1) Stock has lagged its peers despite unchanged fundamentals
2) Trading near to 52-week low and backed by 9.4% yield
3) Defensive earnings backed by long dated contracts
4) Stock should begin to outperform given attractive valuation.

Starhub has been the standout laggard in the telco sector, under-performing its peers by 3-10% in the current quarter. The stock isdown 28%, compared to 18% for Singtel and 25% for MobileOne.The stock is hovering a mere 6% above its 52-week low of $1.76.

Yet its fundamental performance is not very much different from itspeers, with largely defensive earnings stemming from long-termcontracts of 2-3 years’ duration. Indeed, its ability to bundlebroadband, mobile and cable TV services together arguably gave it acompetitive edge over its smaller peer M1, which is a pure mobileoperator.

The company has committed to a minimum dividend of 18cts perannum; this translates to a yield of 9.4% at current price, similar toM1, but a significant premium to Singtel’s 5%.

Stock currently trades at 10x FY09 P/E (Singtel: 12.5x, M1: 9x),narrowing a historical valuation premium of >20% over M1. Werecommend a buy on Starhub given its attractive valuation vis-à-vis itspeers. Switch out of Singtel into Starhub for better risk-rewards.Starhub is one of the component stocks of the STI and has a profitbase double that of M1; and should begin to outperform should themarket continue on its near term rally.