StarHub – DBS
Improved market share & margins
• Net profit of S$82m (+3% y-o-y) was slightly ahead of expectations due to better margins
• Corporate data segment was the star performer and key factor for the +6% revision to FY10F earnings
• Trading at similar valuations to M1, despite stronger business model. Buy for attractive valuations and assured 18 cents DPS.
Corporate data business was star performer. Net profit of S$82m (+3% y-o-y, -6% q-o-q) was ahead of our S$80m forecast, due to strong results at its corporate data business. We believe StarHub’s new COO, Mr Tan Tong Hai (credited with turning around Singapore Computer Systems, which was acquired by SingTel recently) is the key driver of corporate business – the next growth engine for StarHub. There was weakness in mobile and broadband ARPU due to the weak economy, but overall service EBITDA margin of 33% was better than we expected. There were improvements in its mobile and pay TV market shares.
FY10F earnings raised by 6%. Management revised its EBITDA margin guidance from 31% of service revenue to 32%, while service revenue would be flat, in line with our FY09F estimates. We raised FY10F earnings by 6% in view of stronger growth from the corporate data segment as StarHub increases access from 800 buildings currently to 2,600 buildings in the next 2-3 years through the National Broadband Network.
Attractive valuations and assured 9.4% yield. The market is worried about SingTel bidding irrationally high for English Premier League (EPL) content in 3Q09. We believe this is unlikely to happen, as SingTel is a ROI driven company. But to be conservative, we factored in high cost of EPL content in our FY10F and FY11F estimates. Maintain Buy and S$2.20 target price, pegged to 12x PER