StarHub - Maybank Kim Eng 2016-09-05: Looking for Enterprise to hold

StarHub (STH SP) - Maybank Kim Eng 2016-09-05: Looking for Enterprise to hold STARHUB LTD CC3.SI

StarHub (STH SP) - Looking for Enterprise to hold the fort


D/G to HOLD on rising competition; prefer to M1 

  • We downgrade StarHub from BUY to HOLD and lower DCF-based TP 15% to SGD3.52
  • The main reason for the downgrade is increasing competition that we believe will adversely impact its consumer volumes and ARPU. As a result, we have also lowered our earnings estimates for FY17/18 by 0.8%/1.8%. 
  • Despite the downgrade, we still prefer the shares relative to M1 within the telco sector.
  • Our DCF-based TP is reduced to SGD3.52 due to our lower specific profit forecast/lower longterm growth assumption.


Changes in assumptions 

  • With the potential entrant of a new competitor in 2H17, we now expect postpaid net-adds to slow substantially for StarHub from 50,000 in FY16 to 25,000 and 15,000 in FY17 and FY18. 
  • Postpaid ARPU is also expected to be squeezed by 1% pa in these years against our assumptions for flat ARPU previously.


More resilient than M1 

  • We believe that Starhub should lose less market share than M1 due to its stronger hold on subscribers (e.g. consumer hubbing and improving corporate stickiness due to its enterprise strategy, where corporate users who are also its consumer customers are given larger incentives to stay on its network). Hence, our forecast reductions are lower than M1’s.
  • Despite the downgrade, Starhub is not a SELL as we expect the Enterprise growth driver to remain intact. This, as well as the attractive +5% dividend yield, should help stabilise the shares.


Swing Factors


Upside

  • No new competitor to take up a new mobile operator licence. The three incumbents keep their spectrum allocations, including bands reserved for fourth telco.
  • Merger with M1 could add heft and resources to compete against Singtel and fourth mobile operator.

Downside

  • Could lose some marginal mobile market share to a new entrant. M1 is expected to lose the most.
  • Other downside risk factor (one is not enough, two is the minimum (most analysts have three upside/downside)




Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-09-05
Maybank Kim Eng SGX Stock Analyst Report HOLD Downgrade BUY 3.52 Down 4.150


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