StarHub Ltd - OCBC Investment 2016-06-09: Downgrade To HOLD on Valuation

StarHub Ltd - OCBC Investment 2016-06-09: Downgrade To HOLD on Valuation STARHUB LTD CC3.SI 

StarHub Ltd - DOWNGRADE TO HOLD ON VALUATION

  • +12% since 31 Mar’s upgrade
  • Re-engage closer to S$3.50
  • Longer-term transformation is positive



Rebound of ~12% since upgrade

  • Since our upgrade to Buy on 31 Mar, StarHub has made a strong recovery from S$3.31 then to a recent high of S$3.70, or about 12%. And if we add in the quarterly dividend of S$0.05 that was paid on 27 May, the total return would have been just over 13%. 
  • Having said that, the recent strong run-up also meant that the current share price has hit our DCF-based fair value of S$3.69.


Unlikely to revise our fair value yet

  • But at this point, we are unlikely to change our fair value. 
  • First, we believe that StarHub’s capex for the next two years may still be quite considerable, and should be close to 13% of total revenue as per its FY16 guidance. Note that this excludes the S$80m spectrum payment due in Sep; and it may have more spectrum payments to make, depending on how much extra spectrum it can get in the upcoming auction. On this front, StarHub recently issued S$300m worth of 10- year 3.55% notes recently, which it would use to finance new acquisitions, investments, refinancing of existing borrwings, working capital, capex and for other general funding needs. 
  • Second, the recent run-up may be due to a softening of rate hike expectations in the US, with the expected hike only likely to happen in Sep, and may be limited to just a hike this year. But even then, we see limited room for local interest rates to ease from here.


Downgrade to HOLD

  • With further gains from here likely limited, we downgrade our call to HOLD. 
  • We would probably look to re-engage closer to S$3.50. That said, we think that the recent developments by the company to go into cyber security for example is a move in the right direction as it would transform StarHub from a pure carrier towards an integrated solutions provider in the fast-growing mobile eco-system.




Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2016-06-09
OCBC Securities SGX Stock Analyst Report HOLD Downgrade BUY 3.69 Same 3.69


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