StarHub – OCBC

Eyes 10% revenue growth in FY08

Good 4Q07 results. StarHub Ltd posted a good set of 4Q07 results, with revenue up 13.9% YoY and 5.0% QoQ to S$538.8m, aided by good performance from all its business units. Although net profit fell 30.5% YoY (+21.0% QoQ) to S$98.4m, we note that the year-ago quarter was boosted by S$57.6m tax credit versus S$6.7m in 4Q07 (none in 3Q07). It was also ahead of our forecast of S$81.4m and the consensus of S$81.9m. Looking at the pre-tax level, earnings were actually up 9.4% YoY, although it was down 9.2% QoQ. However, we are not surprised by the sequential drop as StarHub typically incurs higher acquisition cost (S$97/connection versus S$92 in 3Q07) in the last quarter. As a result, EBITDA margin also slipped from 33.7% in 3Q07 to 31.2%.

For the full year, revenue grew by a decent 11.6% to S$2,014m, though shy of our S$2,100m estimate, net profit of S$330.4m (down 8.3%) was about 5.4% higher than our estimate. StarHub also declared a final dividend of S$0.045/share (versus S$0.035 in 4Q06), bringing the total dividend for the year to S$0.16 (versus S$0.115 in FY06).

Mobile continues to drive growth. On a segmental basis, its mobile business continues to dominate, contributing around 51.2% of total revenue in 4Q07, up 14.4% YoY and 3.5% QoQ. On the subscriber front, StarHub managed to add some 74,000 new customers, but as the bulk came from the pre-paid segment, EBITDA margin eased to 35% from 40.8% in 3Q07. We note that it was also partly due to the seasonal factor as well as pricier handsets as acquisition cost rose to S$97, up from S$92 in 3Q07. Also worth mentioning, its cable TV business showed a 19.9% YoY and 10.7% QoQ increase to contribute 17.6% of total revenue, aided by a rise in ARPU to S$55, up from S$51 in 3Q07, following an increase in the Sports Group subscription fee in the quarter.

FY08 growth to remain at 10%. For FY08, management remains confident that it can sustain revenue growth at 10%, and hold EBITDA margin on service revenue at about 33%. It also aims to pay a minimum cash dividend of S$0.18/share, or around S$0.045 per quarter. In line with the latest guidance, we have adjusted our FY08 estimates by around 4% higher. Again, we see StarHub as a good defensive stock, backed by an attractive dividend policy, hence we maintain our BUY rating with a revised fair value of S$3.51.

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