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Phillip Securities Research Pte Ltd

StarHub – 1Q10 Results


7 May 2010
Closing Price
Market
Sector
Singapore Stock Exchange
Telecommunications
SELL S$2.27
Reuters STAR.SI 12-month Target Price
Bloomberg STH SP (Downgraded)
S$1.92 (-15.42%)
Price
Last Price 2.270 • 1Q10 revenue of S$557.2m, net profit of S$42.7m
52w k High (4/19/2010) 2.430 • Higher cost of equipment, staff costs, operating lease and other expenses
52w k Low (5/6/2009) 1.830 • Downgrade from Hold to Sell and reduce fair value from S$2.05 to S$1.92
Shares Outstanding (mil) 1714.57
Market Cap (S$ mil) 3892.07 1Q10 results
StarHub reported 1Q10 operating revenue of S$557.2m (+5.0% y-y) and net profit of S$42.7m (-
Avg. Daily Turnover (mil) 5.30
48.3% y-y). Revenue increased mainly because of higher mobile services revenue. Net profit
Free float (%) 40.10
dropped sharply because of higher cost of equipment, staff costs, operating lease and other
PE (X) 12.16 expenses.
PB (X) 30.89
It also announced an interim dividend of S$0.05 per ordinary share for 1Q10, which was higher
Price perform ance % than S$0.045 for 1Q09.
1M 3M 6M
Absolute -1.7% 6.6% 20.7% Exhibit 1: Full year revenue and net profit
Relative 2.8% 0.8% 13.9%

3 3500
2500 Revenue Net profit

2.5 3000
2000
2500
2
2000 1500
S$m

1.5
1500
1 1000
1000
0.5 500 500
0 0
0
FY2007 FY2008 FY2009
Source: Company, Phillip Securities Research
Major Shareholders %
1 Asia Mobile Holdings 49.07
2 Nippon Telegraph 10.01
FY2010F Outlook
3 Mediacorp 7.46 StarHub expects the operating revenue growth for 2010 to be in low single digit. It expects to
Source: Bloomberg pay minimum dividend of S$0.05 per ordinary share per quarter in 2010, bringing the total
annual dividend to be at least S$0.20.
Analyst
Conso' Profits EPS DPS BV ROE P/E Yield P/BV
Alfred Low Ending (S$m ) (S$) (S$) (S$) (%) (X) (%) (x)
Tel : +65 6531-1793 12/07 A 330.3 0.187 0.160 0.063 111.01 12.13 7.05 35.98
Fax : +65 6531-1555 12/08 A 311.3 0.183 0.180 0.063 288.78 12.42 7.93 35.98
Email : alfredlowjh@phillip.com.sg 12/09 A 319.6 0.187 0.190 0.073 273.40 12.15 8.37 30.93
Web : www.poems.com.sg 12/10 E 252.3 0.147 0.200 0.050 238.35 15.42 8.81 45.30
12/11 E 265.3 0.155 0.180 0.030 387.54 14.67 7.93 76.28
MICA (P) 153/01/2010
Ref No: SG2010_0149
Starhub Limited 7 May 2010

Great disappointment
We are disappointed with the large decline in net profit. Although StarHub achieved a higher
mobile market share of 28.4% as at 31 March 2010 compared to 28.0% as at as at 31
December 2009, it did not manage its costs properly. We are concerned that net profit may
decline for the next three quarters of FY2010 due to higher costs. Moreover, its 1Q10 dividend
of S$0.05 is greater than its earnings per share of S$0.0249. We feel that the dividend payout of
S$0.05 per quarter may not be sustainable after FY2010.

