HTA 7.14% 13.0¢ hutchison telecommunications (australia) limited

UBS WARBURG - RESEARCH UPDATE

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    This morning, UBS Warburg raised their price target on HTA from 26c to 39c.

    They also reduced their DCF calculation from $1.15 to 39c, due to the following:
    1)
    dilutionary impact of the forthcoming Convertible Note offering; and
    2)
    an increase in the risk free rate of return from 5.5% to 6.3%.


    3G SUBSCRIBER GROWTH RATES:

    Going forward, UBS Warburg considers that the HTA 3G business will:
    1)
    attract less customers in the long term (ie: due to the addressable market being reduced on account of new mobile PDA devices being sought, or marketed, by TLS, SGT /Optus and Vodafone;
    2)
    but more customers in the short term, due to an acceleration in early adoption of 3G in Australia.

    By 2005, HTA expects to have 300k+ 3G customers, rising to 500k in 2006, and 1.0m in 2008 (previously, by 2007).

    Eventually, UBS Warburg considers that HTA will reach 1.5m 3G customers by 2010 (previously, by 2008).

    Further growth in 3G customers is also expected beyond 2010, approximating 2.0m 3G subscribers by 2012.


    EARLY ADOPTERS:

    UBS Warburg considers that higher spending GSM customers will quickly migrate to HTA's 3G service (meaning further erosion of market share for TLS especially, and for VOD and Optus).


    3G ARPU REVENUE:

    By 2012, UBS Warburg considers that HTA should have
    1)
    higher ARPU revenue than average (geginning @$100 ARPU in 2003); and
    2)
    longer term stable ARPU revenue, still approximating $95 in 2010 (previously, UBS Warburg had estimated 3G ARPU at $100 in 2003, reducing to $90 in 2005, $80 in 2007, and $60 in 2010).


    CDMA BUSINESS:

    According to UBS Warburg HTA's current CDMA business will continue to grow until ~400k connected customers are reached.

    This estimate is new, with HTA last year forecasting EBITDA breakeven on 280k in CDMA subscribers, and an eventual CDMA susbcriber base of ~500,000 by 2004.

    UBS Warburg has also argued that HTA's CDMA business will experience an improving CDMA sales profile through 2003 and beyond. Estimated gross margins of 50% are now expected in 2003, before declining to 40% by 2010.


    ANTICIPATED 3G GROSS MARGIN:

    Hutchison is expected to generate an improving 3G Gross Margin profile over time, increasing to 60% in 2004, peaking at 80% in 2006, and eventually stablising at 50% by 2010.


    AN IMPROVING EBITDA OUTLOOK:

    UBS Warburg has also estimated an improving EBITDA Margin outlook over time, as follows:

    -10% in 2002,

    improving to breakeven in 2004,

    rising to 20% in 2005,

    peaking at 32% in 2008; and

    stablising at 30% by 2010.


    SALES REVENUE:

    Sales revenue of $275m is forecast by UBS Warburg in 2002, rising to $405m in 2003 (refer UBS 7 June 02), and exceeding $1.0b by 2006 (refer, UBS 7 January 02).

 
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