StarHub – CIMB
• Within expectations; high-quality revenue growth. 3Q07 earnings of S$81m (-0.1% yoy) is about 4% above our estimate and 9% above consensus. As expected, earnings were driven by solid revenue growth (+11.4% yoy). EBITDA margins, which declined to 32% from 34% due to a timing lag between the repricing of sports packages (starting October) and the booking of BPL costs (started in August), are within our expectations. Overall, this was a strong quarter for StarHub. Accordingly, management raised its FY07 revenue guidance to 11% growth from “high single digits”.
• Mobile powered the 11.4% topline growth. While prepaid led growth (+21% yoy) on strong subscriber growth (+29% yoy), postpaid was the star. Postpaid ARPU rose 10% yoy to S$78 as StarHub enjoyed a successful MaxMobile (wireless broadband) launch, captured higher-ARPU subscribers as well as increased IDD and roaming fees during the quarter.
• Our EBITDA margin assumption remains intact. EBITDA margins hit a low this quarter on account of the timing lag in the repricing of higher BPL content cost and as StarHub spent more on acquiring higher-ARPU postpaid subscribers. Our EBITDA margins have accounted for higher customer acquisition costs in 4Q07.
• Key revenue growth catalysts remain: 1) increased roaming from robust regional economies and MaxMobile driving postpaid ARPU; 2) a foreign-worker influx driving prepaid mobile; and 3) strengthened product offering and sportschannel repricing driving cable TV growth. We believe cable TV has the greatest scope to surprise.
• Maintain Outperform; target price nudged up to S$3.66 from S$3.64. Our target, still based on DCF valuation (6.9% WACC; 1% terminal growth rate), has been nudged up after we upgraded our FY07-09 earnings estimates by 1-3% to reflect stronger mobile growth. We continue to believe StarHub offers the best exposure to Singapore’s telco service consumption boom as the leading quadruple-offering operator. It remains our top Singapore telco pick over a 12 month horizon.