• Outlook still mostly stable
• Hubbing offers sizable discounts
• Yield still decent at 5.5%

Recently guided for flat FY15 service revenue

Despite a pretty decent 9M15 showing, StarHub Ltd lowered its FY15 service revenue guidance to be maintained at 2014 level, versus the previous guidance of low single-digit range growth, citing falling voice usage, especially in roaming and IDD services, in its mobile segment; but this is likely to be mitigated by subscription revenue, which should continue to increase with growth in the subscriber base in both the consumer and enterprise segment as well as higher data consumption.

Other than that, StarHub expects the Pay TV business to remain resilient, despite increasing competition from OTT players, given the diverse and variety of content it has in its stable. It is also relatively upbeat about its Broadband segment, where the price competition is likely easing up. Lastly, StarHub sees further growth in its Fixed Services segment, where the revenue contribution has already exceeded its Pay TV segment in 3Q15. It has also kept its dividend payout at S$0.20/share, or S$0.05 per quarter.

Hubbing strategy may be its forte

Meanwhile, StarHub has also not been spared by the sell-down caused by concerns over the potential negative impact on its business should there be a fourth telco in the already saturated mobile market here. However, we believe a lot of the concerns may be overwrought and could be mitigated by its “Hubbing” strategy, which is essentially a bundling of its mobile, Pay TV and broadband offerings; subscribers typically save more with more services they get from StarHub. Based on its latest 3Q announcement, StarHub currently has nearly 60% of its customers using at least two services and nearly 32% using all three. Hence, it may be quite hard for a new entrant to pry customers away from StarHub.

Maintain BUY and S$3.91 fair value

With markets looking increasingly volatile amid a soft economic environment, we are leaning towards companies with defensive businesses and strong cash-flow generating abilities; and StarHub meets both these criterias. At current price, the yield works out to be 5.5%, which is pretty decent in our view. Maintain BUY with an unchanged S$3.91 fair value.

Source: OCBC Research - 30 Nov 2015