StarHub – OCBC

2010 outlook still quite positive


4Q09 results were in line. StarHub Ltd reported its 4Q09 results last evening, which were mostly in line with our estimates. Revenue was up 2.5% YoY and 2.4% QoQ at S$550.0m (versus our S$546.6m estimate), driven mainly by higher equipment sales. But net profit fell 15.1% YoY and 12.8% QoQ to S$74.3m (versus our S$77.1m estimate); sharper-than-expected decline in service EBITDA margin from 32.1% in 4Q08 and 33.4% in 3Q09 to just 29.2% was the culprit – this was mainly due to the more intense festival promotions as well as the Apple iPhone 3GS launch. For the full year, revenue rose 1.1% to S$2150.0m (versus our S$2146.7m estimate), while net profit rose 2.7% to S$319.7m (versus our S$322.8m forecast). StarHub declared a quarterly dividend of S$0.05 per share as guided.


Modest iPhone boost. On a segmental basis, its mobile segment improved 3.1% YoY and 1.4% QoQ, driven by the 4% YoY and 2.3% QoQ increases in post-paid revenue; this as iPhone users typically take up higher value plans – monthly ARPU has recovered by S$1 QoQ to S$70. However, due to intense promotions for the iPhone by all three telcos, StarHub’s monthly churn rose further from 1.2% in 3Q09 to 1.3%, while acquisition cost jumped 43.2% QoQ to S$106 per subscriber. Nevertheless, management believes that things should normalize soon. While its broadband revenue fell 7.9% YoY, it was up 0.5% QoQ; this as monthly ARPU has stabilized around S$49, down just S$1 QoQ, and is also holding at the top end of StarHub’s S$45 to S$49 guidance.


2010 outlook is actually quite positive. For 2010, StarHub expects revenue to grow in the low single digit range and is guiding for service EBITDA margin to be lower around 30%. But in view of the loss of its key EPL sports and ESPN STAR Sports content from mid-2010, we note that these numbers suggest that management is actually quite confident that its other business segments will be able to make up for revenue decline in its Pay TV segment. StarHub has also maintained its S$0.05 per share quarterly dividend guidance for 2010 as expected; this despite raising its cash capex to a maximum of 14% of operating revenue (versus 12% in 2009) to cater for the NBN rollout from mid-2010.


Maintain BUY with S$2.29 fair value. Total dividend of S$0.20 translates to an attractive 9.2% yield, bringing the total return to 14.7%; as such, we maintain our BUY rating on StarHub and S$2.29 fair value.

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