Asia Pacific Equity Research

23 April 2015

Neutral

Telstra Corporation

TLS.AX, TLS AU
Price: A$6.26

Investor day- CY15E Mobile competition increasing,

Impacting ARPU more than subscribers

Price Target: A$5.38

TLS did not provide a trading update at todays investor day, with no new
material data points forthcoming; we see the significance of todays
presentation to the stock price therefore negligible. The main operational
comments noted the increased competition in the CY15E mobile market.
While mobile subscriber trends are not abnormal, we expect some impact
on 2H15E Mobile ARPU given the increasing competitive landscape and
changing mix. We are Neutral TLS, with a $5.38 PT.
CY15E Mobile Market, increasing competition - While TLS
acknowledged the increased industry competition in CY15E and
increased churn (1H15E 12.0%), TLS stated they are not seeing
anything 'abnormal' on subscriber numbers vs recent trends. We expect
some impact on 2H15E Mobile ARPU given the increased competitive
environment and the lower margins of additional services (i.e new phone
feeling) vs the core business. TLSs guided to no change in Mobile
EBITDA margins in the high 30%s (JPMe FY15E 41%, FY16E 40%).
Network With consumers valuing network quality, TLS is focused on
using technology to scale the network economically, with the increased
consumer interaction (i.e. High bandwidth video)/number of devices and
the internet of things materially changing the future network load. TLS
see the future in voice/video calling and home automation/control.
Emerging Consumer trends TLS highlighted a number of customer
trends/expectations: 1) Video consumption - with a focus on Video
quality/load time, and the customer experience 2) Upper end tablets
Hybrids can replace PCs/Laptops 3) On Demand Entertainment at
home & on the go, ability to take entertainment mobile & 4) Smart
Home devices are becoming smarter, with the home eco-system coming
together, TLSs focus is on Security/Automation & Energy.
Maintain Neutral rating - While yield support may continue to see the
stock trade around current levels, over the medium term we see the stock
drifting closer to our valuation. We are Neutral TLS, with a $5.38 PT.
Telstra Corporation Limited (Reuters: TLS.AX, Bloomberg: TLS AU)
Year-end Jun (A$)
FY13A
FY14A
FY15E
Revenue (A$ mn)
24,776
26,296
26,240
EBITDA (A$ mn)
10,295
10,684
10,708
Net Profit (A$ mn)
3,739
4,275
4,136
EPS (A$)
0.30
0.34
0.34
P/E (x)
20.8
18.2
18.6
EV/EBITDA (x)
9.0
8.4
8.5
DPS (A$)
0.28
0.30
0.30
Dividend Yield
4.5%
4.7%
4.8%
Normalised EPS (A$)
0.30
0.33
0.34
Normalised EPS Growth
4.4%
11.4%
1.1%
Normalised PE
21.0
18.8
18.6
Source: Company data, Bloomberg, J.P. Morgan estimates.

FY16E
28,405
11,455
4,647
0.38
16.3
8.0
0.30
4.8%
0.38
14.4%
16.3

FY17E
29,584
12,244
5,284
0.46
13.5
7.4
0.30
4.8%
0.46
20.9%
13.5

Australia
Telecommunications
Jarrod McDonald

AC

(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com
Bloomberg JPMA MCDONALD <GO>
J.P. Morgan Securities Australia Limited

Thomas Beadle
(61-2) 9003-8603
thomas.g.beadle@jpmorgan.com
J.P. Morgan Securities Australia Limited

James R. Sullivan, CFA

(65) 6882-2374
james.r.sullivan@jpmorgan.com
J.P. Morgan Securities Singapore Private
Limited
Price Performance
7.0
6.5
A$

6.0
5.5
5.0
4.5
Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

TLS.AX share price (A$)

ASX100 (rebased)

Abs
Rel

YTD
4.9%
-3.1%

1m
-1.4%
0.7%

Company Data
Shares O/S (mn)
Market Cap (A$ mn)
Market Cap ($ mn)
Price (A$)
Date Of Price
Free Float(%)
3M - Avg daily vol (mn)
3M - Avg daily val (A$ mn)
3M - Avg daily val ($ mn)
ASX100
Exchange Rate
Price Target End Date
Price Target (A$)

