StarHub – OCBC

4Q09 results may surprise on upside

4Q09 results may surprise on upside. StarHub Ltd is due to release its 4Q09 results on 4 Feb, and its results may surprise on the upside, if the better-than-expected 4Q09 results from rival MobileOne are any indication. As a recap, M1 saw operating revenue jump 11.0% YoY and 14.8% QoQ to S$216.2m, while net profit climbed 1.6% YoY and 8.8% QoQ to S$37.2m, no doubt aided by the timely launch of the Apple iPhone 3GS in Dec. For StarHub, we are expecting revenue to come in around S$546.6m and net profit of S$77.1m, although we do not rule out the iPhone launch giving a similar boost to StarHub’s 4Q09 performance. On the dividend front, StarHub has also committed itself to paying out a quarterly cash dividend of S$0.05 per share.

2010 outlook also likely to improve. Going into 2010, we believe that StarHub is also likely to be cautiously more optimistic about its mobile operations, just like M1, buoyed by the global economic recovery and opening of the two IRs (Integrated Resorts) in Singapore. Still, StarHub will be facing a big shake-up in its Pay TV segment with the loss of the coveted EPL (English Premier League) broadcast rights for 2010-2012 season. But StarHub believes that the impact of the loss of its premier sports content will remain EBITDA neutral, as it expects just 10% of its 535k subscribers to give up its pay TV services completely, and this will be balanced by lower sports content cost. However, we are less sanguine. Instead, we believe the loss is probably closer to 15-18% and it will also suffer a double whammy in terms of ARPU.

NBN boost to fixed network segment. On the other hand, the roll-out of the NBN from mid-2010 should give a lift to its fledging fixed network services. Besides winning the OpCo bid through its subsidiary Nucleus Connect, the “open” framework will allow StarHub to reach out to thousands of non-residential buildings that it currently does not service today. It should also be able to enjoy cost savings from the current leasing expenses it needs to pay SingTel. However, StarHub notes that competition may increase ahead of the NBN launch from mid-2010.

Maintain BUY with S$2.29 fair value. As FY09 results are just around the corner, we hold off revising our FY10 estimates, but we continue to like Starhub for its defensive earnings and attractive yield (~9.4%). Maintain BUY with S$2.29 fair value.

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