StarHub - Maybank Kim Eng 2016-05-06: Awaiting clarity on potential new entrant

StarHub - Maybank Kim Eng 2016-05-06: Awaiting clarity on potential new entrant STARHUB LTD CC3.SI 

StarHub (STH SP) - Awaiting clarity on potential new entrant 


Within expectations 

  • 1Q16 within expectations. 
  • Decent quarter, boosted by excellent opex management, although service revenue was weak. 
  • Growth in broadband and enterprise (25% of total revenue) was offset by weakness in mobile and pay TV (66% of total revenue). 
  • Still, FCF generation was strong enough to cover the usual 5 cts quarterly DPS, giving the assurance that the c.6% dividend yield is sustainable. 
  • HOLD despite 21% upside to DCF TP of SGD4.00, as we wait clarity on the potential new entrant. 

Weak topline… 


  • Service revenue was flat YoY. Mobile and pay TV revenue shrank, offsetting growth in broadband and enterprise. 
  • Mobile is being stressed by the data substitution effect on IDD while pay TV is being challenged by more OTT options. 
  • Broadband growth has been reignited and enterprise prospects are good due to corporate redundancy demand, but they only account for 25% of revenue vs 66% from mobile and pay TV. 
  • Low single digit service revenue growth guidance maintained. 

… but great cost management 


  • However, StarHub managed to limit YoY opex growth (excluding handset costs) to just 1%. The greatest cost savings was in services (-2%) on lower TV programming costs and marketing & promotion (-18%) on greater use of customer data analytics. 
  • Along with lower equipment costs, EBITDA margin rose almost 4ppt YoY to 33.8%. However, full-year margin guidance was kept at 31%, as management expects higher costs ahead during quarters when popular handsets are launched. 

Enough FCF to cover dividend 

  • StarHub generated 5.2 cts/share in FCF in 1Q, which fully covers the 5 cts/share DPS. 
  • Capex was low in 1Q but can be expected to pick up in 2H16 and 2017 when past and future commitments to spectrum need to be paid for. However, StarHub’s balance sheet remains the strongest in the industry, with net debt/EBITDA of < 0.6x vs M1’s 0.9x and Singtel’s 1.2x. 


Swing Factors 


Upside 

  • No new mobile operator. The three incumbents keep their spectrum allocations, including bands reserved for fourth telco. 
  • No runaway spectrum auctions if no new entrant. 

Downside 

  • Could lose marginal mobile market share to any new entrant. M1 is expected to lose the most.



Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-05-06
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 4.00 Same 4.00


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