Starhub

STABLE FY2009 earnings despite economic slowdown: It is reasonable to expect lower roaming revenues as Singapore's tourist arrivals drop.

But rising data revenue following offers of unlimited data plans should offset the weakness to a large extent. FY2009 will also benefit from the absence of $6 million-$7 million Euro Cup content costs incurred in FY2008 and easing competition in the postpaid mobile space.

Management claimed it had sufficient un-utilised and committed credit facilities from local banks to meet: 1) refinancing needs for the next 12 months, and 2) capex requirements for OpCo, in case StarHub wins the award. Management believes it can continue to pay average dividend payout of 65-70 per cent of free cash flow, implying upside to our 8.4 per cent yield projection.

In our view, PCCW in Hong Kong had secured key channels such as Star TV, HBO, etc, and built a respectable subscriber base before aggressively going after EPL. This is not the case with SingTel, which has a small subscriber base (around 50,000) for mio TV with many popular channels still held by StarHub.

We estimate the EPL bid price in 2006 was $40 million-$50 million higher than that in 2003, and the magnitude of increase should be comparable in the H2 2009 EPL bid, whose impact on the bottom line will be visible only in the Q4 of FY2010.

Upgrade to 'buy', $2.08 TP unchanged: This is pegged to 12 times forecast FY2009 price-to-equity ratio, or 20 per cent premium to our 10 times PE target for M1, due to: 1) StarHub's better track record, and 2) no cash tax till FY2009, resulting in 12.5 per cent free cash flow yield and providing sufficient cushion for 8.5 per cent dividend yield.
BUY


Source: Business Times