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M August 15, 2021 04:00 PM GMT Foundation ASEAN Telecoms and Media Calling for sustainable financing Telcos in developed markets have issued lower-cost green bonds to finance network rollouts. We see more ASEAN telcos exploring sustainable financing in future as they are key to providing digital inclusion in developing countries. Philippine and Indonesian telcos will be key beneficiaries. Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. M Foundation Contributors Morgan Stanley Asia (Singapore) Pte.+ Da Wei Lee Equity Analyst +65 6834-6510 Dawei.Lee@morganstanley.com Morgan Stanley Asia (Singapore) Pte.+ Mark Goodridge, CFA Equity Analyst +65 6834-6251 Mark.Goodridge@morganstanley.com Morgan Stanley Asia Limited+ Tim Chan, CFA Equity Strategist +852 3963-4568 Tim.Chan@morganstanley.com Morgan Stanley & Co. LLC Allison Binns, Ph.D. Equity Strategist +1-212-761-0530 Allison.Binns@morganstanley.com 2 M Foundation Calling for sustainable financing ASEAN telcos to increasingly explore sustainable financing. Telco operators have shown increasing interest in sustainability-themed finance, the financing of investments that integrate ESG elements, with global issuance of green bonds rising 56% p.a. over 2007-2020. Within the telco sector, Telefonica from Spain was the first to issue a green bond in January 2019, followed by US-based Verizon in February 2019. Both issuances were oversubscribed, and triggered other EU/US telcos to follow suit. In ASEAN, Singtel and Axiata have kick-started the sustainability-themed finance trend, and we expect the rest of the ASEAN telcos to follow suit. Industry View Sustainable financing - 5 key benefits: ASEAN Telecoms ASEAN telcos are engaging in the ESG and Media | Asia debate and publishing sustainability reports Pacific to disclose their ESG efforts. We believe the In-Line next stage will be to tie their sustainability strategies to their financial performance. Sustainable financing would: 1) help finance environmentally friendly projects such as migration of copper network to fiber; 2) pro- vide internet access to unserved areas and bridge the digital gap; 3) potentially lower the cost of capital due to rising demand from ESG investors; 4) enhance the reputation of ESG and potentially increase valuations; and 5) broaden the investor base. Biggest opportunity lies with Philippine and Indonesian telcos, we believe. Faced with rising capex requirements, low broadband penetration, and higher cost of internet access relative to their ASEAN peers, we see countries such as the Philippines and Indonesia as the biggest opportunity for ESG investors looking to make a positive difference. Similarly, the telcos in the Philippines and Indonesia stand to benefit the most from tapping sustainable financing given their sizable capex requirements. Key stock picks: We believe PLDT and CNVRG from the Philippines and TLKM from Indonesia hold the most promise from a rise in sustainability investing. Based on our sensitivity analysis, DCF valuations for PLDT, CNVRG and TLKM could increase by 1-6% assuming a 10 to 100bps lower cost of capital due to sustainable financing. We nudge up our bull case valuations for PLDT/CNVRG/TLKM by 2% to factor in the lower cost of debt from sustainable financing. In addition, our ESG analysts note that 'green stocks' re-rated by an average of 24x P/E multiple points through 2020 compared to non-green peers. This suggests to us a potential further re-rating for ASEAN telcos as they start to incorporate sustainability strategies into their financial performance and this gets recognized by investors. Exhibit 1: We raise the bull case valuations for TLKM, CNVRG and PLDT by ~2% to factor in a lower cost of debt from sustainable financing Bull case Old New % change TLKM 4,500 4,600 2% CNVRG 41 42 2% PLDT 2,125 2,175 2% Source: Morgan Stanley Research Morgan Stanley Research 3 M Contents 5 Debate: Should ASEAN telcos consider sustainable financing? 1. Rising focus of sustainable financing 2. Benefits of sustainable financing 3. Key stock picks 15 Risk Reward – PLDT (TEL.PS) 18 Risk Reward – Converge ICT Solutions Inc. (CNVRG.PS) 21 Risk Reward – Telekomunikasi (TLKM.JK) Foundation 4 M Foundation Debate: Should ASEAN telcos consider sustainable financing? Market view – Unsure: There has been rising interest in financing green/sustainable and social projects. However, the majority of telcos within ASEAN have not explored sustainability-linked financing, and the telecommunication sector is not the first that comes to investors' minds when seeking sustainable investments Exhibit 3 Our view – Yes: ASEAN telcos are key to providing digital inclusion in developing countries, and could benefit from rolling out more energy efficient networks. Linking financing to sustainability performance would integrate their sustainability strategies into their core business strategies and hold the companies accountable for their ESG metrics. Where we could be wrong: Investors may be concerned that the use of proceeds, while providing environmental benefits doesn't push through to valuation, or just creates financial benefits for companies that are opportunistically seeking a sustainable label. Why are we considering this now? ESG/sustainability debates are increasingly taking center stage. Based on our observations of EU/US telcos, we believe that sustainable financing could become an area of could become an area of focus for ASEAN telcos, outside of the usual ESG metrics being discussed. Conclusion up front: We see an opportunity for ASEAN telcos to start engaging with investors and regulators on sustainable financing. ASEAN telcos can look to EU/US counterparts for guidance with regard to integrating sustainability strategies into their core business strategy. Sustainable financing can provide several benefits, including lowering the cost of capital, broadening the investor base and improving their ESG reputation among investors. We highlight three takeaways: 1. Rising focus of sustainable financing: The EU/US telcos have been at the forefront in sustainable financing within the telco sector, and in ASEAN, Singtel and Axiata have kick-started the trend. We expect the rest of the ASEAN telcos to follow suit. 2. Benefits of sustainable financing: (1) helps finance environmentally friendly projects, (2) bridge the digital gap, (3) lower cost of capital, (4) enhance reputation for ESG responsibility and, (5) broadening investor base. 3. Key stock picks: We see the biggest opportunity for ESG investors to make a difference in developing