StarHub cost concerns mounting: DBS
Effective cost management lifted the telco's earnings for the first quarter but expenses will start proving harder to control.
StarHub margins will be under more pressure in the coming quarters with a possible increase in its subsidy bill following the launch of its new Galaxy S3 and upcoming iPhone 5 models. Plus it will shoulder huge costs for exclusive airing rights to UEFA Cup matches this summer.
Here's more from DBS:
Prudent cost management lifted earnings. Its 1Q12 net profits of S$88m (+28% y-o-y, -5% q-o-q) beat market expectations of S$80m. This was due to lower handset subsidy and traffic costs. The handset subsidy cost for each smartphone was lower due to a higher adoption of Android phones which comprise 50% of new smartphone sales versus 25% a year earlier. Traffic costs also declined as StarHub, as a Vodafone partner, had managed to negotiate lower interconnect rates for some destinations.
Management sees cost pressures in upcoming quarters. Management has maintained its FY12F service EBITDA margins guidance of 30% despite having achieved 32% margins in 1Q12. The recent launch of the Galaxy S3 phone could raise the subsidy bill for telcos. The upcoming iPhone 5 launch is another cost factor (launch rumored in Oct 2012) to consider. StarHub will also incur the cost of exclusive UEFA Cup rights in 2Q12. It will be paying an undisclosed cross-carriage fee to SingTel for carrying Euro Cup matches on SingTel’s pay TV platform.
Our View. Raise FY12F earnings by 5% on higher margins. We project service EBITDA margins of 30.6% in FY12 compared to 29.7% earlier. We do not expect capital management in the near term, as the company may want to preserve cash for the spectrum auction for 1800 MHz and 2600 MHz bands, possibly in 2013.
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