What is the news?

StarHub posted 1Q13 net income of S$91.2 million, representing an increase of 3.2% y-y, 3.8% q-q. This was higher than our expectations, due to higher Other income from adoption grants for NGNBN services. StarHub lowered guidance of single digit revenue growth to low single digit, while the other guidance was maintained. Dividend of S$0.05, in-line with expectations, was declared.

How do we view this?

While net income was higher than expected, the flat y-y growth of Service revenue was a disappointment. Data monetizing has been slower for StarHub due to the extra 1GB data promotion reducing excess data charges. We expect to see higher mobile revenue in 2H13 when this promotion expires. On Pay TV, management guide for stabilizing of their main subscriber base, while new contents continue to be offered. While the other two Telcos focus on fibre broadband, StarHub adopted a different strategy, and continues to focus on both cable and fibre broadband.

Investment Actions?

We adjust our forecast to reflect 1Q13 results and revised guidance. StarHub has rallied since our downgrade during 4Q12 the results announcement. We are aware of the continued demand for dividend-yielding stocks, as the markets are flushed with liquidity from various policies globally, and interest rates remains low. However, y-y revenue growth potential is minimal, while current share price is high. Dividend yield of 4.2% continues to be attractive, but we see little upside potential for capital gains. Based on our DCF model, we derive a TP of S$4.40.

Source: PhillipCapital Research - 10 May 2013