StarHub – Phillip

Results were below expectations

2Q FY08 results. StarHub reported 2Q operating revenue of S$531.4m (+8.6% yoy) and net profit of S$64.2m (-20.5% yoy). Moreover, EBITDA decreased to S$146.7m (-10.4% yoy). It also declared an interim dividend of S$0.045 per ordinary share, which was higher than the dividend of S$0.040 last year.

Net profit was substantially lower due to higher acquisition and retention costs as mobile phone numbers became portable on 13 June 2008. StarHub reported that a record number of people chose its services.

Performances of the various business units. StarHub reported strong growth in most of its business units: mobile revenue was S$269.3m (+6.5% yoy), cable TV revenue was S$102.1m (+24.9% yoy), broadband revenue was S$62.3m (+0.4% yoy) and fixed network service revenue was S$74.5m (+12.1% yoy). However, sale of equipment was lower at S$23.2m (-10.4% yoy). As at 30 June 2008, the number of customers for its mobile, Pay TV and broadband businesses were 1,796,000, 511,000 and 358,000 respectively.

FY08 Outlook. StarHub expects continued growth in its operating revenue in 2008 to be approximately 7% and will pay a minimum annual cash dividend of 18.0 cents per ordinary share for 2008. The EBITDA margin is estimated to be about 31% of service revenue and the cash capital expenditure as a ratio of operating revenue will not exceed 12%.

HOLD recommendation, target price reduced from S$3.30 to S$2.99. Based on the discounted cash flow (DCF) model, we have reduced our target price from S$3.30 to S$2.99 as we have reduced our profit estimates for FY2008 to FY2010. However, StarHub continues to be an attractive dividend play although its operations are focused on the Singapore market. Due to the limited upside in the share price, we have a hold recommendation on the stock.

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