StarHub – CIMB

No surprises,but watch for capital management

FY11 results are in line, with variances of -2%and +2% to our forecast and market expectations. A 5ct DPS has been declared to a total of 20cts. AS$40m government reimbursement for achieving an NGNBN rollout milestone is expected to lower its gearing further.

 

Combined with lower capex and higher FCF in FY12, we are further convinced that capital management is ripe. We adjust our forecasts by 1-3% but maintain our DCF target price (WACC 8.3%). StarHub remains an Outperform and our top Singapore telco pick.

Steady ringtone

There are no surprises from the results. Postpaid ARPUs rose on the back of higher data usage as more smartphones were adopted. About 70% of postpaid users now use smartphones, up from 60% a year ago. Prepaid ARPUs declined on the back of voice/SMS cannibalisation by data messaging, even though smartphone penetration was only 30% of prepaid users (Figure 1).

Capex has peaked and StarHub expects capex/revenue to fall to 11% in FY12 from 12% in FY11, despite a S$25m spillover from FY11.

Capital management?

Lower capex and the S$40m reimbursement should cut net debt/EBITDA to 0.5x in FY12 from 0.7x in FY11 (Figure 2), reinforcing our view that the telco could pay out S$0.25/share via capital management in 2H12. Not surprisingly, Starhub downplayed such prospects, blaming the uncertain global and local economy. However, it added that it does review its capital structure quarterly.

Monetising surge in data

StarHub may reprice its data plans. There is consensus among the operators to manage data pricing upwards, consistent with our view that competition is benign. SingTel has already raised rates for its long term evolution (LTE/4G) data plan. M1 will review its pricing later in 2012 when more LTE devices become available.

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