Starhub Investment Report

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  • CFA Institute Research Challenge

    hosted by

    CFA Society Singapore

    Singapore Institute of Management Global Education

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    Technology Sector, Wireless Communications Industry

    Singapore Stock Exchange (SGX) Ticker: CC3.SI


    52-week price range (S$)

    $3.40 - $4.46 CURRENT PRICE: $3.60 DATE: 30/10/2015

    Average Volume (3m) 1,839,380 HIGHLIGHTS

    Shares Outstanding 1729.8 million We issue a Hold recommendation on Starhub Limited (Starhub) based on a one-year target price of $36.56, suggesting 1.07% downside from its closing price of $3.60 on 30th October 2015. Our recommendation is primarily driven by:

    Market Capitalization



    Dividend Yield 5.59% PROVEN STRATEGY - Starhub pioneer service, Hubbing, has been very successful since year 2002, providing integrated bundle of all their services. It is proven to increase revenue and total dividend payouts.

    P/BV (mrq) 40.0

    P/E (ttm) 17.14

    Share Price Movement

    Source: Yahoo! finance

    STABLE DIVIDEND INCOME - Starhub is a matured company. Despite of its low growth rate, Starhub shows that it is a stable company from year to year. It has a focused strategy (Hubbing) and continues to develop its business, which is evident by keeping itself updated with the latest technology and also the formation of new partnerships. Moreover, Starhub pays a consistent dividend with a value that is considered as quite high among other blue chip stocks in Singapore.

    VALUATION Intrinsic value of $3.56 per share indicate that Starhub is currently slightly overvalued. Starhub are currently focusing their market on Singapore. We evaluated Starhubs intrinsic value primarily though a discounted cash flow analysis and a relative multiples valuation.

    MAIN RISKS TO STARHUB The telecommunications industry is highly competitive and is currently affected by the entrance of a new threat to the company. Innovations of applications will cause decrease in revenue. Adverse economic conditions affects the industry.


    StarHub Q1 net profit falls 12.4% - 15 May 2015: Broadband service revenue decreased 10.8 per cent to S$48.1 million for the quarter, largely impacted by price competition which lowered subscription revenue from both re-contracting and new customers.

    StarHub announces 5% higher profit in Q2 15 AUG, 2015: Revenue from fixed network services, which contributed 16.4 per cent of sales, was up 5 per cent from a year earlier to S$96.7 million, mainly due to the higher take-up of data and internet services.

    M1, StarHub face steep profit drop as fourth telco threat looms large - 14 Sep 15: UOB Kay Hian expects M1 and StarHubs 2019 net profit to decline by 32% and 25.8%, respectively, if a fourth telco manages to break into the Singapore market by 2017

    Key Financials and Ratios 2013 2014 2015 2016 2017 2018 2019

    Total Revenue(million) 2369.60 2387.20 2373.13 2394.89 2417.42 2440.75 2464.87

    Net Operating Income(million) 473.50 476.70 491.67 507.11 523.04 539.46 556.40

    Net Profit Margin 16.02% 15.52% 16.57% 17.02% 17.48% 17.92% 18.00%

    Operating Margin 19.98% 19.97% 20.72% 21.17% 21.64% 22.10% 22.57%

    Dividend per Share($) 0.2 0.2 0.2 0.2 0.2 0.2 0.2

    Earning per Share($) 0.22 0.21 0.23 0.23 0.4 0.25 0.26

    Fixed Asset Turnover 1.67 1.58 2.18 2.14 2.15 2.19 2.19

    Quick Ratio 0.66 0.53 0.48 0.49 0.48 0.46 0.44

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    Source: Starhub 2014 Annual Report (AR)


    Source: Respective Companies 2014 AR


    Source: Starhub 2014 AR



    Officially launched in 2000, Starhub Limited is an info-communications company based in Singapore that offers a range of communication, information and media services for the consumers and corporate markets. It is a group with 8 domestic and 3 foreign subsidiaries, all of which the company the company holds 100% equity interest.(Appendix 1) Listed on SGX main board in October 2004, Starhub is a component stock of Straits Time Index (STI) and MSCI Singapore Free Index.


    Pioneer service Hubbing of Starhub is the provision of an integrated bundle of all their service. Starhub provides 4 main services; Mobile, Pay TV, Broadband and Fixed Network. Starhub

    majors largely on their Mobile services (Figure AFIGURE ), providing 4G and 3G services. Being one of the 3 biggest tele-communications company in Singapore, Starhub holds approximately 30% of the total mobile market share. (Figure B) Managing an island-wide hybrid fibre-coaxial (HFC) network, there are multi-channel Pay TV services and high speed residential Broadband services. Also, Starhub delivers data, voice and wholesale services to business users through their Fixed Network line.


    In FY2014, the greatest revenue generator for Starhub is their Mobile services at 52%. (Figure C) Starhub services Pay TV, Broadband and Fixed Network contributes 16%, 9% and 16% respectively out of the total revenue of $2388 million, including 7% of Equipment Sales.


    The company's strategy focuses on the following:

    A. Expand post-paid base (Mobile) [2014 AR] As mobile revenue takes up a big part of Starhubs total revenue, expanding postpaid mobile base means there will be more revenue.

    B. Enhance depth and breadth of contents (Pay TV). [2014 AR] C. Loyalty Reward System [2013 AR] D. Big Data Platform, Smarthub [2013 AR]

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    Source: Starhub AR 2014


    Source: Starhub AR 2014



    Starhub has been awarded recognition for its good practices of

    corporate governance over its years of operation. The firm strongly

    commits to uphold high standards of corporate governance in aspect

    to the principles and guidelines of the Code of Corporate

    Governance (2012) issued by the Monetary Authority of Singapore

    (MAS). The company practices and promote transparency,

    accountability, integrity and applying consistent and effective risk

    arrangement to enhance shareholder value.

    The following areas shows the strengths of Starhub's corporate


    1. BOARD (Figure E)

    Additional board committees may be established when

    necessary by any changes of business functions. There are

    seven members appointed that are independent of

    management. (Appendix 3)

    2. REMUNERATION (Appendix 4APPENDIX 4: )

    The transparency in development of remuneration policies,

    level and mix of remuneration of non-executive directors and

    executive directors. (Figure D)

    3. SHAREHOLDERS (Appendix 7)

    The shareholders are well-informed of the assessment of firm's

    performance, position and prospects in the quarter and full-year

    operating performance and financial results. Every

    shareholder's right is treated equally, given their entitlements

    and reached out through regular, effective and non-

    discriminatory communication with the firm

    Through evaluation by using Governance and Transparency Index (GTI), it is concluded that the degree of threat, based on Starhub's corporate governance, is relatively low to its shareholders. (Appendix 5)

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    Source: Team Estimates


    Source: IDA Singapore Website


    Source: Team Estimates



    PORTERS 5 FORCES (Figure H)

    The intensity of competitive rivalry and threat of a new entrant, My Republic will affect Starhubs ability to earn revenue in the near future. To stay competitive, Starhub need to differentiate themselves from the competitors. (APPENDIX 13)

    SWOT ANALYSIS (Figure F)

    It is evaluated that even if Starhub has many strengths, there are

    also a high level of threats existing from either internally or externally

    that might bring an impact to the company. (Appendix 12). One of

    the threats that is highlighted is the recent emergence of the new

    telco company, which might impact greatly to Starhub.


