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OCBC: Starhub Limited

4Q09  results  were  in  line.

StarHub  Ltd  reported  its  4Q09 results  last  evening,  which  were  mostly  in  line  with  our estimates.  Revenue  was  up  2.5%  YoY  and  2.4%  QoQ  at S$550.0m (versus our S$546.6m estimate), driven mainly by higher  equipment  sales.  But  net  profit  fell  15.1%  YoY  and 12.8%  QoQ  to  S$74.3m  (versus  our  S$77.1m  estimate);
sharper-than-expected decline in service EBITDA margin from 32.1%  in  4Q08  and  33.4%  in  3Q09  to  just  29.2%  was  the culprit  –  this  was  mainly  due  to  the  more  intense  festival promotions as well as the Apple iPhone 3GS launch. For the full  year,  revenue  rose  1.1%  to  S$2150.0m  (versus  our S$2146.7m estimate), while net profit rose 2.7% to S$319.7m (versus our S$322.8m forecast).

StarHub declared a quarterly dividend of S$0.05 per share as guided. Modest  iPhone  boost.  On  a  segmental  basis,  its  mobile segment  improved  3.1%  YoY  and  1.4%  QoQ,  driven  by  the 4% YoY and 2.3% QoQ increases in post-paid revenue; this as iPhone users typically take up higher value plans – monthly ARPU has recovered by S$1 QoQ to S$70. However, due to intense promotions for the iPhone by all three telcos, StarHub’s monthly churn rose further from 1.2% in 3Q09 to 1.3%, while acquisition cost jumped 43.2% QoQ to S$106 per subscriber.
Nevertheless,  management  believes  that  things  should normalize soon. While its broadband revenue fell 7.9% YoY, it was  up  0.5%  QoQ;  this  as  monthly  ARPU  has  stabilized around S$49, down just S$1 QoQ, and is also holding at the top end of StarHub’s S$45 to S$49 guidance.
2010 outlook is actually quite positive. For 2010, StarHub expects revenue to grow in the low single digit range and is guiding for service EBITDA margin to be lower around 30%.
But in view of the loss of its key EPL sports and ESPN STAR Sports  content  from  mid-2010,  we  note  that  these  numbers suggest  that  management  is  actually  quite  confident  that  its other business segments will be able to make up for revenue decline in its Pay TV segment. StarHub has also maintained its S$0.05 per share quarterly dividend guidance for 2010 as expected;  this  despite  raising  its  cash  capex  to  a  maximum of 14% of operating revenue (versus 12% in 2009) to cater for the NBN rollout from mid-2010.

Maintain  BUY  with  S$2.29  fair  value.  Total  dividend  of S$0.20  translates  to  an  attractive  9.2%  yield,  bringing  the total return to 14.7%; as such, we maintain our BUY rating on StarHub and S$2.29 fair value.


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