Downgrade from Hold to Sell and reduce fair value from S$2.05 to S$1.92
For investors who prefer dividends, StarHub is an attractive company that expects to pay
dividends of S$0.20 this year. Nevertheless, we are concerned that the dividends are not
sustainable. Moreover, StarHub may lose its Pay TV market share to SingTel after SingTel won
the rights for Barclays Premier League (BPL) matches. Due to the huge decline in profit, we
downgrade our recommendation from hold to sell. Based on the discounted cash flow (DCF)
model, the fair value is reduced from S$2.05 to S$1.92.
Starhub Limited 7 May 2010

Financials
P ro f it & Lo s s s t a t e m e nt ( S $ m ) 2008 2009 2 0 10 F 2 0 11F B a la nc e s he e t ( S $ m ) 2008 2009 2 0 10 F 2 0 11F

M o bile 1,079.0 1,094.0 1,119.4 1,150.6 Cash 128.3 234.2 243.4 287.7
P ay TV 398.2 405.5 367.0 316.7 Invento ry 20.5 28.2 5.3 (0.2)
B ro adband 253.2 240.5 266.5 278.3 Trade receivables 127.8 125.4 253.0 307.3
Fixed netwo rk 299.9 317.5 333.0 340.0 Other receivables and balances with related parties 132.9 138.7 312.0 423.4
Sale o f equipment 97.3 92.6 99.0 103.0 Other current 0.0 0.0 0.0 0.0
Revenue 2,127.6 2,150.1 2,184.9 2,188.6 T o t a l c urre nt a s s e t s 409.5 526.5 813.8 1,018.2
Co st o f Sales / COGS (782.4) (829.7) (897.4) (865.4)
Gro ss P ro fit 1,345.2 1,320.4 1,287.5 1,323.2 P ro perty, plant and equipment 845.7 785.1 786.8 727.4
Other inco me 0.8 0.8 6.4 6.4 Intangible assets 381.0 415.7 362.1 367.8
A dmin & o perating expenses (700.8) (666.9) (703.7) (712.0) Deferred tax asset and o thers 25.1 5.3 5.3 5.3
EB ITDA 645.2 654.3 590.1 617.5 T o t a l no n- c urre nt a s s e t s 1,251.8 1,206.1 1,154.2 1,100.5
Depreciatio n & amo rtisatio n (235.1) (245.1) (262.0) (278.0) T o tal assets 1,661.3 1,732.6 1,968.0 2,118.7
EB IT 410.1 409.2 328.1 339.5
Finance co sts (27.3) (24.1) (20.2) (15.9) Sho rt-term bo rro wing 217.9 290.4 68.2 59.4
P ro fit befo re tax 382.8 385.1 307.9 323.7 Trade payables 339.0 377.1 607.8 763.5
Tax (71.5) (65.5) (55.6) (58.4) Other payables and pro visio ns 210.9 215.9 522.1 716.7
P ro fit fo r the year 311.3 319.6 252.3 265.3 B alances with related parties 40.1 42.1 67.1 92.1
T o t a l c urre nt lia bilit ie s 807.9 925.5 1,265.2 1,631.6
EP S (S$ ) 0.183 0.187 0.147 0.155
B VP S (S$ ) 0.063 0.073 0.050 0.030 Lo ng-term bo rro wing 695.8 605.4 501.0 280.2
DP S (S$ ) 0.180 0.190 0.200 0.180 Deferred inco me 10.7 6.6 26.6 46.6
Deferred tax liabilities and o thers 38.8 69.3 89.3 109.3
G ro wt h & m a rgins ( %) 2008 2009 2 0 10 F 2 0 11F T o t a l no n- c urre nt lia bilit ie s 745.3 681.3 616.9 436.1
Sales gro wth 5.7 1.1 1.6 0.2 T o t a l lia bilit ie s 1,553.2 1,606.8 1,882.1 2,067.7
EB ITDA gro wth 0.4 1.4 (9.8) 4.6
EB IT gro wth (2.3) (0.2) (19.8) 3.5 Share capital 255.1 257.5 273.0 281.0
Net inco me gro wth (5.8) 2.7 (21.1) 5.1 Reserves and retained pro fit (147.1) (131.7) (187.1) (230.0)
EP S gro wth (2.4) 2.2 (21.2) 5.1 T o t a l e quit y 108.0 125.8 85.9 51.0
EB ITDA margin 30.3 30.4 27.0 28.2 T o t a l lia bilit ie s & e quit y 1,661.2 1,732.6 1,968.0 2,118.7
EB IT margin 19.3 19.0 15.0 15.5
Net pro fit margin 14.6 14.9 11.5 12.1 Ke y R a t io s 2008 2009 2 0 10 F 2 0 11F
ROA 18.4 18.8 13.6 13.0 Gro ss gearing 0.9 0.9 1.0 1.0
ROE 288.8 273.4 238.4 387.5 Net gearing 1.1 1.0 1.0 1.0
Interest co verage 15.0 17.0 16.2 21.4
C a s h f lo w s t a t e m e nt ( S $ m ) 2008 2009 2 0 10 F 2 0 11F Net debt/EB ITDA 1.2 1.0 0.6 0.1
P ro fit befo re tax 382.8 385.1 307.9 323.7 Net debt/equity 7.3 5.3 3.8 1.0
A djustments 286.5 274.7 284.2 295.9 Debt ratio 0.9 0.8 0.9 0.8
Operating pro fit befo re wo rking capital changes 669.3 659.8 592.1 619.5
Changes in wo rking capital (72.1) 32.6 122.6 116.0 Sales to invento ry ratio 103.8 76.2 413.4 (10917.2)
Inco me tax refund 0.3 0.0 0.0 0.0 A ssets to sales ratio 0.8 0.8 0.9 1.0
Net cash flo w fro m o perating activities 597.5 692.4 714.7 735.6 A verage receivable turno ver 17.6 17.0 11.5 7.8
Net cash flo w fro m investing activities (218.8) (230.0) (251.6) (267.6) A verage days receivable 20.7 21.5 31.6 46.7
Net cash flo w fro m financing activities (388.4) (356.6) (453.8) (423.8) A verage payable turno ver 6.2 6.0 4.4 3.2
Net change in cash (9.7) 105.8 9.4 44.2 A verage days payable 59.2 60.8 82.3 114.3
B eginning cash balance 138.0 128.3 234.1 243.4 A verage assets turno ver 1.3 1.3 1.2 1.1
Ending cash balance 128.3 234.1 243.4 287.7 A verage equity turno ver 19.7 18.4 20.6 32.0

