StarHub – JPM
iPhone launch hits short-term EBITDA margin
• 4Q09 revenues up 2.5% y/y: StarHub’s reported 4Q09 revenues of S$550MM (2.5% y/y) managed to beat our estimates by 1.9%. Higher subsidy expense on IPhone sales led to a 4.2 percentage point decline in EBITDA margin to 29.2%. Thus, EBITDA at S$152 MM (-7.9% y/y) missed our forecasts by 8.5%. Net profit at S$74MM fell 10.6% short of our estimates. StarHub added 25k wireless subs in 4Q09 versus 2k disconnections in 3Q09. Mobile and pay TV ARPU at S$50/S$56 remained stable sequentially, while broadband ARPU declined by 2% to S$49. StarHub declared a final dividend of 5 cents per share, implying a total payout ratio of 109% in 2009. StarHub remains one of our top dividend picks in the region.
• Minor earnings revisions and S$2.30 price target unchanged. We have revised 2010E revenues by 1.6%, driven primarily by a 2.3% revision to our wireless revenue forecast. Short-term pressure on margins has resulted in a 1.4% and 2.3% cut in EBITDA and net profit. Capex has been revised by +1.3% due to higher sales. The combined effect is a small 1.1% decrease in our DCF value to S$2.28. Our December 2010 DCF–based price target is unchanged at S$2.30.
• 5.0 cents per share quarterly dividend guidance intact: With higher cash flows and low net debt/EBITDA at 1.0x, StarHub remains confident of paying out at least 5 cents per share quarterly. Management guidance is for low single digit revenue growth in 2010 while EBITDA is expected to be around 30% of service revenues. Cash capex is expected to remain below 14% of revenues.
• Key risks: Further decline in EBITDA margins, a cut in dividend payout, and greater-than-expected competition post NBN are the key risks to our price target.