Excerpts from analysts' report

Deutsche Bank analysts: Srinivas Rao, CFA, Peter Milliken, CFA & Pei-Yu Loo 

Price at 9 Nov 2015 (SGD): 3.63
Price target - 12mth (SGD): 4.05
52-week range (SGD): 4.46 - 3.44

StarHub (STH) hosted a meeting with non-executive Chairman Terry Clontz and CEO Tong Hai. Terry has been CEO of Starhub in the past, and is currently involved with numerous telecom ventures across the world.

Key takeaways from the meeting:

Terry Clontz, non-executive chairman of StarHub. Photo: LinkedIn1) IoT will not be a big opportunity for telcos - Telcos will be able capture only a fraction of the value of the IoT opportunity. Many use-cases for IoT will involve low-power devices transmitting on wifi or bluetooth which may not require a cellular network. Terry indicated it would a big risk for telecom companies to invest and build internal competencies in the IoT space. A better strategy would be to partner 'platform companies' such as Jasper which are closely involved in the IoT ecosystem. 

2) Hubbing remains a core strategy - STH believes its hubbing strategy that bundles all its services (mobile, payTV, fixed and fiber broadband) is its core proposition which helps to reduce churn and lowers retention costs. The specific initiatives around hubbing are closely monitored at the board level. 

3) Dual networks leading to higher costs - STH has to maintain its cable network (HFC) up until all the subscribers are migrated to the fiber network of NGNBN (Next Generation National Broadband Network). This includes the payment of a fixed lease rental for the backhaul of the cable network which is a material cost. Once all the subscribers are migrated to fiber, STH will have significant savings on cost of sales. 

4) Enterprise is big opportunity - STH has been allocating almost a quarter of the annual capex of S$300m to strengthen its capabilities to target large enterprises where Singtel is the incumbent. STH estimates its enterprise market share at around 10% which allows for a significant growth space. We estimate the size of the Singapore enterprise market is around S$4.5-5bn. 

5) Overseas opportunities - STH does not see any major opportunities in overseas markets. In the current environment, it is very difficult to buy a mobile or cable network and build value. Further, any greenfield opportunity is pursued by a horde of players which reduces any excess value. 

6) Fourth operator - Terry believes the business case is fairly challenging for a new player. Further, Consistel's claim to build a mobile network at a materially lower cost seems improbable. Mobile networks are generally based on industry standards and hence it is difficult innovate using proprietary technology platforms.


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