StarHub

OCBC on 10 Aug 2012

StarHub Ltd’s 2Q12 revenue rose 3% YoY to S$590.7m, just 1.6% shy of our estimate. Net profit jumped 11.3% YoY to S$86.8m, or 5.9% above our forecast. For 1H12, revenue was up 4.8% to S$1,181.7m, meeting 49.2% of our FY12 forecast, while net profit grew 19.1% to S$175.2m, meeting 53.7% of our full-year forecast. StarHub declared a quarterly dividend of S$0.05/share as expected. StarHub has also largely kept its previous guidance for 2012, with only exception being slightly higher capex of 11% of service revenue (versus <11% previously) as it accelerates its LTE roll-out. We are leaving our forecasts unchanged. However, with the low interest rate environment likely to continue into 2014, or even 2015, we are paring our required return from 6.8% to 6.05%. This in turn bumps up our DCF-based fair value from S$3.10 to S$3.47. But we maintain our HOLD rating from a valuation standpoint, given the stock’s strong outperformance YTD.

Commendable 2Q12 results
StarHub Ltd posted 2Q12 revenue of S$590.7m, up 3.0% YoY but flat QoQ, and was just 1.6% shy of our estimate. Net profit jumped 11.3% YoY (but fell 1.7% QoQ) to S$86.8m, and was about 5.9% above our forecast. EBITDA also rose 9.4% YoY and 1.3% QoQ to S$179.1m, aided by lower cost of equipment sold due to a smaller quantity of smart devices sold. For 1H12, revenue was up 4.8% to S$1,181.7m, meeting 49.2% of our FY12 forecast, while net profit grew 19.1% to S$175.2m, meeting 53.7% of our full-year forecast. StarHub declared a quarterly dividend of S$0.05/share as expected.

Previous guidance largely unchanged
Going forward, StarHub has maintained its previous guidance for the rest of the year, with revenue expected to grow in the low single-digit range. It has also kept service EBITDA margin outlook of about 30%, versus 32.1% achieved in 1H12, citing the impending launch of the iPhone 5 as the main reason. Cash capex will be ~11% of operating revenue, versus no more than 11% previously, because it may accelerate its LTE roll-out with more LTE-enabled handsets expected to enter the market. Finally, it will continue with its S$0.05/share dividend per quarter, or a total dividend of S$0.20 this year, despite the likely higher capex spend in 2H12.

Maintain HOLD with higher S$3.47 fair value
As the numbers were mostly in line with our expectation, we are leaving our forecasts unchanged. However, with the low interest rate environment likely to continue into 2014, or even 2015, we are paring our required return from 6.8% to 6.05%. This in turn bumps up our DCF-based fair value from S$3.10 to S$3.47. But we maintain our HOLD rating from a valuation standpoint, given the stock’s strong outperformance YTD. We further note that StarHub is already trading at more than two standard deviations above its 3-year average EV/EBITDA.