StarHub not threatened by fibre broadband

CIMB says there has been little demand for very high speed broadband, otherwise known as NGNBN.

StarHub’s broadband churns remain low and it will be focusing on bundling to keep rates low.

Here’s more from CIMB:

• In line. Annualised 1H11 results are in line, at just 2% below our FY11 forecast and 3% below consensus. As expected, a DPS of 5cts was declared. Highlights were strong postpaid revenue growth, stable revenue and margins, and better pay-TV and fixed-broadband performances. While StarHub has lowered its revenue and capex guidance, we maintain our forecasts as the guidance is largely within our estimates. However, we lift our DCF-based target price from $2.42 to S$3.03 as we lower our WACC assumption from 9.7% to 8.6%. We also upgrade the stock from Underperform to NEUTRAL, following easing concerns over the mid-term threat from NGNBN to its fixed broadband business. Attractive dividend yields should limit downside, in our view.

• Decent numbers. Revenue rose 2% qoq in 2Q11 on stronger postpaid revenue from fairly robust net adds and higher ARPUs from more take-up of SmartSurf and data SIM plans. Revenue was flat yoy as 2Q10 benefitted from World Cup revenue and higher sports-package pricing. Margins were stable qoq (+0.2% pt) as higher equipment and staff costs were offset by lower traffic costs due to better bargaining power and economies of scale.

• Easing fixed threat from NGNBN. The threat of NGNBN to StarHub’s cable broadband business has been less than expected due to: 1) fewer homes reached of about 40% of the 70% of homes passed; and 2) little demand for very-high-speed broadband. StarHub’s broadband churns remain low and it will be focusing on bundling to keep rates low. StarHub also noted that a sizeable amount of take-up for fibre is occurring from copper broadband (i.e. SingTel), which means StarHub’ base is not being cannibalised.

• Trimmed FY11 guidance. StarHub has lowered its FY11 guidance from single-digit revenue growth to low-single-digit growth due to slower-than-expected access to the NGNBN network for office buildings. However, it expects corporate broadband/data revenue to pick up in 4Q11 and further in 1H12. It has also lowered its FY11 capex guidance from not exceeding 13% of revenue to 12% due to delays in an undersea cable project. There is no change to service EBITDA margin guidance of around 30% and DPS of 5cts/quarter.

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