Target Price Update. Target Price: CLP 7,700 Recomendation: Buy Risk: Medium

Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Entel Target Price: CLP 7,700 Recomendation: Buy Risk: Medium March, 31st 2014 Sector: Telecommunications Analyst: Martín Antúnez martin.antunez@corpgroup.cl T: +56 2 2660 2059 Company Information Ticker: ENTEL CI Equity Closing Price (CLP per share): 6,703 12M Price Range (CLP per share): 6,033 9,539 12M Avg. daily vol (USD mn): 5.4 Shares (mn): 236.5 Market Cap (USD mn): 2,849.4 Shares / ADR: N/A 12M Stock Performance Base Dec 2012=100 Target Price Update Recommendation and Investment Thesis We updated our target price recommendation for Entel at CLP 7,700 per share by the end of 2014, with an associated medium-risk buy recommendation, which considers a price increase of 14.9% and a dividend yield of 4.4%, totaling a yield of 19.3%. Our recommendation is based on the following arguments: A significant expansive plan in Chile and Peru with an investment of USD 843 million in 2014. Approximately USD 691 million a year will be invested in Chile in order to develop new networks. USD 152 million will be assigned to Peru, where the company expects to reach nearly 20% market share in the mid-term (4 to 5 years). We should mention that the scenario in Peru represents a great challenge because of the difference in their business model compared to the current model in Chile. Rising in the value-added services (VAS) and business focus on mobile data. In 2013, the VAS increased 12%, mainly driven by the increase in mobile data use (+33%), one of the trends in the last years that it s reflected on the high penetration the smart-phones have reached. Market saturation, more competition and decrease of the growth rate of mobile subscribers. As of June 2013 Chile reached 23.6 million subscribers, which corresponds to a 134% penetration. This amount is 11 percentage points higher than the average penetration in OECD countries. The number of competitors has also increased, and between 2012 and 2013, 5 new competitors entered the market. On the other hand, the mobile subscribers growth rate has considerably decreased in the last years, and in 2013 it even decreased 1.2%. 120 100 80 Entel IPSA Change in the dividends policy. In order to decrease the debt requirements to finance the investment plan, the company changed its dividend payment policy last year, reducing it from 80% to 50%. Although this might have been positive for the company regarding the benefit for the operating flow, it could have had a negative impact to the share price as well. However, we expect that the new policy continues only up to 2016. 60 40 Risks 20 0 Technological change. The rapid technological progress is an inherent risk for the telecommunication companies because of the changes that can be generated in the future investment flows in new technology, which might become obsolete earlier than anticipated. Source: Bloomberg Regulatory changes. The companies flows can also be affected because of the changes by the regulatory authority, for instance: the change on the access charges. alguna en relación a cualquier tipo de operación que un inversionista realice o pretenda realizar respecto de los instrumentos o valores de que se tratan, o en los mercados o

