StarHub

StarHub missed expectations with lower 2Q net profit of $58.1m (-25.4% yoy) despite 6.9% rise in revenue to $569.3m as operating expenses rose +14% to $492.3m. Revenue growth was led by mobile (+8%) on higher IDD, roaming & data usage and cable TV (+9%) but excl World Cup, TV revenue was stable. Fixed revenue was +2%, handset revenue +26% on continued robust smartphone take-up while broadband revenues fell 2%. Loss of EPL seems to be contained as TV subscriber base remained unchanged. 2Q .

Ebitda margins recovered 3.4 ppt qoq to 25.9% despite being squeezed by higher equipment (iPhone) and content costs (WC) but mgmt continues to guide for FY10 Editda margin of 28%. Importantly, free cash flow is of 6.2c per share is above its cash dvd payout of 5c, which translates to a dvd yield of 8.6%. The rollout of the high speed national broadband network in 3Q should benefit StarHub, as its enterprise operations will be able to offer more choices to SMEs and access more downtown commercial buildings currently locked into SingTel. KE upgrades stock to Buy with TP of $2.78; DB has buy with $2.62 TP while UBS keeps sell call with $2.05 TP.