OCBC Securities 2015-08-06: Starhub - 2Q15 Results. Upgrade to BUY with lower S$3.96 FV.


Upgrade to BUY with lower S$3.96 FV 

 1H NPAT met 47% of FY forecast
 No change to earlier guidance
 Still safe haven amidst global uncertainty

1H15 earnings slightly below expectations 

  • StarHub Ltd reported its 2Q15 results last night, with revenue rising 2.3% to S$589.5m, while EBITDA climbed 3.8% to S$194.5m, as service EBITDA margin improved to 35.1% from 34.0% a year ago quarter. 
  • Net profit rose 5.1% to S$99.1m. 
  • As expected, StarHub declared a quarterly dividend of S$0.05/share, payable on 27 Aug. 
  • 1H15 revenue was up 5.2% to S$1207.4m, meeting 50.3% of our full-year forecast, but net profit slipped 3.2% to S$172.8m, meeting about 46.8% of FY15 estimate. 

Variance between prospect statement 

  • For 1H15, management noted that its service revenue slipped by 0.1%, and was lower versus its guidance for full-year service revenue to grow in the low single-digit range. But on the positive side, it highlighted that EBITDA of 32.6% of service revenue was higher than its guidance of 32% for the year. 
  • Capex payment totaled about 12.3% of total revenue in 1H15, below its 13% of total revenue guidance for FY15 capex. 

Keeps FY15 guidance unchanged 

  • Nevertheless, StarHub has kept its low single digit range growth for its service revenue in FY15, driven by fixed and mobile services (particularly in the enterprise segment). 
  • Although it expects price competition to continue in the broadband space, it believes the intensity is likely to moderate. 
  • Hence it has kept its service EBITDA margin unchanged at 32%. 
  • It has also kept its capex guidance at 13% of total revenue; no change to its S$0.05/quarter dividend as well. 

Upgrade to BUY with lower S$3.96 fair value 

  • StarHub saw a plunge of nearly 13% after its disappointing 1Q15 results in mid May; also likely weighed by the threat of a fourth telco operator and rising interest concerns. 
  • We believe that the threat of a new telco is likely overdone. 
  • While rising interest rate concerns are real, and we have adjusted our DCF-baased fair value lower from S$4.17 to S$3.96 to reflect that, we believe that the defensive telco sector would still offer a reasonable safe haven amidst growing global economic uncertainty; hence we upgrade our call from Hold to BUY. 

Carey Wong | http://www.ocbcresearch.com/ OCBC Investment Research 2015-08-06
BUY UPGRADE HOLD 3.96 Down 4.17