Starhub - Boost from network sharing
- StarHub and M1 to expand spectrum sharing.
- Potential drop in capex and opex after FY18.
- Capex estimates cut by 20% from FY18 onwards.
- Upgrade to HOLD on revised TP of S$3.01.
We project new entrant TPG will gain 8.5% mobile revenue share by 2022.
- With an annual EBITDA of A$775m and FY16 (July year-end) net debt-to-EBITDA of 1.6x, TPG has enough room to roll out a nationwide mobile network. Hence, we believe the impact on the incumbents from TPG’s entry will be acute and project TPG to secure 8.5% revenue share by 2022.
- In our bull-case and bear case scenarios for the existing telcos, we project TPG to secure 6% & 10% revenue share respectively.
Reduce StarHub’s capex by 20% from FY18 onwards due to network sharing.
- M1 and StarHub signed a Memorandum of Understanding (MOU) for collaboration in mobile infrastructure sharing, with a focus on sharing radio access network (RAN), backhaul and access assets.
- Given the considerable synergies, especially capital expenditure, we believe StarHub’s network capex could reduce by 20% post FY18, as network sharing takes hold.
StarHub to fare better than its local peer M1.
- StarHub has a lower reliance on mobile revenue (~51% in 3Q16 vs. 68% for M1) and a stickier, less price sensitive customer base.
- StarHub has also introduced more fixed-mobile bundling offers to reduce the loss of revenue share to a new entrant.
- We expect StarHub’s revenue share to drop from 30% in 2015 to 27% by 2022, leading to 25% drop in group earnings by 2022 versus 2015
- Upgrade to HOLD with a higher TP of S$3.01.
- Our revised DCF-based (WACC 6.5%, terminal growth 0%) TP is S$3.01 as we factor in the impact of lower capex. Our bull-case and bear case TPs for StarHub are S$3.40 and S$2.84 assuming 6% and 10% revenue share for TPG by 2022 respectively.
Key Risks to Our View
- Sharper-than-expected decline in adoption grant. The adoption grant for fibre is likely to decline going forward.
- We project StarHub’s “Other Income” to decline from S$46m in 2015 to S$41m in 2016F and S$20m in 2017F due to this. However, the drop could be sharper than expected