STARHUB LTD
CC3.SI
Starhub - Two key challenges
The possibility of 4th mobile player and an online content provider adds uncertainty.
- 4G spectrum auction, expected in 1Q16, could result in a 4th mobile player entering the market in 2Q17. Meanwhile, continued decline in roaming revenue (10-15% of mobile revenue) is another concern.
- Pay TV segment also faces challenges due to the potential entry of online content provider Netflix in 2016.
One-off gains help bottom line.
- 3Q15 net profit of S$ 118.7m (+21% y-o-y, +20% q-o-q) was above our estimates. This was due to S$15m one-off gains relating to part divestment of a subsidiary. Excluding the one-off gains the results would have been in line.
- Lower handset subsidies also helped bottom line.
StarHub could lose up to 4% of group revenues by 2022 if the 4th player is successful.
- 4G over 900 MHz spectrum coupled with HetNet technology may lower the capex for the entrant to only S$250m resulting in a viable business case.
- We model 4th mobile player to capture 7% revenue share by 2022 with StarHub losing 4% of its group revenue. We are less concerned about the potential entry of Netflix as there is a possibility that StarHub may offer access to Netflix through its set-top boxes.
Valuation:
- We maintain our Fully Valued call on StarHub with a revised TP of S$3.30.
- We roll forward our DCF valuation, assume a higher WACC of 7.0% (from 6.5%) and keep terminal growth at 0%. Key
Risks to Our View:
- Non-entry of 4th mobile player. The reason could be unsuccessful HetNet trails or an inability to raise adequate funding. Without HetNet, capex requirements could increase significantly while an inability to raise adequate funding by the new entrant could lead to a relief rally for StarHub.
Sachin Mittal
DBS Vickers
|
http://www.dbsvickers.com/
2015-11-09
DBS Vickers
SGX Stock
Analyst Report
3.30
Down
3.70
