Starhub - RHB Invest 2015-11-09: Fixed Network Services Claim Second Spot

Starhub - RHB Invest 2015-11-09: Fixed Network Services Claim Second Spot STARHUB LTD CC3.SI 

Starhub - Fixed Network Services Claim Second Spot 

  • StarHub’s 9MFY15 core earnings were in line with RHB/consensus estimates. 
  • Maintain NEUTRAL, with a DCF TP of SGD4.00 (9% upside) as valuations are fair and supported by the > 5% dividend yield. 
  • While the FNS business is the bright spot, concerns remain on its stagnating mobile business and competitive risks for its pay-TV segment. 
  • StarHub’s strong bundling proposition and its diversified earnings base should, however, mitigate the threat from a new mobile entrant. 

 Within expectations. 

  • 3Q15 core earnings (stripping out a SGD15m gain from the deconsolidation of MediaHub) of SGD104m (+6.1% YoY, +4.6% QoQ) brought 9MFY15 core earnings to SGD276.5m (+0.1% YoY), making up 74-76% of consensus/RHB forecasts. 
  • Despite the marginal 0.7% service revenue growth QoQ, EBITDA expanded 2.3%, as the higher next generation national broadband network (NGN) (+27% QoQ) adoption grant offset the 3% growth in opex. 
  • 9MFY15 EBITDA margin of 33.6% is on track to meet its guidance of 32% (FY15F: 33%) on seasonally stronger 4Q15 subscriber acquisition cost (SAC). An expected 5-cent interim DPS was declared (YTD: 15 cents per share). 

 Operational highlights. 

  • Mobile revenue slipped a marginal 0.1% QoQ (YTD: flat) as postpaid revenue growth was not sufficient to offset the extended erosion in prepaid revenue, which continued to suffer from weaker usage. Its prepaid subscribers (subs) net addition has, however, grown for the second consecutive quarter. 
  • The telco’s broadband revenue grew the fastest in three quarters (+4.3% QoQ) after bottoming out in 1Q15 on steady competition, while pay-TV revenue eased 0.6% on some revenue seasonality. 
  • Fixed network services (FNS) revenue remains the key growth driver (+3% QoQ, +3.4% YTD) as it gained further traction in the enterprise space and the NGN fibre rollout. 

 Forecast. 

  • We make no change to our forecast. Risks to earnings are: 
    1. stronger-than-expected competition, and 
    2. higher-than-expected capex. 

 Maintain NEUTRAL. 

  • Starhub’s share price has performed in line with the market after bottoming out in September. 
  • Valuations are fair, at +1SD above its historical EV/EBITDA mean, supported by the dividend yield of over 5%. 
  • Our DCF TP is SGD4.00 (WACC: 7%, TG: 1.5%).

Singapore Research RHB Research | 2015-11-09
RHB Research SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 4.00 Down 4.00