA margins improved by 50bp to 40%. PAT in 1Q14 grew 4% YoY to S$43mn.

Mobile postpaid ARPU likely to maintain upward trajectory We estimate M1’s postpaid ARPU to rise 2.5% in 2014 vs up 2% YoY in 1Q14. The sustained migration of subs (64% of total in 1Q) to tiered data plans, along with the doubling of excess data charge to c.S$10 is likely to improve the monetization of higher data usage, in our view. Postpaid contributes c.70% of M1’s service revenue.

Content cross carriage potential medium-term positive As M1’s internet TV base goes past 10k around mid-2014, it could gain access to exclusive TV content such as the European Premier League. The better TV content in turn could improve its subs acquisition and retention over the medium term. Unauthorized redistribution of this report is prohibited. This report is intended for [email protected].

+65 6678 0407

Research Analyst Merrill Lynch (Singapore) [email protected]

Estimating 4% revenue and 10% earnings growth in 2014

 Stock Data

Price Price Objective Date Established Investment Opinion Volatility Risk 52-Week Range Mrkt Val / Shares Out (mn) Average Daily Volume BofAML Ticker / Exchange Bloomberg / Reuters ROE (2014E) Net Dbt to Eqty (Dec-2013A) Est. 5-Yr EPS / DPS Growth Free Float

Changes  Key (S$)

Price Obj. 2014E EPS 2015E EPS 2016E EPS 2014E EBITDA (m) 2015E EBITDA (m) 2016E EBITDA (m)

S$3.30 S$3.60 15-Apr-2014 B-1-7 MEDIUM S$2.84-S$3.45 US$2,434 / 920.5 676,900 MBOFF / SES M1 SP / MONE.SI 44.3% 49.5% 8.0% / -0.5% 37.0%

Previous

3.70 0.22 0.25 NA 360.3 393.0 NA

Current

3.60 0.19 0.21 0.24 345.1 366.7 379.7

We expect M1 to deliver another strong, 10% earnings growth in 2014. We estimate its revenue to grow by 4% and EBITDA by 11%, led by a 200bp lift in margin. However, our 2014-16E earnings are 10-14% lower than before due to 4-9% lower revenue/EBITDA, and 4-5% higher D&A estimates. The impact on our DCF-based PO is partly offset by the 3-11% lower capex for FY14-16E.

Estimates (Dec)  (S$)

Net Income (Adjusted - mn) EPS EPS Change (YoY) Dividend / Share Free Cash Flow / Share

2012A

2013A

2014E

2015E

2016E

2012A

2013A

2014E

2015E

2016E

147 0.161 -11.1% 0.146 0.167

160 0.174 8.0% 0.210 0.192

177 0.192 10.3% 0.153 0.151

198 0.214 11.9% 0.172 0.223

220 0.238 11.2% 0.191 0.242

Valuation (Dec) P/E Dividend Yield EV / EBITDA* Free Cash Flow Yield*

20.53x 4.42% 11.37x 5.02%

19.00x 6.36% 10.92x 5.82%

17.23x 4.65% 9.89x 4.56%

15.40x 5.20% 9.30x 6.76%

13.84x 5.79% 8.98x 7.32%

* For full definitions of iQmethod SM measures, see page 6.

>> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. BofA Merrill Lynch 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. Refer to important disclosures on page 7 to 9. Analyst Certification on Page 5. Price Objective Basis/Risk on page 5. Link to Definitions on page 5. 11377370

M1 1 5 Ap ril 201 4

iQprofile M1 SM

Key Income Statement Data (Dec) (S$ Millions)

2012A

2013A

2014E

2015E

2016E

Sales Gross Profit Sell General & Admin Expense Operating Profit Net Interest & Other Income Associates Pretax Income Tax (expense) / Benefit Net Income (Adjusted) Average Fully Diluted Shares Outstanding