3m
-1.3%
-9.0%

12m
21.1%
14.9%

12,226
76,532.63
59,350.62
6.26
23 Apr 15
32.25
205.26
159.2
4874.00
0.78
31-Dec-15
5.38

See page 9 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan 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.
www.jpmorganmarkets.com

Asia Pacific Equity Research

23 April 2015

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Mobile in CY15E - competition intensifying, potentially

impacting 2H15E ARPU
The main operational comments by Warwick Bray, Executive Director - Mobile &
Wireline, noted the increased competition in the CY15E mobile market. TLS stated
they are not seeing anything 'abnormal' on subscriber numbers vs recent trends. We
expect some impact on 2H15E Mobile ARPU (1H15E +2.8%), given the increased
competitive environment and the lower margins of additional services (i.e new phone
feeling) vs the core business.
TLS re-confirmed the margin outlook in Mobile (i.e. high 30% range), with margins
to be impacted by a range of factors going forward, including churn, re-contracting,
and the introduction of lower-margin value-added services which are incremental to
existing revenues. We forecast Telstras margin to hit 41% in FY15E, before falling
to 40% in FY16E and medium term mobile margins of c.38%.
The comments around the competitive environment follow the significant turnaround
in the mobile market in 1H15, with market revenue growth of +6.5% (TLS +9.6%),
reversing recent trends which were impacted by declines in MBB SIOs at the market
level, a lower MTR and lower equipment revenues. 469k SIOs were added in the
half, which was the highest rate of growth since the Jun-12 half. Telstras share of
SIOs and revenue continued to grow, although we note Vodafones return to net SIO
growth in 1H15, which we think may be partly responsible for higher level of churn
by TLS in the half. We also note comments today around recent competitive
developments potentially indicates continued net SIO growth at Vodafone.
Figure 1: Mobile revenues growth by half (A$m)

Figure 2: Mobile revenues by half (A$m)

11.0%

12%
10%
8%
6%
4%
2%
0%
-2%
-4%

9.6%
7.4%
6.1%

10,000
6.5%

6.4%

4.6%

3.7%

3.8%

-0.6%

Jun-12

-2.9%

Dec-12

Telstra

-2.2%

Dec-13

10,024
9,458 9,327 9,809 9,269 9,528 9,069 9,415 9,152
1,770
2,464 2,275 2,318 2,070 2,028 1,744 1,808 1,726
2,927
2,933 2,692 2,746 2,619
3,059 2,986 3,124 2,886

4,000
2,000

-1.2%

Jun-13

8,000
6,000

0.9%

Dec-11

12,000

5,327
3,935 4,066 4,367 4,313 4,567 4,633 4,861 4,807

0
Jun-14

Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14

Dec-14

Telstra

Market

Optus

Vodafone

Source: J.P. Morgan estimates, Company data.

Source: J.P. Morgan estimates, Company data.

Figure 3: Total Mobile Market SIO growth by half (000s)

Figure 4: Mobile SIO growth in the Dec-14 half (000s, incl. wholesale)

1,200
973

1,000

823

735

800

602

600

400

846

174

200
229

91

100
0
-17

-100
Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14

Source: J.P. Morgan estimates, Company data.

395

300

618
395

400
200

469

500

Telstra

Optus

Source: J.P. Morgan estimates, Company data.

Vodafone

Market

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Asia Pacific Equity Research

23 April 2015

Figure 5: Share of mobile SIOs

100%
80%
60%

27.0%

25.2%

23.6%

22.6%

21.5%

19.5%

17.3%

16.8%

16.8%

31.8%

31.7%

31.5%

31.2%

31.0%

30.5%

30.3%

29.8%

31.9%

41.1%

43.0%

44.7%

45.9%

47.3%

49.5%

52.2%

52.9%

53.3%

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

40%
20%
0%
Telstra

Optus

Vodafone

Source: J.P. Morgan estimates, Company data.

