StarHub – OCBC

Keeps 7% revenue growth for 2008

Mildly upbeat 3Q08 results. StarHub Ltd posted 3Q08 revenue of S$524.6m, up 2.2% YoY but down 1.3% QoQ; this was about 2.3% and 2.7% short of our estimate and the consensus number, respectively. Although net profit fell 2.3% YoY to S$79.4m, it was up 23.7% QoQ; it was also about 6.0% ahead of our forecast albeit still 3.5% shy of consensus. 9M08 revenue rose 7.9% to S$1,590.9m, meeting 74.3% of our full-year estimate, while net profit fell 3.6% to S$223.7m, or about 74.2% of our FY08 forecast. It also declared a S$0.045 dividend as expected.

Decline in mobile revenue. On the mobile front, StarHub saw revenue fall 0.7% YoY and 1.8% QoQ to S$264.4m. One reason was the 13.4% YoY (+2.1% QoQ) drop in pre-paid revenue following a 71k decline in subscribers – it was a pre-meditated move to stabilise its user base and this resulted in its ARPU (Average Revenue per User) improving back to S$22, up from S$20 in 2Q08, though still much lower than the S$26 in 3Q07. While StarHub added 17k new post-paid customers, ARPU eased from S$77 in 2Q08 (S$79 in 1Q08) to S$74 – 50% of the drop was due to more data-only subscribers and the rest coming from drop in minutes used from 515 in 2Q08 (523 in 1Q08) to 492 per month. It added that it would be keeping a close watch on this as it could be a precursor to further drops as the recession deepens.

Keeps 7% revenue growth guidance. StarHub was able to reduce its average acquisition cost per user back from S$148 in 2Q08 (S$124 in 1Q08) to S$104. While we do expect this number to increase going into the holiday season, management does not expect a big blow-out due to the uncertain economic environment. StarHub also revealed that it will not be launching the Apple iPhone 3G this year and this should also help to keep its handset subsidies in check. However, we do not rule out an increase in churn on this news. Nevertheless, management remains confident that it can maintain its 7% growth guidance for this year.

Keep BUY with S$2.81 fair value. But outlook for 2009 is more uncertain and we have pared our FY09 numbers slightly to adopt a more conservative stance. While this drops our fair value to S$2.81 (prev: S$3.19), we keep our BUY rating due to its attractive dividend yield (7.9% expected for 2009) and its fairly defensive business.

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