StarHub – Phillip
3Q09 results. StarHub reported 3Q09 operating revenue of S$537.1m (+2.4% yoy) and net profit of S$85.2m (+7.1% yoy). Net profit rose because of higher revenue, lower staff costs and marketing and promotion expenses as well as decrease in tax provisions. It also announced an interim dividend of S$0.05 per ordinary share for 3Q09, which was higher than S$0.045 for 3Q08.
Performances of the various business units. The revenue of the various business units was as follows: mobile revenue was S$276.8m (+4.7% yoy), Pay TV revenue was S$100.3m (+1.9% yoy), broadband revenue was S$58.8m (-6.1% yoy), fixed network services revenue was S$79.8m (+6.2% yoy) and sale of equipment was S$21.4m (-11.3% yoy).
Mobile revenue was higher due to an increase in the number of post-paid and prepaid customers to 923,000 (+5.1% yoy) and 961,000 (+11.2% yoy) in 3Q09. Pay TV revenue increased because the number of customers gained by 2.9% to 535,000. Broadband revenue dropped as customers selected lower speed and discount plans. Fixed network services revenue rose as revenue from data and internet services increased more than the decline in voice services revenue. Sale of equipment fell as customers bought cheaper mobile phones.
Greater competition in Pay TV. We expect more competition for StarHub in Pay TV. StarHub had lost the bid to SingTel for the rights to BPL matches for a period of three years beginning August 2010. We expect football fans to switch from StarHub’s Cable TV to SingTel’s mioTV and this will affect StarHub’s revenue and profit.
iPhone this year. StarHub announced that it has reached an agreement to offer iPhone to its customers later this year. We believe that this will boost its number of mobile customers and help it to compete against SingTel and M1, which also offer iPhones. We expect StarHub to market its iPhone through promotions and providing discounts to customers.
FY2009F Outlook. StarHub expects the service revenue for 2009 to be maintained at 2008 level. It expects to pay dividend of S$0.05 per ordinary share per quarter from 3Q09. This brings the total dividend for FY2009F to S$0.19.
Maintain HOLD recommendation and target price at S$2.05. Based on the valuation using the discounted cash flow (DCF) model, we obtain a fair value of S$2.05. We maintain our hold recommendation, as StarHub is likely to face greater competition in the telecommunications market to maintain its market share. Investors can hold the stock for dividends; the dividend yield is expected to be 9.8% in FY2009F.