Starhub - DBS Research 2016-09-22: More resilient than M1, but not immune

Starhub - DBS Vickers 2016-09-22: More resilient than M1, but not immune STARHUB LTD CC3.SI

Starhub - More resilient than M1, but not immune


StarHub to be more resilient than M1. 

  • We project a 4% drop in industry-wide mobile revenues between 2015 and 2022, while the new entrant could capture 7% of revenue share.
  • With only c. 50% of revenues coming from mobile and due to more fixed-mobile-TV bundling, StarHub will be less impacted than M1. As a result, we expect StarHub’s mobile revenues to decrease by 12% (6% drop in total revenue) and earnings to contract by 12% in 2022 versus 2015.


2Q16 core profit was 5-7% ahead of our estimates. 

  • Excluding fair value gains of S$9.5m, 2Q16 core profit of S$100m (+1% y-o-y, +7% q-o-q) was ahead of our S$93-95m estimate.
  • Higher-than-expected “Other Income” from grants for the fibre adoption and lower-than-expected depreciation & amortisation (D&A) costs were the key variances. StarHub revised FY16 service revenue growth guidance to flat from low single-digit due to decline in Pay TV & roaming revenue but raised service EBITDA margin to 32% from 31%.


Pay TV segment (18% of service revenue), faces limited threat in the medium term. 

  • The Enterprise Fixed business continues to grow due to the need for greater diversity, data analytics. 
  • Fixed broadband business has also stabilised due to the fibre adoption. 
  • Pay TV business (18% of total) may decline gradually due to more competition from the likes of Netflix.

Valuation

  • Recommend FULLY VALUED versus HOLD earlier. Our revised DCF (WACC 6.5%, terminal growth 0%) based TP is S$3.00 as we factor the impact of the potential new entrant. 
  • In the scenario of potential earnings decline, we think forward PER multiple of telcos could shrink to 13-14x (below -2SD) versus 16x now.

Key Risks to Our View

  • Non-entry of a new player. Disqualification of the current candidates due to inadequate funding or lack of experience could wipe out the threat of a new player leading to our bull case TP of S$4.00.




Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2016-09-22
DBS Vickers SGX Stock Analyst Report FULLY VALUED Downgrade HOLD 3.00 Down 3.650



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