STARHUB LTD
CC3.SI
StarHub - Beefing Up Local Content
- StarHub’s acquisition of a local content producer and the MOU with CM are longer-term positives but with little impact on mid-term earnings.
- Maintain NEUTRAL as we expect
- FY16 earnings to contract with the exhaustion of the fibre grant
- Competitive headwinds from a fourth mobile network operator
- Our DCF TP is cut to SGD3.75 (from SGD4.06. 13% upside) after building in higher capex for the next three FYs as we expect the group to capitalise on the stronger growth prospects accorded by the enterprise market.
Buys content provider.
- StarHub announced the acquisition of a 9.05% stake in Catalist-listed mm2 Asia (MM2), a Singapore-based content producer for TV and online platforms (www.mm2entertainment.com) for SGD18.04m.
- MM2 has collaborated with StarHub on local content production since 2012 and has produced/distributed over 50 films across Asia.
- The investment should strengthen StarHub’s local content production capability/delivery and further differentiate its pay-TV franchise via the creation of original content to compete with the likes of over-the-top (OTT) streaming services.
- We believe this is consistent with management’s strategy to reduce the reliance on imported content, which has seen significant cost escalations in recent years.
- MM2 posted a headline net profit of SGD5.1m (+70%) and revenue of SGD24.3m (+50.9%) in FY15 (Mar).
- The purchase values StarHub’s investment at a trailing 11.5x P/E, which we think is fair, considering the various product, platform and distribution synergies that MM2 brings to the table.
MOU with China Mobile (CM).
- The more immediate and discernible benefit of the five pronged collaboration is the reciprocal roaming arrangement – StarHub being the exclusive roaming partner in Singapore for CM and vice versa.
- While inbound roaming revenue/traffic from Chinese travellers has and is likely to continue to expand, it is still not a significant portion of the estimated 15% of mobile revenue that StarHub derives from roaming – the bulk is still made up of Malaysian/Singaporean travellers shuttling between both countries.
- Other positives include procurements savings from network equipment and handsets/devices, given the CM’s significant scale advantage.
Maintain NEUTRAL, higher capex assumed.
- We expect StarHub to fund the investment in MM2 entirely via cash (SGD173.4m as at 4Q15).
- While the impact on earnings is expected to be immaterial, we take the opportunity to factor in higher capex spending of SGD350m over the next three years (SGD310m-320m previously) on increased fibre investments to serve the needs of the enterprise market where management sees good upside potential.
- This reduces our FY16-18 core earnings forecasts by 1-3% and our DCF TP to SGD3.75 (WACC: 7.2%, TG: 1.5%) from SGD4.06.
- Key risks are stronger-than- expected competition and higher-than-expected capex.
Singapore Research
RHB Invest
|
http://www.rhbinvest.com.sg/
2016-03-23
RHB Invest
SGX Stock
Analyst Report
3.75
Down
4.00
