StarHub net profit of S$75.8m for 3Q11

UOBKH - Target Price S$3.06

Results
• StarHub reported a net profit of S$75.8m for 3Q11 (-7.6% yoy), in line with our forecast of S$77.6m.
• Maintain growth in mobile. StarHub added 8,000 post-paid subscribers. ARPU increased from S$73 to S$74 due to take-up for SmartSurf and data SIM plans driven by popularity of smartphones and tablets. Post-revenue expanded 6.4% yoy to S$245.7m.
• Maintaining share in residential broadband. StarHub added 7,000 residential broadband customers, comprising of fibre and cable broadband, despite competition from new entrants. ARPU maintained at S$45 despite competition from fibre broadband services based on Next Gen Nationwide Broadband Network (NGNBN).
• Fixed network services faces competition. Voice services declined 11.6% qoq to S$12.9m due to lower IDD revenue. Contribution from data & internet services dropped by a marginal 3.4% yoy to S$68.8m due to pricing pressure for local and international leased circuits.
• StarHub maintained dividend payout at 5 cents/share.

Stock Impact
• Maintained guidance. Management has maintained guidance of low single-digit revenue growth for 2011. Guidance for EBITDA margin is 30%. Capex should not exceed 12% of operating revenue for 2011.
• Teething problem to reach corporate customers. Management expects demand for residential fibre broadband services to increase with expanding coverage for NGNBN. However, StarHub faces difficulties in getting network connections to individual offices within commercial buildings. It is working with OpenNet and the Infocomm Development Authority of Singapore (IDA) to resolve the problem. Management expects to more progress on this front in 1H12. Earnings Revision/Risk
• We have kept our forecast unchanged. Valuation/Recommendation
• Our target price for StarHub is S$3.06 based on DCF (required rate of return: 8.0%, terminal growth: 0%). Share Price Catalyst • StarHub offers attractive dividend yield of 7.0%.
• Positive news flows on expansion in corporate data services in 2012.
• Potential capital management exercise in 2012.


PhillipCapital - target price of S$2.88

Starhub Ltd – Results (Derrick Heng) Recommendation: Hold Previous close: S$2.86 Fair value: S$2.88
- Marginally below expectations
- Billing settlement with wholesale customer led to decline in Fixed revenue
- Higher than expected staff cost
- Trimmed profit forecasts by 4%
- Maintain Hold with revised target price of S$2.88

3QFY11 results discussion Revenue for the quarter increased by 3.6%y-y, with growth across all segments, except Fixed service revenue. This decline in Fixed service revenue was due to a one-off billing settlement, with a wholesale customer. ARPU across Mobile, PayTV and Broadband were within our expectations. However, staff costs for the quarter was higher than expected due to an increase in headcount and higher average salaries. Consequently, net profit for the quarter was marginally below our expectations.


OCBC - Fair Value: S$3.00

3Q11 results within expectations. StarHub Ltd reported its 3Q11 results last evening which came in mostly within expectations. Revenue grew 3.6% YoY and 0.6% QoQ to S$572.2m, or 3.4% below our forecast; net profit of S$75.8m (down 7.6% YoY and 2.8% QoQ) was just 1.7% shy of our estimate. EBITDA came in at S$167.2m, down 3.0% YoY but recovered 2.1% QoQ; though service EBITDA margin was slightly lower at 30.8% versus 32.3% in 3Q10, it was still above the 30.4% recorded in 2Q11 and its 30% forecast for FY11. 9M11 revenue inched up 1.2% to S$1669.3m, meeting 71.7% of our original FY11 forecast, while net profit jumped 22.0% to S$222.9m, or 72.2% of our full-year estimate.

As guided, it declared a quarterly dividend of S$0.05 per share, payable on 30 Nov. Stable mobile segment. For the quarter, StarHub continued to expand its core mobile business, with revenue inching up 3.1% YoY and 1.6% QoQ, driven by a modest 0.8% QoQ increase in both post-paid and pre-paid customers. While postpaid ARPU was relatively stable at S$74/month, supported by take-up of its "SmartSurf" and data SIM plans arising from more smart devices. Meanwhile, pre-paid ARPU fell below the S$20 mark to S$19, mainly due to lower voice usage.

But StarHub notes that the take-up of its pre-paid MaxMobile and Blackberry data packages was "encouraging", and non-voice was now 16.5% of pre-paid ARPU versus 14.5% in 4Q11 and 13.5% in 9M10. Fixed network services disappointing. Meanwhile, its fixed network services saw a disappointing 4.0% YoY and 2.0% QoQ drop in revenue, weighed by pricing pressure in the local and international leased circuit services and also lower IDD usage by customers. Pay TV revenue was up 1.1% YoY and 1.2% QoQ; this came mainly from the S$2 across-the-broad increase in subscription fees. Broadband was mixed, up 3.3% YoY but fell 1.3% QoQ, with a higher mix of customers on lower speed price plans and also hubbing promotional and discount offers to drive take-up of multi-services. Guidance for FY11 unchanged.

Going forward, StarHub has maintained its previous guidance for FY11 - eyeing low singledigit revenue growth, service EBITDA margin of 30%, cash capex of 12% of revenue and a quarterly dividend of S$0.05/ share. But in view of the slower-than-expected take-up of NBN, we pared FY11 and FY12 estimates by 4% and 2% respectively; this lowers our DCF-based fair value slightly from S$3.01 to S$3.00. But we continue to like StarHub for its defensive earnings and attractive 7% yield, hence we maintain our BUY rating.