Starhub Q210 results disappoint

Margin recovery in Q210 less than expected 

iPhone launch dragged down StarHub's earnings in Q1 and we had expected

earnings to recover in Q2 as iPhone sales slows. While net profit did jump from

S$42mn in Q1 to S$58mn in Q2, it was well below our expectation of S$72mn and

Bloomberg consensus of S$69mn
 

Weak subscriber trend for pay TV and broadband

Postpaid was the bright spot in Q2 as StarHub recorded wireless postpaid net adds

of 29,000 and postpaid revenue increased 10% YoY and 4% QoQ. But for

broadband and pay TV, StarHub recorded zero net adds in Q2 (Table 2). Churn

rate for broadband increased to 1.6% from 1.2% in Q1 and churn rate for pay TV

increased to 1.2% from 0.9% in Q1.

Further challenges in H210

In H210, we expect StarHub's wireless profits to be pressured again as iPhone 4

was launched in July. And we expect market share to be pressured as on the pay

TV side StarHub has lost BPL content to SingTel and on the broadband side there

will be new entrants through NBN.

Valuation: Retain Sell rating and S$2.05 price target
The 8.6% dividend yield is the only support for StarHub share price, in our view.

However, we recommend the Taiwan telcos over StarHub for investors seeking

defensive dividends in Asia. Reflecting weaker than expected Q2 results, we cut 

2010/11/12 EPS forecast to S$0.144/0.172/0.174 from S$0.156/0.172/0.175,

respectively. Our price target is based on DCF using 7.8% WACC and 0% 'g'.


Source: UBS Investment Research