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

STARHUB LTD CC3.SI

StarHub - 1QFY16 Results Flash Note

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.

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).

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

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