STARHUB LTD
CC3.SI
StarHub - Results Broadly In Line
Investment Highlights
- 9MFY16 core earnings (adjusted for forex) formed 78% of consensus and a higher 81% of our forecast. While it appears to have tracked ahead, there was an adjustment on accruals no longer required in 3Q16 which led to a 26% YoY decline in operating leases.
- Reversing the impact and imputing the exhaustion of the NGN grant coupled with the seasonally weaker EBITDA in 4Q16, YTD nos. are deemed to be in line.
- An expected 5 cent/share DPS was declared.
- We retain our forecast, DCF TP of SGD3.75 (WACC: 7.2%, TG: 1.5%) and NEUTRAL call.
- 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 5% dividend yield.
- Stock sentiment should continue to be weighed-down by uncertainties with respect to the qualification of at least 2 new bidders for the upcoming spectrum auction (decision by the IMDA is expected by month-end after 2 rounds of deferment).
Key takeaways
- Bright spots were the enterprise and broadband segments which grew 2.1% and 9.8% YoY respectively but insufficient to offset the extended pressure on overall service revenue which dipped 0.6% in 9MFY16
- 9MFY16 EBITDA margin of 33.8% is ahead of full year guidance of 32%- this implies 4Q16 EBITDA margin of 30%, down from 32.8% in 3Q16 - consistent with stronger promotions in the December quarter and the tapering of the NGN grant.
- StarHub has not been spared the industry-wide structural erosion in IDD usage and roaming- mobile service revenue contraction accelerated to 3.6% YoY in 3Q16 from -2% YoY in 1HFY16. To recap, M1 had earlier reported a steep 7% YoY decline in mobile service revenue during the quarter which it said was partially caused by data subscribers clamping down on excess data usage/data overage.
- Traffic cost posted a sharper 24% YoY decline in 9MFY16 as StarHub was able to negotiate for better inter-operator rates on top of the lower mobile service revenue.
- The response to its Plus 3 data offers (upsize data offers) has been positive (driving recurring monthly ARPUs) as with SIMonly plans although no specifics were offered.
- Average postpaid data consumption increased to 3.5GB/mth in 3Q16 from 3.3GB/mth a quarter ago
- No. of subs on tiered plans widened to 67% in 3Q16 from 66% in 2Q16 and 65% in 4Q15 while subscribers exceeding their bundled data expanded to 26% from 24% in the preceding quarter.
- Pay-TV revenue was down 3.7% YoY in 3Q16 and 2% QoQ on the back of customers going out of contracts and cannibalisation from alternative viewing platforms.
- Net debt/EBITDA rose slightly to 0.8x due to the spectrum payment of SGD80m in relation to the 1800MHz secured in 2013.
Singapore Research Team
RHB Invest
|
http://www.rhbinvest.com.sg/
2016-11-03
RHB Invest
SGX Stock
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3.750
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