1H15E Mobile Market Review

1H15 Mobile Sub Adds Telstra added c.366K net additional subscribers in the
half (JPMe +326K), while Optus lost 12K, with a +100K increase in mobile handset
SIOs more than offset by the 112K decline in mobile broadband SIOs. Vodafones
SIOs grew by +91k, the first half of growth since the Dec-10 half. We note the slight
uptick in churn to 12.0% (1H14: 10.2%), with TLS highlighting a more competitive
market environment.
Figure 6: Share shift to Telstra, half-on-half
Percentage points

3.0%

2.7%

2.5%
2.0%

2.2%
1.7%

1.5%

1.2%

1.4%
1.0%

1.0%

0.6%

0.5%
0.0%
1H12

2H12

1H13

2H13

1H14

2H14

1H15

Source: Companies

Figure 7: TLS Mobile Net Adds1

1,200
1,000

982

800
610

608

649

739

600
366

400
198

200
0
1H12

2H12

1H13

2H13

1H14

2H14

1H15

1. Excludes wholesale. Source: Telstra, J.P. Morgan

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Asia Pacific Equity Research

23 April 2015

Network differentiation and innovation

The other key focus of Telstras investor day was network differentiation and
innovation. TLS identified this as a critical factor driving the success of Telstras
consumer businesses.
Management noted that speed and reliability are the biggest drivers of consumer
advocacy in mobile, which also enables TLS to position its mobile product at a
premium pricing vs competitors. Telstra outlined four key network differentiators of
its mobile business: network breadth (area covered); more reliable speeds; fewer
dead spots; and fewer dropouts. These differentiators are a result of significant
continued investment in its mobile network, we also note TLS continues to increase
its 4G footprint (94% population coverage by June, currently 90%), as well as deploy
new technologies such as Voice over LTE (VoLTE).
We note Telstras recent increases to its mobile plans in March, with data allowances
approximately doubling. We believe that Telstras continued investment in its
network will allow it to maintain its share at its current high level and continue to
position its offering at a premium to its competitors.
In Fixed it was a similar story, with TLS highlighting the importance of building
networks to handle emerging trends, consumer trends. Trends highlighted by Telstra
included:
Video consumption, with a focus on Video quality/load time, and the customer
experience;
Upper end tablets Hybrids can replace PCs and laptops;
On Demand Entertainment At home and on the go, ability to take up where you
left off;
Smart Home devices are becoming smart, with the home eco-system coming
together, TLS is focusing on Security/Automation and Energy; and
Consumers are becoming increasing savvy, with higher customer service
expectations.
Figure 8: Telstra's fixed network investment

Source: Telstra
4

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Asia Pacific Equity Research

23 April 2015

TLS Earnings Forecasts

Table 1: TLS earnings forecasts
FY15
Estimate
26,240

% pcp

Total Income

FY14
Actual
26,296

% pcp

-0.2%

FY16
Estimate
28,405

Reported EBITDA
Underlying EBITDA
D&A
Reported EBIT
Net Interest Expense
Tax
Minorities
Reported NPAT
Normalised NPAT
Reported EPS
Normalised EPS
DPS

11,135
10,684
-3,950
7,185
-957
-1,679
-70
4,479
4,140
36.0
33.3
29.5

10,711
10,708
-3,976
6,735
-722
-1,804
-74
4,136
4,134
33.6
33.6
30.0

% chg

% pcp

8.3%

FY17
Estimate
29,584

6.4%

4.1%

-3.8%
0.2%
0.6%
-6.3%
-24.6%
7.4%
5.0%
-7.7%
-0.1%
-6.5%
1.1%
1.7%

11,455
11,455
-3,934
7,521
-771
-2,025
-77
4,647
4,647
38.5
38.5
30.0

6.9%
7.0%
-1.0%
11.7%
6.8%
12.2%
5.0%
12.4%
12.4%
14.4%
14.4%
0.0%

12,244
12,244
-3,808
8,436
-771
-2,299
-81
5,284
5,284
46.5
46.5
30.0

3.1%
3.1%
2.0%
3.6%
-0.5%
4.0%
0.0%
4.1%
4.1%
4.1%
4.1%
0.0%

6.9%
6.9%
-3.2%
12.2%
-0.1%
13.6%
5.0%
13.7%
13.7%
20.9%
20.9%
0.0%

Source: J.P. Morgan estimates, Company data.

