StarHub Ltd - OCBC Investment 2016-08-04: Maintain HOLD with S$3.94 FV

StarHub Ltd - OCBC Investment 2016-08-04: Maintain HOLD with S$3.94 FV STARHUB LTD CC3.SI 

StarHub Ltd: Maintain HOLD with S$3.94 FV

  • 1H NPAT met 52% of FY estimate.
  • Better EBITDA outlook, but flat revenue.
  • Re-engage closer to S$3.70.

2Q earnings +10% YoY

  • StarHub Ltd reported a better-than-expected set of 2Q16 results last evening; while revenue fell 0.6% YoY to S$585.7m, net profit jumped 9.6% YoY to S$108.6m, boosted by a non-operating gain of S$9.5m. If we exclude that likely one-off gain, core earnings would have been flat YoY around S$99.1m. 
  • As expected, StarHub declared a quarterly dividend of S$0.05/share, payable on 26 Aug. 
  • For 1H16, revenue slipped 2.5% to S$1176.6m, meeting 48% of our full-year forecast, while net profit rose 16.6% to S$201.4m; core earnings of S$192m would have met around 52% of our FY16 estimate.

Expects better EBITDA margin in FY16

  • StarHub now expects FY16 service revenue to be about that of 2015, down from its 1Q16 guidance of low single-digit growth. Although it has raised its EBITDA guidance to 32% of service revenue, up from its previous 31% guidance, it is still lower than the 34.2% achieved in 1H16, suggesting that the 2H outlook remains somewhat challenging. 
  • It has kept its capex guidance unchanged at 13% of total revenue, which excludes the S$80m spectrum payment due in Sep. 
  • Lastly, there is no change to its annual dividend of S$0.20/share, or S$0.05/quarter.

Likely muted outlook for mobile, Pay TV segments

  • Following the 2.1% drop in mobile revenue in 1H16, the outlook for this segment could remain muted, as the growth in data usage may not be enough to overcome the continued drop in non- data usage, even though ARPU remains stable. 
  • We also saw continued weakness in its Pay TV segment, where StarHub lost another 10k subscribers, which reduced its penetration to 35.4% (versus 41.0% in 2Q15). 
  • While the environment for broadband is likely to remain competitive, StarHub did see continued improvement in ARPUs and more customers moving over to fibre.

Maintain HOLD with new S$3.94

  • We are keeping our estimates largely unchanged for now; but due to a lower risk-free rate, our DCF-based fair value rises from S$3.69 to S$3.94. 
  • Maintain HOLD; re-engage closer to S$3.70 or better.

Carey Wong OCBC Securities | 2016-08-04
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 3.94 Up 3.69