StarHub Ltd: 2Q11 results within expectations (OCBC)

2Q11 results within expectations. StarHub Ltd reported almost flat 2Q11 revenue of S$568.6m, and in line with our S$568.0m forecast. Net profit jumped 34.5% YoY and 12.9% QoQ to S$78.0m, or 2.6% ahead of our forecast; due to the absence of higher content cost (from FIFA World Cup last year) and also slightly lower effective tax rate (13% versus usual 17%). As guided, StarHub proposed a quarterly dividend of S$0.05/share. For 1H11, revenue inched up 0.1% to S$1127.1m, meeting 47.6% of our fullyear estimate, while net profit jumped 46.0% to S$147.1m, or around 47.7% of our FY11 forecast.

Stable mobile business. Mobile revenue grew 2.9% YoY and 2.3% QoQ, driven mainly by a 20k increase (+1.9% QoQ) in post-paid subscribers; also a S$1 uplift in monthly ARPU to S$73, while monthly churn rate eased to 1.0% from 1.1% in 1Q11. However, StarHub has opted not to disclose its acquisition cost for post-paid customers, other than saying smartphones continue to be the phone of choice for its customers. Meanwhile, StarHub saw a 12k drop in pre-paid subscribers (-1.1% QoQ), as its strategy to lower IDD rates to attract more foreign workers did not pan out; but management believes in the attractiveness of its lower IDD rates and will be looking to recapture this group of customers with more distribution points.

Recovery in Pay TV segment. For Pay TV, although revenue tumbled 15.8% YoY (mainly due to lower sport group pricing, absence of World Cup), it inched up 0.8% QoQ as StarHub added another 2k subscribers. Monthly ARPU was also stable at S$49 in 2Q11; but StarHub expects this to rise as it had recently imposed an across-the-broad increase of S$2/month for all subscribers. Broadband revenue grew 3.0% YoY and 1.8% QoQ; but mainly due to the introduction of cheap cable packages to snare non-broadband subscribers. Fibre roll-out/subscription continues to remain slow, making it essentially a late 2012 or even early 2013 story.

Pares revenue guidance. And we suspect because of the slower-thanexpected fibre growth, StarHub revised its revenue growth to low singledigit (versus single-digit earlier); and also guides for lower capex (12% of revenue vs. 13% previously) for the same reason. However, it has kept its S$0.05 quarterly dividend payout for the rest of FY11. In light of the latest development, we also pare our FY11 estimates by 2.0-2.2%. Our fair value also dips slightly from S$3.02 to S$3.01; but due to attractive 7% yield, we maintain our BUY rating.