StarHub – UBS
Downgrade to Neutral
• Share price has recovered after the initial concern over loss of EPL content
After the sharp fall following the announcement that StarHub lost the rights to English Premier League (EPL) football content, StarHub shares have now recovered to previous levels as management increased dividends (Chart 1). In the past 3 months, StarHub shares are up 15% outperforming FSSTI by 12%.
• Q409 results and 2010 guidance below consensus forecasts
Q409 results were below our expectations and consensus as wireless and cable margins were pressured due to iPhone introduction and competition. StarHub guided for low single-digit revenue growth and 30% EBITDA margin in 2010. This implies EBITDA of about S$620-640mn, which is in-line with our forecast of S$633mn but below consensus of S$657mn. The guidance implies YoY decline in EBITDA margin from 31.8% in 2009. StarHub expects pay TV content cost to remain high despite the loss of EPL due to the cost to secure other contents.
• Dividends should provide some share price support
We think robust cash flows and balance sheet should help sustain S$0.05 dividend per share per quarter, which should provide some share price support. But EPL content loss and NBN launch would lead to StarHub losing market share in the consumer segment, which should negatively impact investor sentiment.
• Valuation: Downgrade to Neutral from Buy; Maintain S$2.20 price target
Reflecting Q409 results and 2010 guidance, we slightly adjust our 2010/11 EPS forecast to S$0.177/0.183 from S$0.182/0.179, respectively. Our price target is based on DCF using 7.8% WACC and 0% terminal growth.