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Asia Pacific Equity Research

23 April 2015

Investment Thesis, Valuation and Risks

Telstra Corporation (Neutral; Price Target: A$5.38)
Investment Thesis
We have a Neutral rating on Telstra. The stock trades above our valuation (see
below) but our forecasts do incorporate a significant fade in mobile margins and take
a conservative view of retail fixed margins in an NBN world (16%). Meanwhile,
dividend support for the stock is strong, and there is a legitimate debate about how
hard the landing will be for its margins in the longer term. In this context, we do not
think that valuation is a strong enough catalyst for a de-rating.
Equally, we struggle to see much upside. We think the stock is on a challenging
multiple (PE >19x FY15 Bloomberg consensus) given that returns in the key
businesses are already high and revenue growth is slow. Allowance should be made
for the lower-risk status of the NBN payments TLS is effectively a stock stapled to
a bond but these payments are there for a reason, which is that the business is
rebased from incumbent to reseller.
Valuation
Our Dec-15 price target is $5.38, based on a discounted cash flow valuation which
uses a WACC of 7.2% (market risk premium 5.0%, risk free rate 4.5%) for the
underlying business and a 4.5% discount rate for payments from NBN Co.
Table 2: TLS valuation summary
TLS Valuation
Enterprise value - Underlying business
NPV Cash Flows - NBN Payments
TLS Enterprise value
Net Debt
Minorities
Equity value
Number of shares
Value per share
Assumptions
WACC - Underlying business
Discount rate applied to NBN Payments

Dec-15
53,790
23,685
77,476
11,437
241
65,797
12,226
5.38
7.2%
4.5%

Source: J.P. Morgan estimates.

Risks to Rating and Price Target

Upside and downside risks to our rating and price target include:
1.
2.

An acceleration in retail fixed line loss;

More active competition in the mobile market;

3.

NBN driven margin compression is more or less dramatic than we

expect;
A change in government policy;
Larger/sooner-than-expected capital management programme.

4.
5.

Asia Pacific Equity Research

23 April 2015

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Telstra Corporation
A$ in millions, year end Jun
Profit And Loss
Revenue
Revenue growth
COGS
Operating Expenses
EBITDA
EBITDA growth
EBITDA margin
Amortisation
Depreciation
EBIT
Other Income
Other Expenses
Net Interest
Pre-Tax Profit
Tax
Tax Rate
Minorities
Abnormals (post tax)
Reported NPAT
Normalised NPAT
Growth
End of Period Shares
EFPOWA

Relative recommendation:
FY13
24,776
(2.8%)
(14,434)
10,295
(0.7%)
41.6%
(1,013)
(3,061)
6,221
-

FY14
26,296
6.1%
(15,567)
10,684
3.8%
40.6%
(1,054)
(2,896)
6,734
-

FY15E
26,240
(0.2%)
(15,487)
10,708
0.2%
40.8%
(1,012)
(2,963)
6,732
-

FY16E
28,405
8.3%
(16,906)
11,455
7.0%
40.3%
(1,055)
(2,879)
7,521
-

FY17E
29,584
4.1%
(17,295)
12,244
6.9%
41.4%
(1,008)
(2,800)
8,436
-

(825)
(957)
(722)
(771)
(771)
5,396 5,777 6,010 6,749 7,665
(1,629) (1,567) (1,803) (2,025) (2,299)
30.2% 27.1% 30.0% 30.0% 30.0%
(52)
(70)
(74)
(77)
(81)
24
135
2
0
0
3,739 4,275 4,136 4,647 5,284
3,715
4.7%

4,140
11.4%

4,134
(0.1%)

4,647
12.4%

5,284
13.7%

12,443 12,443 12,226 11,580 11,149

12,444 12,445 12,296 12,082 11,364

Reported EPS ($)

