Telecom Sector Presentation November 9, 2010 Agenda • Recommendations • Sector Overview • Analyses: o Business o Economic o Financial o Valuation • Conclusion Recommendation • Increase SIM holding by basis points to bring it to 4% • Possible reallocation of funds within the SIM Telecommunication Sector Sector Overview Sector S&P 500 Weight SIM Weight +/- Consumer Discretionary 10.55% 10.44% -0.11% Consumer Staples 10.91% 11.71% 0.80% Energy 11.18% 9.76% -1.43% Financials 16.47% 11.41% -5.07% Health Care 11.55% 14.63% 3.07% Industrials 10.76% 13.10% 2.34% Information Technology 18.91% 20.18% 1.27% Materials 3.45% 1.64% -1.82% Telecommunication Services 2.73% 3.70% 0.98% Utilities 3.48% 2.10% -1.38% Cash 0.00% 1.26% 1.26% Dividend Receivables 0.00% 0.08% 0.08% 100.00% 100.00% 0.00% Sector Information: Size Industry Information Name Telecom Services - Foreign Market Cap 5462.1b Wireless Communications 524.5b Application Software 506.3b SIM Holding Information Name Market Cap Diversified Computer System 279.3b Verizon Communication, 79.69b Sector Total NII Holdings, Inc. 5.97b Total 85.66b Telecom Services – Domestic 284.9b 9059.8b Largest Companies Wireless Communications Telecom Service-Domestic Name Market Cap Name Market Cap China mobile 189.5b AT&T 148.3b America Movil S.A.B. de C.V 77.0b Verizon 79.7b BCE 22.4b NTT DOCOMO 64.3b Century Tel 9.9b Deutsche Telekom AG 47.1b Qwest Communication Internati 8.8b China Unicom HK 27.7b NIHD is ranked 13 in wireless communication Current Performance S&P 500 Telecom Service 1 Day -1.53% -0.63% MTD -6.39% -3.71% QTD -5.01% -5.06% YTD -0.38% -10.43% Business Analysis Wireless Communication Telecom Service - Domestic • Growth • Mature – Still expanding, especially internationally – Huge capital spending required • Cyclical – Fluctuates a lot with business cycle – Established networks and slow demand increase – Little need for increased capital spending • Cyclical – Relatively more resistant to economic fluctuations Supply & Demand • Ability to add new supply – 3G market, especially in developing countries – 4G market in the more developed countries • Demand varies globally – Higher demand increase in developing countries and little demand increase in more developed countries – Innovations and advances in technology help to create new demand • Possible external factors – Government regulations Porter’s 5 Forces Wireless Communications Telecom Services – Domestic Threat of new entry High High Buyer power Moderate Moderate Supplier power Moderate Low Availability of substitutes High High Competition High High Economic Analysis Economic Analysis Economic Analysis Economic Analysis Economic Analysis Economic Analysis Economic Analysis Economic Analysis Economic Analysis Positive • • • GDP growth Population growth – especially growth in middle class of developing nations Consumer confidence Negative • • • • Unemployment rate still high Reduced Capital Expenditures Reduction in New office Construction but also indicating a possible turn around High Office Vacancy looks to be coming down Financial Analysis Telecom Sales and Earnings Financial Analysis Net Profit Margins Compared to S&P 500 Financial Analysis Valuation Analysis Absolute High Low Median Current P/ Trailing E 26.7 9.7 16.2 16.3 P/ Forward E 32.8 10.5 15.4 16.1 P/ B 3.1 1.0 1.9 1.9 P/ S 2.6 0.9 1.5 1.1 P/ CF 12.0 3.5 5.5 4.8 Relative to S&P500 High Low Median Current P/ Trailing E 1.0 0.68 0.92 1.1 P/ Forward E 1.4 0.77 0.96 1.2 P/ B 1.0 0.4 0.7 0.9 P/ S 1.4 0.8 1.0 0.9 P/ CF 0.8 0.4 0.5 0.5 Conclusion • This sector is slightly undervalued • Foresee growth in wireless telecom and international markets • Increase SIM portfolio by 40 basis points to 4.4% Q&A