StarHub – Phillip
FY2008 results. StarHub reported FY2008 operating revenue of S$2,127.6m (+5.7% yoy) and net profit of S$311.3m (-5.8% yoy). It also declared a final dividend of S$0.045 per ordinary share, bringing the total dividend for FY2008 to S$0.18 (+12.5% yoy) per share. This was higher than the total dividend of S$0.16 last year. Net profit dropped because of higher acquisition and retention costs. This was a result of mobile phone numbers becoming portable on 13 June 2008. In addition, tax expenses were higher in FY2008 because there was credit adjustment for deferred tax assets and tax adjustment for revision in corporate tax rate in FY2007.
Performances of the various business units. StarHub reported strong growth in most of its business units: mobile revenue was S$1,079.0m (+4.0% yoy), Pay TV revenue was S$398.2m (+16.5% yoy), broadband revenue was S$253.2m (+2.5% yoy) and fixed network service revenue was S$299.9m (+7.1% yoy). This was because StarHub was successful in attracting new customers to its services. As at 31 December 2008, the number of customers for its mobile, Pay TV and broadband businesses were 1,765,000, 524,000 and 373,000 respectively. Pay TV outperformed as there was higher take-up of premium channel and strong growth in the subscriber base.
However, sale of equipment fell to S$97.3m (-9.8% yoy). We felt that this could be due to consumers turning more cautious in their purchases during the economic slowdown.
Profit margin. Net profit margin increased from 15.2% in 3Q FY2008 to 16.3% in 4Q FY2008 mainly due to higher mobile, Pay TV and broadband revenue. Based on a year-on-year comparison, it fell from 16.4% in FY2007 to 14.6% in FY2008 because of higher cost of services and operating expenses.
The actual revenue and profit were 5.4% and 2.3 percent below our forecasts respectively. This can be attributed to the economic slowdown, which resulted in the number of new customers below our expectations. Moreover, the introduction of mobile number portability resulted in higher costs.
FY2009 Outlook. StarHub will upgrade its mobile networks and promote its Demand TV service to attract new customers. It expects growth in its operating revenue in FY2009 to be a low single digit. Furthermore, it intends to pay a minimum cash dividend per quarter of S$0.045 per ordinary share, bringing the total to S$0.18 for the full year.
HOLD recommendation, target price cut from S$2.99 to S$2.14. In view of the worse-than-expected financial results and the negative impact from the recession on future earnings, we have reduced our target price from S$2.99 to S$2.14 under the discounted cash flow (DCF) model.
Although StarHub offers its services only in Singapore, it continues to be an attractive stock as it offers dividend yield of 8.7%. We kept our Hold recommendation because of limited upside in the share price to our target price of S$2.14.