FNS Business Rings Louder
- Core earnings fell 3.2% YoY on flattish topline in 1H15 and we deem the results to be broadly in line as we expect the higher margin FNS segment to drive stronger 2H15 earnings growth.
- No change to our forecast, DCF-based SGD4.00 TP (7% upside) and NEUTRAL call with share price supported by the >5% yield.
- The pressure on broadband revenue is behind StarHub while there appears to be some stabilisation of its prepaid business.
Broadly in line.
- StarHub’s 2Q15 core earnings of SGD99.1m (+5.1% YoY, +34.5% QoQ) brought 1H15 core earnings to SGD172.8m (-3.2% YoY), forming 47% of consensus and our forecasts.
- 2Q15 EBITDA ticked-up 4% YoY (1HFY15: -2.2% YoY) on lower advertising & promotions (A&P) and traffic expenses, but surged 20% QoQ against the high base of iPhone 6 subsidies in 1Q15.
- Service revenue was flat YoY in 2Q15/1H15 due to the extended weakness in prepaid revenue.
- An expected 5 cents/share interim DPS was declared, payable on 27 Aug.
Broadband pressure behind, prepaid net-adds positive after five quarters of contraction.
- Prepaid revenue fell 12% YoY (-1.3% QoQ) while postpaid revenue grew 9% YoY (+4.4% QoQ) in 2Q15.
- Broadband revenue rose for the second consecutive quarter (+2% QoQ, -4% YoY) as price competition in the industry has subsided.
- Fixed network services/enterprise (FNS) revenue grew the strongest in over two years as StarHub gained further traction and market share in the enterprise space.
- At 16% of 1H15 revenue, we expect the FNS segment to surpass pay-TV to be the second-largest topline contributor in 2H15.
Forecast and risks.
- We make no change to our forecast on expectations of a stronger 2H15, backed by the positive traction in the FNS segment – a key growth driver.
- Earnings risks are:
- stronger-than expected competition, and
- higher-than-expected capex.
NEUTRAL maintained.
- StarHub’s strong bundling proposition and its diversified earnings base should mitigate the threat from a new mobile entrant.
- We think valuations are fair, at +1SD above its historical mean EV/EBITDA, supported by the sustained dividend yield of >5%.
- Our DCF-based TP is SGD4.00 (WACC: 7%, TG: 1.5%).
Analyst: Singapore Research
Source: http://www.rhbgroub.com/
