StarHub – Phillip
• 2Q10 revenue of S$569.3m, net profit of S$58.1m
• Higher costs of smart phones, Pay TV content costs, staff costs, marketing and promotion expenses as well as repair and maintenance expenses
• Upgrade from Sell to Hold and raise fair value from S$1.92 to S$2.16
StarHub reported 2Q10 operating revenue of S$569.3m (+6.9% y-y) and net profit of S$58.1m (-25.4% y-y). Revenue was 4.9% higher than our estimate of S$542.6m while net profit was 16.8% lower than our estimate of S$69.9m. It also announced an interim dividend of S$0.05 per ordinary share for 2Q10, which was higher than S$0.045 for 2Q09. Revenue increased mainly because of greater mobile and Pay TV services revenue. Net profit dropped because of higher costs of smart phones, staff costs, marketing and promotion expenses as well as repair and maintenance expenses. Furthermore, Pay TV content costs rose due to the broadcast of the FIFA World Cup 2010.
There is no change to StarHub’s expectation that the operating revenue growth for 2010 will be in low single digit. Furthermore, it expects to pay dividend of S$0.05 per ordinary share per quarter for this year. Moreover, it anticipates stiff competition in mobile, broadband and Pay TV for 2H10.
Upgrade from Sell to Hold and raise fair value from S$1.92 to S$2.16
As StarHub reported an improvement of 2.2% and 36.1% in 2Q10 revenue and net profit respectively compared to 1Q10 revenue of S$557.2m and net profit of S$42.7m, we upgrade our recommendation from sell to hold. We also raise its fair value from S$1.92 to S$2.16 based on the discounted cash flow (DCF) model. However, we continue to have doubts that it can sustain its dividend payout of S$0.05 per quarter in the long-term. This is because its earnings per share of S$0.0585 for 1H10 are less than the total dividends of S$0.10 for the same period.