Starhub - DBS Research 2016-08-22: Launches aggressive plans

Starhub - DBS Vickers 2016-08-22: Launches aggressive plans STARHUB LTD CC3.SI

Starhub - Launches aggressive plans

  • Recent launch of aggressive plans by StarHub shows that risk of new entrant is not off yet.
  • Re-consider StarHub once new player is ruled out or accumulate on weakness if new player enters.
  • Downgrade to HOLD with new TP of S$3.65.



StarHub has launched aggressive mobile-fixed broadband plans. 

  • This shows that the risk of a new entrant is not off yet.
  • This also leads to 2%/4% cut in our FY17F/18F earnings.
  • StarHub has appreciated 17% since May 2016. Investors will be better off 
    1. buying StarHub if new player is ruled out in October, or 
    2. accumulating StarHub on weakness if a new player enters as the actual adverse impact on its earnings will be ~8% in the long term.


2Q16 core profit was 5-7% ahead of our estimates. 

  • Excluding fair value gains of S$9.5m, 2Q16 core profit of S$100m (+1% y-o-y, +7% q-o-q) was ahead of our S$93-95m estimate.
  • Higher-than-expected “Other Income” from grants for the fibre adoption and lower-than-expected depreciation & amortisation (D&A) costs were the key variances. 
  • StarHub revised FY16 service revenue growth guidance to flat from low single-digit due to decline in Pay TV & roaming revenue but raised service EBITDA margin to 32% from 31%.


Excluding Pay TV segment (18% of service revenue), other segments are healthy. 

  • 25-50% lower price for the additional mobile data from March 2016 onwards should boost usage and revenue in the near term, while SIM-only plans should reduce handset subsidy burden. 
  • The Enterprise Fixed business continues to grow due to the need for greater diversity, data analytics. 
  • Fixed broadband business has also stabilised due to the fibre adoption. Pay TV business (18% of total) may decline gradually due to more competition from the likes of Netflix.

Valuation

  • Downgrade StarHub to HOLD with a revised TP of S$3.65, as we assume 50% probability of a new entrant. 
  • Our TP of S$3.65 is the average of our TP of S$4.00 (no new entrant scenario) and TP of S$3.30 (confirmed new entrant scenario) 

Key Risks to Our View: 

  • Upside and downside risks. An overly aggressive new entrant could lead to our bear-case TP of S$3.00 while the non-entry of a new player could lead to our bull-case TP of S$4.00 At A Glance




Sachin Mittal DBS Vickers | http://www.dbsvickers.com/ 2016-08-22
DBS Vickers SGX Stock Analyst Report HOLD Downgrade BUY 3.65 Down 4.100


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