    The demand drivers for Starhub's services mainly come from the customers. The mix is segmented into four groups which includes, residential households, commercialized businesses, students and military. External factors are analysed to understand how it will impact Starhub. The following factors are an integral part to investments: ECONOMIC GROWTH

    The Gross Domestic Product (GDP) in Singapore has risen rapidly over the past decades. Some factors such as improving infrastructure, natural connectivity, skilled workforce, political stability, favourable tax regime and strong rule of law contributes greatly to Singapore's competitive advantage. Hence, improving its economical state. From the year of recession, year 2008, till current year 2015, there is a display of an upward trend. (Appendix 9). An upward trend of GDP for Information & Communications industry can also be seen over the past 4 years. These strengths of Singapore's economy brings a positive impact to Starhub. DEMOGRAPHICS

    As Starhubs target population derives from the 4 main customer groups, population growth, household types and business sizes in Singapore are factors that brings a direct impact to Starhub. (Appendix 10). TECHNOLOGY PENETRATION

    Due to the uprising technological needs of people, people have a need to own more than one mobile subscription. It is shown that at the first quarter of 2015, the mobile penetration is averaged at 148%. This means that 1.48 mobile subscription is owned by each person. (Appendix 11APPENDIX 11: technology penetration)

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    Over the past years from 2011 to 2014, the total capacity in the

    telecom industry has multiplied up to 4 times the number (Figure G).

    The capacity is likely to keep increasing to meet the growing demand

    of the consumers.


    In recent years, there has been a trend for more demand in the industry:

    There has been more demand for data roaming, as subscribers tend to travel overseas for work or

    leisure more frequently.

    There is also more demand for pay TV channels that meets the needs for all ages, from the young to

    the old.

    Convenience is one of the key factor that consumers consider important in this technological era. That

    is the ability to watch and use the services anywhere, anytime and anything.

    Demand from businesses are also increasing for better quality services from IT & communications

    service providers. This is especially required for businesses that deal with real-time information, they

    can't take any risk from weak broadband connections or from poor infrastructure.

    Demand for better network, such as 5G, is also one of the recent trends in the industry.

    Change in consumers usage habits brings about more demand to suit their daily lives with new and

    better technologies, such as a better camera quality, speed of mobile processor, high speed

    broadband and better mobile coverage.

    Starhub must keep up with these recent trends to stay competitive in the industry.


    We issue a Hold Recommendation on Starhub Limited with a target price of $3.56 utilizing a Discounted Cash Flow Analysis, a Relative Multiples Valuation, and a Dividend Discount Model. This valuation are based on various merits as well as concerns are taken into consideration below:

    MERITS: Stable Business with High Dividend Starhub is a matured company. Despite of its low growth rate, Starhub shows that it is a stable company from year to year. It has a focused strategy (Hubbing) and continues to develop its business, which is evident by keeping itself updated with the latest technology and also the formation of new partnerships. Moreover, Starhub pays a consistent dividend with a value that is considered as quite high among other blue chip stocks in Singapore. Good practices of corporate governance Starhub practices good corporate governance and is evaluated to be a highly transparent company, that brings a relatively low degree of threat to investors. The board of directors consists of experienced with solid industry expertise, technical depth and company tenures. The company has achieved multiple awards for best Investor Relations (IR) Officer, Ms Jeannie Ong, and being ranked the 16th company in the governance and transparency index. Excellent Customer Service Starhub has been recognized for their excellence in customer service by providing a 24 hours customer service hotline that can assist consumers with any problem around the clock. In addition, on their Facebook fan page, they reply to feedbacks and responses on their page and reaching out to consumers through social media. The company has been rewarded with Bronze: Best Use of Social for Loyalty & Engagement Awards.

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    CONCERNS: Highly-Leveraged and Illiquid Starhub is highly financed by debt. Financial crisis might have a big impact for Starhub, especially when it comes to paying financial obligations (debt principal and interest) due. In addition, the high leverage might make Starhub difficult to get additional borrowings to finance its operations in the future. Decrease in broadband competitive advantage: Broadband revenue is seen to have decreased 11% as compared to year 2014. In year 2014, the revenue has also decreased by 16.5% as compared to year 2013. The decrease is due to the price competition in the next generation nationwide broadband network (NGNBN) services. Over this few years, it shows a downwards trend and this is likely to continue decreasing in value in future years. It must be noted that the revenue might further decrease due to the entrance of the new telco, My Republic, which might offer better broadband services or cheaper broadband services compared to Starhub. Consumers will very likely port over and this will cause a great impact to the company. Starhub will have to come out with new ideas and solutions to gain more revenue from other services such as mobile, pay TV and fixed networks in order to remain the same financial status. Emergence of 4th Telco With a new entry of a 4th telco, My Republic, into the market. The amount of shares amongst of Singtel, Mobile 1 and Starhub is likely to be affected and decrease in percentage. This gives an disadvantage to Starhub, as it might lose some of its shares. In addition, as the new telco propose services that meets the demand of consumers, this puts great pressure on the other telcos to reconsider their current existing plans. It will impact the margins as well as the infrastructure investment.


    Source: Starhubs earnings report



    Starhub's Debt-to-Equity ratio has been decreasing significantly in the past 3 years from 2931% in 2011 to 461% in 2014 due to increasing value in Shareholder's Equity. This in turn boosted the Return-on-Equity of Starhub, which fly above 200% in 2014 but was the lowest compared to the past 7 years. In addition, its quick ratio, current ratio, and cash ratio in 2014 are slightly lower than 2013 which indicate that the company's liabilities has increased relative to the assets. This can also be shown from the decreasing Net Changes in Cash Flow and Interest Coverage Ratio in 2014 compared to the previous year, which indicates that there's a decline in Starhub's ability to serve the financial obligations (i.e. interest payments and principal amount of outstanding debt), and thus determine the company's solvency.

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    Source: Starhubs earnings report and

    Hence, our analysis indicates that Starhub is highly leveraged and illiquid (Figure J). We forecast that this condition will remain in the future as telecommunication company requires a large capital to finance their projects.


    Starhub is relatively popular among investors as one of the blue chip companies which pay out high dividends. Its Dividend Per Share of S$0.2 per share is the highest among its competitors and this value has remained unchanged for the past 5 years. It has not missed paying a dividend since 2005. However, its Dividend Yield has been in the decreasing trend for the past 5 years. Starhub had traditionally paid out most of its free cash flow to shareholders in the form of dividends. However, the telcos free cash flow in the past 2 years has fallen behind the amount it needs to fund its dividends (Figure K). Its Dividend Payout Ratio of 93.2% in 2014 also considered quite high, which means that share prices are unlikely to appreciate rapidly since the company had passed its initial growth stage. In addition, Starhub's Earnings Per Share is rather constant because the increase in profitability was followed by similar proportion of increase in weighted average of shares issued each year (Appendix 21). We expect that this trend of slow growth will continue in the near future, with Dividend Per Share remain at approximately S$0.2 per share and Dividend Yield at around 5%.


