CIMB Securities 2015-08-06: Starhub - 2Q15 Results. Better EBITDA margins. Maintain HOLD.


Better EBITDA margins 

  • 2Q15 core net profit rose 34.5% qoq (-5.1% yoy) on higher service revenue and EBITDA margin, after 1Q15 was dragged by high handset subsidies. 
  • The results were largely in line, with 1H15 at 45% of our FY15 forecast (consensus: 47%), as 2H15 should be stronger. 
  • As expected, a quarterly DPS of S$0.05 was declared. 
  • Maintain Hold with an unchanged DCF-based target price S$3.80 (WACC: 7.1%). 
  • We see a decent outlook for its mobile and fixed network businesses, while its broadband business should stabilise this year. 
  • However, we do not expect it to raise its annual DPS or pay special dividends in FY15-17 due to high capex and spectrum payments. 
  • A potential fourth mobile operator could also put pressure on ARPU upon its entry in mid-2017. 

Broadband revenue improving sequentially 

  • Broadband revenues inched up 1.9% qoq (-3.9% yoy) in 2Q15, the second consecutive qoq growth. 
  • This was driven mainly by 0.4% growth in subscribers, while ARPU was stable at S$33. 
  • Given the significant price adjustments made last year and current competition centred around higher-speed packages (e.g. 1Gbps for S$49/month), we believe that ARPU has bottomed out at the current levels. 
  • We forecast broadband revenue to fall by 3.8% yoy in FY15 before recovering 3.1%/1.5% yoy in FY16/17. 

Prepaid weakness offsets postpaid gains yoy 

  • Mobile revenues rose by 1.8% qoq after a seasonally weak 1Q15. 
  • It was largely flat yoy as postpaid growth was offset by a decline in prepaid, which continues to be impacted by reduced International Direct Dial (IDD) calls and SMS volumes. 
  • For postpaid, subscribers grew by 0.9% qoq while ARPU rose by 2.9% qoq. 
  • Subscribers on tiered pricing plans rose by 1% pts qoq to 63%, while 22% of these users exceeded their data bundles (1Q15: 22%). 
  • We forecast mobile revenues to grow by 2.2%/2.2% yoy in FY15/16 before easing 0.5% yoy in FY17, due to the initial impact from the entry of a fourth mobile operator. 

EBITDA margin rebound on drop off in device sales 

  • EBITDA margin (on service revenue) rebounded by 5.1% pts qoq (+1.1% pts yoy) to 35.1%. 
  • Handset subsidies eased off after the high re-contracting activities in 1Q15 due to strong demand for the iPhone 6. 
  • We expect the EBITDA margin to reach 34.3%/33.9%/34.3% in FY15/16/17 as StarHub gradually lowers handset subsidies.

FOONG Choong Chen CFA | CIMB Securities 2015-08-06
HOLD Maintain HOLD 3.80 Same 3.80