StarHub confident of extending EPL rights

The likelihood of any irrational bidding for the English Premier League (EPL) rights may be limited due to a risk of regulatory intervention to keep prices in check, we believe. Also for StarHub, the standalone economics may not be appealing, and investment is largely justified on the opportunity cost analysis. SingTel will also need to consider its ADSL coverage/quality issues. A joint bid may not be acceptable to the FA Premier League as it reduces pricing tension for future auctions. Our base case is StarHub winning again, otherwise a wholesale deal (for access to their HFC and/or even content) cannot be ruled out, in our view.

There has been no significant change in the operating environment — competition is benign and the macro impact moderating. We expect revenue growth to remain benign this year at 1-2%, with margins largely stable. On NBN, the company does not expect significant pricing pressure in the consumer segment and sees upside from nonresidential and government segments. In the local fixed network market, the incumbent SingTel has ~75% share and StarHub ~25%.

StarHub is one of the few global carriers with a Femtocell product. It offers it for up to four 3G phones for S$32.10/month and includes unlimited local calls and SMS. Although these are still early days, Femtocell could be a niche segment and good for the carriers as it overcomes coverage issues/reduces capacity on the macro network. However, the customer needs to be offered strong incentives to take up this service, and revenue upside may be limited. Issues around interference, handover and bandwidth efficiencies are being addressed.

Our DCF-based 12-month price target of S$2.35 assumes a WACC of 8% with a terminal growth rate of 1.5%.

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