Normalised EPS ($)
Growth

0.30
0.30
4.4%

0.34
0.33
11.4%

0.34
0.34
1.1%

0.38
0.38
14.4%

0.46
0.46
20.9%

DPS ($)
Growth

0.28
0.0%

0.30
5.4%

0.30
1.7%

0.30
0.0%

0.30
0.0%

DPS/EPS payout

93.2%

85.9%

89.2%

78.0%

64.5%

Cash Flow Statement

Net Profit for Cashflow
Depreciation & Amortisation
Non Cash Items
Working Capital Changes
Other Operating Cashflows
Cashflow from Operating Activities

FY13
3,739
4,074
574
(883)
210
7,714

FY14 FY15E FY16E FY17E

4,275 4,136 4,647 5,284
3,950 3,976 3,934 3,808
(224)
0
0
0
(524)
7
(18)
4
505
240
243
247
7,982 8,358 8,807 9,343

Capex
Net Acquisitions
Other Investing cashflows
Investing Cash Flow

(4,509) (3,762) (4,841) (3,605) (3,572)

730 2,235
(256)
0
0
52
81
0
0
0
(3,727) (1,446) (5,097) (3,605) (3,572)

Inc/(Dec) in Borrowings
Equity Issued
Dividends Paid
Other Financing Cashflows
Financing Cash Flow

(1,968)
185 (3,000)
0
0
0
0 (1,004) (1,800) (2,000)
(3,480) (3,545) (3,733) (3,668) (3,474)
(41)
(123)
0
0
0
(5,489) (3,483) (7,737) (5,468) (5,474)

Net Cash Flow

(1,502)

3,053 (4,475)

(266)

297

Neutral

Valuation Summary
Current mkt capitalisation

A$m
76,532.63

Price Target
Capital growth to price target
Trading Multiples
PE Pre-abnormals
PE Reported
EV/EBITDA
EV/EBIT

A$ps
6.26
5.38
(14.1%)

FY13
21.0
20.8
9.0
14.8

FY14 FY15E
18.8
18.6
18.2
18.6
8.4
8.5
13.3
13.5
FY14
4.7%
100.0%
10.6%
31.3%
17.1%

FY16E FY17E
16.3
13.5
16.3
13.5
8.0
7.4
12.2
10.8

Key Ratios
Dividend Yield
Franking
Return on Assets (%)
Return on Equity (%)
ROIC (%)

FY13
4.5%
100.0%
9.5%
30.8%
16.0%

FY15E
4.8%
100.0%
11.0%
30.4%
16.9%

FY16E
4.8%
100.0%
13.0%
35.6%
20.3%

FY17E
4.8%
100.0%
14.9%
41.5%
23.1%

Leverage
Gearing (Net Debt / Equity)
Gearing (ND / (ND + E))
Net Debt / EBITDA
EBIT Interest Cover (x)

FY13 FY14 FY15E

102.1% 75.4% 88.2%
50.5% 43.0% 46.9%
127.7% 98.5% 112.0%
7.5
7.0
9.3

FY16E
94.2%
48.5%
107.1%
9.8

FY17E
91.5%
47.8%
97.7%
10.9

Balance Sheet
Cash
Receivables
Investments
Inventories
Other Current Assets
Total Current Assets
Net PPE
Total Intangibles
Other Non Current Assets
Total Non Current Assets
Total Assets
Creditors
Current Borrowings
Current Tax Provisions
Other Current Provisions
Other Current Liabilities
Total Current Liabilities
Non Current Creditors
Non Current Borrowings
Deferred Tax Liabilities
Other Non Current Provisions
Other Non Current Liabilities
Total Non Current Liabilities
Total Liabilities
Equity
Other Equity
Reserves
Retained Profits
Outside Equity Interests
Total Shareholders Equity
Net Debt

FY13
2,479
4,557
431
436
7,903
20,326
8,202
2,096
30,624
38,527
4,241
751
918
1,612
7,522
14,313
1,330
276
2,169
18,130
25,652
5,711
0
(619)
7,519
264
12,875
12,585