    The increasing population density over the age of 15 in Singapore alongside with the rise in household access to broadband, presents an attractive opportunity for Starhub. The increase is mainly attributable to higher revenue from equipment salesdriven by increased handset sales after the launch of new iPhone models in late September 2014. Its total revenue grows in line with the increasing trend of household access to broadband in the past 5 years (Appendix 10). We forecast that these trends will continue in the near future and thus contribute in the revenue growth.


    The group service revenue of S$2217.5 million was 1% lower compared to 2013, mainly due to a decrease of 16.5% in Broadband service revenue, which is affected by the price competition in NGNBN service. In 2014, Starhub's pre-paid business also slowing down with revenue growth of 0.33% in total Mobile revenue, which is far lower than the growth in the past 7 years. This is partially contributed by the new policyeach person can only hold three pre-paid SIM cards across all service providers, and the change in users' consumption patternmore mobile data usage and less phone calls. In addition, Starhub's profit margin has formed an uptrend for the past 4 years, although the growth is small. We expect that the company will still continue to grow in the low-single digit range, due to its Hubbing strategy (Appendix 23), the

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    introduction of Crowdtivate (Appendix 24) and StarHub TV which has been leading the market.


    Starhub had a lower total asset turnover from 1.91x in 2007 to 1.23x in 2014 while achieved a higher fixed asset turnover from 1.74x to 1.58x over the same period. This suggests that the company is efficient and can utilise its assets to generate revenue effectively. Both the total asset turnover and fixed asset turnover of Starhub are the highest among its competitors, partly due to the high operating efficiency and energy efficiency (Appendix 25). Its return on asset of 0.19x in 2014 also the highest among its competitors. Moreover, the recent partnership with ST Telemedia will help Starhub lower its future capital expenditure (Appendix 26). Thus, we forecast the efficiency level of Starhub will continue to rise in the future, which allows its asset turnover and return on assets to increase.


    Source: Team Estimates


    Segment Growth

    Mobile Revenue 1.20%

    PayTV Revenue -0.05%

    Broadband Revenue -3.49%

    Fixed Network Revenue


    Service Revenue 0.90%

    Sale of equipment 2.00%

    Aggregate 0.96%

    Source: Team Estimates


    Source: | Statistic




    3 valuation methodologies were utilized in deriving a target price for Starhub. This including a 5 year Discounted Cash Flow Model, a Relative Multiples Valuation & a Dividend Discount Model.


    A discounted cash flow analysis was used to estimate the intrinsic value of CC3's share price due to predictability of unlevered future cash flows in relation to minor growth. While deriving unlevered free cash flow, the following 5 years forecast assumption are made in relation to Starhub FY 2015 2Q outlook:

    Revenue: Maintain service revenue growth in the low single-digit range

    EBITDA: Maintain EBITDA margin on service revenue to be about 32%

    CAPEX: Maintain cash capex to be about 13% of total revenue

    Dividend: Declare 2Q-2015 dividend of 5.0 cents per share Intend to maintain annual cash dividend of 20.0 cents per share for FY2015

    Our 5-year DCF model which generated a price target of $3.56(Appendix 27). DCF is sensitive to the following factors, the derivations of which are explained below:


    The Group WACC is 6.47%(Figure L). It was calculated using its current capital structure and the following inputs: Cost of debt 3.29%, cost of equity 6.88%. Cost of equity was estimated using CAPM with adjusted Beta of 0.6, market risk premium 7.5% and risk free rate equal to 2.375% based on 10 year Singapore Government bond yield (October 2015. Singapore government security).


    We forecasted 2015 revenue using 1st half year earning. Revenue growth for Starhub's service revenue based primarily on increasing

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    population and number of household. Starhub has shown low single digit growth in service revenue over the past several years. Mobile Revenue are its major revenue source and the 5 years CAGR growth of 1.2%, as it has been driven the demand for mobile data for smartphone and table. Fixed Network services have growth potential of CAGR 2.85% as it has started transforming its existing core and access network to open, cloud-based networks using software-defined networking (SDN) technology. PayTV revenue have its CAGR of -0.05%, we believe that the transformation of technology enable user to watch their source of media via internet. Starhub are looking closely at delivering an programme across multiple platform in order to retain its subscriber. Broadband Revenue for the quarter has sharp decline which fell 10.8 per cent to $48.1 million. Projected with a negative CAGR of 3.49%, IDA allows free market entry for telecommunication industry, threat of new entrants and price competition are recognise. Aggregate Revenue growth are 0.96% as close as Starhub 2nd quarter outlook of low - single digit (Figure M).


    As Starhub are facing rising wages and deflation in Singapore, This rate will recover and reach a terminal growth rate to mean expected inflation of 0.6% (Figure N), which was accounted in the Terminal Value of DCF model was account in 5 year DCF model. (Appendix 27)


    Starhub has a strong history of dividend payout ratio to shareholders. They are required to pay out approximately 90% of earnings as dividends & maintain its quarter 5 cents per share since Q4 2009. The forecasted calculates an intrinsic value of $3.10 that have a CAGR of 0.04%, which reaffirms of Hold recommendation. (Appendix 28)

    Relative Valuation

    Relative valuation was primarily focused on EV/EBITDA & EV/Revenue (Appendix 29). As both analysis leads to an intrinsic value of $3.58, for Starhub, a 0.55% lower than the current trading price. Due to the small different in percentage, we remain confident that this valuation conveys our Hold recommendation and justify our target price $3.56

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    Source: MOM, Singstat


    Source: Team Calculations


    Source: IDA


    Source: Team Estimates



    Singapore is facing tight labour market due to government regulations which limit entrance of foreign workers. This would in turn increase wages of the labour market. Singapore has been slowly increasing in wages over the years. Wage contributes to operating expenses. Together with deflation, which means that price of goods and services are decreasing, which means that profit decreases for companies in Singapore. (Figure O) When profit decrease, profit margin decreases as well.


    Economic slowdown in Asia may put a pressure on sales growth as people might cut down on spending.


    Using the quick, current and cash ratios, we can see that Starhub is overleveraged. There is a decrease in all 3 ratios (Figure P), which mean there might be a risk of the company becoming insolvent when they are unable to pay their debts.


    Free calling features from smartphone applications leads to consumer using more of them instead of existing voice call services, posing a threat.


    IDA plans to set aside a third of the 900MHz band spectrum at a heavily discounted rate to facilitate the entering of the 4th telco. The current spectrum rights expire in March 2017, which means that the 3G mobile customers may see a degradation in services. This will make the already highly competitive telecommunications sector even more challenging with the declining market share and price decrease in products and services.


    Starhub may malfunction or have outages in networks due to natural or man-made causes. Such losses or damage may significantly disrupt their operations which may materially adversely affect their ability to deliver services to customers. Starhub has been fined for such occasions.


    Starhub faces strict regulation by IDA, like monitoring 4G coverage. (Figure Q) Non-compliance of regulation may have reputational impact and the company may incur financial penalties.