1,077 562 (120) 189 (6) NA 183 (37) 147 911

1,008 584 (133) 197 (5) NA 193 (33) 160 922

1,047 621 (135) 217 (5) NA 212 (36) 177 922

1,081 643 (137) 242 (5) NA 238 (40) 198 922

1,106 658 (138) 270 (5) NA 264 (44) 220 922

Net Income Depreciation & Amortization Change in Working Capital Deferred Taxation Charge Other Adjustments, Net Cash Flow from Operations Capital Expenditure (Acquisition) / Disposal of Investments Other Cash Inflow / (Outflow) Cash Flow from Investing Shares Issue / (Repurchase) Cost of Dividends Paid Cash Flow from Financing Free Cash Flow Net Debt Change in Net Debt

147 111 10 NA 8 275 (123) NA 1 (122) 0 (132) (154) 152 261 (31)

160 115 22 NA 5 302 (125) NA 3 (122) 0 (136) (137) 177 196 (65)

177 128 (35) NA 0 269 (130) NA (40) (170) 0 (170) (120) 139 267 71

198 125 (8) NA 0 315 (109) NA 0 (109) 0 (149) (174) 205 210 (56)

220 110 (1) NA 0 329 (107) NA (64) (171) 0 (166) (191) 222 218 8

Property, Plant & Equipment Other Non-Current Assets Trade Receivables Cash & Equivalents Other Current Assets Total Assets Long-Term Debt Other Non-Current Liabilities Short-Term Debt Other Current Liabilities Total Liabilities Total Equity Total Equity & Liabilities

630 99 201 12 34 975 0 103 272 252 627 348 975

649 88 165 55 29 986 250 107 0 235 591 395 986

658 122 172 33 29 1,014 300 107 0 206 612 402 1,014

649 116 177 65 29 1,036 275 107 0 204 585 450 1,036

652 174 181 32 29 1,068 250 107 0 207 564 504 1,068

Return On Capital Employed Return On Equity Operating Margin EBITDA Margin

20.9% 43.7% 17.5% 27.9%

22.2% 43.2% 19.6% 31.0%

23.2% 44.3% 20.8% 32.9%

24.6% 46.4% 22.4% 33.9%

26.5% 46.1% 24.4% 34.3%

Cash Realization Ratio Asset Replacement Ratio Tax Rate (Reported) Net Debt-to-Equity Ratio Interest Cover

1.9x 1.2x 20.1% 74.9% 34.3x

1.9x 1.1x 16.9% 49.5% 43.8x

1.5x 1.1x 16.8% 66.4% 42.6x

1.6x 0.9x 16.8% 46.7% NM

1.5x 1.0x 16.8% 43.2% 49.8x

Key Cash Flow Statement Data

Key Balance Sheet Data

iQmethod SM - Bus Performance*

iQmethod SM - Quality of Earnings*

Key Metrics

* For full definitions of iQmethod SM measures, see page 6.

2

Company Description M1 competes in Singapore's three-player mobile market. Major shareholders include Axiata, which owns 29%, Keppel Telecoms (20%) and SPH Multimedia (14%).

Investment Thesis We have a Buy recommendation on M1 for the following reasons: 1) Attractive recurring dividend yield of around 5%, and 2) Possible earnings upside, as new revenue opportunities, predominantly fixed broadband kickin. With no legacy fixed line revenue at risk, M1 stands to benefit the most from Singapre's fibernetwork platform, NBN.

Stock Data Price to Book Value

7.6x

M1 1 5 Ap ril 201 4

Table 1: M1 – quarterly operational trends Mobile Subscribers (000) Postpaid subs (000) Prepaid subs (000) Total Subs (000) Prepaid Mix (%)

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

1,053 961 2,014 47.7%

1,064 971 2,035 47.7%

1,078 981 2,059 47.6%

1,095 1,014 2,109 48.1%

1,107 938 2,045 45.9%

1,116 985 2,101 46.9%

1,125 1,007 2,132 47.2%

1,130 979 2,109 46.4%

1,138 966 2,104 45.9%

Net Adds (000) Postpaid (000) Prepaid (000) Total (000)

7 -8 -1

11 10 21

14 10 24

17 33 50

12 -76 -64

9 47 56

9 22 31

5 -28 -23

8 -13 -5

Fibre subs (000) Fibre net adds (000)