Entel Target Price (CLP): 7.700 Recomendation: Buy Company Description Founded in 1964, Entel is the largest telecommunications company in Chile with annual revenue uf USD 1.44 billion. It has a leadership position in its market areas. Provides a wide range of integrated telecommunications and IT services: fixed and mobile telephony, internet, transfer and data management services. It has 7,000 employees and a strong support infrastructure, which allows the company to deliver high-quality implementation and operation of its services. ERR (CLP billions) 2012 2013 2014e 2015e 2016e 2017e 2018e Operating income 1.441 1.644 1.735 1.858 1.937 2.058 2.204 Costs -1.219-1.426-1.535-1.647-1.726-1.824-1.943 Operational profit 222 218 201 210 211 234 262 Operational profit % 15,4% 13,3% 11,6% 11,3% 10,9% 11,4% 11,9% EBITDA 537 467 460 488 504 545 594 EBITDA Margin % 37,2% 28,4% 26,5% 26,3% 26,0% 26,5% 26,9% Net Financial Expense -11-19 -13-13 -13-13 -13 Non Operating Profit/Loss -23-24 -26-31 -41-28 -28 Earnings 167 147 137 142 140 155 176 Controlling Earnings 167 147 137 142 140 155 176 Net Margin (Controller) % 11,6% 8,9% 7,9% 7,6% 7,2% 7,5% 8,0% UPA (CLP / share) 707 621 578 599 590 655 743 Property Structure (June 2013) Balance (CLP billions) 2012 2013 2014e 2015e 2016e 2017e 2018e Cash & Equivalents 54 19 29 54 49 63 87 Pension funds 36% Others 9% Other Current Assets 369 549 540 563 570 592 617 Property, Plant and Equipment 1.117 1.334 1.544 1.735 1.911 1.911 1.911 Other non current assets 155 354 354 354 354 354 354 Total Assets 1.695 2.257 2.467 2.706 2.885 2.921 2.970 Financial Debt 436 840 1.000 1.130 1.230 1.145 1.045 Total Liabilities 881 1.376 1.523 1.694 1.807 1.763 1.711 Total Stockholders Equity 814 881 944 1.012 1.078 1.160 1.262 Noncontrolling Interest 0 0 0 0 0 0 0 Sales (Dec 2013) - Last 12 month FC (CLP billions) 2012 2013 2014e 2015e 2016e 2017e 2018e Operational Profit 222 218 201 210 211 234 262 Adjusted Taxes -44-44 -42-46 -48-54 -60 Mobile Serv ices Chile 77% Altel Inv ersiones 55% Mobile Serv ices Perú 3% Other serv ices 20% Depreciation & Amortization 315 249 260 278 293 311 332 Capex -401-463 -469-469 -469-311 -332 Δ Working Capital 22-20 -4 19 6 19 23 Free Cash Flow 113-60 -55-9 -8 199 225 Capital Increase 0 0 0 0 0 0 0 Dividends -130-89 -73-73 -73-73 -73 New Debt 0 0 160 130 100-85 -100 Comparables P/E Ratio EV/EBITDA Ratios 2012 2013 2014e 2015e 2016e 2017e 2018e Telefónica Chile 12,8 3,1 Share Price (CLP) 9.476 7.131 6.703 6.703 6.703 6.703 6.703 Telefónica Brasil 11,2 5,1 P / U (x) 13,4 11,5 11,6 11,2 11,4 10,2 9,0 América Móvil (Mex) 12,2 5,3 Liabilities/Equity (x) 1,1 1,6 1,6 1,7 1,7 1,5 1,4 Verizon (USA) 16,8 6,0 EV / EBITDA (x) 4,9 5,4 5,6 5,5 5,5 4,9 4,3 Vodafone (USA) 6,0 6,6 EBITDA / Financial Expenses (x) 39,2 22,4 31,0 32,9 33,9 36,7 40,0 Net Financial Debt / EBITDA (x) 0,7 1,8 2,1 2,2 2,3 2,0 1,6 ROA (% ) 9,9% 6,5% 5,5% 5,2% 4,8% 5,3% 5,9% β (vs IPSA): 1,00 ROE (% ) 20,6% 16,7% 14,5% 14,0% 12,9% 13,4% 13,9% WACC: 8,9% Dividend Yield (% ) - 4,0% 4,4% 4,6% 4,6% 4,6% 4,6% Source: CorpResearch, Bloomberg, Company financial reports

2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Market shares Entel 39% Movistar 38% Claro 22% Others 1% Saturation of the telecommunications market will impact the services portfolio. The telecommunications market has showed important changes in the latest years, mainly regarding the maturity reached, the technological progress, and consumer s preferences. The growth rate in the number of subscribers in Chile has decreased since 2011, and in 2013 this number decreased as well. The mobile subscribers penetration rate has reached very high levels; even higher than in developed economies, reaching 134% in 2013, while the penetration of developed and developing economies is 128% and 89%, respectively, based on International Communication Unit (ITU) data. This is an indication of saturation in the telecommunications market. Number of Subscribers in Chile (millions) Source: Subtel Income CLP billions 2,500 2,000 1,500 1,000 500 0 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 30 25 20 15 10 5 0 Source: Subtel Subscribers % Variation 60% 50% 40% 30% 20% 10% 0% -10% Source: Entel, CorpResearch EBITDA CLP billions 700 600 500 400 300 200 100 0 Income 20% 15% 10% 5% 0% -5% -10% -15% New competitors and regulation changes would increase the competition in the Chilean market. The increase in competition is also an important issue when valuating Entel. In the last two years, five new competitors entered the market that although they have a minor market share today, could become relevant players in the future and push prices down. The regulatory entity (Subtel), is another relevant player considering that one of its tasks is to encourage the competition in the area. Subtel has urged important changes in the Chilean industry, for instance, the modification to access charges that in January of this year were decreased to 73%, which implies a reduction of the entrance barriers for the competitors. Another change that we observe in the industry is the clear trend of the last years regarding the use of data instead of the use of voice (use of chats instead of direct phone calls). The penetration of users with data plan went up from 42% in 2012 to 55% in 2013, which represents an important growth for such short period. On the other hand, in the period 2008-2012 the minutes used in Chile were growing at an average of 19% a year, and in 2013 the growth rate was only 2%. EBITDA % Variation Source: Entel, CorpResearch

