StarHub – Phillip

Attractive Dividends

Company Overview

Starhub (STH) is the 2nd largest Telecommunications company in Singapore. The company also has a very strong

PayTV franchise with subscriber base of more than 500k.

  • 3Q12 beat expectations on lower cost of equipment, and depreciation expenses
  • Dividends remain attractive, earnings stable
  • Maintain Neutral with revised TP of S$3.20

What is the news?

Starhub posted 3Q12 net income of S$96.2 million, representing growth of 10.8% q-q, 26.9% y-y. This was higher than our expectations, due to lower cost of equipment and depreciation expenses. Starhub maintained

its guidance of low single digit revenue growth, EBITDA margin of 30%, Capital expenditure of 11% of operating revenue, and DPS of 20.0 cents for the year.

How do we view this?

The results were above our expectations. Mobile revenue was below expectations on lower revenue from interconnecting fees for overseas calls. This was a result of renewed negotiations, and was mitigated with lower

interconnecting fees incurred. However, we expect a poorer 4th quarter on higher expenses from promotional activities and higher mobile subsidies, while capital expenditure is expected to increase significantly on LTE and other network enhancements.

Investment Actions?

We adjust our forecast to reflect 3Q12 results, with marginal increases to EBITDA forecast. We continue to be of the view that investors should hold on to shares of Starhub for its attractive dividend yields. Share price remains higher than our revised target price of $3.20 based on our DCF model. We assume WACC of 8.3% and 0% terminal growth rate. We think that the ability to monetize data would be a growth driver and rating upgrade catalyst. However, more visibility on the increase in data usage, and consumer’s receptiveness to paying more for data would be required. We therefore maintain our “Neutral” rating, due to its attractive dividend yields, and stable earnings.

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