    TABLE 1: RISK & MITIGATING FACTOR Source: Team Estimates


    ER1 Monitor of budgets and expenditures periodically to minimise the risk of over-investment. Continue cost management programmes for cost structure improvements.

    ER2 Its price inelasticity may cushion this impact.

    LR1 Increasing value in Shareholder's Equity

    MR1 No more unlimited data plans, Starhub earns from higher data charges. Starhub gains from collaboration with these applications to offer specific data plans. VoLTE technology providing superior voice and video quality to protect existing voice revenues

    CR1 Starhub, unlike Singtel and M1, is not based on the 900MHz spectrum. And IDA has yet to come up with a decision as the plan may come at an expense of the consumers.

    OR1 Starhub rolls out commercial trial of Lampsite indoor coverage solution in collaboration with telecommunications solutions providers to increase better coverage indoors and areas that are unable to get coverage. Also, heterogeneous networks (Hetnets) are rolled out by Starhub to can optimize the quality of mobile experience at crowded places, hard to reach areas and special events. Scheduled maintenances are done periodically to ensure that the infrastructure and network services are functioning normally.


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    Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject companys securities. Disclaimer:

    The information set forth herein has been obtained or derived from sources generally available to the public and believed by the

    author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or

    completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This

    information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report

    should not be considered to be a recommendation by any individual affiliated with CFA Society Singapore, CFA Institute or the CFA

    Institute Research Challenge with regard to this companys stock.

    CFA Institute Research Challenge

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    StarHub Mobile Pte Ltd StarHub Mobile Pte Ltd operates a mobile network that provides 4G, 3G and 2G

    services. It also offers a comprehensive range of mobile price plans and value-added

    services to users.

    Since its inception in 2000, StarHub Mobile has been recognised for its service

    innovations and customer-focused offerings, including market-shaking features such

    as free incoming calls, per-second billing, free IDD calls to selected

    destinations, price capped data plans, flat roaming rates, pfingo

    services and more. StarHub Mobile offers Singapore's most

    comprehensive range of mobile TV channels for customers, who

    can watch news, documentary, sports, lifestyle and

    entertainment programmes on the move. In addition,

    StarHub Mobile is a member of the Conexus Mobile

    Alliance, one of Asia's largest mobile alliances aimed at

    developing and enhancing international roaming and

    corporate mobile services for its members' customers.

    Although the last entrant in Singapore's mobile market, StarHub Mobile

    has grown rapidly to become the island-nation's second-largest mobile

    service provider.

    StarHub Cable Vision Ltd StarHub Cable Vision is a media and infocomms company with a $600 million nationwide broadband network built in

    Singapore. As a testament to the strategic importance of this network, which was completed in September 1999, the

    company was designated a public telecommunications licensee by IDA in April 2000. StarHub Cable Vision is also the

    first in Singapore to be awarded the ISO 9001:2000 certification for both its media and info-comms operations.

    Currently, StarHub Cable Vision offers StarHub TV, the multi-channel pay TV services (including HDTV, multi-screen, on-

    demand services) launched in June 1995 and also offers pay TV through IPTV to commercial entities.

    StarHub Internet Pte Ltd StarHub Internet aims to be the preferred Internet Service Provider in Singapore. Our focus on customer satisfaction

    ensures that we make the Internet work for our customers, by providing quality corporate and personal Internet services.

    StarHub Internet was previously voted the winner in CNET Singapore's "Incredible Service Provider" polls in 1999 and

    2000. StarHub Internet was also recognised as the "Best ISP Of The Year" in the inaugural Internet World Asia Industry

    Awards 2000. Today, StarHub Internet provides Internet services, innovative multimedia applications, and fixed and

    mobile convergent services, in a complete info-communications package customised to fit the needs of our customers in


    StarHub Online Pte Ltd With its flagship service, MaxOnline, StarHub Online Pte Ltd is a fast-growing Internet Service Provider in Singapore.

    MaxOnline is the first "always-on", unlimited, plug-and-play residential broadband Internet access service launched in

    Singapore. It also offers MaxInfinity fibre broadband service over the Next Gen NBN, providing download speeds of up to

    1Gbps and symmetrical bandwidth for downloading and uploading. StarHub residential broadband customers can enjoy

    "Anytime TV", StarHub TVs on-demand library of more than 6,500 TV shows and movies as well as complimentary pay-

    TV channels.

    Nucleus Connect Incorporated on 14 April 2009, Nucleus Connect is responsible for designing, building and operating the active

    infrastructure of Singapore's Next Generation Nationwide Broadband Network (Next Gen NBN). Nucleus Connect offers

    comprehensive and flexible services that will help Retail Service Providers select and deliver broadband connectivity

    services to their target markets quickly and seamlessly, bringing a more enriching experience to the end-users.

    Source: Starhubs Website

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    On the corporate front, we see the potential to grow this segment. We have solutions like Content Delivery, Clean Pipe,

    Managed Security Service and Enterprise Mobility Management to meet our customers' network and mobility security

    needs. We have also introduced the SmartBusiness cloud market place, which let SMBs have easy access to various

    applications and computing resources and thus be more competitive.

    We are confident that our brand, technology and assets, and more importantly, our ability to build close partnerships, will

    help us drive and capture this emerging business. Right now, our revenue mix is mainly contributed from the consumer

    segment. We believe this ratio will change over time to reflect a higher contribution from the business sector.

    With Hubbing, we bring value; with superior customer service, we bring satisfaction. Superior customer service is a strong

    belief we hold close to our hearts. We will leverage big data to understand our customers trends and preferences, and

    anticipate their needs better. This will translate into loyalty and sustainable growth in value for all.

    Besides continuing to build the exciting StarHub brand to surprise and delight our customers, we also want to be a

    responsible corporate citizen in this wider community too. To achieve this, StarHubs operations, brand value and ethos

    are constantly guided by Ethics, Corporate Governance, Human Rights, Environmental Responsibility and Civic


    We are committed to conducting business in a sustainable manner and are working with industry partners in e-waste

    recycling. We have also introduced electronic billing and our new carrier bags can be reused many times. We will

    continue to drive more of such sustainable practices and are pleased that our on-going efforts in these areas have been


    In January 2014, we were named 29th in the Corporate Knights Global 100, a highly-regarded global benchmark of the

    top 100 sustainable corporations. It is a huge improvement from our 66th place in 2013. While we are honoured to be

    among the four Singaporean companies and only local telecoms operator to make the list, we want to be even better.

    Customer's loyalty reward system. Formation of a new division called i3. Formed in February 2013, i3 stands for

    innovation, investment and incubation and the team is responsible for new forms of service consumption, new markets

    and new platforms so that we can effectively compete against disruptive entrants into the market. The division will be

    responsible for forging new partnerships, forming regional think tanks and incubating new ideas from innovative

    entrepreneurs the world over. These new products and services will then be brought into the traditional lines of business

    as part of our service offering, or spun out as independent services. The initiatives will also be underpinned by our big

    data platform, SmartHub. As part of our innovation continuum strategy, we initiated the MediaHub project at the end of

    2013, at one-north near Buona Vista. MediaHub is positioned to be our hotbed for innovation and future business and will

    house both the i3 and SmartHub teams. [2013 AR]

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    Key Executive

    Position Description Starhub Board Appointment

    Steven Terrell (Terry) Clontz

    Chairman Mr Steven Terrrell (Terry) Clontz was appointed as its first President and CEO of Starhub in January 1999. He retired as Starhub CEO in January 2010 but continued to serve as a non-executive Director and Member of the Company's Strategy Committee. In July 2015, he succeed Mr Tan Guong Ching as its Chairman and Non-executive director.

