Starhub

Starhub: 1Q13 results below; downgrade on weaker guidance, increasing competition Net profit inched up 3.2% y/y at $91.2m, broadly in line. But certain operational numbers were showed weakness. Operating revenue fell for the first time in 4 years, down 2% y/y to $580m, mainly due to lower revenue from sales of equipment. Mobile revenue was surprisingly weak (-1.5% y/y), which suggests a structural change toward Wifi by outbound travelers and is a big concern as this points to lower roaming usage, a high margin business. Starhub continued to cede Pay TV market share to mioTV, losing 4,000 subscribers during the quarter. Meanwhile, broadband revenue growth was anaemic at 2%, on a flat subscriber base and lower Average Revenue Per User (ARPU). We believe competition is unlikely to let up and would intensify further in 2013. Management has cut full year revenue guidance from “single digit” to “low single digit”, and kept EBITDA margin forecast at 31% (even though Starhub should benefit from lesser handset subsidy pressure now that iPhone mania is over), which is a warning that mgt expects competition ahead to impact topline and margins. Maybank KE downgrades to Sell from buy, cuts TP to $4.20 from $4.31. Advise clients to sell into strength. Deutsche rates at Sell with TP $3.83. Nomura keeps at Reduce with TP $3.30. CS maintains Neutral but lifts TP from $3.68 from $4.40. CIMB rates at Neutral , but lifts TP from $4.28 to $4.52.