countries such as Philippines and Indonesia. Telcos in these countries are faced with rising capex requirements, low broadband penetration, and higher internet access cost. In Philippines, we are Overweight PLDT and Converge. In Indonesia, we are Overweight TLKM. Rising focus of 'sustainable' financing for ASEAN telcos What is 'sustainable' finance? Sustainable finance is the financing of investment in all financial sectors and asset classes that integrate environmental, social and governance (ESG) criteria into investment decisions and embed sustainability into risk management for encouraging the development of a more sustainable economy. The predominant financial instruments in green finance are debt and equity. To meet the growing demand, new financial instruments, such as green bonds and sustainability bonds, have been established, along with new financial institutions, such as green banks and green funds. Morgan Stanley Research 5 M Foundation Rising levels of green bonds and sustainability bonds issuance One example of sustainable finance is green bonds, which are used to finance projects with environmental benefits. Green bond issuance continues to rise, driven by heavy demand (as the number of funds with SRI mandates increases). We note that the green bond market has risen sharply - from US$0.8bn (in 2007) to US$$81bn (2016), and >US$200bn in 2020 as shown in Exhibit 2 . This represent a CAGR of +56% pa over 2007-20. However, the telco sector is not the first sector that comes to investors' minds when seeking sustainable investments. For example, as shown in Exhibit 3 , telcos account for just ~2% of the sustainabilitylinked bond (SLB) market. Nevertheless, going forward, we believe that telcos, in particular those in developing countries, will start to see rising interest in sustainable financing. We are also seeing a rise in the number of sustainability bonds in Asia. In 2021 YTD, US$12.8bn of social and sustainability bonds have been issued, already surpassing the total issuance in 2020. Sustainability bond issuance accounts for 36% of ESG bonds in 2021 YTD, the highest level since 2013. Exhibit 2: Green bonds issuances have been rising sharply glob- ally Green bonds, new issuances - Global (US$ bn) 300 269.5 250 200 150 100 81 50 0.8 0 2007 Source: Climate Bond Initiative 2016 2020 Telecom Svcs. Tech Real Estate Financials Healthcare Energy SSA Cons. Disc. Cons. Staples Industrials Materials Utilities Exhibit 3: Utilities, materials and industrials sectors are leading SLB issuances, while telcos account for ~2% of the SLB market SLB: sector of issuer 25% 20% 15% 10% 5% 0% Source: Morgan Stanley Research, Bloomberg Exhibit 4: Asia USD social and sustainability bond issuance in 2021 YTD already surpassed previous year’s supply ($bn) Asia Corporate & Financial Sustainability and Social Bond Issuance 14 12.805 12 10 8 7.68 6 5.9 4 2.4 2 0.5 1 1 - 2016 2017 2018 2019 2020 20YTD 21YTD Social Source: Morgan Stanley Research, Bloomberg Sustainability Exhibit 5: Sustainability bond issuance makes up more than 30% of Asia ESG bond issuance for the first time since 2013 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Asia ESG Bond Issuance by Type 100% 100% 100% 93% 88% 84% 71% 68% 77% 63% 0% 0% 2013 2014 Green 0% 2015 70%% 12% 2016 2017 Social 3% 13% 2018 1% 29% 17% 15% 11% 11% 2% 36% 2019 2020 20YTD 21YTD Sustainability Source: Morgan Stanley Research, Bloomberg 6 M Foundation EU/US telcos are leading the charge on green bonds issuance Telcos have long been among the most active participants in the capital markets, yet until recently they had not participated in sustainability-themed finance, such as green bonds. That changed when Telefonica (Spanish telco) issued the sector’s first green bond in January 2019, building off of a Sustainable Development Goal (SDG) bond framework published in late 2018. Verizon from the United States followed suit with its own green bond issuance in February 2019. Telefonica's final book for its green bond stood at US$5.4 bn, resulting in oversubscription by almost five times. Verizon's green bond was eight times oversubscribed. With the success of these deals, we expect to see more telcos issuing similar bonds. In ASEAN, Axiata and Singtel started the trend • On 11 May 2020, Axiata completed the first-of-its-kind Syndicated Multi-Currency Shariah-compliant sustainabilitylinked financing facility valued at US$800 mn. Apart from providing a diversified funding option, the innovative financing mechanism offered through a Shariah-compliant sustainability financing structure serves to enhance Axiata’s liquidity position, and allows Axiata to reap the benefits of optimal financing costs. Axiata will benefit from lower financing costs should it continue to exceed the stringent criteria the company has set for itself under the said framework. • On 22 April 2021, Singtel launched its first sustainabilitylinked revolving credit facility worth S$750 mn. The launch marked Singtel’s foray into sustainable financing under its new programme, Olives, which is linked to sustainability targets. Provided by local banks DBS, OCBC and UOB, the threeyear loan features interest rate discounts pegged to predetermined ESG targets in areas such as climate risk, carbon management and workplace health and safety metrics. The loan is guaranteed by Singtel and will be used for general corporate purposes. ° Also, from 2020, long-term incentive plans for all Singtel top management carry ESG-related targets. We believe that these two telco groups in ASEAN have kick-started the trend of sustainability financing and we expect other telcos around the region to follow suit. As the sector rolls out new technologies such as fiber and 5G that can potentially decrease emissions and improve energy efficiency, the telco sector needs funding; sustainable financing options such as green bonds or sustainability linked loans can help raise funds for such technology, helping telcos directly and indirectly reach sustainability goals. Exhibit 6: Green bonds issuance by EU/US telcos Date Company Region Currency Principal (mn) Jan-19 Telefonica Europe EUR 1,000 Feb-19 Verizon May-19 Vodafone North America USD Europe EUR Feb-20 Telia Europe EUR May-20 Swisscom Europe EUR Sep-20 Verizon North America Jan-21 Telecom Italia Europe Source: Company Data, Morgan Stanley Research USD EUR 1,000 750 500 500 1,000 1,000 Use of proceeds Improve energy efficiency by migrating network to fiber from copper, renewable energy and digital solutions for the environment For renewable energy, energy efficiency, green buildings, sustainable