29 7

37 8

44 7

52 8

60 8

67 7

77 10

85 8

90 5

Fibre ARPU S$ (bundled) Change %

53

52

50

50

48 -8%

47 -8%

46 -8%

44 -13%

42 -13%

Handset rev/ post-paid sub

10,114

3,809

4,236

7,841

3,617

4,133

3,989

14,320

4,525

Market share (%) Postpaid Prepaid Overall share (%)

25.9% 25.8% 25.9%

25.8% 26.1% 25.9%

26.0% 26.2% 26.1%

25.7% 26.7% 26.1%

25.7% 25.0% 25.3%

25.6% 25.7% 25.4%

25.3% 25.8% 25.6%

25.0% 25.2% 25.1%

24.8% 25.1% 24.9%

ARPUs (incl. IDD) - Reported Postpaid ARPU Adj. Postpaid ARPU Prepaid ARPU Data ARPU - % Chg QoQ - % Chg YoY Non voice as % of ARPU Mobile Data % SMS %

63 53 14 24 2.2% 8.3% 36.9% 23.1% 13.8%

63 53 16 24 0.4% 8.7% 37.3% 23.7% 13.6%

62 53 17 23 -2.5% 4.1% 38.0% 24.3% 13.7%

62 53 16 22 -3.0% -3.0% 38.3% 25.1% 13.2%

61 52 16 22 -1.8% -6.8% 39.5% 26.5% 13.0%

62 54 16 21 -3.2% -10.1% 41.2% 28.4% 12.8%

62 53 15 20 -4.2% -11.7% 42.3% 29.7% 12.6%

62 54 14 20 -3.9% -12.5% 43.4% 31.0% 12.4%

62 55 13 20 -0.5% -11.4% 45.1% 32.7% 12.4%

Source: BofA Merrill Lynch Global Research estimates, company report

Table 2: M1 – Quarterly P&L trends (S$ mn)

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Handset sales Total Revenue - % Chg QoQ - % Chg YoY

43 243 -26% -7%

37 245 1% 5%

36 242 -1% -5%

72 279 15% -15%

36 240 -14% -1%

Expenses Cost of Sales Staff Costs A&P Provision for bad & doubtful debt Facilities Other G&A Total Expenses - % Chg QoQ

96 27 6 3 19 6 164 -33%

100 26 7 3 20 5 168 2%

95 27 5 4 20 7 165 -2%

134 29 7 3 20 6 201 22%

89 28 6 3 19 7 159 -21%

Long distance Fixed services Cellular Service Revenue - % Chg QoQ - % Chg YoY (Srvc rev)

29 14 156 200 3% 4%

30 15 162 207 4% 9%

28 16 162 206 -1% 5%

27 16 163 207 1% 7%

24 16 164 204 -1% 2%

3

M1 1 5 Ap ril 201 4

Table 2: M1 – Quarterly P&L trends (S$ mn)

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

EBITDA - % Chg QoQ - % Chg YoY - % Margin - % Margin on Service Revenue

79 -2% 3% 33% 40%

77 -3% 6% 31% 37%

78 1% 11% 32% 38%

79 2% -2% 28% 38%

82 3% 3% 34% 40%

Depreciation & Amortisation % of Sales EBIT

27 11% 52

28 11% 49

29 12% 49

31 11% 49

27 11% 55

Net Interest Expenses Profit Before Tax

(1) 51

(1) 48

(1) 48

(1) 47

(1) 54

Tax Expenses Net profit - Reported - % Chg YoY

(9) 41 2%

(9) 39 11%

(8) 40 22%

(7) 41 7%

(11) 43 4%

- % Chg YoY

Source: BofA Merrill Lynch Global Research estimates, company report

4

-12%

5%

-11%

-18%

-3%

M1 1 5 Ap ril 201 4

Price objective basis & risk M1 (MBOFF)

Our DCF-based S$3.60 price objective is driven by 7.7% WACC based on 3% cost of debt, 30% gearing, 18% tax rate and 10% cost of equity. Our PO implies 10x FY14E EV/EBITDA. Risks to our price objective are: 1) lower-than-expected net-adds and market share on fiber services, 2) aggressive competition leading to lower-than-expected growth in cellular revenue and earnings, and 3) limited uptick in data ARPU, despite high smartphone penetration.