    16 Years

    Tan Tong Hai

    Chief Executive Officer Executive Director

    Mr Tan Tong Hai was appointed as its Chief Executive Officer and Executive Director of StarHub in March 2013. Mr Tan joined StarHub then in 2009 as its Chief Operating Officer, overseeing the day-to-day operations of the company.

    3 Years

    Paul Ma Kah Woh

    Independent Director Chairman of Audit Committee (AC)

    Mr Paul Ma Kah Woh was appointed to the Board on 23 September 2015. Mr Ma is the Chairman of its Audit Committee.

    1 Year

    Peter Seah Lim Huat

    Non-Executive Director Chairman of Executive Resource & Compensation Committee (ERCC) Nominating Committee (NC)

    Mr Peter Seah Lim Huat was appointed to the Board on 22 July 2002 and was last re-elected as a Director on 14 April 2014.

    13 Years

    Nihal Vijaya Devadas Kaviratne CBE

    Independent Director Chairman of Strategy Committee (SC)

    Mr Nihal Vijaya Devadas Kaviratne CBE was appointed to the Board on 16 August 2004 and was last re-elected as a Director on 14 April 2014.

    11 Years

    Sio Tat Hiang

    Non-Executive Director

    Mr Sio Tat Hiang was appointed to the Board on 2 July 2012 and was last re-elected as a Director on 15 April 2013.

    3 Years

    Teo Ek Tor

    Independent Director Chairman of Risk Committee (RC)

    Mr Teo Ek Tor was appointed to the Board on 16 August 2004 and was last re-elected as a Director on 15 April 2013.

    11 Years

    Lim Ming Seong

    Non-Executive Director

    Mr Lim Ming Seong was appointed to the Board on 14 December 2000 and was last re-elected as a Director on 15 April 2013.

    15 Years

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    Liu Chee Ming

    Independent Director

    Mr Liu Chee Ming was appointed to the Board on 16 August 2004 and was last re-elected as a Director on 15 April 2013.

    11 Years

    Robert J. Sachs

    Independent Director

    Mr Robert J. Sachs was appointed to the Board on 29 April 2005 and was last re-elected as a Director on 12 April 2012.

    10 Years

    Rachel Eng Yaag Ngee

    Independent Director

    Ms Rachel Eng Yaag Ngee was appointed to the Board on 4 May 2015.

    1 Year

    Nasser Marafih

    Non-Executive Director

    Dr Nasser Marafih was appointed to the Board on 9 July 2007 and was last re-elected as a Director on 14 April 2014.

    8 Years

    Takeshi Kazami

    Non-Executive Director

    Mr Takeshi Kazami was appointed to the Board on 13 April 2012 and was last re-elected as a Director on 15 April 2013.

    3 Years

    Source: Starhub Company Website

    Succession plan:

    A recent succession plan took place on 15 July 2015 by Mr Steven Terrell (Terry) Clontz to succeed Mr Tan Guong Ching. Past succession plans includes the succession of Mr Tang Tong Hai to succeed Mr Neil Montefiore as CEO of Starhub on End February 2013.The ERCC oversees the succession for the CEO, the CFO and other key officers and reviews the succession plans for key positions in the Group.

    Based on MAS's code of corporate governance, Starhub fulfils the following codes:

    Board Independence: 50% (6 out of 13 members are independent)

    Board competencies: Comprises of individuals with diverse qualifications and backgrounds

    The company discloses all the directorships and chairmanships in listed companies by its directors, both current and those held over the preceding 3 years.

    Both the firm's management and the board works very closely in view to success in the long-term of various businesses

    of the Group. The Board Committees facilitates the discharge of its functions, required to make decisions on matters

    within its terms of reference and applicable limits of authority. The role is to review and make recommendations to the

    course of action to the Board for consideration and decision. The Board reviews the decisions made by each Board

    Committee. Each Board Committees and the Board have the role and responsibility to enhance shareholder value. The

    company regards board meetings necessary to ensure that all directors have relevant information and up-to-date working

    knowledge of the Group's business and operations.


    Starhub Company Website (


    MAS Website (


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    APPENDIX 4: REMUNERATION The table below shows the annual Remuneration for the Board (in SGD$'000) over the last 4 years.

    The table below shows the directors' remuneration (in SGD$'000) over the last 10 years. For CEO, Executive Directors and Key Personnel, the remuneration is calculated by the total of fixed component, variable cash component, annual variable bonus (AVB) and share-based compensation. For non-executive directors, remuneration is calculated by the total of cash component and share component.

  • Singapore Institute of Management Global Education - Student Research


    APPENDIX 5: ANALYSIS OF CORPORATE GOVERNANCE We analyse the competence of Starhub's corporate governance to conclude the degree of threat to its shareholders by

    utilizing the Governance and Transparency Index (GTI).

    Board of Directors

    The board comprises of very experienced individuals with diverse qualifications and backgrounds. However, it comprises

    of close to 50% proportion of independent directors (6 out of 13 members) on board. This means these directors do not

    own shares in Starhub and they might not act in the interest of the shareholders or the management as they do not have

    a material or formal relationship with the company.

    Conclusion: Hence, it brings a certain risk to the shareholders, bringing a significant threat to them.

    Transparency and Disclosure of Information:

    Starhub releases annual reports which is back dated as early as in year 2004. It reports all board matters, remuneration

    matters, accountability and audit, shareholders rights and responsibilities, communication with shareholders, conduct of

    shareholder meetings and additional initiatives to enhance corporate governance. Investors can find these reports under

    the dedicated Starhub IR website, which provides timely resources for shareholders. All new material price-sensitive

    information are disclosed on SGXNET. Hence, this brings an insignificant threat to the shareholders. Shareholders may

    request information to the IR team by filling up the contact form on the website.

    Conclusion: Starhub practices transparency and a fair disclosure of information to the shareholders. This brings an

    insignificant threat to them.

    Rights and Obligations of Shareholders:

    Starhub keeps the shareholders well-informed regularly on its corporate affairs and activities. Shareholder meetings are

    conducted to encourage their participation in the discussion. All shareholders are treated equally and disclosure of

    information is released through the website to ensure fairness. Shareholders who hold shares through nominees are

    allowed to attend the annual general meetings (AGM) as observers without being constrained by the two-proxy rule. They

    are also entitled to vote at the AGM under the two-proxy rule where each shareholder can vote in person or appoint up to

    two proxies to attend and vote on their behalf. In the case of absence at the AGM, the shareholder is not allowed to vote

    unless they have appointed proxies to vote on their behalf.

    Conclusion: Starhub keeps the shareholders in the loop, given their rights and treats every shareholder with fairness.

    Hence, bringing an insignificant threat to them.