FY16E
785
4,333
355
377
5,850
19,878
7,138
2,698
29,714
35,565
3,978
2,277
932
1,641
8,828
10,547
1,286
261
1,622
13,716
22,544
2,915
0
(228)
10,046
289
13,021
12,039

FY17E
1,083
4,310
353
377
6,123
19,790
6,990
2,698
29,478
35,602
3,957
2,277
932
1,641
8,807
10,547
1,286
261
1,622
13,716
22,523
915
0
(228)
12,022
370
13,079
11,741

FY14
5,527
4,172
362
377
10,438
19,842
6,382
2,698
28,922
39,360
3,834
2,277
932
1,641
8,684
13,547
1,286
261
1,622
16,716
25,400
5,719
0
(228)
8,331
138
13,960
10,297

FY15E
1,052
4,224
346
377
5,999
19,945
7,400
2,698
30,043
36,043
3,878
2,277
932
1,641
8,728
10,547
1,286
261
1,622
13,716
22,444
4,715
(0)
(228)
8,900
212
13,598
11,772

Source: Company reports and J.P. Morgan estimates.

Asia Pacific Equity Research

23 April 2015

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

JPM Q-Profile
Telstra Corporation Limited (AUSTRALIA / Telecommunication Services)
As Of: 16-Apr-2015

Quant_Strategy@jpmorgan.com

12 Mth Forward EPS

8.00

0.40

7.00

0.35

6.00

0.30

5.00

0.25

4.00

0.20

3.00

0.15

2.00

0.10

1.00

0.05

Current:

0.36

Current:

Nov/14

Jul/13

Mar/14

Nov/12

Jul/11

P/E Relative to S&P/ASX 200 Index

Mar/12

Nov/10

Jul/09

Mar/10

Nov/08

Jul/07

Mar/08

Nov/06

Jul/05

Mar/06

Nov/04

Jul/03

Mar/04

Nov/02

Mar/00

Jun/14

17.0x

25.0x

Current:

0.00

Mar/15

Sep/13

Dec/12

Jun/11

PE (1Yr Forward)

Mar/12

Sep/10

Dec/09

Jun/08

Mar/09

Sep/07

Dec/06

Jun/05

Mar/06

Sep/04

Dec/03

Jun/02

Mar/03

Sep/01

Mar/00

Dec/00

0.00

Jul/01

6.19

Mar/02

Current:

Nov/00

Local Share Price

1.48

2.00
1.80

20.0x

1.60
1.40

15.0x

1.20
1.00
0.80

10.0x

0.60
0.40

5.0x

0.20

6%

ROE (Trailing)

Current:

35.31

40.00

Current:

Nov/14

Jul/13

Mar/14

Nov/12

Mar/12

Jul/11

Nov/10

Mar/10

Jul/09

Nov/08

Mar/08

Jul/07

Mar/06

Nov/06

Jul/05

Mar/04

Nov/04

Jul/03

Nov/02

Price/Book (Value)

4.75

Current:

12.0x

P/B Trailing

Nov/14

Mar/14

Jul/13

Nov/12

Mar/12

Jul/11

Nov/10

Mar/10

Jul/09

Nov/08

Mar/08

Jul/07

Mar/06

Nov/06

Jul/05

Mar/04

Nov/04

Jul/03

Nov/02

Jul/01

Mar/00

Nov/14

Mar/14

Jul/13

Nov/12

Mar/12

Jul/11

Nov/10

Jul/09

Mar/10

Nov/08

Mar/08

Jul/07

0.0

Nov/06

0%
Mar/06

2.0

Jul/05

4.0

2%

Nov/04

4%

Mar/04

6.0

Jul/03

6%

Nov/02

8.0

Jul/01

8%

Mar/02

10.0

Mar/00

Jul/01

Dividend Yield (Trailing)

12.0

Proxy

10%

Nov/00

Mar/02

Mar/00

Nov/14

Mar/14

Jul/13

Nov/12

Jul/11

Current:

