▊ Starhub’s annualised 1H13 core net profit was a little above CIMB and consensus by 2% and 5%, respectively, on surprises in NGNBN adoption grants and interest expense. Results were mixed with growing mobile and fixed services offset by pay TV and broadband. As expected, it declared a DPS of 10 Scts and maintained its guidance. We raise our FY13-15 EPS estimates by 3% and our DCF-based target price by 2 Scts to reflect a higher NGNBN adoption grant, which ends in FY15. Starhub remains a Neutral with a DCF-based target price (WACC 7.8%) as it lacks re-rating catalysts. Switch to M1.
A mixed bag of results
Starhub’s operating results were mixed, with growth in mobile and fixed network revenues offset by declines in broadband and pay TV. Overall, service revenue was flattish yoy. Oddly, handset sales were lower despite the launch of the Samsung Galaxy S4.The strong take-up of tiered data plans from 25% in 1Q13 to 32% in 2Q13 helped drive mobile revenues to grow 2.8% yoy from a decline of 1.5%. However, it lags behind M1’s growth of 7.9%. Pay TV revenues declined yoy from a high base in 2Q12 when it carried the Euro 12. Stripping this out, pay TV revenue was flattish. However, subscriber base fell 2.4% yoy as users churned after the free trail ended. Starhub cut broadband prices in end-2Q13 to remain competitive. Hence, we expect the full impact of its price cut to be felt in 3Q. Fixed services grew, driven by enterprise users, but it is a small contributor.
Will Singtel retaliate?
It is likely to, in our view. Starhub’s S$300 rebate for subscribers requesting to cross-carry the Barclays Premier League (BPL) was a smart and innovative but unexpected move. However, we think it may draw the ire of Singtel, which may retaliate. We do not rule out Singtel bundling services more aggressively in an effort to gain pay TV market share and hurt Starhub in broadband. Starhub said the rebate will have no impact on its financial results as it is passing what it receives from Singtel to cross-carry the content. That said, the S$25/customer/mth fee appears very high.
Publish date: 06/08/13