4 reasons why StarHub's 2012 results disappoint analysts

5% dividend yield wasn't compelling.

According to CIMB, StarHub's FY12 net profit was in line with the firm's forecasts at +1%, but exceeded consensus by +6%. It declared a DPS of 5 Scts to total 20 Scts for FY12. While FY12 EBITDA margins exceeded its 30% guidance, we are disappointed that StarHub did not raise its 2013 dividend policy.

StarHub expects handset subsidies to trend downwards going forward as new devices are very popular and do not need heavy subsidies to attract users. Also,
there is a much wider variety of smartphone models in the market.

Here's more from CIMB:

We downgrade StarHub to Neutral from Outperform because:

1) We are disappointed that StarHub is not budging on its dividend of 20 Scts/year.

2) Higher-than-expected capex of 13% of FY13 revenue vs. our forecast of 11%.

3) Less compelling dividend yield of 5%. While we still expect StarHub to loosen its dividend purse string eventually, it will only materialise after 1H13 at the
earliest.

In our view, factors that are likely to trigger a higher payout are: 1) a benign spectrum auction and if spectrum is priced at or near the reserve price, 2) spectrum to be paid later and not this year and 3) a clearer view on the prices of new devices and clarity on future LTE spending.

4) StarHub faces rising competition in pay TV and broadband. Already, its pay TV ARPUs and subscribers are falling.

Since we upgraded StarHub to Outperform on Aug 2011, the stock has returned a total of 53% and outpaced the STI by 27%.

Our revised DCF-based target price of S$3.95 assumes $150m in spectrum fees to be paid this year, although the timing of the payment is uncertain as the auction rules have not been announced.

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