StarHub – DBSV
Market is pricing 21 Scts DPS
• StarHub might report 2Q12F earnings of S$95m, up 23% y-o-y and 12% ahead of market expectations.
• Annual savings of S$20m due to the absence of EPL rights might disappear going forward.
• FY12F/13F raised 4% each, TP raised to S$3.50 as we switch to DDM with expectations of 21 Scts annual DPS. Maintain HOLD.
2Q12F earnings likely to be ahead of market expectations. In mid-August, we expect StarHub to report 2Q12F earnings of S$95m (23% y-o-y & 8% q-o-q). This should be 12% ahead of consensus expectations of S$85m on the back of the increasing popularity of Android phones which need lower subsidies than iPhones. 2Q12F includes the Euro Cup matches, however, and we expect the Euro Cup to be neutral to slightly negative. We have conservatively raised our FY12F/13F earnings by 4% each as the potential launch of iPhone5 could hurt earnings in the 4Q12F.
Two possible scenarios for English Premier League rights in September 2012. Neither one of the players has an incentive to bid higher for exclusive rights due to cross-carriage regulations. There are two possibilities here depending on what is acceptable to the Premier League. (i) Both players place a common joint-bid; (ii) Each player bids on a non-exclusive basis in order to avoid cross-carriage. In either case, each player has to incur some cost of owning the content rights. We estimate that StarHub has benefitted S$20m annually due to the absence of EPL costs and these benefits could disappear going forward.
Maintain HOLD with higher TP of S$3.50. We switch from DCF to DDM assuming 8% cost of equity, 2% long-term growth rate and 21 Scts DPS. With net debt to EBITDA of 0.5x, lowest amongst three telcos, StarHub could possibly raise regular dividends slightly. Management has ruled out special dividends though, given the EPL bidding ahead and the spectrum auction in 2013.