Starhub - CIMB Research 2015-12-09: Not a starry-starry night

Starhub - CIMB Research 2015-12-09: Not a starry-starry night STARHUB LTD CC3.SI 

Starhub - Not a starry-starry night 

  • StarHub’s mobile business is at risk of being impacted from FY17 onwards by the potential entry of a fourth mobile operator. 
  • Impact should be lesser vs. M1, as the mobile business accounts for a smaller 56% of StarHub’s total service revenue and given its ability to bundle quad-play services. 
  • Annual DPS should stay at S$0.20 in FY15-17. Special dividends are unlikely. 
  • Maintain Hold with unchanged DCF-based target price of S$3.80. Scenario analysis suggest a target price of S$3.00 in bear case and S$4.25 in bull case. 


■ At risk from fourth mobile operator but impact should be lesser 

  • While we expect fixed broadband revenue to bottom out in FY15, StarHub’s mobile business is at risk of being impacted from FY17 by the potential entry of a fourth mobile operator. Nevertheless, the impact to StarHub should be lesser than M1, as its mobile business accounts for only 56% of its service revenue and its ability to bundle quad-play services may put it in a stronger position to defend its mobile market share. 

■ Sensitivity analysis on target price 

  • We have factored in a negative 15% impact to StarHub’s mobile ARPU between mid- 2017 and 2020. 
  • The impact could be worse if the new entrant employs more aggressive pricing strategies, or lesser if the new entrant’s execution is poor (network, branding). 
  • Our sensitivity analysis suggests that our target price for StarHub would fall to S$3.00 if its mobile ARPU is negatively impacted by 30% (bear-case) by FY20. 
  • If the negative impact on its mobile ARPU is only 5% (bull-case), our target price would be at S$4.25. 

■ Broadband flattening out 

  • On the positive side, StarHub’s broadband business has started to stabilise. Revenue rose 4.3% qoq (+3.9% yoy) in 3Q15, the third consecutive quarter of qoq improvement. 
  • Given the significant price adjustments made last year and current competition centred around higher-speed packages (e.g. 1Gbps for S$49/month), we believe that ARPU has bottomed out at the current levels of S$33-34. 
  • We forecast broadband revenue to fall 3.8% yoy in FY15, and then recover 3.1%/1.5% yoy in FY16/17. 

■ Dividends to stay the same 

  • Overall, we forecast EBITDA to rise 3.8% in FY15 on higher service revenue, then hit slower growth rates of 1.9%/2.1% in FY16/17 as NBN grants come to an end. 
  • In terms of dividends, we do not expect StarHub to raise its annual S$0.20 DPS as FCF/share will stay at S$0.21-0.23 in FY15-17 due to high capex and spectrum payments (1800MHz, 900MHz). 
  • Given the business headwinds, we believe StarHub will not pay any special dividends during FY15-17 to maintain some flexibility in its balance sheet. 

■ Maintain Hold with unchanged DCF-based target price of S$3.80 

  • Maintain Hold with an unchanged DCF-based target price (WACC: 7.1%). 
  • StarHub trades at FY16 EV/OpFCF of 12.5x, 9% discount to ASEAN telcos’ average, while its FY16 EV/EBITDA of 8.3x is in line. 
  • Its dividend yield of 5.6% p.a. is decent. 
  • Key upside risk is the non-entry of a fourth mobile player into Singapore. 
  • Key downside risk is higher-than-expected negative impact on StarHub’s mobile ARPU from new competition.



FOONG Choong Chen CFA CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 3.80 Same 3.80


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