Starhub - RHB Invest 2016-05-06: 1QFY16 Results Flash Note

Starhub - RHB Invest 2016-05-06: 1QFY16 Results Flash Note STARHUB LTD CC3.SI 

StarHub - 1QFY16 Results Flash Note


Highlights

  • Despite the 4% qoq slippage in 1Q16 service revenue (seasonality- induced), core earnings surged 23% qoq (+21% yoy) on stronger EBITDA (+17% qoq/+13% yoy) from good cost controls and steady depreciation.
  • 1Q16 core earnings formed 27% of RHB/consensus estimates- we deem this to be in line due to diminishing NGN adoption grant and the subsequent normalisation of EBITDA margin from the high of 34% in 1Q16.
  • As expected, stronger growth in enterprise (previously fixed network services) (+5.4% yoy) and broadband revenue (+11.2% yoy), more than offset extended mobile revenue pressure (-2.4% yoy), contributing to the flat service revenue (+0.4% yoy).
  • Enterprise revenue has emerged as the second largest revenue segment after mobile, at 16.2%
  • An expected 5cents/share quarterly dividend has been declared payable on 27 May.


Other key takeaways

  • Structurally lower mobile usage and roaming revenue has negated data growth arising from tiered plans (65.4% of postpaid customers on tiered plans). Prepaid revenue was also impacted by subscriber losses from deactivation of SIM cards as per its 180 days churn policy and Wi-fi substitution (eg: dormitories now Wi-fi enabled). Mobile service revenue contraction of 2.4% yoy was ahead of M1’s -2%.
  • Average data consumption per subs remains at c3.1GB/mth.
  • StarHub continues to rollout its own fiber to enterprises to capitalise on the growth opportunities and expanding its corporate footprint.
  • Broadband revenue was up for the fifth successive quarter on higher migration from ADSL to fiber plans (63% of broadband subs on fiber). Consequently, broadband APRU saw a 9% uplift yoy to SGD36/mth and 3% qoq.
  • The cessation of StarHub pay-TV Lite saw pay-tv base contract 8k qoq to 528k although this has little bearing on ARPU which was steady at SGD51/mth, supported by the focus on more relevant content.
  • NGN adoption grant of SGD12.6m in 1Q16 (other income) was down 9% yoy and should continue to taper- off in the months ahead with the bulk of rollout grants already amortised in FY15.
  • Management said the focus will be on customers in a 4 player market with its ‘hubbing’ proposition as a key differentiating factor.
  • Guidance reaffirmed (service revenue growth at low single digit, EBITDA margin of 31% and capex/sales of 13% excluding spectrum payment).


Our view:

  • No change to our forecast, DCF TP of SGD3.75 (WACC: 7.2%, TG: 1.5%) and NEUTRAL rating. 
  • Our forecast has factored in longer-term ARPU dilution from a potential fourth entrant. 
  • Valuations at 8.1x FY17 EV/EBITDA are in line with historical mean and supported by the over 6% dividend yield. 
  • Prefer M1 (M1 SP, BUY, TP: SGD3.20) on cheaper valuations.




Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-06
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.75 Same 3.75


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