• 5c per share dividend as expected
• Little change to FY14 outlook
• Maintain SELL

5c quarterly dividend as expected

Starhub Ltd reported 4Q13 revenue of S$613.7m, down 6.2% YoY, or about 2.2% shy of our forecast, mainly due to lower handset sales (down 45.0%) and also weaker broadband revenue (down 10.5%). Due to higher content cost and G&A expenses, service EBITDA margin slipped 30.6% in 4Q13, versus 3Q13’s 33.6%, 4Q12’s 31.2% and its FY guidance of 32%. As a result, net profit slipped 4.8% to S$83.7m, or about 18% below our forecast. For the full-year, revenue fell 2.6% to S$2359.3m, almost spot on our forecast, and while earnings improved 3.2% to S$370.7m, it was about 5% below our forecast (1.3% below street). As expected, StarHub declared a quarterly dividend of S$0.05/share, bringing its total payout to S$0.20 as guided. However, this could disappoint the market, especially after M1’s special dividend payout earlier.

FY14 outlook mostly unchanged from FY13

Going forward, StarHub expects service revenue to see low single-digit growth after revising it to flat during its 3Q13 briefing. It has kept its service EBITDA margin guidance at 32%, possibly due to the still-intense competition in the broadband space, although management sees higher data usage driving its mobile business. Management also believes that its fixed network business should gain more traction. The telco also expects capex spending to be around 13% of total revenue and kept its annual cash dividend of S$0.20/share or S$0.05/quarter.

Maintain SELL with lower S$3.81 FV

While we are keeping our revenue estimates for FY14 largely unchanged, we deem it prudent to trim our earnings figure by 10% on more conservative margin assumptions. But this has only a slight impact on our DCF based fair value, which eases from S$3.82 to S$3.81 based on FY14 earnings.  As we also do not see any increase in its dividend payout until 2015, we maintain our SELL rating.

Source: OCBC Research - 7 Feb 2014