StarHub – OCBC

1Q08 results mostly in line

1Q08 results within expectations. StarHub Ltd posted a relatively good set of 1Q08 results, with revenue up 13.2% YoY (down 0.7% QoQ) to S$534.9m, meeting about 24.2% of our FY08 estimate, while net profit rose 14.4% YoY (down 18.6% QoQ) to S$80.1m, or around 23.9% of our FY08 number. EBITDA posted a 6.3% YoY (+6.5% QoQ) rise to S$167.7m, but margin eased from 35.0% in 1Q07 to 33.1%. Dow Jones poll was expecting StarHub to post earnings of S$84.7m on revenue of S$534.0m. StarHub also declared a quarterly tax-exempt dividend of S$0.045, up from S$0.035 a year ago, in line with its guidance of at least S$0.18 payout this year.

Cable TV was star performer. Cable TV operations showed the best improvement, up 22.7% YoY and 2.3% QoQ, to contribute 18.2% of revenue (versus 16.8% in 1Q07, 17.6% in 4Q07), aided by a continued rise in ARPU from S$55 to S$57/subscriber as well as the addition of 4k new customers. Cable broadband saw a modest 6.1% YoY (+2.7% QoQ) rise in sales, despite 6k rise in subscribers; ARPU also eased from S$60 to S$59/user as more customers subscribed for its new low-price plan service. Cable EBITDA edged down from 27.4% in 1Q07 to 25.9%, dented by the higher cost of new content and customer retention.

Competition heats up in mobile segment. Mobile business saw sales rise 12.7% YoY (down 0.9% QoQ), still contributing about 51.1% of total revenue. StarHub added about 43k new subscribers, with the bulk again coming from the pre-paid segment, but the 31k new adds only brought on a 2% increase in revenue. On the other hand, the 12k new post-paid adds led to a 16% revenue rise. But mobile EBITDA fell sharply from 43.1% in 1Q07 to 36.6%, after average acquisition cost jumped 27.8% QoQ to S$124/ user, the highest since 1Q05, as StarHub moved to aggressively defend its market share ahead of the implementation of true mobile number portability (MNP) in June 2008.

Watching EBITDA margin most closely. Management is keeping to its guidance (10% revenue growth, 33% EBITDA margin, S$0.18 dividend) for this year, but EBITDA margin could come under pressure from the intense mobile competition. Nevertheless, we are keeping our FY08 estimates unchanged and our fair value remains at S$3.51. Coupled with the decent 6% dividend yield, we maintain our BUY rating.

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