StarHub – Daiwa

An attractive dividend yield and the promise of NBN

Upgraded to Outperform

• We have upgraded our rating to 2 (Outperform) from 3 (Hold) and raised our six-month target price to S$2.65, from S$2.17, now based on a DDM (previously DCF) valuation. Based on our forecasts, StarHub offers an attractive dividend yield, and we believe the company is well-positioned to gain share in the corporate market with the launch of the national broadband network (NBN) in 2H10.

NBN opportunities outweigh risks, in our view

• We forecast StarHub’s revenue share of the corporate-services market to rise from 15% for 2009 to 17% by 2012. This is driven by new contract wins with the government and small- to medium-sized enterprises (SME).

Regulatory changes limit pay-TV risks

• The underlying aim of the recent regulatory initiatives is a push towards a single set-top-box solution, in our view. We believe this will limit the long-term risks for StarHub’s pay-TV business and expect the gross-profit margin for this segment to stabilise from 2012.

Robust outlook expected in the mobile segment

• We believe the outlook for the mobile segment is robust. Revenue growth is likely to be driven by a rise in the number of data-plan users and an increase in inbound roaming revenue.