StarHub – DB
2Q10 preview: Focus on pay TV outlook post-EPL
STH reports 2Q10 results on Thurs 5 Aug 2010.
We forecast total 2Q10 revenues at S$547m, down 2% QoQ as declines in equipment, cable TV and broadband revenues are partially offset by growth in mobile and fixed. Service revenues are projected to be approx S$522m (down QoQ but up 2% YoY). Margins should recover on 1Q10 but will still be down YoY on higher subsidies and we therefore expect STH’s 2Q10 EBITDA margin to be around 26.5% on all revenues and 27.8% on service revenues (versus 2Q09’s 30.3% and 31.4% respectively). Total EBITDA is projected to reach S$145m (down 10% YoY) with NPAT down 17% YoY to S$65m.
Key focus on pay TV performance and cash-flows
We expect STH’s financial performance will improve QoQ throughout 2010e after the weak 1Q10. This improvement is despite our expectations that both cable TV and broadband revenues will be impacted by the English Premier League (EPL) loss. Specifically, we expect pay TV ARPU declines while we also project a 40k net pay TV subscriber loss by end-2010. As a result, we forecast 2010e pay TV and broadband revenues to be down 10% and 8% YoY respectively. So clearly a key focus at the 2Q10 results will be on how STH’s pay TV business has performed over recent months, especially in terms of subscriber churn – if not as severe as we expect then there may be upside risk to our estimates. Elsewhere, we will be watching free cash-flow trends given 1Q10’s good cash-flow generation on more active working capital management.
STH is up 9% year-to-date (STI up 1.7% YTD) and it remains our preferred Singapore telco especially as we continue to believe that the 20c/share annual dividend per share and the associated 8.5% dividend yield is long-term sustainable. Our S$2.62 target price implies a target 7.6% yield and we maintain Buy particularly as we expect 2Q10 results to show QoQ improvement.