StarHub: FULLY VALUED S$2.52; Bloomberg: STH SP

Perils on both ends;
Price Target : 12-Month S$ 2.20
By: Sachin Mittal +65 6398 7950

· We attended StarHub’s conference yesterday and came out assured about its preparedness in the consumer market.

· However, StarHub needs to be cautious of new entrants in the low-end SME market. In the high-end corporate market, StarHub may not have all the ingredients of the recipe yet.

· SME and corporate market account for an estimated 15%-20% of group earnings. Continuing with 20 cents DPS may turn group equity negative in 2012F. Maintain Fully Valued.

New products, services plus hubbing advantage. StarHub would launch a new device “StarHub Wireless Home Gateway” which would provide wireless connectivity for all Internet devices at home. The Company intends to launch “Internet TV” with content from its pay TV, so that its program can be viewed over PC or TV anywhere in the world. StarHub would also introduce
a new portal with latest multiplayer online games including F1 racing. In our view, StarHub’s content-experience and hubbing is a huge competitive advantage. SME and corporate market is a bigger challenge. StarHub will maintain its existing fibre network of over 2000 km in addition to the new National Broadband Network. The company plans to offer managed services through
alliances with various IT vendors as opposed to in-house IT competency of SingTel.

While StarHub has access to only 800 buildings compared to over 20K buildings in Singapore, we can safely assume that StarHub would have covered the bigger customers first. In our view, many SME customers would incline towards lower pricing where smaller players like M1 and LGA have an advantage, as they do not have existing margins to protect. In the high-end corporate market, customers prefer managed services involving IT and global connectivity. Our talks with industry players suggest corporate customers prefer vendors with strong in-house IT competency, as independent IT vendors typically work with multiple operators to maximize their returns.

(Document link: Singapore Research)