Australia BY

Mar/02

12Mth fwd EY

Nov/00

12%

Mar/12

Nov/10

Jul/09

Mar/10

Nov/08

Mar/08

Jul/07

Nov/06

Mar/06

Jul/05

Nov/04

Jul/03

Mar/04

Nov/02

Jul/01

Mar/02

Mar/00

Nov/00

Earnings Yield (& Local Bond Yield)

Nov/00

0.00

0.0x

5.7x

P/B Forward

35.00
10.0x

30.00

8.0x

25.00
20.00

6.0x

15.00
4.0x

10.00

2.0x

Nov/14

Mar/14

Jul/13

Nov/12

Mar/12

Jul/11

Nov/10

Mar/10

Jul/09

Nov/08

Mar/08

Jul/07

Nov/06

Mar/06

Jul/05

Nov/04

Mar/04

Jul/03

Nov/02

Jul/01

Mar/02

0.0x
Mar/00

Nov/14

Mar/14

Jul/13

Nov/12

Jul/11

Mar/12

Nov/10

Jul/09

Mar/10

Nov/08

Mar/08

Jul/07

Nov/06

Mar/06

Jul/05

Nov/04

Jul/03

Mar/04

Nov/02

Jul/01

Mar/02

Nov/00

Mar/00

0.00

Nov/00

5.00

Summary
Telstra Corporation Limited
AUSTRALIA
Telecommunication Services
12mth Forward PE
P/BV (Trailing)
Dividend Yield (Trailing)
ROE (Trailing)

57546.25
112.9812 TICKER TLS AU
Diversified Telecommunication
Latest
Min
Max Median
9.18
23.15
14.30
17.01x
5.67
2.57
9.53
4.18
4.75x
2.53
10.78
6.14
35.31
21.17
35.31
29.79

Average
14.17
4.38
6.56
29.06

Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, JPMorgan Quantitative & Derivative Strategy

2 S.D.+
19.60
6.66
10.74
36.39

2 S.D. 8.74
2.09
2.37
21.72

% to Min
-46%
-55%
-47%
-40%

16-Apr-15
As Of:
Local Price:
6.19
EPS:
0.36
% to Max % to Med % to Avg
36%
-16%
-17%
68%
-26%
-23%
127%
29%
38%
0%
-16%
-18%

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Asia Pacific Equity Research

23 April 2015

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per
KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or
intervention.

Important Disclosures

Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in
Telstra Corporation.

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Telstra
Corporation within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Telstra Corporation.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment
banking clients: Telstra Corporation.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following
company(ies) as clients, and the services provided were non-investment-banking, securities-related: Telstra Corporation.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,
and the services provided were non-securities-related: Telstra Corporation.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Telstra
Corporation.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from Telstra Corporation.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services
other than investment banking from Telstra Corporation.

J.P. Morgan Securities LLC (J.P. Morgan) is acting as Joint Bookrunner for Telstra Corporation Limiteds ("Telstra") 144A / Reg S
offering as announced on 30th March 2015. J.P. Morgan will be receiving fees in relation to the offering. J.P. Morgan may perform, or
may seek to perform, other financial or advisory services for Telstra or its affiliates and may have other interests in or relationships with
Telstra or its affiliates, and receive fees, commissions or other compensation in such capacities. This research report and the information
herein is not intended to serve as an endorsement of the possible transaction or result in procurement, withholding or revocation of a
proxy or any other action by a security holder. This report is based solely on publicly available information. No representation is made
that it is accurate or complete.
Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for
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Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-4770406 or e-mail research.disclosure.inquiries@jpmorgan.com.

