StarHub - Maybank Kim Eng 2015-11-08: Progress Where It Matters

StarHub - Maybank Kim Eng 2015-11-08: Progress Where It Matters STARHUB LTD CC3.SI 

StarHub (STH SP) - Progress Where It Matters 

  • 3Q15 in line. Excluding non-operating gain, NP rose 6%. 9M16 NP at 73% of FY15 forecast. 
  • But tiered migration stagnating a bit earlier than expected. Cut FY15-17 forecasts 3-6% but slowdown already expected. 
  • Maintain BUY. DCF TP trimmed to SGD4.51 from SGD5.00. Catalysts from enterprise growth, broadband turnaround. 

What’s New 

  • Within expectations. 3Q15 net profit rose 6% YoY to SGD103.7m. This excludes a SGD15m non-operating gain from dilution of its MediaHub project from 100% to 30%. 
  • 9M15 NP 73% of FY15 forecast. Service revenue rose 1%, in line with guidance of low single digit growth. 
  • Mobile and Pay TV was flat, but growth came from Broadband and Fixed Network. 
  • Broadband revenue rose for the third consecutive quarter, reflecting a stabilisation in ARPU, while Fixed Network benefited from growing enterprise content. 
  • StarHub lowered guidance for service revenue from low single-digit to flat, mainly because of lack of mobile growth as tiered migration is starting to stagnate at about 63% of the postpaid subscriber base. 
  • We had expected 75% penetration before stagnation appeared. We lower FY15-17 forecasts by 3-6%. But we remain optimistic on a Broadband turnaround and continued growth of Fixed Network Services as StarHub pushes forward with its own fibre network and solutions for the enterprise sector. 
  • Upcoming significant developments such as the spectrum auction and fourth telco licence should see newsflow in 1Q16. However, they are unlikely to be catalysts as IDA is unlikely to stray from its course. 
  • StarHub is still amidst content negotiations with NetFlix and Premier League but we expect a largely benign outcome. 

What’s Our View 

  • Maintain BUY but reduce DCF-derived TP to SGD4.51 (WACC 6%) from SGD5.00 on lower forecasts. 
  • Catalysts from continued broadband turnaround, enterprise growth and fourth telco ringfencing strategy. 5% dividend yield supportive.

Gregory Yap Maybank Kim Eng | 2015-11-08
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 4.51 Down 5.00