StarHub – Daiwa

An attractive dividend yield and the promise of NBN

Upgraded to Outperform

We have upgraded our rating to 2 (Outperform) from 3 (Hold) and raised our six-month target price to S$2.65, from S$2.17, now based on a DDM (previously DCF) valuation. Based on our forecasts, StarHub offers an attractive dividend yield, and we believe the company is well-positioned to gain share in the corporate market with the launch of the national broadband network (NBN) in 2H10.

NBN opportunities outweigh risks, in our view

We forecast StarHub’s revenue share of the corporate-services market to rise from 15% for 2009 to 17% by 2012. This is driven by new contract wins with the government and small- to medium-sized enterprises (SME).

Regulatory changes limit pay-TV risks

The underlying aim of the recent regulatory initiatives is a push towards a single set-top-box solution, in our view. We believe this will limit the long-term risks for StarHub’s pay-TV business and expect the gross-profit margin for this segment to stabilise from 2012.

Robust outlook expected in the mobile segment

We believe the outlook for the mobile segment is robust. Revenue growth is likely to be driven by a rise in the number of data-plan users and an increase in inbound roaming revenue.

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