StarHub back in the black but not a good buy: analyst

3Q12 earnings are 16.5% above forecast but OCBC placed a 'Hold' tag.

Here's what OCBC got to say:

Margins recover in 3Q12

StarHub Ltd posted 3Q12 revenue of S$585.9m (+2.4% YoY, -0.8% QoQ), while it was about 2.4% shy of our forecast, net profit jumped 26.9% YoY and 10.8% QoQ to S$96.2m, or nearly 16.5% above our estimate.

We note the service EBITDA margin improved to 33.9% in 3Q12 from 32.2% in 2Q12 and 30.8% in 3Q11; this was mainly due to lower traffic expenses, which fell 8.1% YoY and 7.1% QoQ, attributable to lower inter-operator SMS traffic and lower inter- connection rates for international outbound traffic. It has maintained its quarterly dividend of S$0.05/share (payable on 23 Nov). For 9M12, revenue grew 4.0% to S$1767.5m, meeting 73.6% of our full-year forecast, while net profit jumped 21.8% to S$271.4m, or 83.2% of our FY12 estimate.

Previous guidance largely unchange

d Going forward, StarHub has maintained its previous guidance for the rest of the year, with revenue expected to grow in the low single-digit
range. It has also kept service EBITDA margin outlook of about 30%, versus 32.7% achieved in 9M12, citing the strong demand for the new
iPhone 5 and Samsung Android smartphones and also expects more year-end promotions. Cash capex will be ~11% of operating revenue,
mostly for the planned roll out of its LTE network. Lastly, it will continue with its S$0.05/share dividend per quarter, or a total
dividend of S$0.20 this year.

Raising FV to S$3.75 - HOLD

Margin improvements came in ahead of our expectations and we have bumped up our FY12 earnings forecast by 7.5% (FY13 by 4.6%). Our
DCF-based fair value also inches up from S$3.47 to S$3.75. While we continue to like StarHub for its defensive earnings, we think that its
valuations are not compelling (trading close to 2 standard deviations above its 3-year average EV/EBITDA) after its strong YTD
outperformance. Hence we maintain our HOLD rating.