V a lua t io n 2008 2009 2 0 10 F 2 0 11F Quick ratio 0.5 0.5 0.6 0.6
P /E basic (X) 12.4 12.2 15.4 14.7 Current ratio 0.5 0.6 0.6 0.6
P /B (X) 36.0 30.9 45.3 76.3 Cash ratio 0.2 0.3 0.2 0.2
Dividend yield (%) 7.9 8.4 8.8 7.9 Current assets to equity ratio 3.8 4.2 9.5 20.0
Current liabilities to equity ratio 7.5 7.4 14.7 32.0
Current liabilities to invento ry ratio 39.4 32.8 239.4 (8,138.9)
To tal liabilities to equity ratio 14.4 12.8 21.9 40.5
So urce: Co mpany, P hillip Securities Research
Starhub Limited 7 May 2010

Ratings History
StarHub Limited

Closing Fair
Rating Date Remarks
price (S$) value (S$)
SELL 7 May 2010 2.27 1.92 Results
HOLD 5 February 2010 2.17 2.05 Results
HOLD 11 November 2009 1.93 2.05 Results
HOLD 2 October 2009 2.03 2.05 Update
HOLD 7 August 2009 2.28 2.14 Results
HOLD 11 May 2009 1.96 2.14 Results
HOLD 13 April 2009 2.00 2.14 Update
HOLD 18 February 2009 2.07 2.14 Results
HOLD 13 August 2008 2.61 2.99 Results
HOLD 9 May 2008 2.99 3.30 Results
HOLD 14 February 2008 3.12 3.30 Results
HOLD 2 November 2007 3.12 3.16 Results
BUY 10 August 2007 2.96 3.16 Results
BUY 11 May 2007 2.90 3.12 Results

TRADING BUY Share price may exceed 10% on the upside over the next 3
months, however longer-term outlook remains uncertain
BUY >15% upside from the current price
HOLD -10% to 15% from the current price
SELL >10% downside from the current price
Phillip Research TRADING Share price may exceed 10% on the downside over the next 3
Stock Selection SELL months, however longer-term outlook remains uncertain
Systems
We do not base our recommendations entirely on the above quantitative return
bands. We consider qualitative factors like (but not limited to) a stock's risk reward
profile, market sentiment, recent rate of share price appreciation, presence or
absence of stock price catalysts, and speculative undertones surrounding the
stock, before making our final recommendation
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