StarHub

UOBKayhian on 19 June 2014

FY14F PE (x): 23.4
FY15F PE (x): 21.1
We expect StarHub’s residential broadband and pay TV businesses, which accounted for 9.9% and 17.2% of service revenue in 1Q14 respectively, to be under some pressure: Downward pressure on ARPU for residential broadband. StarHub has revised downwards its pricing for cable broadband and offered promotional packages for fibre broadband due to competition from new entrants. As a result, ARPU for residential broadband declined by a severe S$3 or 7.2% qoq to S$39 in 1Q14. The competitive stance helped StarHub gain 7,000 subscribers yoy but revenue declined 4.3% yoy in 1Q14.

Maintains guidance for 2014. Management guided low single-digit revenue growth and EBITDA margin of 32% for 2014. Capex is expected to remain high at 13% of service revenue due to the construction of MediaHub at Ayer Rajah Crescent. The 6-storey building has a GFA of 230,000sf with construction expected to be completed by 1Q16. It is a convergence hub for StarHub’s fixed, mobile and pay TV networks and also houses a social media analytics lab and an adaptive production studio.

Maintain HOLD. We have lowered our target price from S$4.48 to S$4.33, based on DCF (required rate of return: 6.7%, terminal growth: 1%). Our suggested entry price is S$3.95.