StarHub – OCBC
Sustainable dividend policy
Hubbing as a value proposition. StarHub, while it is not immune to the economic slowdown, should not see any drastic cutback in demand for its services (mobile, Internet broadband and cable TV). If anything, we believe that customers searching for “value” may be enticed by the relatively attractive cost savings offered by its “Hubbing” strategy from subscribing to all three of its services. However, it may face some competition from SingTel, as its rival also has similar bundling abilities. Nevertheless, we note that the Hubbing strategy has been fairly successfully thus far, and has helped to keep StarHub’s monthly churn around 1% versus the 1.8% for M1 which has no bundling ability; SingTel’s churn continues to be the lowest at 0.8%. However, as StarHub is unable to offer the new Apple iPhone 3G this year, versus earlier comments that it would have it by yearend, we may see an increase in churn as customers defect to SingTel.
Not chasing after subscriber growth. In any case, StarHub stated that it is not keen to chase after subscriber growth, especially in the highly competitive pre-paid segment. As can be seen from its 3Q08 results, the telco was willing to further reduce its pre-paid customer base by another 7.6% QoQ (-4.1% QoQ in 2Q08) to stabilize the ARPU (Average Revenue per User), which recovered to S$22 from S$20 in the previous quarter. On the other hand, it added about 17k new post-paid customers (+2.0% QoQ) but its 3Q08 ARPU has eased from S$77 in 2Q08 to S$74. While management noted that 50% of the S$3 drop was due to 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.
Sustainable dividend policy. While earnings are expected to take a slight knock next year due to the recession, we do not anticipate much of an impact on its healthy operating cashflows. In fact, we expect more prudent capex spending and other cost-reduction measures to further improve operating cashflows and in turn, sustain the already attractive dividend policy. StarHub has committed itself to paying out at least S$0.18 of dividend (S$0.045 per quarter) this year and we expect the same, if not better, dividends next year. Maintain BUY and S$2.81 fair value.