StarHub Ltd - OCBC Investment 2016-02-17: Expects steady performance in 2016

StarHub Ltd - OCBC Investment 2016-02-17: Expects steady performance in 2016 STARHUB LTD CC3.SI 

StarHub Ltd: Expects steady performance in 2016 

 Single-digit service revenue growth in 2016 
 No change to S$0.20/share dividend 
 Total return less than 9% now 

FY15 results within expectations 

  • StarHub Ltd reported its 4Q15 results last night, with revenue easing 2.1% YoY (but +5.1% QoQ) to S$633.8m; but net profit slipped 14.3% YoY and 31.9% QoQ to S$80.8m; this after EBITDA dropped 18.4% YoY and 21.1% QoQ, mainly due to lower revenue and higher expenses. 
  • Nevertheless, FY15 revenue grew 2.4% to S$2444.3m, or about 1.8% above our estimate; net profit inched up 0.5% to S$372.3m, or about 0.9% more than our forecast. 
  • As expected, StarHub has declared a quarterly S$0.05/share dividend, or S$0.20 for the full-year as guided. 

Likely steady FY16 showing 

  • Going forward, StarHub believes that service revenue should grow in the low single digit range, but given a more uncertain economic outlook, which could impact the growth in both its consumer and enterprise businesses, management has guided for group EBITDA margin to slip to 31% of service revenue; this versus 32.2% achieved in 2015. 
  • However, it has kept its capex guidance (excluding the S$80m spectrum payment due this year) at 13% of total revenue (versus 13.5% achieved in 2015). 
  • There is also no change to its S$0.05/quarter dividend. 

Still expects to see data growth; resilient Pay TV 

  • For Mobile, StarHub expects its customer base on tiered data plans to continue to grow; but usage-based revenue like roaming may be lower due to availability of other options. 
  • It also expects growth in its Broadband business as it continues to leverage on its cable broadband network to provide customers with redundancy over the NBN. 
  • For Pay TV, the business is likely to remain fairly resilient, thanks to its wide offering of branded content, especially sports. 
  • Lastly for the Enterprise space, the need for greater diversity, security etc will driive demand for its solutions. 

Downgrade to HOLD with S$3.94 fair value 

  • Although we are adjusting our DCF-based fair value from S$3.91 to S$3.94, we are downgrading our call from Buy to HOLD as the stock has done very well in the run-up to its results; this reduces the total return to less than 9% based on the current price. 
  • We would be looking to re-engage closer to S$3.70.

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2016-02-17
OCBC Securities SGX Stock Analyst Report HOLD Downgrade BUY 3.94 Up 3.91