StarHub – Nomura
A quarter less-encouraging
• Results below expectation
4Q09 NPAT declined 15% y-y to S$74mn. Mobile, pay TV, fixed network recorded 2-3% revenue growth; broadband revenue declined 8% y-y. Equipment revenue jumped 30% y-y due to the iPhone launch. Margin decline was largely on account of higher equipment costs related to the promotional period and iPhone launch during the quarter. Sequentially, segmental margins were weak with cellular at 32.6%, cable & broadband at 20% and fixed network at 35.9%.
• An expensive growth for the quarter
Mobile net-adds were almost sequentially flat at 34k. However, 16k postpaid net-adds lagged M1’s 19k. Driven by postpaid segment, blended ARPU improved by 1% q-q to S$46. However, mobile churn continued to remain high due to what StarHub described as SingTel’s “aggressive promotion” ahead of StarHub’s iPhone launch. Postpaid SAC reached another high of S$106, a 43% q-q increase. Pay TV saw 4k net-adds, consistent with prior quarters. Broadband net-adds were strong at 8k, but ARPU declined another 2% q-q to S$49.
• Challenges ahead
Management reaffirmed its 20c dividend guidance for FY10 despite 14% capex/sales, which is positive and will keep its yield appeal of ~9%. However, the concern remains on market share risks from NBN rollout and the loss of BPL on its hubbing strategy. Both domestic peers are aggressive and now with the rising push for smart-phones, margins for all carriers could be at risk. We maintain REDUCE with a revised S$1.78 price target (from S$1.82) and recommend switching into SingTel (ST SP; BUY; S$2.98) and M1 (M1 SP; BUY, S$2.03) in
the domestic context.