StarHub - UOB Kay Hian 2015-09-17: The Hubbing Warrior

STARHUB LTD CC3.SI

StarHub (STH SP) - The Hubbing Warrior

StarHub has strengthened its value proposition for hubbing by offering attractive HomeHub bundled packages, introducing SIM-only mobile plans and enhancing the breadth of its family-oriented content for pay TV.
Management has committed to paying dividends of 5 S cents/quarter and 20 S cents/year, which provides lucrative and stable dividend yield of 5.7%.
Maintain HOLD. Target price: S$3.50. Entry price: S$3.20.

StarHub’s strategy centres on hubbing, which necessitates targeting of households. It has enhanced its bundled offerings with the launch of HomeHub Go that provides five services, comprising of mobile (option of 7GB of data or 700mins of outgoing calls), fibre broadband, mobile broadband, fibre TV and a home phone line, at an affordable entry price of S$128.80 in July. Management also plans to improve its offer for SIM-only mobile plans, which is currently priced at a 20% discount to its usual 2-year contracts that come with a subsidised smartphone.
StarHub has made steady progress in building an entrenched and resilient customer base. The number of households using three services from StarHub has increased by 5.1% yoy to 246,000, accounting for 31.7% of all households.

StarHub TV has secured broadcast rights to UEFA Champions League and Europa League on a non-exclusive basis through the Eurosports and Eurosports 360 channels for the next three years. The matches will be broadcast live in high definition. Football fans unable to watch the 2:45am kick-offs can view the full matches on Catch Up. StarHub has enhanced its sports content and has maintained its lead in the breadth of its family-oriented content.

StarHub has entered into a strategic JV with ST Telemedia’s wholly-owned subsidiary STT GDC to establish Shine Systems Assets. STT GDC will invest S$36.9m for a 70% stake in Shine Systems Assets while StarHub will own the remaining 30% stake. Shine Systems Assets owns MediaHub, a specialised telecommunications and media facility with a highly secure tier-3 data centre. StarHub will sub-lease more than 65% of the total gross floor area at MediaHub to house its media head-end, central office and innovations centre.

Management intends to maintain its dividend payout at 5 S cents per quarter and 20 S cents per year for 2015.

Our target price for StarHub is S$3.50, assuming probability of 75% for Scenario A (no new entrant) and probability of 25% for scenario B (fourth mobile operator disrupts the status quo). Entry price: S$3.20.

Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2015-09-17

UOB Kay Hian Analyst Report HOLD Maintain HOLD 3.50 Up 3.34

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