StarHub – CIMB

Pay TV in the spotlight

StarHub should not be too affected by the iPhone launch, thanks to more rational subsidie sso far though the degenerating economics of pay TV is a concern. NBN take-up is slow and this should blunt competition in the residential market where StarHub is dominant.

We keep our earnings forecasts but roll over our target price to end-2012, which lifts our DCF-based target price (WACC 8.6%). Maintain OUTPERFORM on catalysts expected from slower competition in NBN, stabilising margins and a stable dividend outlook.

Not too hurt by iPhone 4S

We do not expect too severe an impact from the iPhone 4S launch given fairly rational subsidies thus far. While 4Q margins could be affected, this should only be a blip. Industry rationality is probably inspired by a rather saturated smartphone market where 65-70% of postpaid users now possess smartphones and any ARPU uplift is unlikely to be material.

Content costs show few signs of receding

We remain cautious on the economics of pay TV despite the cross-carriage regime and StarHub’s landmark non-exclusive content deal. This is because content costs show few signs of receding. Production costs continue to rise with operators paying for a wider use of content for different platforms. Most importantly, the entry of mio TV has given content owners better bargaining power.

NBN take-up still painfully slow

The take-up of NBN is unlikely to be material, as NBN remains hampered by operational issues. Squabbles persist over access to premises and who would bear the cost of access. Moreover, the installation capacity of OpenNet is limited. While that would preserve StarHub’s dominance in the residential market, it would also hamper its entry into the commercial arena, currently dominated by SingTel.

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