StarHub Ltd - OCBC Investment 2015-11-09: 3Q15 results in line; maintain BUY

StarHub Ltd - OCBC Investment 2015-11-09: 3Q15 results in line; maintain BUY STARHUB LTD CC3.SI 

StarHub Ltd: 3Q15 results in line; maintain BUY 

 9M core NPAT met 75% of FY15 estimate
 Outlook mostly stable
Maintain BUY with lower S$3.91 FV

3Q15 results mostly in line 

  • StarHub Ltd reported its 3Q15 results last Friday, with revenue rising 1.9% YoY to S$603.1m, or just 0.5% above our forecast, while EBITDA grew 4.3% to S$199.1m, 3.7% above our estimate, as service EBITDA margin further improved from 34.0% in 3Q14 to 35.7% in the current quarter. 
  • Reported NPAT jumped 21.5% to S$118.7m, but it was boosted by a non-operating income of S$15.0m (also non-cash, likely once-off); excluding this item, core earnings of S$103.7m was 3.0% above our forecast. 
  • 9M15 revenue rose 4.1% to S$1810.5m, meeting 75.4% of our FY15 forecast, while NPAT grew 5.5% to S$291.5m; core NPAT of S$276.5m would be flat, and would have met 74.9% of our full-year estimate. 
  • And as guided, StarHub declared a quarterly S$0.05/share dividend; and has kept its S$0.20 dividend payout for the year. 

Pares FY15 service revenue guidance to flat 

  • However, StarHub now expects service revenue to be maintained at 2014 level, versus the previous guidance of low single-digit range growth, citing falling voice usage, especially in roaming and IDD services, in its mobile segment; but this is likely to be mitigated by subscription revenue, which should continue to increase with growth in the subscriber base in both the consumer and enterprise segment as well as higher data consumption. 
  • Other than that, StarHub expects the Pay TV business to remain resilient, despite the increasing competition from OTT players, given the diverse and variety of content it has in its stable. 
  • It is also relatively upbeat about its Broadband segment, where the price competition is likely easing up. 
  • Lastly, StarHub sees further growth in its Fixed Services segment, where the revenue contribution has already exceeded its Pay TV segment in 3Q15. 

Keeps service EBITDA margin at 32% 

  • Meanwhile, StarHub has kept its service EBITDA margin guidance at 32% for FY15, versus the 33.6% in 9M15; this mainly due to the festive promotions and marketing in the fourth quarter. 
  • Also no change to its capex guidance of 13% of total revenue. 
  • We are maintaining our BUY call, but our DCF-based fair value slips slightly from S$3.96 to S$3.91, mainly due to a higher risk-free rate assumption. 

Carey Wong OCBC Securities | 2015-11-09
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 3.91 Down 3.96