StarHub Ltd - OCBC Investment 2016-05-06: Keeps FY16 Guidance; BUY

StarHub Ltd - OCBC Investment 2016-05-06: Keeps FY16 Guidance; BUY STARHUB LTD CC3.SI 


  • NPAT met 25% of FY16 estimate 
  • Maintains FY16 guidance 
  • Expected 18% total return from here 

1Q16 earnings better than expected 

  • StarHub Ltd reported a better-than-expected set of 1Q16 results. 
  • Revenue slipped 4.4% YoY to S$590.4m, meeting about 24% of our full-year forecast, mainly due to lower revenue from the sale of equipment. 
  • And as StarHub also sold more low- to mid-end models, this led to a 19.7% slide in cost of sales and a 9.1% fall in operating expenses; as a result, EBITDA rose 13.2% to S$183.4m, while net profit jumped 25.9% to S$92.8m (or 25% of our FY16 estimate). 
  • StarHub declared a quarterly dividend of S$0.05/share as guided. 

Kept FY16 guidance unchanged 

  • Although service EBITDA margin hit 33.8% in 1Q16, versus 30% in 1Q15, management has kept its 31% guidance for the full-year, suggesting that the first quarter numbers may not be indicative of the performance for the rest of the year. 
  • Nevertheless, management expects service revenue to continue to grow in the low single-digit range, likely supported by its broadband and enterprise businesses. 
  • It has also kept its capex payment for this year at 13% of total revenue, excluding the S$80m spectrum payment due in Sep. 
  • Lastly, there is no change to its annual dividend of S$0.20/share, or S$0.05/quarter. 

Mixed outlook for mobile business 

  • For its main mobile business, StarHub expects the SIM-only plans and the new data upgrade service at a low monthly fee to contribute to a lower subscription and excess data usage revenue; but it still expects monetisation of mobile data from growing data usage and take-up of other value-added services. 
  • It also plans to participate in the upcoming spectrum auction in 2H16. However, it is likely to face increased competition sooner-than-expected, with Circles.Life releasing more details about its pricing plans last night. 

Maintain BUY with new S$3.69 fair value 

  • In light of the recent developments, we have revised our FY16 and FY17 estimates slightly and lowered DCF-based fair value from S$3.80 to S$3.69
  • But as there is still a total potential return of nearly 18% from here, we maintain our BUY rating

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2016-05-06
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 3.69 Down 3.80