StarHub – DBSV

Outperformance leaves limited upside potential

Negotiations for English Premier League (EPL) rights underway; need to stem decline in pay TV customer base

Any potential rise in annual DPS to 22Scts would imply only a 5% yield.

The stock has rallied 17% since our upgrade on 7 Nov, 2012. Downgrade to HOLD on valuation grounds.

Need to defend pay TV customer base. StarHub is negotiating with the Premier League for EPL rights for the 2013-16 seasons on a non-exclusive basis. As per our analysis, StarHub has benefitted at least S$20m annually due to the absence of EPL rights over the last three years. However, StarHub lost 9K pay TV customers in 2012 and in order to defend its hubbing proposition, StarHub needs to spend more on content in our view.

Even a higher 22 Scts annual DPS would translate to only a 5% yield. Current dividend yield of 4.6% does not seem attractive compared to 5%-6% yield offered by some of the Thai and Malaysian telcos. Potential auction of spectrum in mid 2013 and negotiations for EPL rights are the key events before management could raise dividends. Post these events, the annual DPS could potentially be raised to match our projected EPS of 22 Scts in 2013. Prior to 2012, StarHub paid out higher DPS than EPS as it did not have to pay any cash tax due to certain group losses, which is not the case now.

Downgrade to HOLD. The stock has risen 17% since our upgrade on 7 Nov, 2012, and has exceeded our TP of S$4.30, based on DCF (WACC 6.5%, terminal growth 0%). Positives are priced in.

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