water management and biodiversity and conservation Energy efficiency, on-site renewable energy, and green buildings To finance more energy efficient networks and green digital solutions for customers For increased energy efficiency, renewable energies, climate For long-term renewable energy purchase agreements that will bring new renewable energy to the grids that power its networks To transform the copper network into fibre Exhibit 7: Axiata and Singtel have taken the first steps into sustainability-linked financing Date Company May-20 Axiata Apr-21 Singtel Region Malaysia Singapore Currency Amount (mn) USD 800 SGD 750 Type Multi-currency Shariah-compliant sustainability-linked financing facilities Sustainability-linked revolving credit facility Source: Company Data, Morgan Stanley Research Morgan Stanley Research 7 M Foundation Climate Bond Initiative provides best practice for labelling 'green' investments The Climate Bonds Initiative (CBI) is an international investor-focused not-for-profit organization, founded in 2010 to promote largescale investments that will deliver a low-carbon and climate-resilient global economy. A key component of the initiative is the Climate Bonds Standard & Certification Scheme. The certification scheme allows investors, governments and other stakeholders to identify and prioritise ‘low-carbon and climate resilient’ investments. We believe ASEAN telcos can rely on frameworks provided by the CBI to help with sustainability strategies, use of proceeds, project selection and evaluation process, management of proceeds, and reporting and external review, as standards continue to develop. Certification by the CBI (Telefonica's green bond issue in 2019 was recognized by the CBI as the first in the global telecommunications sector) should help both investors and issuers: • For investors - Certification is a screening tool and reduces the burden on investors to make subjective judgements during their due diligence on the green attributes of green-labelled investments. • For issuers - This voluntary initiative allows them to clearly demonstrate to the market that their bond or loan meets science-based standards for climate integrity, and best practice standards for management of proceeds and transparency. 8 M What are the benefits of sustainable financing? 1) Helps finance environmentally friendly projects Telcos rely on a constant supply of energy for network operations and data centers. According to The Climate Group, the telecom and communications industry is expected to account for an estimated 2% of total global greenhouse gas emissions by 2030, which is comparable to the aviation industry. Telco emissions more than doubled between 2002 and 2020 mainly because of the explosion of mobile and fixed broadband data demand, as shown in Exhibit 8 . Exhibit 8: Global telcos emissions more than doubled between 2002 and 2020 Global Telco Emissions (MMtCO2e) 400 350 300 250 200 151 150 100 50 0 2002 349 400 350 300 250 200 150 100 50 0 2020 Mobile Fixed narrowband Source: Climate Group Telecom devices Fixed broadband The EU/US telcos that have issued green bonds have used the proceeds for projects that directly impact the environment: • Transformation of the copper network to fibre. According to Telefónica, fiber is 85% more energy efficient than copper and experiences fewer breakdowns. In 2021, Telefónica claimed that it's first green bond has helped save 346 GWh of energy, and 93,297 tonnes of CO2 in three years, equivalent to the carbon captured by more than 1,543,000 trees. In addition, the deployment of fibre allowed Telefónica to close a copper central office daily, recycling all the material as part of its commitment to the circular economy. • Renewable energy purchase agreement. Verizon has entered into several renewable energy purchase agreements with solar and wind facilities, as part of its commitment to source renewable energy equivalent to 50% of its total annual electricity consumption by 2025. Once the related facilities are online, they will add new renewable energy generation capacity to power grids in the areas where usage is high and avoid greenhouse gas emissions associated with fossil fuel energy generation. Foundation • Green buildings. In 2018, Verizon began a multi-year project to convert existing lighting in its facilities to energy efficient Light Emitting Diodes (LEDs). To maximize the impact of the lighting upgrades and further increase energy efficiency, the project also replaced existing lighting controls with new motion sensors, timers and dimmable controls. Verizon entered into a long-term lease for more than 446,000 square feet in an office tower designed and built to achieve a Platinum level of certification under the US Green Building Council’s LEED v3 rating system. However, there is also the indirect impact benefit, which we think is hard to quantify and measure, but important. With improved connectivity and newer technology such as 5G, telcos support the development of the internet of things (IoT) and artificial intelligence (AI) applications, which can indirectly reduce green house gas (GHG) emissions for the broader economy through more efficient business management and by influencing consumer behavior. 2) Provides internet access to unserved areas and bridges the digital gap • Accessibility. Social projects will mainly focus on bringing connectivity to unserved areas or improving internet access in rural areas. The aim is to help bridge the digital gap, so that all people can benefit from the advantages of connectivity and digitalization. For example, Telefónica plans to cover 100% of the rural population in Spain with fibre optic networks by 2025 and they have created a partnership in Germany to drive the deployment. • Affordability. Aside from providing access, it is also important to ensure that the services are affordable in rural areas that are typically populated by the lower-income groups. While the cost of mobile and broadband services has declined over the years, and will continue to do so as technology improves, telcos can also potentially explore new business models that allow them to offer even more affordable rates. Examples include pay-per-use mobile services, exclusive broadband bundles (charge per day) for low-income customers, and service bundles for small businesses and entrepreneurs. Morgan Stanley Research 9 M 3) Lowers the cost of capital • Sustainable/green bonds are cheaper than other forms of financing. Telefonica's inaugural green bond issuance was meaningful in scale: principal of €1bn represents ca 3% of