Link to Definitions Media & Telecom

Click here for definitions of commonly used terms.

Analyst Certification I, B. Roshan Raj, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.

APR - Telecommunications Coverage Cluster Investment rating BUY

NEUTRAL

Company

BofA Merrill Lynch ticker Bloomberg symbol

Analyst

Advanced Info Astro Malaysia Holdings Bhd Axiata Group Bharti Bharti Infratel China Telecom China Telecom-H China Unicom China Unicom -A HKT Trust Idea Cellular INTUCH KT KT M1 SK Telecom SK Telecom TBIG Telkom TM Total Access Total Access Communication TRUEGIF XL Axiata

XVDIF XFAOF XLMTF BHTIF XYYAF CHA CHJHF CHUFF CHU HKTTF IDEAF XRAVF KTCNF KT MBOFF SKMTF SKM XTOWF TLKMF MYTEF TACJF TACPF XNUTF XAESF

ADVANC TB ASTRO MK AXIATA MK BHARTI IN BHIN IN CHA US 728 HK 762 HK CHU US 6823 HK IDEA IN INTUCH TB 030200 KS KT US M1 SP 017670 KS SKM US TBIG IJ TLKM IJ T MK DTAC SP DTAC TB TRUEIF TB EXCL IJ

Thitithep Nophaket B. Roshan Raj B. Roshan Raj Reena Verma Bhasin, CFA Reena Verma Bhasin, CFA Sydney Zhang, CFA Sydney Zhang, CFA Sydney Zhang, CFA Sydney Zhang, CFA Sydney Zhang, CFA Reena Verma Bhasin, CFA Thitithep Nophaket Sean Oh Sean Oh B. Roshan Raj Sean Oh Sean Oh B. Roshan Raj B. Roshan Raj B. Roshan Raj Thitithep Nophaket Thitithep Nophaket Reena Verma Bhasin, CFA B. Roshan Raj

Far EasTone Globe Telecom Hutchison Telecom Philippine Long Distance Telephone PLDT -A SingTel

FEOTF GTMEF HTCTF ZHPLF PHI SNGNF

4904 TT GLO PM 215 HK TEL PM PHI US ST SP

Sydney Zhang, CFA Dante R. Tinga, Jr. Sydney Zhang, CFA Dante R. Tinga, Jr. Dante R. Tinga, Jr. B. Roshan Raj

5

M1 1 5 Ap ril 201 4

APR - Telecommunications Coverage Cluster Investment rating UNDERPERFORM

Company

BofA Merrill Lynch ticker Bloomberg symbol

Analyst

China Mobile China Mobile - A Chunghwa Telecom Chunghwa Telecom Co., Ltd. DiGi Indosat LG Uplus Maxis RCVL SK Broadband SmarTone Telecom StarHub Taiwan Mobile Tata Communications Limited TRUE Corp

CHLKF CHL CHWAF CHT DIGBF PTITF LTCLF MAXSF RLCMF HANTF STTFF SRHBF TWMBF XPLGF TCPJF

Sydney Zhang, CFA Sydney Zhang, CFA Sydney Zhang, CFA Sydney Zhang, CFA B. Roshan Raj B. Roshan Raj Sean Oh B. Roshan Raj Reena Verma Bhasin, CFA Sean Oh Sydney Zhang, CFA B. Roshan Raj Sydney Zhang, CFA Reena Verma Bhasin, CFA Thitithep Nophaket

iQmethod SM Measures Definitions Business Performance Numerator Return On Capital Employed Return On Equity Operating Margin Earnings Growth Free Cash Flow

Quality of Earnings

Cash Realization Ratio Asset Replacement Ratio Tax Rate Net Debt-To-Equity Ratio Interest Cover

Valuation Toolkit

Price / Earnings Ratio Price / Book Value Dividend Yield Free Cash Flow Yield Enterprise Value / Sales EV / EBITDA

NOPAT = (EBIT + Interest Income) * (1 - Tax Rate) + Goodwill Amortization Net Income Operating Profit Expected 5-Year CAGR From Latest Actual Cash Flow From Operations – Total Capex

