StarHub – CIMB

Time to shine

• Best exposure to immigration influx and rising wages. Singapore’s population boom (+4.4%yoy) on immigration influx and wage growth (+8%yoy) helped drive Singapore’s mobile and broadband penetration rates to 113% (+210bps mom) and 75% (270bps mom) respectively in July. We reiterate our view that StarHub offers the best exposure to Singapore’s telco services consumption growth story.

• Rejuvenated cable TV could surprise. StarHub has introduced compelling new content, setting the stage for cable TV to surprise over the next few quarters.

• Re-rating around the corner. StarHub was de-rated by the market in 1H07 on unjustifiable concerns surrounding mioTV and pricing pressure on broadband. Operating results in 2H07 should dispel these concerns, triggering a re-rating.

• Consensus dividend yield estimate too conservative. We reiterate our view that consensus is due to upgrade its 5.6% CY08 yield expectations towards our expectation of 10% yield.

• Maintaining Outperform, upgrading target price to S$3.64 as we roll forward our DCF valuation (WACC: 6.9%, terminal growth: 1%) to CY08 basis. StarHub is our preferred Singapore telco pick over the next 12 months. Key catalysts include earnings delivery and dividend payouts that beat consensus expectations.