Why StarHub shouldn't expect too much from BPL broadcast rights acquisition

Fees will be directly paid to SingTel.

Singtel According to OCBC Investment Research, StarHub Ltd will be able to cross carry the widely-followed BPL (Barclays Premier League) live matches for the upcoming 2013 to 2016 seasons; this after rival SingTel’s appeal against the MDA’s (Media Development Authority) direction was rejected. 

However, with a seemingly steep price point of S$59.90/month (before GST) for new subscribers (while existing mioTV subscribers continue to pay the current S$34.90 (before GST)), we suspect that any migration of subscribers from mioTV to StarHub’s cable TV platform would be quite muted.

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And even if there are migrations, StarHub subscribers will be paying the fees directly to SingTel.

Strong recovery after our upgrade. Meanwhile, StarHub has seen a strong recovery after we upgraded our rating from Sell to Hold on 3 Jun, with the stock rising some 9.5% to a recent S$4.39 high.

Back then, we note that the dividend yield has risen back to around 5% (or 5.2% based on our fair value), but based on current price, the yield has fallen back to 4.7%, which is just decent.

However, with 10-year SGS bond yields back to around 2.5%, we feel that further upside from here may be capped, especially with consensus siding towards further rate increases in the future.

Downgrade to SELL. In light of the likely muted boost from the BPL cross carriage and recent strong run-up in share price, we feel that the stock may have run ahead of its fundamentals.

Recall previously that StarHub has guided for a lower single-digit revenue growth while maintaining its service EBITDA margin at 31%. As we are also keeping our DCF-based fair value unchanged at S$3.82 (already accounted for a higher risk-free rate), we foresee more downside risk from here.