StarHub – CIMB

ARPU growth story

ARPU growth story

We have updated our postpaid mobile ARPU assumptions to reflect our view that StarHub is poised to enjoy postpaid mobile ARPU growth from the successful take-up of MaxMobile (Singapore’s fastest wireless broadband service with exclusive BPL content) as well as recent innovative roaming plans, e.g. OneSIM Indosat roaming service and pay-per-day data roaming flat-rate service under the Conexus Mobile Alliance.

While we maintain our ARPU assumptions for pay TV, we believe there is scope for upside surprise in 2008. The potential surprise is likely to come from increased sales of add-on packages from a rejuvenated program offering. The sports channel repricing that took effect from October 2007 has been factored into our assumptions.

Poised to ride on population growth

We have also raised our subscriber growth estimates for StarHub to reflect our view of robust immigration flow into Singapore and expectation for StarHub to get more aggressive in defending its mobile subscriber market share at around 33%. We have gained greater confidence in StarHub’s will to defend its market share following our recent discussion with management and on-the-ground observation of promotional activities.

Valuation and recommendation

Maintain Outperform with higher target price of S$3.76. Earnings for FY07-09 are raised by 1-5% to reflect postpaid ARPU growth opportunities and a more robust subscriber growth from Singapore’s immigrant boom. Accordingly, our DCF-based (WACC: 6.9%, terminal growth: 1%) target price goes up to S$3.76 from S$3.66. Riskreward looks compelling with downside risk limited by hefty yield of over 10% and share buybacks at below S$3.00. StarHub is our top pick for the Singapore telco sector for having the best exposure to telco service consumption growth in Singapore on the back of an immigrant boom and the fastest wage growth in seven years. StarHub continues to be the best-in-class triple-play operator and enjoys distinct advantages in terms of exclusive content (e.g. BPL) and the fastest wireless and wired broadband access in Singapore.

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