41183 41214 41244 41275 41306 41334 41365 41395 41426 41456 41487 41518 41548 41579 41609 Clients by service Use of Mobile Data & Voice (millions) 10.0 2.8 Claro 9.5 2.7 2.6 Movistar 9.0 8.5 2.5 2.4 Entel 0% 20% 40% 60% 80% 100% 8.0 7.5 Mobile data (number of conections) Voice 2.3 2.2 2.1 Prepaid clients & MBB Postpaid clients & MBB Source: Company Financial Reports Source: Subtel In our projections, we assume that the total base of clients, defined as the sum of the prepaid clients and MBB (Mobile Broadband), remains unchanged in the next few years, and decreases in the long term because of greater competition and industry maturity. Nonetheless, we expect a change in the mix of clients, where the postpaid (high value) will increase, the prepaid (low value) will decrease, and the MBB clients will decline until they disappear. The increase of the penetration of plans of data users is what will provoke this drastic decrease of the use of MBB, since consumers will replace this service for plans with mobile data, whether prepaid or postpaid. In line with market trends and the industry scenario, the company s strategic focus is to improve the mobile services, specially the added value services such as mobile internet. By improving the coverage of the 3G technology and by incorporating some new ones such as 4G, Entel expects to maintain the strong position that has allowed them to compete with international companies like Movistar. A few months ago the company was awarded the rights to use broadband in a 2600 MHz frequency, and recently, it was granted frequencies in the 700 MHz spectrum for the 4G network, which will allow them to develop and improve value added services. It is important to point out that the number portability has been positive for Entel, since the prepaid clients decreased, but the postpaid clients increased and this is where the company is stronger compared to its competitors. To achieve their goals, the company announced a CAPEX of USD 843 million for 2014, where USD 691 million will be assigned to Chile and USD 152 million to Peru.

PER Entel (Price/Earnings Ratio) 2014e 2013 2012 2011 2010 2009 13.4 11.5 14.0 12.7 11.3 12.2 Perú The company s arrival in Peru will be key for growth. As of December 2013, they have approximately 5.5% market share, taking the third place after Mobile America (39.2%) and Telefónica Móvil (55.5%). Entel expects to reach a share of about 20% the next 4 or 5 years. The strategy to achieve this goal is to replicate the business model used in Chile, which will require sizeable investments in the first years, since high levels of expenses in SG&A will be needed. Approximately USD 200 million per year will be invested in the country for the next 3 years. It is important to point out that Peru has a high share of prepaid clients, they use a lot the Press to Talk (PTT) system, and Entel s challenge is to encourage the switch to postpaid contracts and the use of mobile data. On the other hand, if we consider the good economical expectations for the country, the high prepaid component, the gap that exists in Chile regarding market penetration and the ARPU, we see an important potential of growth for the company. 2008 Source: CorpResearch, company reports 10.7 We expect for the year 2014 a 6% growth in consolidated income, however, because of the decrease of 73% in access charges, this comparison would not be consistent. On a pro forma basis, discounting a 73% of the access charges as of 2013, the growth rate would be approximately 14%. For EBITDA, we expect a 2% fall, explained mainly because of a decrease of the operating margin. In this case the EBITDA would be affected by the change in the access charges since lower income offset lower costs. Change in the dividend policy. During early 2013, Entel changed its dividend policy, lowering its target dividend payout from 80% to 50%, which it expects to maintain until 2016. The positive aspect of this strategy is that the lower dividend distribution will help finance the plan while also decreasing debt requirements. The indebtedness ratios of the company were quite high during 2013; the net financial debt to EBITDA went up from 0.7 times in 2012 to 1.7 times in 2013, and we believe that this ratio may increase up to 2.3 times because of the investment needed. We think that the latter would not mean major inconvenience for the company given the solid financial position and the stability of its cash flows, so there would not be any problems to pay its future obligations with the creditors.

