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.

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