StarHub – OCBC

Guides for Stable FY09 Outlook

4Q08 results within expectations. StarHub reported its 4Q08 results last night, with revenue down 0.4% YoY at S$536.7m, while net profit fell 10.9% to S$87.5m. But we note that the decline was mainly due to a larger tax credit in 4Q07; pre-tax profit was actually up 8.1% YoY at S$99.0m. And on a sequential basis, revenue was up 2.3%, and while it was about 2.3% lower than our forecast, its net profit jumped climbed 10.2%, which was also about 12.5% above our estimate. Again, the main reason for the “outperformance” was due to a lower-than-expected tax rate (11.6% in 4Q08 versus 21.2% in 3Q08). Otherwise, the results were mostly within expectations.

For the full year, revenue rose 5.7% to S$2127.6m, or about 0.7% shy of our forecast, and also below its growth guidance of 7%, while net profit eased 5.7% to S$311.3m, but still 3.2% ahead of our estimate. StarHub also declared a final dividend of S$0.045/share as promised.

Recovery in mobile revenue. On the mobile front, although revenue was down 1.2% YoY at S$272.2m, it was up 3.0% QoQ, which also reverses the previous quarter’s 1.8% QoQ slide. The rebound was due to the 1.2% QoQ growth in pre-paid customers (following two straight quarters of decline), as well as a pick up in pre-paid ARPU from S$22 in 3Q08 to S$25. For its post-paid segment, although net adds grew by 1.6% QoQ and revenue grew by 1.1% QoQ, ARPU slipped further from S$74 in 3Q08 (S$77 in 2Q08) to S$71; management explained that the decline was due to a higher mix of subscribers on data only plans, as well as lower usages of IDD and roaming services. Meanwhile, StarHub was able to reduce its average acquisition cost per user further from S$104 in 3Q08 to S$86.

Guides for low single-digit growth. Going forward, management expects FY09 operating revenue to grow by low single-digit; it also expects to keep service EBITDA margin at around 31%, and keep its capex within 11% of operating revenue. More importantly, based on its projected profitability and cash flow, StarHub intends to continue to pay S$0.045/cent dividend every quarter, totalling S$0.18 for the full year.

Keep BUY with S$2.78 fair value. But given the still uncertain economy climate, we are just bumping up our FY09 estimates marginally (0.9% to 1.5%), and due to the slightly higher capex, our DCF-based fair value eases slightly from S$2.81 to S$2.78. Nevertheless, we continue to believe that StarHub’s business remains resilient and coupled with an attractive 8.9% dividend yield, we maintain our BUY rating.

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