    Going beyond the requirements of the code, Starhub implemented some policies to enhance corporate governance. One

    of the policy is restriction in acquiring any of its shares in accordance to its Share Purchase Mandate, where a price-

    sensitive development has occurred or is the core topic of a decision, before the development is publicly announced.

    In addition, the board has voluntarily reduce the amount of shares from 20% to 15% of Starhub total issued shared

    capital in accordance to the general authority of Starhub's shareholders to the Board. The board also voluntarily reduced

    the aggregate amount of share wards from 15% to 8% of Starhub's total issued share capital that can be granted under

    Starhub performance share plan and Starhub restricted stock plan. Another policy Starhub adopted is called the whistle

    blowing policy. This policy is to encourage reporting of fraud and unethical violations happening in Starhub and

    disciplinary actions will be taken against them. This is accessible for all employees and even for public members. Other

    policies include Starhub's employee code of conduct, ethics policy, corporate gift and hospitality policy and supply and

    vender policy. All these policies ensure good conduct in the workplace, transparency, objectivity and compliance.

    Conclusion: This brings an insignificant threat to the shareholders.

    Overall Conclusion: Based on the GTI assessment, the competence of Starhub's corporate governance brings

    an insignificant threat to the shareholders. Hence, there is a low risk of entrenchment for the company's board of


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    EVA Incentive Plan (EIP)

    Rewards employees for sustainable shareholder value creation over the medium term achieved by growing

    profits, deploying capital efficiently and managing the risk profile and risk time horizon of the business.

    Shared based compensation

    Performance Share Plan (PSP)

    Long-term incentive to motivate the key management personnel to strive for superior performance and to align

    their interests with that of shareholders

    ERCC grant contingent awards on an annual basis, conditional on meeting targets set for three-year performance


    Restricted stock plan (RSP)

    Objective of motivating managers and key talent to strive for sustained long-term growth and superior

    performance in the group

    Aims to foster a share ownership culture among employees within the group and to better align employees'

    incentives with shareholders' interest

    ERCC grant contingent awards on an annual basis, conditional on targets set for a two-year performance period


    Starhub Annual Report 2014


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    Starhub Annual Report 2014 (

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    Based on the statistics for past 5 years (2010 2014), the weighted average number of ordinary shares (in millions) have

    shown an increasing trend. It is forecasted to increase further for the next 5 years (2015- 2019). This means that the debt

    is very high compared to their equity. If Starhub raises its equity, it will be more beneficial for their situation.

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  • Singapore Institute of Management Global Education - Student Research


    APPENDIX 10: DEMOGRAPHICS There are a few indicators of demographics that is likely to affect telecommunication sector.

    1. Expected Population Growth

    2. Household Type

    3. Business Size

    1. Expected Population Growth

    Over the last 5 years from year 2011, there is an increasing indication of the resident population in Singapore for persons

    aged 15 and above. The population experience a slight growth of 0.3%-1.4% (in millions) between every year. However,

    for non-resident population due to foreign labor restrictions undertaken by the Government, the statistics fell from 4.0% to

    2.9% in mid-2013.

    Based on Jan 2013 government white paper, the population is projected to reach to reach 6.5 to 6.9 million by year 2030.

    In conclusion, the population will continue growing through the next few years. This will impact positively to Starhub to

    reach to a larger base of target population.

    2. Household Type:

    According to IDA Singapore, the number of household access to broadband shows an increasing trend over the past 5

    years. Another set of statistics on the total revenue of the info-communication industry also shows an increasing trend

    over the past 5 years. This indicates that the increased number of household access to broadband affects the total

    revenue gained of the industry. Since there is an increasing trend of household access to broadband based on the

    statistics, it is projected to grow further in terms of numbers, which will in turn increase the total revenue in the industry.

    Therefore, this will impact positively to Starhub.

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    3. Business Size

    According to the Business Infocomm Usage Survey done over years 2012 to 2014, it has indicated that the business size

    of the firms do affect the number of broadband access usage. It has been shown that in bigger firms that has 10 or more

    than 10 employees seem to have an upward trend in usage of broadband access, whereas for smaller firms that has less

    than 10 employees seem to have a slightly slower upward trend in between each year. Based on these trends, it is

    projected to grow even further with more demand from bigger firms and a slight increase of demand of smaller firms on

    usage of broadband access.


    Singtat Government Website



    Phillip Investors Report 2014


    IDA Website





    Business Infocomm Usage Survey


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    1. Mobile population penetration

    Mobile penetration rates has been on the rise across the globe. Singapore is top few countries with the highest mobile penetration at 156% as of end 2013. Statistics has also shown that as population increases slowly over the past 10 years (2004 - 2014), the number of mobile subscriptions increases rapidly up to almost twice the number of population. As in recent trends, consumers are going towards a duality state, where each consumer can own multiple subscriptions, there is still a possibility of a further increase in mobile penetration in future years. Hence despite the decline in the total number of mobile subscriptions in year 2014, post-paid subscriber base continue to rise.

    However, the mobile penetration has experienced a slight drop in year 2015. This shows that it has stopped increasing. Although, the total post-paid subscriptions (4G) and total pre-paid subscriptions (4G) have shown an upward trend over the 1st half of year 2015, mobile population penetration for the 1st half of year 2015 is averaged at 148% which is about 7% lesser than in year 2014.

    In conclusion, the growth of mobile subscribers are expected to slow down, but to stay within 10% increased or

    decreased range over the next few years.

    2. Higher Mobile Data Consumption

    Driving Growth with Higher Mobile Data Consumption

    Out of 4.6 million post-paid subscribers, 58% of them switched to 4G lines in year 2014 since year 2012. The lines

    offer 3 to 4 times faster speed than 3G speed that makes consumers browse and stream videos much faster.

    However, this leads to requiring a higher mobile data usage and encourage higher data consumptions among mobile

    subscribers. Hence, this greatly benefits the telcos to increase mobile revenue by charging for more mobile data

    consumptions. Source: IDA, Phillip Securities Research

    Residents personal usage

    According to IDA POI source, there is an increasing usage of mobile data in Singapore through year 2012 to year

    2012 2nd quarter. This shows that the demand for mobile data usage in Singapore is also increasing.

    Source: IDA Singapore

    Source: IDA Singapore

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    One of Singapores most innovative telecommunication service company

    Strong positioning in residential Pay TV market

    Starhub has the highest subscription numbers for Pay TV between Singtel and Starhub at 542,000 subscriptions.

    Good customer relationship management

    - Starhub provides around the clock customer service for consumers. Hence, problems can be addressed at

    any time if required and consumers will feel more secured and will trust the service more.

    - Starhub promotes interaction with the consumers via social media like Facebook by replying to their

    feedbacks or comments on their page. In addition, they also released an interactive commercial called

    Starhub free hub IT that allows the public to interact with them.

    - Member schemes, hub club and platinum club, are exclusive only for consumers that subscribe to all their

    services. Through these member schemes, Starhub can connect to them exclusively and provide them with

    discounts and special privileges.

    Adaptable to changes

    To survive in an oligopoly market, Starhub come out with solutions that distinguish them from the other telco

    companies in regards to changes. There was a period when all the internet services provided by all the providers

    were the same, Starhub distinguished themselves by providing the highest and fastest internet service.