Asia Pacific Equity Research

23 April 2015

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Rating Share Price

(A$)

Price Target
(A$)

18-Jan-07

UW

4.42

3.92

15-Feb-07 UW

4.37

3.97

07-Jun-07

4.81

4.07

19-Aug-07 N

4.24

4.07

10-Oct-07

4.46

4.39

01-Nov-07 N

4.71

4.70

21-Feb-08 N

4.69

4.78

21-May-08 UW

4.86

4.23

15-Dec-08 UW

4.13

3.55

13-Jan-09

UW

3.74

3.18

26-Feb-09 UW

3.77

2.99

10-Mar-09 UW

3.14

2.92

07-Apr-09

UW

3.21

3.21

15-Jun-09

UW

3.33

3.10

14-Aug-09 N

3.60

3.39

15-Dec-09 N

3.50

3.41

18-Dec-09 N

3.43

3.31

12-Feb-10 N

3.12

3.29

18-Mar-10 N

3.13

3.33

21-Jun-10

3.23

3.48

28-Jun-10

3.30

3.42

13-Aug-10 N

2.94

3.06

23-Nov-10 OW

2.65

3.08

11-Feb-11 OW

2.88

3.13

24-Jun-11

OW

3.03

3.15

12-Aug-11 OW

2.99

3.26

18-Aug-11 N

3.16

3.26

18-Nov-11 N

3.19

3.21

03-Aug-12 N

4.02

3.64

09-Aug-12 N

3.97

3.75

31-Oct-12

4.11

3.86

13-Dec-12 N

4.26

3.97

30-Jan-13

4.59

4.14

07-Feb-13 N

4.64

4.24

10-Apr-13

4.58

4.27

23-Jul-13

4.96

4.68

08-Aug-13 N

5.13

4.76

20-Dec-13 N

5.20

4.80

28-Jan-14

5.12

4.95

13-Feb-14 N

5.11

5.00

25-Jul-14

5.48

5.09

14-Aug-14 N

5.44

5.11

23-Oct-14

5.46

5.12

12-Feb-15 N

6.45

5.38

Telstra Corporation (TLS.AX, TLS AU) Price Chart

11
N A$4.39

10
9

UW A$2.99
UW A$3.1
N A$3.29
N A$3.42

N A$3.26

N A$3.86
N A$4.24

N A$5 N A$5.12

UW A$3.97
N A$4.07
UW A$4.23
UWUW
A$3.18
A$3.21
N A$3.31
N A$3.48
OW A$3.13
OW A$3.26 N A$3.75
N A$4.14
N A$4.76
N A$4.95
N A$5.11

8
UW A$4.07
N A$4.7
N A$4.78UWUW
A$3.55
A$2.92
N A$3.39
N A$3.41
N A$3.33
N A$3.06
OW A$3.08
OW A$3.15
N A$3.21N A$3.64
N A$3.97
N A$4.27
N A$4.68
N A$4.8
N A$5.09
N A$5.38
7 UW A$3.92
Price(A$)

Date

3
2

Oct
06

Apr
08

Oct
09

Apr
11

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Jan 18, 2007.

Oct
12

Apr
14

UW

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
10

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Asia Pacific Equity Research

23 April 2015

reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research
website, www.jpmorganmarkets.com.
Coverage Universe: McDonald, Jarrod: APN News & Media (APN.AX), Fairfax Media Limited (FXJ.AX), News Corporation
(NWS.AX), Nine Entertainment Co. Holdings (NEC.AX), Prime Media Group Limited (PRT.AX), REA Group Ltd (REA.AX), SEEK
Limited (SEK.AX), Seven West Media Limited (SWM.AX), Sky Network Television Limited (SKT.NZ), Southern Cross Media Group
(SXL.AX), TPG Telecom Ltd (TPM.AX), Telstra Corporation (TLS.AX), Ten Network Holdings (TEN.AX), carsales.com Ltd
(CAR.AX), iiNet (IIN.AX)
J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2015

J.P. Morgan Global Equity Research Coverage

IB clients*
JPMS Equity Research Coverage
IB clients*

Overweight
(buy)
43%
55%
44%
75%

Neutral
(hold)
44%
49%
48%
68%

Underweight
(sell)
13%
37%
9%
54%

*Percentage of investment banking clients in each rating category.

For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table
above.

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11

Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Asia Pacific Equity Research

23 April 2015

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Jarrod McDonald
(61-2) 9003-8604
jarrod.mcdonald@jpmorgan.com

Asia Pacific Equity Research

23 April 2015

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