StarHub – CIMB

Highlights from roadshow

• Maintain Neutral. We brought StarHub on a non-deal roadshow following the release of its 3Q09 results, which left us slightly more positive on the telco. StarHub provided a detailed analysis of the impact from the loss of BPL broadcast rights. We met eight investors. Discussions mostly centred on the loss of the BPL rights, and the ESPN Star Sports (ESS) suite of channels, NGNBN, capital management and revenue growth. StarHub was represented by its CEO, Mr Terry Clontz and its Head of Investor Relations and Corporate Communications, Ms Jeannie Ong. We retain our earnings forecasts, DCF target price (WACC 9.7%) of S$2.15 and Neutral rating.

• Revisiting the BPL and ESS losses. After dissecting its subscribers into various risk profiles, StarHub believes that fewer than 10% of its subscribers would churn. In the worst case, it noted that the BPL and ESS losses would not hurt its EBITDA or free cash flow as subscriber losses would be compensated by lower content costs.

• Negative impact from NGNBN. While StarHub does not see much competition in the residential segment except from M1 because of high international bandwidth costs, we believe M1 will pack a punch with its ability to bundle and cross-sell to its mobile customers. We also believe that the small market would not entice large players. However, the corporate market would likely attract foreign telcos looking to service their MNC clients in Singapore. Overall, we believe NGNBN will be negative for StarHub, with gains from inroads in the corporate segment insufficient to make up for the loss of its duopoly in the residential market.

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