Highlights

• Pay TV subscription to hold firm in our view.
• Expect positive growth in FY15F driven mainly from mobile and fixed network services.
• Upgrade to Accumulate with revised target price to S$4.40.

What is the news?

Though the evolution of Internet TV may have led to declines in cable subscribers across US, “cord-cutting” effects are not yet visible in Singapore. StarHub continues to report positive net adds to its Pay TV subscribers in recent quarters. While more premium TV content (e.g. HBO, ESPN) may be shifting towards Internet streaming services this year, many of these services such as Netflix, Hulu, or Sling TV, are not available in Singapore.

How do we view this?

While increasing availability of premium TV content via streaming or other Over the Top (OTT) services may curtail growth in its Pay TV customer base, we think StarHub could still maintain its existing Pay TV customer base this year. Key points supporting our view are:

• Perceived high quality and wide variety of media content on StarHub TV*.
• Strengthening of US dollar against SGD may deter Pay TV subscribers from “cutting the cord” (as subscriptions to popular streaming services are mostly priced in USD).
• Limited bundled VPN with broadband offerings, which are available only from MyRepublic and ViewQwest.

We expect limited upside in Pay TV ARPU as StarHub would likely continue to keep prices of its TV bundles competitive in our view. On a positive note, we continue to expect StarHub’s overall bottom line to grow in FY15F mainly from increasing contributions from mobile and fixed network services.

Key risk factors

• Availability of popular video streaming or OTT services made available in Singapore without the need for VPN service.
• Lower pricing from video streaming services.

Investment Actions

We revise our rating to Accumulate as we expect growth in earnings this year. Growth would be mainly driven by data monetisation for mobile and increasing take-up of its enterprise solutions and services from the enterprise segment while Pay TV and broadband subscriptions are expected to remain stable. Target price at S$4.40.

Source: Phillip Securities Research - 2 Feb 2015