Despite the slight decrease in revenue, net profit rose because of the tax credit adjustment due to the reduction in corporate tax to 17%, lower operating costs and lower interest expenses.
Performances of the various business units. StarHub reported mixed performances in its business units: mobile revenue was S$264.7m (-3.1% yoy), Pay TV revenue was S$102.0m (+4.9% yoy), broadband revenue was S$62.4m (-2.6% yoy), fixed network service revenue was S$79.1m (+8.7% yoy) and sale of equipment revenue was S$22.4m (-19.3% yoy).
StarHub continued to be successful in attracting new customers to its services. As at 31 March 2009, the number of customers for its mobile, Pay TV and broadband businesses were 1,815,000, 527,000 and 383,000 respectively. However, mobile revenue fell because customers made fewer domestic and international calls. In addition, broadband revenue decreased as customers opted for subscription discounts. Moreover, consumers were more cautious in their purchases of handsets during the economic slowdown. Meanwhile, Pay TV and fixed network service posted single-digit growth due to the increase in the number of customers.
Profit margin. Net profit margin decreased from 16.3% in 4Q FY2008 to 15.5% in 1Q FY2009. This was because of the the tax relief adjustment of S$10m in 4Q FY2008, which resulted in higher profit.
FY2009 Outlook. StarHub expects the service revenue for 2009 to be maintained at 2008 level. In view of the recession, it will focus on customer retention and preservation of operating cash flow for 2009. Furthermore, it intends to pay a minimum cash dividend per quarter of S$0.045 per ordinary share, bringing the total to S$0.18 for the full year.
Maintain HOLD recommendation and target price at S$2.14. As StarHub’s results were within expectations, we maintained our target price of S$2.14 under the discounted cash flow (DCF) model.
Although StarHub offers its services only in Singapore, it continues to be an attractive stock as it offers dividend yield 9.2%. We kept our Hold recommendation because of limited upside in the share price to our target price of S$2.14.
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