the group's net debt pile (ca €40bn); and the coupon of 1.07% is markedly (-⅔) below the group's average cost of debt of ca 3.3%-3.4% and therefore enabled the group to lower its cost of debt. Similarly, we observed that the coupon rate for the green bonds are typically much lower than the issuer's average cost of debt as shown in Exhibit 9 , thus providing another option for telcos to refinance their balance sheets at lower costs. • 'Greenium' exists in some cases, especially in the primary market'. According to an MSCI study, green bonds have the capability to trade at a premium versus regular vanilla bonds; corporate green bonds have tended to offer yields 0 to 2 basis points lower than comparable non-green corporate bonds in Foundation general. Theoretically, green bonds are just as likely to be repaid as vanilla bonds, or in other words there is no greater or lesser default risk attached to them, and they should trade the same. Therefore, we believe that it is higher demand for green bonds that likely drove their yields lower. According to the Climate Bonds Initiative, in 1H20 11 out of 21 bonds (52%) priced on or inside their yield curve, in 2H20 that number rose to 26 out of 33 bonds (79%) suggesting robust demand for the green label demonstrated during book building is following through into pricing. For sustainability-linked bonds (SLBs), our strategist Felix Stratmann sees ~5bps greenium emerging among highly liquid investment grade names in primary markets, but the trend is less clear among high yield issuers. Felix has not identified a consistent SLB premium in secondary markets. See: Sustainability and Credit Strategy: Sustainability-Linked Bonds: Materiality Is the Missing Link (26 Jul 2021) Exhibit 9: Green bonds coupon rates' are lower than the telcos' average interest expense rate Date Company Region Currency Principal (mn) Tenure (years) Rate (%) Avg. interest rate (%) Jan-19 Telefonica Europe EUR 1,000 5 1.07% 2.2% Feb-19 Verizon May-19 Vodafone Feb-20 Telia May-20 Swisscom North America USD Europe EUR Europe EUR Europe EUR 1,000 750 500 500 10 3.88% 7 0.90% 61 1.38% 9 0.38% 4.2% 1.7% 6.2% 0.8% Sep-20 Verizon North America USD 1,000 Source: Company Data, Morgan Stanley Research 10 1.50% 3.3% Exhibit 10: Verizon 2030 priced inside its yield curve, exhibiting a 'greenium' Source: Bloomberg, Climate Bond Initiative 10 M Foundation 4) Enhancing the reputation of environmental responsibility may translate into higher valuations Sustainable financing is an effective way for an organization to demonstrate its sustainability credentials by showing its commitment to ESG and improving its own ESG performance. The process of issuing and managing the proceeds of a green bond can improve awareness within the organization of the issuer’s sustainability goals and develop closer relationships between finance and sustainability professionals. We believe that this intangible benefit of enhancing reputation for environmental responsibility may begin to translate into higher valuations. During 2020, green enabler stocks re-rated significantly. Analysis by MS's sustainability team of 35 green stocks shows an average expansion of one year forward PE multiples of 24 points. This compared to 2 points of multiple expansion across sector peers over the same time period. Our sustainability analysts believe that this is being driven by three factors: (1) broader market conditions, (2) rise of sustainable investing - see Exhibit 11 and Exhibit 12 , (3) policy and corporate support for global decarbonisation. See: Sustainability: How Should We Value "Green" Stocks? (16 Feb 2021). This suggests to us a potential further re-rating for ASEAN telcos as they start to incorporate sustainability strategies into their financial performance and this gets recognized by investors. 5) Broadens the investor base According to a survey by Climate Bonds Initiative, 98% of green bond issuers confirmed that their green bonds attracted new investors. The most frequently stated benefits of green bonds were: i) a more diverse pool of investors, offering greater flexibility to reopen or issue new bonds, ii) a stickier investor base, and iii) greater visibility. The green bond issuance also facilitated more engagement with investors compared to a standard issuance. Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Exhibit 11: Flows into ESG-labelled funds have been rising in recent years ESG Fund Flows by Region ($bn) RoW United States Asia Pacific Europe 80 60 40 20 0 -20 -40 Source: Morningstar Exhibit 13: Almost all investors said that their green bond attracted new investors 100 Green bond attracted new5i0nvestors 2% 0 2002 Mobile Fixed narrowband 300 250 98% 200 Yes No 150 Source: Climate Bonds Initiative Morgan Stanley Research Green bonds, new Exhibit 12: Net annualised flows to ESG equity funds reached >30% of starting AUM in April 2021 LTM inflows as % of starting AUM 40% 35% 30% 25% 20% 15% 10% 5% 0% ESG Broader Market Source: Morningstar Exhibit 14: Most respondents said demand for their green bond was higher than their vanilla bonds Investor demand 300 25% 250 Green bonds, new 98% 200 0% Yes No 150 100 75% 50 Higher Lower Same0 Source: Climate Bonds Initiative 0.8 2007 11 M Opportunity for ASEAN telcos to increase the level of sustainable financing We see an opportunity for ASEAN telcos to engage more directly with sustainable financing. For example, investment in fiber networks remains far from complete in ASEAN. Since fiber networks require heavy investment outlays, telcos in these developing countries have been slow to roll out aggressive investment programs. As discussed above, the deployment and transformation of copper net- Foundation work to fiber will result in: (1) more energy efficiency, and (2) a bridging of the digital gap in areas poorly served by internet access. These telcos now face considerable pressure to catch up on these investments. As shown in Exhibit 15 , telcos in countries such as the Philippines and Indonesia are faced with rising capex requirements as they continue to expand their mobile network coverage and roll out fiber broadband, and these initiatives could potentially be supported by sustainable financing. Exhibit 15: Philippines and Indonesia have the largest capex requirements amongst ASEAN telcos Capex (USD mn) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Philippines Indonesia Thailand Malaysia Singapore 2015 2021e Source: Company Data, Morgan Stanley Research 100% 90% Exhibit 16: Philippines and Indonesia have among the lowest broadband and fiber penetration rates in ASEAN 