StarHub – RBS

Strong dividends, attractive value


StarHub reported in-line FY09 profit at S$320m. It maintained its dividend commitment at 20 cents for FY10, outlining its confidence in its business stability. This leads to what we see as a healthy 9% yield, while the stock trades at an attractive 11.8x PER. Buy maintained.


In-line FY09 performance

StarHub reported FY09 profit of S$320m (up 3% yoy), in line with RBS (S$322m) and street (S$324m) estimates. The company met estimates despite 4Q09 margins declining 290bp yoy, due to the temporary rise in marketing/subsidy spend in 4Q09 linked to its iPhone launch.


Performance drivers: stable mobile, pay TV, weaker broadband

Performance was driven by sequentially stable/improving ARPU in the mobile business (51% of revenues) with the improvement in the economy and rising data contributions. Pay TV (19% of revenues) also improved. However, performance was dragged down by weaker cable broadband contributions (11% of revenues) as a result of price cuts as competition intensified ahead of the NGNBN launch.


FY10 guidance: slight revenue growth but tighter margins, strong dividends

StarHub has guided for low single-digit revenue growth for FY10, driven by expansion in mobile contributions. This compares to the street’s expectations of flat top-line growth. Management has committed to dividends of at least 5 cents a quarter for FY10, allowing for a 9% yield. However, it guided for FY10 EBITDA margins to tighten to around 30% from 31.8% in FY09. This is in line with our expectations as broadband revenues are impacted by the NGNBN launch.


Buy maintained; undemanding value, strong yield, stable outlook

We continue to rate StarHub a Buy with a DCF-based target price of S$2.45. The company remains relatively cheap, in our view, at 11.8x FY10F PER and 6.8x EBITDA. It is yielding an in-our-view attractive and sustainable 9% for FY10-12.

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