Great start to the year! But still too pricey!

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 that is 60% larger than its closest competitor.

• Strong start with 28% increase in profits

• Stagnant subscriber acquisitions a disappointment

• Guidance maintained for DPS of 20.0cents

• Maintain Neutral with revised TP of S$2.94

What is the news?

Starhub posted a very strong set of results in the first quarter of the year with profit increase of 28% on the back of 6% growth in sales. The strong set of sales was led by higher Postpaid mobile (+6% y-y) and PayTV (+4% y-y) revenue. Starhub exhibited strong cost control for the quarter with lower marketing and promotion expenses as the key source of variance from our expectations. Starhub maintained its guidance of low single digit revenue growth and DPS of 20.0cents for the year.

How do we view this?

The results were above our expectations. However, subscriber acquisitions were slightly disappointing with relatively stagnant Mobile, PayTV & Broadband subscriber base. We think that the key source of earnings uncertainty for this year’s results would be in 2QFY12, where Starhub would likely book in significantly higher content cost for Euro 2012. Despite its low gearing with Net Debt to EBITDA of c.0.5X, management highlighted that there would be no capital management this year and maintained their guidance of 20.0cents DPS in the year.

Investment Actions?

We maintain our view that Starhub’s stock is fairly pricey at current levels and see little upside from hereon. Maintain Neutral.

Great start to the year! But still too pricey!

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 that is 60% larger than its closest competitor.

• Strong start with 28% increase in profits

• Stagnant subscriber acquisitions a disappointment

• Guidance maintained for DPS of 20.0cents

• Maintain Neutral with revised TP of S$2.94

What is the news?

Starhub posted a very strong set of results in the first quarter of the year with profit increase of 28% on the back of 6% growth in sales. The strong set of sales was led by higher Postpaid mobile (+6% y-y) and PayTV (+4% y-y) revenue. Starhub exhibited strong cost control for the quarter with lower marketing and promotion expenses as the key source of variance from our expectations. Starhub maintained its guidance of low single digit revenue growth and DPS of 20.0cents for the year.

How do we view this?

The results were above our expectations. However, subscriber acquisitions were slightly disappointing with relatively stagnant Mobile, PayTV & Broadband subscriber base. We think that the key source of earnings uncertainty for this year’s results would be in 2QFY12, where Starhub would likely book in significantly higher content cost for Euro 2012. Despite its low gearing with Net Debt to EBITDA of c.0.5X, management highlighted that there would be no capital management this year and maintained their guidance of 20.0cents DPS in the year.

Investment Actions?

We maintain our view that Starhub’s stock is fairly pricey at current levels and see little upside from hereon. Maintain Neutral.

1Q12 RESULTS SLIGHTLY AHEAD

•1Q12 results slightly ahead

•Keeps previous guidance for 2012

•No capital measures likely

1Q12 results slightly ahead

StarHub Ltd saw 1Q12 revenue climbed 5.8% YoY (but eased 3.5% QoQ) to S$590.9m, or just 2% shy of our forecast, driven by higher service revenue from all lines of business, and increased revenue from sales of equipment (+52% YoY on more sales of higher-priced smart phones and tablets). Net profit jumped 27.0% YoY (down 4.6% QoQ) to S$88.3m; while the figure was nearly 13.2% ahead of our forecast, we note that the increase came mainly from the NBN roll-out – higher adoption grants and also higher amortised income. Otherwise, operating EBITDA margin of 32.2% was in line with our forecast. And as expected, StarHub has declared a quarterly dividend of

S$0.05/share.

Maintains previous guidance

Going forward, StarHub has maintained its previous guidance for the rest of the year, citing the uncertainties brought on by the European debt crisis etc. As such, management is keeping its revenue growth guidance in the low single-digit range and expects EBITDA margin on service revenue to remain around 30%. Management also warned of potential increase in competition in 2H12, highlighting a potential rush to upgrade handsets as iPhone 4S is due for a renewal soon. Capex should also not be more than 11% of operating revenue. More importantly, the telco has kept its S$0.20/share dividend guidance for 2012; and has also ruled out any capital management moves this

year.

No change to forecasts – Maintain HOLD

As the numbers were mostly in line with our expectation, we are leaving our forecasts unchanged. We also note that the higher adoption grants and amortised income for the NBN roll-out are unlikely to be repeated in the subsequent quarters, or at least not in the same magnitude. Hence, we are also keeping our DCF-based fair value of S$3.10. Maintain HOLD. Note that the market may be slightly disappointed by the lack of capital management initiatives, given that some expectations have been built in by the recent share price outperformance.