    Anticipate changes

    Starhub anticipate changes by coming out with innovative and fresh ideas. They are the first service provider to

    come out with Hubbing, putting them ahead of others. Other ideas like student plan with unlimited SMS services,

    switching to cloud-based network, exclusive cable TV service and exclusive cable TV service-exclusive channels

    are also ideas that put them ahead of the game.


    Too focused on Singapores market

    This causes concentration risk that might impact the company. Growth is limited to the saturated mobile market in Singapore.

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    Involvement in an oligopoly market

    Decisions and strategies made are affected due to the competitor companies. It is difficult to come out with new ideas and differentiate themselves, without making a loss. Hence, ideas are often adopted by other maintain the same level.

    Emphasis on acquiring new customers than on retaining existing customers

    Many promotional campaigns are aimed at attracting new customers, but not existing customers. Loyal and long-time customers have not been rewarded, apart from those who are under membership scheme.

    Low competitive advantage on broadband services

    Service revenue down mainly from broadband competition.


    Expansion into South East Asia markets

    Venturing into South East Asia mobile operator instead of just focussing on Singapore market

    Encourage more interaction with customers

    More interaction with customers to understand their needs

    Venture into new technologies to improve service

    Venturing into new technologies, such as new wireless technology and 5G technologies.

    Focus on fixed network and cable TV

    As Starhub has a lower competitive advantage over broadband, the focus could be shifted to other services such as

    fixed network, cable TV and broadband services to increase more revenue.


    Industry competitors provide similar services

    Services provided by Mobile 1 (M1), Singtel and Starhub are similar across the industry and it is difficult to

    differentiate which one has more competitive advantage than the other.

    Emergence of the 4th Telco My Republic

    As demand for data consumption continues to increase, the new telco (My Republic) that is entering the market plans

    to propose a service for large data, and this will put pressure on current pricing of existing data plans. This could

    impact the margins for the three major telecoms, M1, Starhub and Singtel and their infrastructure investments.

    Threat of substitution of Pay TV

    Pay TV contributes to the one of the biggest revenue to Starhub. Substitution for this service holds a big threat for the

    company. There is a recent giant video streaming service, called Netflix, which is scheduled to launch in early 2016. It

    is very likely that this service will clash with Starhub's Pay TV service and affect greatly to the company's revenue.

    Enter of big global players into the market

    Big global players from America or Europe might enter into the Asian market.

    Growing popularity of over-the-top (OTT) smartphone applications

    The governments restriction

    The government impose restrictions on the telco and this will majorly affect the revenue. Recent restrictions by the

    government affected the mobile pre-paid revenue, due to a reduction of number of prepaid SIM card allowed

    registered to each subscriber

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    Bargaining Power of Buyers LOW [2]:

    Many customers renter the market after the term of 2 contractual years, so it seems like the three competing companies

    are readily replaceable. But with only such few telcos that have relatively equal quality, the oligopoly market companies

    acts like a cartel, when one increases prices, the other will also follow. This is evident when the data monetisation

    happened, when all the telco companies cut down free mobile data with the plans and monetize it. Even when the 4th

    telco joins, it will take awhile for them to build up market shares, making buyers rely on the current telco plans available.

    Also, they may comform to current market practices to survive in the oligopoly as time passes. This is evident when the

    data monetisation happened, when all the telco companies cut down free mobile data with the plans and monetize it.

    Intensity of Competitive Rivalry SIGNIFICANT [4]:

    Telecommunications sector is divided by geography, and in Singapore, the greatest competitor is Singtel and M1. The

    telecom service in Singapore have a high intensity in competition because they try to differentiate themselves with

    innovation and advertising instead of just the common services.

    Bargaining Power of Suppliers LOW [2]:

    In Singapore, there are many suppliers serving only 3 telecommunication companies, making it low cost of switching

    between suppliers for the telcos. This causes suppliers to have lack of bargaining power against the telcos. Only very

    minimal suppliers are exclusive ones, and with Singapore as a technology hub, it is much more easier and cheaper to find

    alternative supplies. There are exclusive suppliers that were able to bypass this, for example ESPN Cable TV Supplier

    with the access to Europe Football League, have to be bidded for the Pay TV. Starhub hold 80% of Pay TV services in

    Singapore. If Singtel, the competitor of Pay TV services, gain access to this supplier independently, Starhub will suffer

    significant losses, allowing this case to be exclusive.

    Threat of Substitutes INSIGNIFICANT [1]:

    Although there are no substantial switching costs from Starhub to other telcos, there are few substitutes in the market.

    Technological advances, especially in Singapore, makes it easy to match up new technologies of substitutes.

    Customers are usually tagged to a 2 years mobile plan, but the outages in mobile network in Starhub may make

    customers want to change to a better network of a different company if its disruptive to their lifestyle.

    Threat of New Entrants MODERATE [3]:

    For the telecommunications sector in Singapore, there are no limits to the number of license given by the Government.

    Because of this, there is free market entry and exit unless there are resource and other physical constraints (e.g.

    frequency spectrum, land for satellite and cable landing stations). Despite this, there are only 3 telecommunications in

    Singapore, which can be due to the high infrastructure costs and the fact that Starhub (and its competitors) are big

    companies. Resources allows big companies to do more aggressive marketing and have an advantage over smaller

    companies that are unable to make the masses identify with the brands.

    However, IDA proposed heavily discounted rate to attract the fourth Telco, and there are contenders for this, like My

    Republic. One of the key revenue is data monetization for all the telco now, the entrance of the 4th telco will definitely be

    disruptive to Starhub as its likely to come in with attractive data package offers. IDA plans to set aside a third of the

    900MHz band spectrum. The current spectrum rights for the current telcos expire in March 2017. The entrance of the 4th

    telco will reduce Starhubs current market share considerably, especially if it does very well.

    Future Outlook as a Whole The firm must be able to strategic industry positioning and capitalise on what comparative

    advantage they have to survive in the long term.

    Sources: Team Analysis, IDA, Straits Times, Today Online, Channel News Asia


    0 No threat to Starhub

    1 Insignificant threat to Starhub

    2 Low threat to Starhub

    3 Moderate threat to Starhub

    4 Significant threat to Starhub

    5 High Threat to Starhub







    Intensity ofCompetitive Rivalry

    Threat of Substitutes

    Bargaining Power ofSuppliers

    Threat of New Entrants

    Bargaining Power ofBuyers

  • Singapore Institute of Management Global Education - Student Research




    Source: Team Calculations

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    Source: Team Calculations

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    Source: Team Calculations

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    Source: Team Calculations


    Source: Team Calculations

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    Source: Team Calculations


    Source: Team Calculations

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  • Singapore Institute of Management Global Education - Student Research



    Source: Team Calculations

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  • Singapore Institute of Management Global Education - Student Research





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    Source: Annual Report, Starhub Limited 2010 2014

    Fiscal Year Ends Dec 31 2010 2011 2012 2013 2014 2015 E 2016F 2017F 2018F 2019F

    Total Revenue 2,237.70 2,312.00 2,421.60 2,369.60 2,387.20 2,373.13 2,394.89 2,417.42 2,440.75 2,464.87

