• Service revenue declined 1% y-y, 7% q-q at S$571m, due to a sharp drop in broadband revenue.
• 1Q14 Net profits decline 8% y-y, but gain 1% at S$84m on lower operating expenses for the quarter, as a result of lower traffic expenses and cost of equipment sold.
• Maintain "Accumulate”, with revised TP of S$4.50

StarHub announced its FY13 results on 7 May 2014. Net profits decline 7.7% y-y due to lower service revenue. The sharp decline in broadband revenue was attributed to price competition, leading to a fall in broadband ARPU from S$45/mth in 1Q13 to S$39/mth. On a positive note, broadband subscriber base continues to grow, adding 3K for the quarter. Mobile revenue was mainly driven by increase in post-paid subscribers due to promotion of its SharePlus plans. This result in a dilutive impact on post-paid ARPU at S$66/mth (1Q13: S$68/mth). Management guided for a low single-digit range in service revenue and 32% EBITDA margin on service revenue.

On the 4G pricing

StarHub took the first lead by earlier announcing in April an additional pricing of S$2.14/mth for use of 4G services beginning Jun 2014. Only new and recontracting subscribers would be impacted by the extra pricing on 4G. Perceived risks to the price hike include: 1) subscribers opt-out of the 4G speed boost, 2) increase in post-paid churn rate and 3) slower take-up of tiered data plans. Risk factors would be mitigated by consumer inertia, supported by bundling offers, reliance on faster 4G speed and wide mobile network coverage.

How do we view this

We remain positive on StarHub on increasing mobile data revenue and fixed network services contributing to its growth. Mobile growth would come from higher subscriber base and excess charges from higher data usage. Growth contribution from 4G pricing would be more visible in FY15F and beyond as existing customers were shielded from the price hike, prompted by the regulator IDA. StarHub continues to grow its fixed network services through expansion of its services and offerings in the enterprise space. Pay TV and Broadband services will likely remain under competitive price pressure.

Investment Action

We revised our estimates to reflect for 1Q14 earnings and maintain an “Accumulate” rating with TP of S$4.50, implying 20.8x fwd PE.

Source: Phillip Securities Research - 8 May 2014