Valuation In order to estimate Entel s target price we use a discounted cash flow model, in which we project the cash flows (nominal and local currency) until the year 2022 and then we consider a perpetual growth of a 2.0% nominal. An 8.9% discount rate was used, and it was calculated based on a weighted average of the 2 countries WACC where the company operates. This considers a beta of 0.99, free risk rate of 5.0% and risk premium of 5.5%. We also considered a tax rate of 25%. *Exchange rate at the closing of March, 29, 2014

Glosario Término Definición / Traducción Cálculo EBITDA EBITDAR Utilidad antes de intereses, impuestos, depreciación y amortización (Earnings Before Interests, Taxes, Depreciation and Amortization) EBITDA más arriendo de activos fijos (Earnings Before Interests, Taxes, Depreciation, Amortization and Rents) Resultado Operacional más Depreciación más amortización EBITDA más arriendos de activo fijo. Se usa en las industrias aeronáutica y marítima y se reversa el arriendo de aviones o buques EV Valor de los Activos de la Empresa (Enterprise Value) Patrimonio Bursátil más Deuda Financiera Neta más Interés Minoritario EV/EBITDA Múltiplo de valorización. Mientras mayor sea, más cara está la acción EV dividido por Ebitda EVA Valor Económico Agregado (Economic Value Added) Resultado Operacional neto de impuestos sobre capital empleado FCL Flujo de Caja Libre EBITDA menos impuestos menos inversiones más (menos) variación del capital de trabajo Free-float Margen Operacional Ebitda Neto Porcentaje de las acciones que puede transarse libremente en el mercado Porcentaje de las ventas Porcentaje de las acciones que no pertenece a los controladores Resultado Operacional / Ventas Ebitda / Ventas Utilidad / Ventas P/U Relación Precio / Utilidad Precio de la acción dividido por la UPA P/VL Relación Precio a Valor Libro Precio de mercado de la acción dividido por el valor contable de la acción Retorno de Dividendos Retorno FCL Rentabilidad que entrega una acción por concepto de dividendos Rentabilidad del Flujo de Caja Libre que genera la empresa Dividendos repartidos en un año dividido por el precio de la acción FCL / Precio de la acción ROA Retorno de los Activos (Return on Assets) Utilidad del ejercicio / Activo Total ROE Retorno del Patrimonio (Return on Equity) Utilidad del ejercicio / Patrimonio contable UPA Utilidad por acción Utilidad del ejercicio / Número de acciones x Veces YtD Año a la fecha (Year to Date) Variación porcentual en lo que va del año Recomendaciones sobre acciones: se establecen de acuerdo al retorno relativo respecto del IPSA. Se recomienda Mantener cuando se espera que la acción tenga un retorno total similar al del IPSA; Comprar, cuando el retorno esperado para la acción es superior al esperado para el IPSA; y Vender, cuando el retorno esperado para la acción es inferior al esperado para el IPSA. Se define como Retorno similar al del IPSA al que esté dentro de un rango con una amplitud equivalente a un tercio de la variación esperada para el índice, con un mínimo de 5%.

CorpResearch Álvaro Donoso Director CorpResearch adonoso@corpgroup.cl Estudios Económicos Sebastián Cerda Director Ejecutivo CorpResearch y Estudios Económicos scerda@corpgroup.cl Nicolás Birkner Jefe de Análisis Macro y Financiero nicolas.birkner@corpgroup.cl Karla Flores Analista Económico karla.flores@corpgroup.cl Estudios de Renta Variable Vicente Meschi Subdirector de Estudios de Renta Variable vicente.meschi@corpgroup.cl Sergio Zapata Analista Senior. Sectores: Eléctrico, Utilities. sergio.zapata@corpgroup.cl Cristóbal Casassus Analista. Sectores: Bancos y Transporte cristobal.casassus@corpgroup.cl M Josefina Güell Analista. josefina.guell@corpgroup.cl Patricio Acuña Analista. patricio.acuna@corpgroup.cl Martín Antúnez Analista. Sectores: Construcción, Telecomunicaciones. martin.antunez@corpgroup.cl Rosario Norte 660 Piso 17, Las Condes, Santiago. Teléfono +562 2660 3600 www.corpbancainversiones.cl

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