    Effective Tax Rate: 16.74%

    EBITDA: 603.60 678.10 723.90 745.80 749.90 759.40 766.36 773.57 781.04 788.76

    EBITDA margin 26.97% 29.33% 29.89% 31.47% 31.41% 32.00% 32.00% 32.00% 32.00% 32.00%

    Operating Income (EBIT): 344.10 400.30 451.40 476.30 478.70 507.41 514.37 521.58 529.05 536.77

    Operating Margin 15.38% 17.31% 18.64% 20.10% 20.05% 21.38% 21.48% 21.58% 21.68% 21.78%

    Less: Taxes, Excluding Effect 54.30 64.30 72.10 78.00 85.60 84.94 86.11 87.31 88.56 89.86

    Tax Rate 15.78% 16.06% 15.97% 16.38% 17.88% 16.74% 16.74% 16.74% 16.74% 16.74%

    Net Operating Profit after Tax (NOPAT) 289.80 336.00 379.30 398.30 393.10 422.47 428.27 434.27 440.49 446.91

    Adjustments for Non cash charges:

    Depreciation & Amortisation 259.50 277.80 272.50 269.50 271.20 251.99 251.99 251.99 251.99 251.99

    Other Non-Cash Charges 29.10 0.30 (2.40) (25.80) (15.20) (3.84) (8.66) (11.37) (13.56) (11.55)

    Total Non Cash Adjustment 288.60 278.10 270.10 243.70 256.00 248.15 243.33 240.62 238.43 240.44

    Changes in Working Capital:

    Net Decrease / (Increase) 63.50 38.30 42.00 (17.50) 8.10 7.06 23.25 3.93 22.97 3.18

    Less: Capital Expenditure (272.10) (246.50) (272.70) (302.80) (321.60) (308.51) (311.34) (314.27) (317.30) (320.43)


    Unlevered Free Cash Flow: 369.80 405.90 418.70 321.70 335.60 369.17 383.50 364.55 384.59 370.10

    Calculating Fair Value

    Discount Rate(WACC): 6.47%

    Discount Factor 100.00% 93.92% 88.22% 82.85% 77.82%

    Terminal Value $6,342.69

    Terminal Growth Rate 0.60%

    PV of Terminal Value $4,935.88

    Present Value $369.17 $360.20 $321.59 $318.65 $288.01

    Explicit Period FCFF $1,657.62

    Total Enterprise Value $6,593.49

    Less: Total Debt ($687.50)

    Plus: Cash $264.20

    Implied Equity Value $6,170.19

    Share Outstanding 1732.4

    Implied Share Price (Intrinsic value) $3.56

    Current Share Price(as of 30/10/15) $3.60

    Discount to valuation -1.07%

    Historical Projected

    Starhub - Discounted Cash Flow analysis

  • Singapore Institute of Management Global Education - Student Research



    Financial Year Dividend Per Share Dividend Paid(m) No. of share(m)

    2009 $0.1840 316.7 1720.8

    2010 $0.1991 343.1 1723.6

    2011 $0.1990 343.3 1725.1

    2012 $0.1990 343.4 1725.8

    2013 $0.1992 344.2 1728.33

    2014 $0.1993 345.2 1732.4

    3-Yr CAGR 0.04% 0.18% 0.14%

    WACC 6.47%

    DDM Pricing Model $3.10

    2015E $0.1993 345.8 1,734.8

    2016E $0.1994 346.5 1,737.3

    2017E $0.1995 347.1 1,739.7

    2018E $0.1996 347.7 1,742.2

    2019E $0.1997 348.4 1,744.6

    DDM Model The DDM was built assuming to 3 Years CAGR of Dividend Per Share of 0.04%. These historical pay-out has been consistent with quarterly dividend of $0.05 since Quarter 4 2009. The DDM calculated a per share price of $3.10(< $3.70)

  • Singapore Institute of Management Global Education - Student Research



    Company Current




    Starhub 547.2 1,072.5

    Singtel 5,643.2 5,402.2

    M1 249.3 576.7

    Company Mkt.


    Ent. Val


    Revenue EBITDA Total


    Total Asset Share price

    (as of 29


    Equity Share O/S BV per


    Starhub 6,227.3 6,725.6 2446.7 741.6 687.5 1,855.0 3.60 155.0 1,729.8 0.09

    Singtel 63,295.7 70,592.0 17283.8 7033.7 8,679.1 42,110.0 3.97 25,319.


    15,943.5 1.59

    M1 2,661.3 3,005.0 1195.544 340.026 351.1 1,057.0 2.84 369.0 937.1 0.39

    Company EV / Rev EV /


    Debt /


    Total Debt /


    P / BV Profit






    Starhub 2.7 9.1 0.9 37.06% 40.2 16.81% 0.5 5.59%

    Singtel 4.1 10.0 1.2 20.61% 2.5 22.37% 1.0 4.41%

    M1 2.5 8.8 1.0 33.22% 7.2 16.17% 0.4 6.61%



    3.4 9.6 1.1 35.1% 23.7 19.6% 0.8 6.1%

    Mean 3.1 9.3 1.1 30.3% 16.6 18.5% 0.7 5.5%

    Median 2.7 9.1 1.0 33.2% 7.2 16.8% 0.5 5.6%



    2.6 9.0 1.0 26.9% 4.9 16.5% 0.5 5.0%

    As we evaluating the fundamentals of margin and risk for Starhub and its direct competitors in Singapore, our hold recommendation are grounded for a various of reasons. Starhub generates a profit margin, current ratio and dividend yield that are similar to the Medium figure. The P/BV are very high compare to its peer. The merits power is Debt to EBITDA are lowest, the concerns were total debt to asset are high.

  • Singapore Institute of Management Global Education - Student Research


    EV to Revenue Valuation (in Million) EV to EBITDA Valuation (in Million)

    Median EV from Revenue Multiple 6,725.57 Median EV from EBITDA Multiple 6,725.57

    Less: Debt 687.50 Less: Debt 687.50

    Less: Minority Interest 0.00 Less: Minority Interest 0.00

    Plus: Cash and Cash Equivalents 155.00 Plus: Cash and Cash Equivalents 155.00

    Equity Value 6,193.07 Equity Value 6,193.07

    Fully Diluted Share Outstanding 1729.8 Fully Diluted Share Outstanding 1729.8

    Intrinsic Value per Share $3.58 Intrinsic Value per Share $3.58

    Current Trading Price(as of 30/10/15) $3.60 Current Trading Price(as of 30/10/15) $3.60

    Discount to Valuation -0.55% Discount to Valuation -0.55%

    Book Value per Share Valuation (in Million)

    CC3 Book Value per Share (MRQ) 0.09

    Median Price to Book Value 7.2

    Intrinsic Value per Share $0.65

    Current Trading Price(as of 30/10/15) $3.60

    Discount to Valuation -82.05%

    EV/Revenue valuation and EV/EBITDA valuation shows its intrinsic value are very close to its current price. Book value

    are off the chart as Starhub P/B ratio are consist very extreme compare to its peers.

    Therefore we are very confident in our Hold recommendation on Starhub.