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Philippines Indonesia Malaysia Thailand Singapore Fixed broadband FTTx Penetration Source: Media Partners Asia, Morgan Stanley Research Exhibit 17: Fixed broadband ARPU as % of household income is the highest in the Philippines and Indonesia… 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Philippines Indonesia Thailand Malaysia Singapore FBB ARPU as % of 2020 Household income Source: Company Data, Euromonitor, Morgan Stanley Research Exhibit 18: … same on a price-per-mbps basis Price per mbps 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 Indonesia Philippines Malaysia Thailand Source: Company Data, Morgan Stanley Research Singapore 12 M Foundation Key stock picks are based in the Philippines and Indonesia We believe the biggest opportunity for ESG investors to make a positive difference in developing countries is in the Philippines and Indonesia. Similarly, we believe that telcos in the Philippines and Indonesia stand to benefit the most from tapping lower-cost sustainable financing given their sizeable capex commitments relative to peers. Our key stock picks in the Philippines and Indonesia are: • PLDT (Overweight, price target PP1,600) - PLDT is the largest incumbent mobile operator with exposure to structurally growing fixed broadband opportunities in the Philippines. Whilst PLDT has seen its market share fall from 60% in 2017 to 53% in 2020, it is well positioned to slow these share losses and participate in the structural growth as its transitions its legacy network to fibre. PLDT has announced that it will replace 40% of its network which is still copper with fiber in the next 18 months, which should improve both internet connectivity and energy efficiency. • Converge (Overweight, price target PP23.50) - Converge is a high-growth, pure fixed broadband asset, gaining market share thanks to its technology advantage. Converge has been executing well and is on track to achieve its target of 55% household coverage by 2025, helping the Philippines increase its broadband connectivity. • TLKM (Overweight, price target Rp3,700) - We think Indonesia's broadband penetration rate can rise from ~12% in 2018 to 29% in 2025. This would benefit TLKM, which has ~85% market share today. We think Telkom's broadband business could be up to 28% of TLKM's value by 2025, up from ~8% today. In terms of the direct impact on valuations from a reduction in the cost of financing, stocks with a higher debt weighting in their capital structure stand to benefit the most. However, we believe stocks such as PLDT and TLKM, which have the highest capex requirements among the ASEAN telcos, and Converge, which is aggressively rolling out a more energy efficient fibre network, should be the key focus from an ESG perspective. We believe they have greater potential to raise sustainability-linked financing, which could potentially be lower cost. As such, we adjust our bull case scenarios for these three stocks to factor in a lower cost of capital from sustainability-linked financing, and raise our bull case scenario value by ~2%. Exhibit 19: TLKM and PLDT have the highest capex targets for 2021 amongst ASEAN telcos 2021e capex (US$ mn) 3,000 2,500 2,000 1,500 1,000 500 0 NLT DSOM STH LINK Celcom TOWR MXSC TLMM CNVRG TBIG EXCL DTAC ISAT STEL AIS TRUE GLOBE PLDT TLKM Source: Company Data, Morgan Stanley Research (e) estimates Exhibit 20: Impact of lower cost of debt on DCF valuations for ASEAN telcos Cost of debt -10bps -50bps -100bps Thailand AIS 0.4% 2.2% 4.5% TRUE 0.9% 4.5% 9.1% DTAC 0.3% 1.5% 3.1% Indonesia TLKM 0.4% 1.8% 3.7% ISAT 0.3% 1.5% 2.9% TOWR 1.1% 5.7% 11.8% TBIG 1.2% 6.2% 12.9% Malaysia MXSC 0.7% 3.4% 7.0% TLMM 0.5% 2.4% 4.9% Singapore STEL 1.0% 4.8% 9.9% STH 0.6% 3.0% 6.1% NLT 1.2% 6.5% 13.8% Philippines CNVRG 0.3% 1.6% 3.3% PLDT 0.6% 3.0% 6.1% GLOBE 0.7% 3.5% 7.2% Source: Company Data, Morgan Stanley Research Exhibit 21: We raise the bull case valuations for TLKM, CNVRG and PLDT by ~2% to factor in a lower cost of debt from sustain- able financing Bull case Old New % change TLKM 4,500 4,600 2% CNVRG 41 42 2% PLDT 2,125 2,175 2% Source: Morgan Stanley Research Morgan Stanley Research 13 M Foundation Exhibit 22: Verizon's valuations have re-rated from 6.9x EV/ EBITDA to 7.7x since their first green bond issuance in Feb 2019 due to better than expected earnings EV/EBITDA Multiple 8.5 8 Verizon Long 7.5 Term Average EV/EBITDA = 6.0x 7 6.5 +1 sd 6 5.5 5 -1 sd 4.5 4 Jun-02 Feb-04 Oct-05 Jun-07 Feb-09 Oct-10 Jun-12 Feb-14 Oct-15 Jun-17 Feb-19 Oct-20 Source: Refinitiv Exhibit 24: Telefonica has been de-rating likely due to tough com- petition in Spain and dividend cut EV/EBITDA Multiple 10 Telefonica 9 Long Term Average 6.2x 8 EV/EBITDA = 7 +1 sd 6 5 -1 sd 4 3 Jan-01 Sep-02 May-04 Jan-06 Sep-07 May-09 Jan-11 Sep-12 May-14 Jan-16 Sep-17 May-19 Source: Refinitiv Exhibit 23: Vodafone's valuations have re-rated from ~5x to ~6x since its May 2019 green bond issuance, due to improving growth and potential portfolio optimization; although stock de-rated recently due to higher-than-expected capex outlook EV/EBITDA Multiple 18 16 Vodafone Long Term Average 14 EV/EBITDA = 7.6x 12 10 +1 sd 8 6 4 Mar-01 Feb-03 Jan-05 Dec-06 Nov-08 Oct-10 Sep-12 Aug-14 -1 sd Jul-16 Jun-18 May-20 Source: Refinitiv 14 M Foundation Risk Reward – PLDT (TEL.PS) Mobile network leadership; leveraged to structural broadband growth PRICE TARGET PP1,600.00 Average of P/E, EV/EBITDA SOTP, and DCF. We apply a target 2022 P/E multiple of ~13.2x, a 6% discount to PLDT's long-term average of 14.0x due to the threat of a new entrant. We apply a 6x EV/EBITDA multiple to the wireless business, a 20% discount to the ASEAN average due to the possible entry of a third player and 7x to the fixed line due to the significant broadband opportunity. Our DCF is driven by WACC of 9.9% and terminal growth of 2.5%. PP1,572.91 Consensus Price Target Distribution PP1,050.00 PP1,820.00 Source: Thomson Reuters, Morgan Stanley Research MS PT Mean Morgan Stanley Estimates RISK REWARD CHART PHP 2000 1500 1000 500 PP2,175.00(++7733.8.866%%) ) PP1,251.00 PP1,600.00(++2277.9.900%%) ) PP1,175.00(--66..0088%%) ) OVERWEIGHT THESIS ▪ Mobile network leadership has enabled PLDT to increase its mobile market share, better positioning it vs. Globe to defend its market share from a third player. ▪ Well positioned to capture the long-term structural fixed broadband opportunity with its ~53% 2020 market share. ▪ Dividend yield of ~6.5% is sustainable and, in our view, will provide support for the stock price, considering it is trading at a 2022e