StarHub (STH SP) - DBS Research 2017-08-03: Few Positives In A Tough Competitive Climate

StarHub (STH SP) - DBS Vickers 2017-08-03: Few Positives In A Tough Competitive Climate STARHUB LTD CC3.SI

StarHub (STH SP) - Few Positives In A Tough Competitive Climate

  • StarHub's 2Q17 net profit of S$85.7m (-21% y-o-y, +17% q-o-q) was in line with our expectations.
  • Revenue pressure from declining Pay TV, broadband.
  • Declining Pay TV subscribers impacts hubbing and continue to pressure margins.
  • Maintain FULLY VALUED with Target Price of S$2.33.



What’s New 


Declining broadband, pay TV segments weigh on revenue.

  • Revenue of S$579.1m (-1% y-o-y, -2% q-o-q) was in line with our expectations. Revenue was impacted by Pay TV and broadband segments which are seeing contracting customer bases due to competitive pressure from piracy, over-the-top (OTT) players and retail service providers respectively.

Cost increases and interest expense subdue margins. 

  • 2Q17 net profit of S$85.7m (-21% y-o-y, +17% q-o-q) was in line with our expectations. Margins were impacted by cost increases relating to content costs, advertising, fibre broadband and managed service cost. Higher debt levels also contributed towards increased interest costs.

Declining number of Pay TV subscribers put pressure on StarHub's hubbing strategy. 

  • StarHub’s Pay TV subscriber base has declined ~12% since 2Q15 due to rising piracy and competition from OTT players such as Netflix. Though the company has looked to curb the subscriber losses by offering more attractive packages, we believe the drop will continue. This is likely to continue putting pressure on margins as households with 3 or more services continue to contract. 
  • With margin pressure likely to continue, we maintain our FULLY VALUED rating on the counter with an unchanged DCF-based (WACC 5.6%, terminal growth 0.3%) TP of S$2.33.




Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2017-08-03
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 2.330 Same 2.330



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