StarHub

Phillip Securities Research, May 8

STARHUB announced its FY13 results on Wednesday. Net profits declined 7.7 per cent y-o-y because of lower service revenue. The sharp decline in broadband revenue was attributed to price competition, leading to a fall in broadband ARPU (average revenue per user) from S$45/month in Q1 FY13 to S$39/month.

On a positive note, broadband subscriber base continues to grow, adding 3,000 for the quarter.

Mobile revenue was driven mainly by an increase in post-paid subscribers, thanks to the promotion of its SharePlus plans.

This resulted in a dilutive impact on post-paid ARPU at S$66/month (Q1 FY13: S$68/month).

Management has indicated a low single-digit range in service revenue and 32 per cent Ebitda margin on service revenue.

StarHub took the first lead by earlier announcing in April an additional pricing of S$2.14/month for use of 4G services from June 2014. Only new and recontracting subscribers would be impacted by the extra pricing on 4G. Perceived risks to the price hike include: (1) subscribers opt-out of the 4G speed boost, (2) increase in post-paid churn rate and (3) slower take-up of tiered-data plans. Risk factors would be mitigated by consumer inertia, supported by bundling offers, reliance on faster 4G speed and wide mobile network coverage.

We remain positive on StarHub on increasing mobile data revenue and fixed network services contributing to its growth. Mobile growth would come from higher subscriber base and excess charges from higher data usage. Growth contribution from 4G pricing would be more visible in FY15 forecast and beyond as existing customers were shielded from the price hike, prompted by the regulator IDA (Infocomm Development Authority of Singapore). StarHub continues to grow its fixed network services through expansion of its services and offerings in the enterprise space.

Pay TV and broadband services are likely to remain under competitive price pressure.

We revised our estimates to reflect for Q1 FY14 earnings and maintain an "accumulate" rating with TP of S$4.50, implying 20.8x forward PE.

ACCUMULATE