STARHUB LTD
CC3.SI
StarHub (STH SP) - 2Q17 Short-term Reprieve From Lower Handset Subsidies
- The mobile, pay-TV and residential broadband businesses were under pressure. StarHub lost 7,000 post-paid mobile, 10,000 pay-TV and 3,000 residential broadband subscribers in the quarter.
- Revenue from the Fixed Enterprise segment grew only 0.6% yoy. Earnings were boosted by an S$11m qoq reduction in handset subsidies as customers waited for the launch of blockbuster smartphones, eg iPhone 8 and Galaxy Note 8, before re-contracting.
- Maintain HOLD. Target price: S$2.90. Entry price: S$2.66.
RESULTS
- StarHub reported net profit of S$85.7m for 2Q17, above our expectation of S$79.6m.
Mobile: Competition remains intense.
- StarHub lost 7,000 post-paid subscribers in 2Q17 due to increased competition and the completion of enterprise projects.
- Post-paid ARPU inched up 4% qoq to S$70 due to take-up of value-added services, such as DataJump and DataShare, and increased data usage. Average data usage increased 21% yoy and 3% qoq to 4GB/month.
- Pre-paid mobile revenue fell by an estimated 3.6% yoy as pre-paid ARPU declined 6% yoy to S$15.
Pay-TV: Under persistent pressure.
- StarHub lost 10,000 pay-TV subscribers due to competition from alternative viewing options and piracy. This is the eighth consecutive quarter of contraction in pay-TV subscriber base. ARPU was stable at S$51.
Residential broadband: Working hard on retention.
- StarHub lost 3,000 broadband subscribers due to competition. Customers are migrating to fibre broadband.
- Subscriber base for fibre broadband expanded 3,000 qoq to 373,000, accounting for 80% of total broadband subscribers. ARPU eased 3% qoq S$36.
Fixed Enterprise: Slower growth.
- Data & Internet grew 3.5% yoy to S$88.5m, driven by managed services. Voice revenue declined 18.3% yoy to S$10.7m due to lower volume of iDD calls and international interconnect.
Short-term reprieve from lower subsidies.
- Handset subsidies were reduced by S$11m qoq as customers waited for the launch of blockbuster smartphones, such as iPhone 8 and Galaxy Note 8, before re-contracting.
- Management expects handset subsidies to be higher in 2H17.
STOCK IMPACT
Maintain dismal outlook for 2017.
- Management guided service revenue for 2017 would be similar to 2016’s.
- EBITDA margin is expected to fall to 26-28% (2016: 31.2%) due to higher costs for customer acquisitions (handset subsidies), less adoption grants from NGNBN and negative impact of the stronger US$ on payments for smartphones and content.
- Capex is expected to be 13% of total revenue (excluding spectrum payments).
Adding flexibility to Pay-TV offerings.
- StarHub has introduced five content packs to provide more flexible viewing options. They are packaged under five genres, namely movies, sports, Chinese, Malay and Tamil. Customers could bypass previous mandatory Basic Groups and zoom in to their favourite content through the five new packs.
- The new packs could ease the loss of pay-TV subscribers at the expense of lower ARPU.
Enabling sharing of data among family members.
- StarHub’s customers are able to share a portion of their data, including upsized data, across various mobile lines under the same billing account. DataShare users could allocate 1GB to 12GB of shareable data.
- Usage pattern varies among family members. The service could be easily activated with My StarHub app and the portion of data to be shared could be adjusted every month.
Issuance of perpetual securities.
- StarHub has issued S$200m 3.95% subordinated perpetual securities on 16 Jun 17. The distribution rate is subject to a step-up of 1% p.a. starting 16 Jun 27 and will reset every 10 years.
- Proceeds from the issue of perpetual securities will be utilised for working capital or investments. The perpetual securities are part of StarHub’s S$2b multi-currency debt issuance programme.
EARNINGS REVISION/RISK
- We have kept our 2017 net profit forecast unchanged.
VALUATION/RECOMMENDATION
- Maintain HOLD and target price of S$2.90, based on DCF (COE: 6. 75%, and terminal growth: 1.5%). Entry price is S$2.66.
SHARE PRICE CATALYST
- Attractive dividend yield of 5.9%.
- Erosion of mobile and pay-TV businesses.
- Risk from potential entry of a fourth mobile operator.
Jonathan Koh CFA
UOB Kay Hian
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http://research.uobkayhian.com/
2017-08-03
UOB Kay Hian
SGX Stock
Analyst Report
2.90
Down
2.980
