StarHub – 1Q10 Results Phillip Securities Research Pte Ltd

7 May 2010 Market Singapore Stock Exchange Sector Telecommunications Reuters STAR.SI Bloomberg STH SP

SELL

(Downgraded)

Closing Price S$2.27

12-month Target Price S$1.92 (-15.42%)

Last Price 2.270 52w k High (4/19/2010) 2.430 52w k Low (5/6/2009) 1.830Shares Outstanding (mil) 1714.57Market Cap (S$ mil) 3892.07Avg. Daily Turnover (mil) 5.30Free f loat (%) 40.10PE (X) 12.16PB (X) 30.89

1M 3M 6MAbsolute -1.7% 6.6% 20.7%Relative 2.8% 0.8% 13.9%

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Major Shareholders % 1 Asia Mobile Holdings 49.07 2 Nippon Telegraph 10.01 3 Mediacorp 7.46

Source: Bloomberg Analyst Alfred Low Tel : +65 6531-1793 Fax : +65 6531-1555 Email : alfredlowjh@phillip.com.sg Web : www.poems.com.sg MICA (P) 153/01/2010 Ref No: SG2010_0149

• 1Q10 revenue of S$557.2m, net profit of S$42.7m • Higher cost of equipment, staff costs, operating lease and other expenses • Downgrade from Hold to Sell and reduce fair value from S$2.05 to S$1.92 1Q10 results StarHub reported 1Q10 operating revenue of S$557.2m (+5.0% y-y) and net profit of S$42.7m (-48.3% y-y). Revenue increased mainly because of higher mobile services revenue. Net profit dropped sharply because of higher cost of equipment, staff costs, operating lease and other expenses. It also announced an interim dividend of S$0.05 per ordinary share for 1Q10, which was higher than S$0.045 for 1Q09. Exhibit 1: Full year revenue and net profit

Source: Company, Phillip Securities Research

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FY2007 FY2008 FY2009

S$m

Revenue Net profit

FY2010F Outlook StarHub expects the operating revenue growth for 2010 to be in low single digit. It expects to pay minimum dividend of S$0.05 per ordinary share per quarter in 2010, bringing the total annual dividend to be at least S$0.20. Conso' Profits EPS DPS BV ROE P/E Yield P/BVEnding (S$m) (S$) (S$) (S$) (%) (X) (%) (x)12/07 A 330.3 0.187 0.160 0.063 111.01 12.13 7.05 35.9812/08 A 311.3 0.183 0.180 0.063 288.78 12.42 7.93 35.9812/09 A 319.6 0.187 0.190 0.073 273.40 12.15 8.37 30.9312/10 E 252.3 0.147 0.200 0.050 238.35 15.42 8.81 45.3012/11 E 265.3 0.155 0.180 0.030 387.54 14.67 7.93 76.28

Starhub Limited 7 May 2010

Great disappointment We are disappointed with the large decline in net profit. Although StarHub achieved a higher mobile market share of 28.4% as at 31 March 2010 compared to 28.0% as at as at 31 December 2009, it did not manage its costs properly. We are concerned that net profit may decline for the next three quarters of FY2010 due to higher costs. Moreover, its 1Q10 dividend of S$0.05 is greater than its earnings per share of S$0.0249. We feel that the dividend payout of S$0.05 per quarter may not be sustainable after FY2010. Downgrade from Hold to Sell and reduce fair value from S$2.05 to S$1.92 For investors who prefer dividends, StarHub is an attractive company that expects to pay dividends of S$0.20 this year. Nevertheless, we are concerned that the dividends are not sustainable. Moreover, StarHub may lose its Pay TV market share to SingTel after SingTel won the rights for Barclays Premier League (BPL) matches. Due to the huge decline in profit, we downgrade our recommendation from hold to sell. Based on the discounted cash flow (DCF) model, the fair value is reduced from S$2.05 to S$1.92.

Starhub Limited 7 May 2010

Financials P ro fit & Lo ss statement (S$ m) 2008 2009 2010F 2011F B alance sheet (S$ m) 2008 2009 2010F 2011F

M obile 1,079.0 1,094.0 1,119.4 1,150.6 Cash 128.3 234.2 243.4 287.7Pay TV 398.2 405.5 367.0 316.7 Inventory 20.5 28.2 5.3 (0.2)Broadband 253.2 240.5 266.5 278.3 Trade receivables 127.8 125.4 253.0 307.3Fixed network 299.9 317.5 333.0 340.0 Other receivables and balances with related parties 132.9 138.7 312.0 423.4Sale of equipment 97.3 92.6 99.0 103.0 Other current 0.0 0.0 0.0 0.0Revenue 2,127.6 2,150.1 2,184.9 2,188.6 T o tal current assets 409.5 526.5 813.8 1,018.2Cost o f Sales / COGS (782.4) (829.7) (897.4) (865.4)Gross Profit 1,345.2 1,320.4 1,287.5 1,323.2 Property, plant and equipment 845.7 785.1 786.8 727.4Other income 0.8 0.8 6.4 6.4 Intangible assets 381.0 415.7 362.1 367.8Admin & operating expenses (700.8) (666.9) (703.7) (712.0) Deferred tax asset and o thers 25.1 5.3 5.3 5.3EBITDA 645.2 654.3 590.1 617.5 T o tal no n-current assets 1,251.8 1,206.1 1,154.2 1,100.5Depreciation & amortisation (235.1) (245.1) (262.0) (278.0) T o tal assets 1,661.3 1,732.6 1,968.0 2,118.7EBIT 410.1 409.2 328.1 339.5Finance costs (27.3) (24.1) (20.2) (15.9) Short-term borrowing 217.9 290.4 68.2 59.4Profit before tax 382.8 385.1 307.9 323.7 Trade payables 339.0 377.1 607.8 763.5Tax (71.5) (65.5) (55.6) (58.4) Other payables and provisions 210.9 215.9 522.1 716.7Profit fo r the year 311.3 319.6 252.3 265.3 Balances with related parties 40.1 42.1 67.1 92.1

