StarHub Ltd: Attractive Dividend Yield

By Carey Wong
Tue, 6 Jul 2010, 09:17:46 SGT

StarHub Ltd saw a spate of insider selling of shares from former CEO Terry Clontz over the last two weeks. As of 29 Jun, Clontz sold another block of 30,000 shares, bringing his total share sale to 1,197,200 shares. We understand Clontz was accelerating his capital gains in response to the new US Senate Tax Extenders Bill; although currently still in debate, the Bill will effectively raise the tax on capital gains, dividends and ordinary income. According to management, Clontz indicated to them that while he may choose to accelerate more capital gains this year, he intends to keep a substantial amount of StarHub shares intact for as long as he is a director of the company. Based on the latest announcement, Clontz still owns 5,791,450 shares (or a 0.338% stake). But even with more share sales from Clontz, we do not expect any overhang on the share price. In light of the more volatile markets, spooked by concerns of slowing economies in US and China as well as the ongoing EU sovereign debt crisis, we continue to maintain our preference for defensive plays. We also like StarHub’s attractive dividend yield of 8.7% (StarHub has committed to pay S$0.05 per quarter as dividend). Maintain BUY with S$2.32 fair value.

Ex-CEO paring stake. StarHub Ltd saw a spate of insider selling of shares from former CEO Terry Clontz over the last two weeks. As of 29 Jun, Clontz sold another block of 30,000 shares, bringing his total share sale to 1,197,200 shares. We understand that the recent action was in response to the new US Senate Tax Extenders Bill; although currently still in debate, the Bill will effectively raise the tax on capital gains, dividends and ordinary income. As such, it makes sense for most Americans to accelerate their capital gains in 2010. According to management, Clontz indicated to them that while he may choose to accelerate more capital gains this year, he intends to keep a substantial amount of StarHub shares intact for as long as he is a director of the company. Based on the latest announcement, Clontz still owns 5,791,450 shares (or a 0.338% stake). But even with more share sales from Clontz, we do not expect any overhang on the share price because of the context of the sale.

iPhone 4G and iPad hitting Singapore in Jul. Meanwhile, Apple’s newest iPhone 4G is expected to hit Singapore in Jul – media reports suggest that there is a good chance that all three telcos will be offering the hotly sought-after smartphone at the same time. Indeed, StarHub has already started to accept pre-orders for the phone on its website for both consumers and corporate customers. While the pricings for the various models have not been fixed, we expect them to be comparable to the existing iPhone 3GS. With StarHub and M1 being slightly late to the game – they only started offering the iPhone 3GS in mid-Dec 2009 – the demand from their existing iPhone subscribers may not be as strong due to the 2-year lock-in period. As such, we suspect the promotions/subsidies for the iPhone 4G may not be that aggressive. Another eagerly awaited Apple product – the iPad with WiFi and 3G capabilities – could also be hitting our shores in Jul and this could also drive up the take-up of data plans.

Attractive dividend yield. In light of the more volatile markets, spooked by concerns of slowing economies in US and China as well as the ongoing EU sovereign debt crisis, we continue to maintain our preference for defensive plays. We also like StarHub’s attractive dividend yield of 8.7% (StarHub has committed to pay S$0.05 per quarter as dividend). Maintain BUY with S$2.32 fair value.

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