941 HK CHL US 2412 TT CHT US DIGI MK ISAT IJ 032640 KS MAXIS MK RCOM IN 033630 KS 315 HK STH SP 3045 TT TCOM IN TRUE TB

Denominator

Total Assets – Current Liabilities + ST Debt + Accumulated Goodwill Amortization Shareholders’ Equity Sales N/A N/A

Cash Flow From Operations Capex Tax Charge Net Debt = Total Debt, Less Cash & Equivalents EBIT

Net Income Depreciation Pre-Tax Income Total Equity Interest Expense

Current Share Price Current Share Price Annualised Declared Cash Dividend Cash Flow From Operations – Total Capex EV = Current Share Price * Current Shares + Minority Equity + Net Debt + Other LT Liabilities Enterprise Value

Diluted Earnings Per Share (Basis As Specified) Shareholders’ Equity / Current Basic Shares Current Share Price Market Cap. = Current Share Price * Current Basic Shares Sales Basic EBIT + Depreciation + Amortization

iQmethod SMis the set of BofA Merrill Lynch standard measures that serve to maintain global consistency under three broad headings: Business Performance, Quality of Earnings, and validations. The key features of iQmethod are: A consistently structured, detailed, and transparent methodology. Guidelines to maximize the effectiveness of the comparative valuation process, and to identify some common pitfalls. iQdatabase ® is our real-time global research database that is sourced directly from our equity analysts’ earnings models and includes forecasted as well as historical data for income statements, balance sheets, and cash flow statements for companies covered by BofA Merrill Lynch. iQprofile SM, iQmethod SM are service marks of Merrill Lynch & Co., Inc.iQdatabase ®is a registered service mark of Merrill Lynch & Co., Inc.

6

M1 1 5 Ap ril 201 4

Important Disclosures MBOFF Price Chart

3.50 3.00 2.50

27-Jul B Behera PO:S$2.95

21-Jan PO:S$2.90 17-Oct PO:S$2.90

14-Oct PO:S$3.70 16-Apr PO:S$3.15 16-Jul PO:S$3.40

17-Jan PO:S$2.80

2-Oct PO:S$3.60

2.00 1.50 1.00 0.50 0.00 MBOFF

1-Jan-13

1-Jan-12 Review

Restricted

1-Jan-14

No Coverage

B: Buy, N: Neutral, U: Underperform, PO: Price Objective, NA: No longer valid, NR:No Rating The Investment Opinion System is contained at the end of the report under the heading "Fundamental Equity Opinion Key". Dark grey shading indicates the security is restricted with the opinion suspended. Medium grey shading indicates the security is under review with the opinion withdrawn. Light grey shading indicates the security is not covered. Chart is current as of March 31, 2014 or such later date as indicated.

Investment Rating Distribution: Telecommunications Group (as of 31 Mar 2014) Coverage Universe Count Percent Buy Neutral Sell

57 36 50

39.86% 25.17% 34.97%

Investment Rating Distribution: Global Group (as of 31 Mar 2014) Coverage Universe Count Percent

Inv. Banking Relationships* Buy Neutral Sell

Inv. Banking Relationships*

Count 48 25 24

Count

Percent

84.21% 69.44% 48.00%

Percent

Buy 1702 50.59% Buy 1254 73.68% Neutral 844 25.09% Neutral 613 72.63% Sell 818 24.32% Sell 530 64.79% * Companies that were investment banking clients of BofA Merrill Lynch or one of its affiliates within the past 12 months. For purposes of this distribution, a stock rated Underperform is included as a Sell.

FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster* Buy ≥ 10% ≤ 70% Neutral ≥ 0% ≤ 30% Underperform N/A ≥ 20% * Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster.

INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock’s coverage cluster is included in the most recent BofA Merrill Lynch Comment referencing the stock. Price charts for the securities referenced in this research report are available at http://pricecharts.ml.com, or call 1-800-MERRILL to have them mailed. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale: M1. BofA Merrill Lynch Research personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking revenues.

7

M1 1 5 Ap ril 201 4

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