StarHub – Phillip

Strong Results; Excellent Dividend Play

4Q and full-year results. StarHub reported 4Q operating revenue of S$538.8m (+13.9% yoy) and net profit of S$98.3m (-30.6% yoy). Moreover, EBITDA increased to S$157.4m (+7.8% yoy). It also declared a final dividend of S$0.045 per ordinary share, which was higher than the final dividend of S$0.035 last year. This brought the total annual dividend to S$0.16 (+39.1% yoy) per ordinary share for 2007 that was significantly higher than the total annual dividend of S$0.115 for 2006.

On a full-year basis, operating revenue of S$2,013.7m was 11.6% better yoy. However, net profit of S$330.3min 2007 was 8.3% lower yoy because it was boosted by a tax credit of S$20.0m while the net profit of S$360.2m in 2006 was due to a higher tax credit of S$77.2m. If the tax credits were excluded, net profit in 2007 would be at S$310.3m, which would be an increase of S$27.3m (+9.6% yoy) from S$283.0m in 2006

Performances of the various business units. StarHub reported strong growth in its business units: mobile revenue was S$1,037.2m (+12.8% yoy), cable TV revenue was S$341.8m (+9.1% yoy), broadband revenue was S$246.9m (+12.3% yoy), fixed network service revenue was S$279.9m (+7.9% yoy) and sale of equipment was S$107.9m (+15.9% yoy). As at 31 December 2007, the number of customers for its mobile, cable TV, broadband businesses were 1,757,000, 504,000 and 346,000 respectively.

FY08 Outlook. StarHub expects continued growth in its operating revenue in 2008 to be approximately 10% and will pay a minimum annual cash dividend of 18.0 cents per ordinary share for 2007. The EBITDA margin is estimated to be about 33% of service revenue and the cash capital expenditure as a ratio of operating revenue will not exceed 12%.

HOLD recommendation, target price raised from S$3.16 to S$3.30. StarHub has reported better-than-expected financial results. It is also attractive as a dividend play although its operations are focused on the Singapore market. As a result, we are raising the fair value to S$3.30. Nevertheless, we are maintaining our hold recommendation on the stock due to limited upside in the share price.

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