EV/EBITDA of ~5x, a ~15% discount vs. its long-term average. Consensus Rating Distribution MS Rating 75% Overweight 17% Equal-weight 8% Underweight Source: Thomson Reuters, Morgan Stanley Research Risk Reward Themes Market Share: Negative View descriptions of Risk Rewards Themes here 0 AUG '20 FEB '21 Key: Historical Stock Performance Current Stock Price Source: Thomson Reuters, Morgan Stanley Research AUG '21 Price Target AUG '22 BULL CASE PP2,175.00 Duopoly allows a more robust pricing environment Industry mobile revenue growth improves as data pricing rises faster than in our base case. A more meaningful co-use tower partnership with Globe helps to lower capex and improve FCF and leaves room for upward revisions in dividend payout. Mobile market share stabilizes at 50%. Third player is unsuccessful in launching its network. Sustainable financing helps reduce cost of capital by 100bps. BASE CASE PP1,600.00 Mobile leadership and structural broadband growth PLDT has now taken mobile network leadership from Globe, which will result in further market share gains near-term and lower share losses once the third player launches in 2021. PLDT is well positioned to capitalize on the structural broadband opportunity with its ~53% 2020 market share. This drives increased dividends through to 2022. BEAR CASE PP1,175.00 Mobile market share loss seeps into broadband Competition with Globe leads to lower prices and continued market share loss in mobile. Broadband becomes the new battleground for top-line growth and existing strategies do not fend off competition. Third player network roll-out is faster than expected, gaining more market share and negatively impacting earnings. Morgan Stanley Research 15 M Foundation Risk Reward – PLDT (TEL.PS) KEY EARNINGS INPUTS Drivers 2020 Mobile Subscriber Growth (%) (0.3) Mobile ARPU Growth (%) (0.4) Fixed Broadband Subscriber Growth (%) 43.0 EBITDA Margins (%) 48 CAPEX as a % of Sales (%) 42 2021e 2022e 2023e 1.0 1.0 1.0 2.9 5.1 3.1 30.0 20.0 12.0 48 48 48 46 40 32 INVESTMENT DRIVERS Mobile revenue market share: a +1ppt change in market share means a 3% change in EPS, we estimate. Capex/sales ratio: a +1% change to capex means a -13% change in FCF, we estimate. GLOBAL REVENUE EXPOSURE 100% APAC, ex Japan, Mainland China and India Source: Morgan Stanley Research Estimate View explanation of regional hierarchies here MS ALPHA MODELS 1/5 MOST 3 Month Horizon Source: Thomson Reuters, FactSet, Morgan Stanley Research; 1 is the highest favored Quintile and 5 is the least favored Quintile RISKS TO PT/RATING RISKS TO UPSIDE Mobile pricing improves rapidly, allowing for the monetization of data and better quality earnings. Third player is unable to enter the mobile market. RISKS TO DOWNSIDE Third player launches aggressively and disrupts the mobile pricing environment. PLDT is unable to capitalize on the significant broadband opportunity. OWNERSHIP POSITIONING Inst. Owners, % Active 40.9% Source: Thomson Reuters, Morgan Stanley Research MS ESTIMATES VS. CONSENSUS FY Dec 2021e Sales / Revenue (PP, mn) 185,077 195,265 197,311 194,090 EBITDA (PP, mn) 94,196 93,459 95,009 97,445 Net income (PP, mn) 21,746 27,138 27,418 29,836 125.61 EPS (PP) 100.38 138.09 126.90 Mean Morgan Stanley Estimates Source: Thomson Reuters, Morgan Stanley Research SUSTAINABILITY & ESG +1.0 -1.0 Indicator of Change 0.05 Disclosure Rate 90% 16 M Foundation Risk Reward – PLDT (TEL.PS) SUSTAINABILITY AND ESG INDICATOR OF CHANGE OVER TIME 1.0 0 -0.17 -0.10 -1.0 2015 Environment CO2 emissions (Scope 1 and 2) Energy consumption Total waste Water consumption Social Avg training hrs per employee Employee turnover 2016 Unit tons CO2 equivalent Gigajoules tons cubic metre Hours Percentage 2017 All Env Soc Gov 0.61 0.05 2018 Dec '17 469,779 3,153,757 2,110 650,173 2019 Dec '18 463,533 3,088,909 1,802 520,804 Dec '19 463,863 3,125,762 1,395 563,000 SUMMARY ESG Data / Indicator of Change In 2019, PLDT had an ESG Indicator of Change of +0.09 as its ESG data points in our database improved YoY. The slight improvement in ESG metric was due to an increase in gender diversity at the management level and an increase in employee training hours, but offset by an increase in employee turnover. Sustainable Solutions PLDT generates 99% EBITA from products that are exposed to the Internet Inclusion theme and 1% related to the Financial Inclusion theme. SUSTAINABLE SOLUTIONS Theme Exposure Infra Internet Telecom 99% (EBITA) Financial Inclusion 1% (EBITA) Exposure is presented for top four Sustainability themes View explanation of Theme/Exposure methodology here 35.44 12.99% 30.52 9.62% 38.48 13.00% Governance Avg tenure of the board Female board members Females in management Independent board members Years Percentage Percentage Percentage 9.23 23.08% 23.08% 9.90 30.77% 21.18% 23.08% 10.90 30.77% 40.53% 23.08% Indicator of change chart is plotted using the fiscal aligned methodology. View explanation of 'Indicator of Change' methodology here Source: Company Data, Morgan Stanley Research Morgan Stanley Research 17 M Foundation Risk Reward – Converge ICT Solutions Inc. (CNVRG.PS) Undervalued, high-growth broadband asset PRICE TARGET PP30.00 Approximate midpoint of our three valuation methodologies: P/E (Pp27.68): 20.8x 2022e, a significant premium vs. Philippines telcos of 11.6x, in view of a significantly higher 2020-23e EPS CAGR of 56% vs. 0%. EV/EBITDA (Pp31.23): 11x 2022e EV/EBITDA, a significant premium to the Philippines telcos multiple of 5x. Again, this reflects much higher growth, a 2020-23e EBITDA CAGR of 48% vs. 5%. DCF (Pp30.75): WACC 9.8%, terminal growth 2.5%. PP24.10 Consensus Price Target Distribution PP14.60 PP30.00 Source: Thomson Reuters, Morgan Stanley Research Mean MS PT Morgan Stanley Estimates RISK REWARD CHART PHP 40 30 PP26.85 20 10 0 AUG '20 FEB '21 Key: Historical Stock Performance Current Stock Price Source: Thomson Reuters, Morgan Stanley Research AUG '21 Price Target PP42.00(++5566.4.422%%) ) PP30.00(++1111.7.733%%) ) PP20.50(--2233.6.655%%) ) AUG '22 OVERWEIGHT THESIS ▪ Converge is a high-growth, pure fixed broadband asset, gaining market share thanks to its technological advantage. We expect it to hold this edge for a further 12 months at least, supporting EBITDA growth. ▪ Converge has been executing well and is on track to achieve its target of 55% household coverage by 2025. ▪ We project a 45% revenue CAGR and a 48% EBITDA CAGR in 2020-23. ▪ In light of our growth outlook, we think the current valuation is cheap – especially vs. Asian and global fixed broadband peers and vs. a 20-year history of high growth