Starhub

Kim Eng 27 Mar 2012

Still a star performer. StarHub has outperformed its two peers, up 5% since early this year. We are among the most bullish brokers on StarHub with the second-highest target price of $3.27. In our view, it is still a good story for 2012, with potential catalysts from lower subscriber acquisition costs as Android devices appear to be gaining ground. In addition, we expect the new Vodafone roaming alliance to boost ARPUs. Maintain Buy on attractive yield of 6-7%.

Android gaining ground. We are seeing more Android smartphone users these days. StarHub confirmed that non-Apple handset sales have risen in the last few months. As they break even faster than iPhones, this should have a positive impact on subscriber acquisition costs. It remains to be seen whether this trend will last but we are hopeful as iPhones appear to have lost some lustre.

Vodafone roaming alliance should boost ARPUs. StarHub’s new exclusive roaming agreement with Vodafone should help boost its corporate business, given that many multinational corporations have global enterprise arrangements with Vodafone. Typically, ARPU is higher for corporate accounts as executives tend to roam more and use more data services on their mobile phones than consumers.

Yield attractive even without capital management. Capital management is unlikely until year-end, as StarHub is still determining the impact the raised mobile coverage requirements will have on capex, especially the one on outdoor coverage (>99% including any open spaces vs >95% excluding open spaces). Nevertheless, we believe the new requirements will not add substantially to existing capex.

Not going crazy over BPL. StarHub is unlikely to participate in the bid for the 2013-16 seasons for the Barclays Premier League if the price escalates beyond its liking.

Buyback sustained despite higher share price. For the 2011 mandate year, StarHub repurchased 2.1m shares, above 2010’s 2m shares, although average cost was 10% higher at $2.87 (up to $2.91). Since the share buyback is another way to enhance shareholder value, other than paying good dividends, the highest average cost is a firm endorsement of the stock’s value despite the outperformance.