StarHub – CIMB
Concerns are lifting
• Concerns are lifting. StarHub’s range-bound share price over the past 12 months reflected swelling concerns on potential risks from SingTel’s mioTV threat, mobile number portability (MNP) and Next-Generation Broadband Network (NGNBN). We are seeing signs that this wall of worry is receding, setting the stage for sustained share price advance.
• Cable TV could surprise to the upside in 2008. StarHub has beefed up its cable TV offerings in 2H07 to spur both subscriber growth and take-up of add-on packages in 2008. We also believe that the impending launch of Video on Demand (VOD) in 2H08 is likely to benefit from pent-up pay-per-view demand for StarHub’s unrivalled content library. Sports Group re-pricing which only took effect from October 2007 also provides tailwind to 2008 revenue growth.
• Scope remains for upgrades to consensus dividend expectations. Consensus is expecting CY08 yield of 5.9%, based on StarHub’s commitment to a minimum DPS of 18 cts. We expect consensus estimates to creep towards our CY08 DPS of 30 cts (9.8% yield), mostly funded by free cashflow. Our view is supported by StarHub’s end-07 capital structure of 1.3x net debt/EBITDA which is below the 1.8x target.
• Reiterate Outperform with unchanged DCF-based target price of S$3.76 (WACC: 6.9%, growth: 1%). StarHub remains our top pick for the Singapore telco sector. We like StarHub for its exposure to the telco services consumption growth spurred by Singapore’s rise as a key global city, its unrivalled triple-play proposition and robust 9.8% yield prospects backed mostly by free cash flow.