STH's 1HFY13 results were in line, with the following key takeaways: i) the higher take-up of tiered data plans raised q-o-q postpaid ARPU, and (ii) the EBITDA margin improved from a lower volume of handsets sold. We  are  still  NEUTRAL  (FV:  SGD4.18)  given  the  stock's  rich  valuation, although  it  is  well-supported  by  a  5%  sustainable  dividend  yield.  We prefer M1 (NEUTRAL, FV: SGD3.25) for exposure to the sector.

- Strong 1H, but expect weaker 2H. Although StarHub (STH)'s 1HFY13 core  earnings  made  up  a  strong  56%  and  53%  of  our  and  consensus estimates  respectively,  we  consider  the  numbers  to  be  in  line  as  we expect  a  weaker  2H  from  higher  handset  subsidies  and  increased competition. Overall service revenue (excluding handset sales) were flat y-o-y  in  1HFY13  (+3%  q-o-q),  reflecting  continued  pressure  on  pay-TV revenue (-5% y-o-y). An expected five-cent DPS was declared.  

- Higher postpaid  ARPU  from  tiered  plans.  362k  STH  subscribers had moved to its tiered long term evolution (LTE) data plans as at 2QFY13, a 33%  rise  q-o-q.  This  fuelled  the  6%  q-o-q  rise  in  postpaid  average revenue  per  user  (ARPU)  and  a  5%  sequential  increase  in  postpaid revenue. We  expect  the  take-up  of  tiered  plans  to  keep  growing  on  the back  of  the  expanded  LTE  footprint  and  STH  to  consider  raising  price points by 4Q13, allowing for better data monetisation.    

-  BPL  rebate  is  EBITDA-neutral.  The  telco  intends  to  plough  the  British Premier  League  (BPL)  carriage  fee  expected  from  SingTel  (NEUTRAL, ST  SP,  FV:  SGD3.17)  and  flow  it  back  to  subscribers  via  a  SGD300 rebate  on  subscriptions  for  new  bundled  plans  (pay-TV  +  broadband). Management hopes BPL fans will view the rebate as a goodwill gesture and return to STH. As it is merely passing on the carriage fee from ST to subscribers, we see neutral impact on EBITDA and ARPU.  

-  Forecast.  Management  has  retained  its  previous  guidance  of:  i)  low single-digit  revenue  growth,  and  ii)  a  31%  EBITDA  margin,  implying  a weaker  2H  margin  of  28%.  We  are  keeping  our  forecasts  for  now  in anticipation of rising competition and higher handset subsidies from new model launches such as the iPhone 6 and Samsung Note III in 2H.  

Source: OSK