periods for ASEAN telcos, and Asian and global fixed broadband peers. Consensus Rating Distribution MS Rating 88% Overweight 0% Equal-weight 13% Underweight Source: Thomson Reuters, Morgan Stanley Research Risk Reward Themes Secular Growth: Market Share: Positive Positive View descriptions of Risk Rewards Themes here BULL CASE PP42.00 2022e EV/EBITDA 14.0x Technological advantage is sustained: This results in a 3% ARPU CAGR in 2020-23e, before remaining flat over the 2023-29e period. EBITDA margin expands to ~61% in 2024e. We also assume cost of debt falls by 100bps due to sustainable financing. BASE CASE PP30.00 2022e EV/EBITDA ~11x Technological advantage drives share growth: Converge's technology advantage exists for two more years, which results in a 2% ARPU CAGR in 2020-23e, before falling 3% p.a. over 2023-29e. EBITDA margin expands from 53% in 2020 to ~56% in 2024e. BEAR CASE PP20.50 2022e EV/EBITDA 9x Price war erupts and Converge's technological advantage disappears immediately: This results in 3% p.a. ARPU decline in 2020-23e, before accelerating further to a decline of 7% p.a. over 2023-29e. EBITDA margin contracts to ~50% in 2024e. 18 M Foundation Risk Reward – Converge ICT Solutions Inc. (CNVRG.PS) KEY EARNINGS INPUTS Drivers 2020 Residential - FTTH % revenue growth (%) Residential - HFC % revenue growth (%) 152.7 14.3 Enterprise % revenue growth (%) 8.6 EBITDA Margins (%) 52.5 Capex % to Sales (%) 86.9 2021e 2022e 2023e 99.7 55.8 32.8 (1.7) 4.2 0.9 11.5 20.9 23.3 54.4 55.5 55.3 75.6 38.9 35.5 INVESTMENT DRIVERS RISKS TO PT/RATING Increasing broadband penetration Increasing market share EBITDA margin expansion GLOBAL REVENUE EXPOSURE 100% APAC, ex Japan, Mainland China and India Source: Morgan Stanley Research Estimate View explanation of regional hierarchies here SUSTAINABILITY & ESG -1.0 +1.0 Indicator of Change NA RISKS TO UPSIDE Converge's technological advantage lasts longer. It increases prices past 2023e. EBITDA grows above expectations. RISKS TO DOWNSIDE Increased competition sparks a price war. Execution risk - Converge is unable to meet its expansion plans. Converge is unable to expand its EBITDA margins. OWNERSHIP POSITIONING Inst. Owners, % Active 99.3% Source: Thomson Reuters, Morgan Stanley Research Disclosure Rate 50% MS ESTIMATES VS. CONSENSUS FY Dec 2021e Sales / Revenue (PP, mn) 23,872 25,719 26,075 25,070 EBITDA (PP, mn) 11,908 14,002 14,115 13,315 EPS (PP) 0.66 0.88 0.76 Net income (PP, mn) 4,944 5,786 6,602 Mean Morgan Stanley Estimates Source: Thomson Reuters, Morgan Stanley Research Morgan Stanley Research 19 M Foundation Risk Reward – Converge ICT Solutions Inc. (CNVRG.PS) SUSTAINABILITY AND ESG Governance Avg tenure of the board Female board members Females in management Independent board members Shares owned by board members Unit Years Percentage Percentage Percentage Percentage Source: Company Data, Morgan Stanley Research Dec '17 - Dec '18 - Dec '19 8.45 33.33% 14.29% 0.00% 70.97% SUMMARY Converge generates 100% of EBITDA from products that are exposed to the Internet Inclusion theme 20 M Foundation Risk Reward – Telekomunikasi (TLKM.JK) Now a "dividend stock" as well as a solid growth story PRICE TARGET Rp3,700 Rp3,700: Base case, average of P/E, EV/EBITDA SOTP and DCF. P/E: 14.4x for 2022e. We think superior growth outlook merits a premium to the market multiple and ASEAN telco average. EV/EBITDA SOTP: Fixed-line segment 6.5x (8% premium to long-term average, reflecting the strong growth profile of these assets), mobile segment 7x (reflecting higher growth and consolidation of this segment). DCF: Key assumptions - WACC 11.2%, terminal growth 3%. Rp4,132 Consensus Price Target Distribution Rp3,500.00 Rp5,000.00 Source: Thomson Reuters, Morgan Stanley Research MS PT Mean Morgan Stanley Estimates RISK REWARD CHART OVERWEIGHT THESIS ▪ TLKM has a solid growth story in mobile and broadband. We forecast 2020-23 EPS CAGR of 8%. At the same time, its dividends are also growing - we project a 7% CAGR from 2020-23. ▪ Indonesia remains our second most- preferred ASEAN telco market; TLKM is our most preferred mobile play in this market. ▪ We forecast ROIC recovery to 16% by 2022. Historically, rising ROIC leads rising EV/EBITDA multiples by ~18 months. Hence, we expect TLKM's current 2022e proportional EV/EBITDA of ~6x to expand in line with ASEAN peers at ~7.5x on average. IDR 4000 3000 Rp3,350 Rp4,600(++3377.3.31%1%) ) Rp3,700(++1100.4.455%%) ) Consensus Rating Distribution MS Rating 100%Overweight 0% Equal-weight 0% Underweight Source: Thomson Reuters, Morgan Stanley Research 2000 1000 0 AUG '20 FEB '21 Key: Historical Stock Performance Current Stock Price Source: Thomson Reuters, Morgan Stanley Research AUG '21 Price Target Rp2,200(--3344.3.333%%) ) AUG '22 Risk Reward Themes Pricing Power: Secular Growth: Positive Positive View descriptions of Risk Rewards Themes here BULL CASE Rp4,600 16x bull case 2022e EPS of Rp286 Incumbent continues to dominate market share gains in a rising ROIC environment, resulting in further multiple expansion. This drives wireless and fixed-line EBITDA margin expansion three points above our base case expectations. Lower capex leads to much higher FCF generation and balance sheet flexibility. Sustainable financing lowers cost of debt by 100bps. BASE CASE Rp3,700 15x base case 2022e EPS of Rp252 Rising ROIC through higher mobile ARPU supports re-rating. Sustainably high ROIC drives multiples up, as TLKM benefits from a structural migration to 3G/4G while maintaining the ability to raise prices with no price war. Steady growth in subscriber market share. ROIC rises from 6% in 2018 to 16% in 2022e. BEAR CASE Rp2,200 10x bear case 2022e EPS of Rp214 De-rating to historical average multiples, as successful network sharing between Indosat and XL leads to fiercer competition. Intense competition and market share losses lead to a two-point EBITDA margin decline versus our base-case expectations, as Indosat and XL begin to establish their bundled and data plans at competitive rates. This could intensify price-based competition and/or ARPU declines at TLKM as it strives to maintain subscriber market share. Morgan Stanley Research 21 M Foundation Risk Reward – Telekomunikasi (TLKM.JK) KEY EARNINGS INPUTS Drivers 2020 Mobile Subscriber Growth (%) (0.9) Mobile ARPU Growth (%) (4.3) Fixed Subscriber Growth (%) 14.5 EBITDA Margins (%) 53 CAPEX as a % of Sales (%) 22 2021e (0.8) (2.2) 10.0 53 25 2022e (0.8) 3.0 15.0 55 24 2023e (0.8) 5.6 10.0 55 23 INVESTMENT DRIVERS Mobile revenue market share (a +1ppt change yields a +1% change in EPS, we estimate). Fixed