T o tal current liabilit ies 807.9 925.5 1,265.2 1,631.6EPS (S$) 0.183 0.187 0.147 0.155BVPS (S$) 0.063 0.073 0.050 0.030 Long-term borrowing 695.8 605.4 501.0 280.2DPS (S$) 0.180 0.190 0.200 0.180 Deferred income 10.7 6.6 26.6 46.6

Deferred tax liabilities and others 38.8 69.3 89.3 109.3Gro wth & margins (%) 2008 2009 2010F 2011F T o tal no n-current liabilit ies 745.3 681.3 616.9 436.1Sales growth 5.7 1.1 1.6 0.2 T o tal liabilit ies 1,553.2 1,606.8 1,882.1 2,067.7EBITDA growth 0.4 1.4 (9.8) 4.6EBIT growth (2.3) (0.2) (19.8) 3.5 Share capital 255.1 257.5 273.0 281.0Net income growth (5.8) 2.7 (21.1) 5.1 Reserves and retained profit (147.1) (131.7) (187.1) (230.0)EPS growth (2.4) 2.2 (21.2) 5.1 T o tal equity 108.0 125.8 85.9 51.0EBITDA margin 30.3 30.4 27.0 28.2 T o tal liabilit ies & equity 1,661.2 1,732.6 1,968.0 2,118.7EBIT margin 19.3 19.0 15.0 15.5Net pro fit margin 14.6 14.9 11.5 12.1 Key R at io s 2008 2009 2010F 2011FROA 18.4 18.8 13.6 13.0 Gross gearing 0.9 0.9 1.0 1.0ROE 288.8 273.4 238.4 387.5 Net gearing 1.1 1.0 1.0 1.0

Interest coverage 15.0 17.0 16.2 21.4C ash f lo w statement (S$ m) 2008 2009 2010F 2011F Net debt/EBITDA 1.2 1.0 0.6 0.1Profit before tax 382.8 385.1 307.9 323.7 Net debt/equity 7.3 5.3 3.8 1.0Adjustments 286.5 274.7 284.2 295.9 Debt ratio 0.9 0.8 0.9 0.8Operating profit before working capital changes 669.3 659.8 592.1 619.5Changes in working capital (72.1) 32.6 122.6 116.0 Sales to inventory ratio 103.8 76.2 413.4 (10917.2)Income tax refund 0.3 0.0 0.0 0.0 Assets to sales ratio 0.8 0.8 0.9 1.0Net cash flow from operating activities 597.5 692.4 714.7 735.6 Average receivable turnover 17.6 17.0 11.5 7.8Net cash flow from investing activities (218.8) (230.0) (251.6) (267.6) Average days receivable 20.7 21.5 31.6 46.7Net cash flow from financing activities (388.4) (356.6) (453.8) (423.8) Average payable turnover 6.2 6.0 4.4 3.2Net change in cash (9.7) 105.8 9.4 44.2 Average days payable 59.2 60.8 82.3 114.3Beginning cash balance 138.0 128.3 234.1 243.4 Average assets turnover 1.3 1.3 1.2 1.1Ending cash balance 128.3 234.1 243.4 287.7 Average equity turnover 19.7 18.4 20.6 32.0

Valuat io n 2008 2009 2010F 2011F Quick ratio 0.5 0.5 0.6 0.6P/E basic (X) 12.4 12.2 15.4 14.7 Current ratio 0.5 0.6 0.6 0.6P/B (X) 36.0 30.9 45.3 76.3 Cash ratio 0.2 0.3 0.2 0.2Dividend yield (%) 7.9 8.4 8.8 7.9 Current assets to equity ratio 3.8 4.2 9.5 20.0

Current liabilities to equity ratio 7.5 7.4 14.7 32.0Current liabilities to inventory ratio 39.4 32.8 239.4 (8,138.9)Total liabilities to equity ratio 14.4 12.8 21.9 40.5

Source: Company, Phillip Securities Research

Starhub Limited 7 May 2010 Ratings History StarHub Limited

Rating Date Closing price (S$)

Fair value (S$) Remarks

SELL 7 May 2010 2.27 1.92 Results HOLD 5 February 2010 2.17 2.05 Results HOLD 11 November 2009 1.93 2.05 Results HOLD 2 October 2009 2.03 2.05 Update HOLD 7 August 2009 2.28 2.14 Results HOLD 11 May 2009 1.96 2.14 Results HOLD 13 April 2009 2.00 2.14 Update HOLD 18 February 2009 2.07 2.14 Results HOLD 13 August 2008 2.61 2.99 Results HOLD 9 May 2008 2.99 3.30 Results HOLD 14 February 2008 3.12 3.30 Results HOLD 2 November 2007 3.12 3.16 Results BUY 10 August 2007 2.96 3.16 Results BUY 11 May 2007 2.90 3.12 Results

TRADING BUY Share price may exceed 10% on the upside over the next 3

months, however longer-term outlook remains uncertain BUY >15% upside from the current price HOLD -10% to 15% from the current price

SELL >10% downside from the current price TRADING SELL

Share price may exceed 10% on the downside over the next 3 months, however longer-term outlook remains uncertain

Phillip Research Stock Selection

Systems We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation

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