StarHub (STH SP) - Maybank Kim Eng 2017-11-03: One Bright Spot In A Cloudy Sky

StarHub (STH SP) - Maybank Kim Eng 2017-11-03: One Bright Spot In A Cloudy Sky STARHUB LTD CC3.SI

StarHub (STH SP) - One Bright Spot In A Cloudy Sky


3Q17 results showed pressure, as expected 

  • StarHub’s 3Q17 results were in line with our full-year and consensus expectations (FactSet) in terms of revenue, EBITDA and core profit. 
  • On an absolute basis, revenue was SGD580m (+0.2% QoQ; -0.9% YoY), EBITDA SGD176m (-2.5% QoQ; -1.8% YoY), and core profit SGD76m (- 10.7% QoQ; -11.0% YoY). MKE and consensus differ on 4Q17E outlook due to our more aggressive handset subsidy assumptions resulting in only SGD9m in core profit for the coming quarter against consensus of SGD43m. 
  • A delay in iPhone X availability would only delay what we believe is the inevitable. 
  • Maintain SELL and DCF-based TP of SGD2.17 (WACC 5.3%, LTG -1%).


Enterprise is a rising star...

  • Consolidated revenue growth YoY was entirely driven by the Enterprise Fixed Services business, which management was openly bullish on for the long term as the company is increasingly tapping into contracts with the government and large enterprises. 
  • But to lessen revenue volatility of the contract-based business, more managed services and maintenance contracts are being eyed. 
  • We currently assume a 3-year CAGR of +10% by 2019E for this segment.


...but wireless and pay TV woes are not over 

  • Management gave positive signals of the reception for the higher priced, unlimited weekend data plans that were recently launched, but in 3Q17 this had yet to materialize with QoQ declines in ARPUs and net churn of the subscriber base. With mobile virtual network operator (MVNO) Circles.Life (Not Listed) remaining aggressive and MyRepublic (Not Listed) eyeing its own MVNO, the short-term pressure is building even before the launch of TPG Telecom (Not Listed) by 2H18. 
  • Meanwhile, the continued attrition of the pay TV business due to changing viewer habits is in line with our assumption of a -7% CAGR by 2019E.


Too risky yet 

  • Despite the share price underperformance, we see further consensus forecast downside risk in the short term as competition heats up. 
  • We maintain our forecasts and reiterate SELL. Lower-than-expected subsidies and/or long-term capex is the upside potential to our outlook.


Swing Factors


Upside

  • Enterprise segment targeting, including government contracts revolving around the Smart Nation initiatives provides source of new revenues, despite competition with SingTel.
  • Network alliance with M1 to reduce network redundancies and operating expenses, and future joint capex planning is under negotiation

Downside

  • Re-contracting/retention costs likely to rise on the back of new smartphone launches and defensive preparation against TPG’s entry.
  • Wireless tariff package pressure on rates and/or data allocations possible with new competition.




Luis Hilado Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-11-03
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 2.170 Same 2.170



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