broadband revenue market share (a +1ppt change yields a +0.1% change in EPS). Capex/sales ratio (a +1ppt change yields a -10% change in FCF). GLOBAL REVENUE EXPOSURE 100% APAC, ex Japan, Mainland China and India RISKS TO PT/RATING RISKS TO UPSIDE Competition remains rational and mobile pricing improves. TLKM increases dividend above our forecasts. RISKS TO DOWNSIDE TLKM encounters intense price-based competition in mobile that results in flat, rather than rising, ROIC. Broadband penetration increases at a slower rate. Regulatory risk could force TLKM to share its infrastructure with smaller competitors. Source: Morgan Stanley Research Estimate View explanation of regional hierarchies here MS ALPHA MODELS OWNERSHIP POSITIONING Inst. Owners, % Active 79.8% Source: Thomson Reuters, Morgan Stanley Research 1/5 MOST 3 Month Horizon Source: Thomson Reuters, FactSet, Morgan Stanley Research; 1 is the highest favored Quintile and 5 is the least favored Quintile MS ESTIMATES VS. CONSENSUS FY Dec 2021e Sales / Revenue (Rp, bn) 139,482 139,152 141,037 143,152 EBITDA (Rp, bn) 57,070 74,601 76,468 73,395 Net income (Rp, bn) 21,019 23,290 22,743 26,086 235 EPS (Rp) 212 263 230 Mean Morgan Stanley Estimates Source: Thomson Reuters, Morgan Stanley Research SUSTAINABILITY & ESG +1.0 -1.0 Indicator of Change -0.38 Disclosure Rate 70% 22 M Foundation Risk Reward – Telekomunikasi (TLKM.JK) SUSTAINABILITY AND ESG INDICATOR OF CHANGE OVER TIME 1.0 0.38 0.09 0.06 All Soc Gov -0.38 -0.69 SUMMARY ESG Data / Indicator of Change In 2019, TLKM had an ESG Indicator of Change of -0.38, which signals the majority of its ESG data points in our database deteriorated YoY. The key ESG metrics that deteriorated in 2019 were employee turnover and percentage of female board members. Sustainable Solutions TLKM generates 100% of EBITA from products that are exposed to the Infra Internet Telecom Sustainability theme. -1.0 2015 2016 2017 2018 2019 SUSTAINABLE SOLUTIONS Environment CO2 emissions (Scope 1 and 2) Energy consumption Social Avg training hrs per employee Employee engagement Employee turnover Unit tons CO2 equivalent KWh Hours Percentage Percentage Dec '17 363,937 1.96x109 Dec '18 - 2.08x109 Dec '19 - 2.16x109 Theme Exposure Infra Internet Telecom 100% (EBITA) Exposure is presented for top four Sustainability themes View explanation of Theme/Exposure methodology here 31.30 - 10.79% 15.03% 17.61% Governance Avg tenure of the board Female board members Females in management Independent board members Shares owned by board members Years Percentage Percentage Percentage Percentage 2.93 28.57% 6.72% 57.14% 0% 2.60 28.57% 4.00% 42.86% 0% 1.63 0.00% 7.42% 50.00% 0% Indicator of change chart is plotted using the fiscal aligned methodology. View explanation of 'Indicator of Change' methodology here Source: Company Data, Morgan Stanley Research Morgan Stanley Research 23 M Foundation Morgan Stanley is acting as financial advisor to Axiata Group Berhad (“Axiata”) and PT XL Axiata Tbk ("XL Axiata") in relation to the proposed acquisition of PT Link Net Tbk from Asia Link Dewa Pte. Ltd. and PT First Media Tbk, pursuant to a non-binding term sheet, as announced on July 30, 2021. Axiata and XL Axiata have agreed to pay fees to Morgan Stanley for its financial services. Please refer to the notes at the end of the report. 24 M Foundation Disclosure Section The information and opinions in Morgan Stanley Research were prepared or are disseminated by Morgan Stanley Asia Limited (which accepts the responsibility for its contents) and/or Morgan Stanley Asia (Singapore) Pte. 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Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Allison Binns, Ph.D.; Tim Chan, CFA; Mark Goodridge, CFA; Da Wei Lee. . Global Research Conflict Management Policy Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at www.morganstanley.com/institutional/research/conflictpolicies. A Portuguese version of the policy can be found at www.morganstanley.com.br Important Regulatory Disclosures on Subject Companies As of July 30, 2021, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: Sea Ltd. Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Converge ICT Solutions Inc.. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Converge ICT Solutions Inc., Singapore Telecom. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Axiata Group Berhad, Converge ICT Solutions Inc., Intouch Holdings, PLDT, Sarana Menara Nusantara, Sea Ltd, Singapore Telecom, StarHub, Telekom Malaysia BHD, Telekomunikasi, Total Access Comm., Tower Bersama Infrastructure, True Corporation, XL Axiata. Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from Telekom Malaysia BHD. 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Indicators and trackers referenced in Morgan Stanley Research may not be used as, or treated as, a benchmark under Regulation EU 2016/1011, or any other similar framework. INDUSTRY COVERAGE: ASEAN Telecoms and Media Company (Ticker) Rating (As Of) Price* (08/13/2021) Mark Goodridge, CFA Advanced Info Service (ADVANC.BK) Axiata Group Berhad (AXIA.KL) Converge ICT Solutions Inc. (CNVRG.PS) Digi.com Berhad (DSOM.KL) Digital Telecommunications Infra (DIFu.BK) Globe Telecom (GLO.PS) Indosat (ISAT.JK) Intouch Holdings (INTUCH.BK) Link Net (LINK.JK) Maxis Berhad (MXSC.KL) NetLink NBN Trust (NETL.SI) PLDT (TEL.PS) Sarana Menara Nusantara (TOWR.JK) Sea Ltd (SE.N) Singapore Telecom (STEL.SI) StarHub (STAR.SI) Telekom Malaysia BHD (TLMM.KL) Telekomunikasi (TLKM.JK) Total Access Comm. (DTAC.BK) Tower Bersama Infrastructure (TBIG.JK) True Corporation (TRUE.BK) Venture Corporation Ltd. (VENM.SI) XL Axiata (EXCL.JK) Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted. O (01/09/2017) ++ O (11/18/2020) ++ O (08/26/2019) U (12/11/2020) E (03/10/2017) E (01/09/2017) ++ U (09/05/2017) O (08/29/2017) O (12/11/2020) O (06/14/2017) O (03/09/2018) E (02/08/2018) O (12/11/2020) O (07/24/2020) O (10/14/2016) U (01/08/2020) U (12/11/2020) U (01/09/2017) O (06/25/2021) ++ Bt185.50 RM3.80 PP27.35 RM4.25 Bt12.50 PP1,960.00 Rp6,500 Bt73.00 Rp4,200 RM4.36 S$0.98 PP1,275.00 Rp1,315 US$306.24 S$2.39 S$1.25 RM5.80 Rp3,300 Bt33.75 Rp3,030 Bt3.06 S$19.50 Rp2,570 30 © Morgan Stanley 2021 The Americas 1585 Broadway New York, NY 10036-8293 United States Tel: +1 (1) 212 761 4000 Europe 20 Bank Street, Canary Wharf London E14 4AD United Kingdom Tel: +44 (0) 20 7 425 8000 Japan 1-9-7 Otemachi, Chiyoda-ku Tokyo 100-8104 Japan Tel: +81 (0) 3 6836 5000 Asia/Pacific 1 Austin Road West Kowloon Hong Kong Tel: +852 2848 5200
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