StarHub – Phillip

Strong results; within expectations

1Q FY08 results. StarHub reported 1Q operating revenue of S$534.9m (+13.2% yoy) and net profit of S$80.1m (+14.5% yoy). Moreover, EBITDA increased to S$167.7m (+6.3% yoy). It also declared an interim dividend of S$0.045 per ordinary share, which was higher than the dividend of S$0.035 last year.

Performances of the various business units. StarHub reported strong growth in its business units: mobile revenue was S$273.2m (+12.7% yoy), cable TV revenue was S$97.2m (+22.7% yoy), broadband revenue was S$64.1m (+6.0% yoy), fixed network service revenue was S$72.7m (+6.7% yoy) and sale of equipment was S$27.8m (+23.7% yoy). As at 31 December 2007, the number of customers for its mobile, Pay TV and broadband businesses were 1,799,000, 508,000 and 352,000 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%.

It has introduced new services to meet the demands of its customers. For example, it has launched a new flat rate data roaming service to give customers a simplified rate structure and better control on costs while roaming outside Singapore. Moreover, in the Pay TV business, it continues to add more content and variety to its TV programmes to appeal to more audience. Furthermore, it has teamed up with City Telecom (HK) Limited and M1 to jointly submit a bid for the Next Generation National Broadband Network (NGNBN) project.

HOLD recommendation, target price maintained at S$3.30. StarHub is attractive as a dividend play although its operations are focused on the Singapore market. Due to limited upside in the share price, we are maintaining our hold recommendation on the stock and fair value at S$3.30.

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