Starhub Ltd - OCBC Investment 2018-05-04: MVNO – Better Late Than Never

Starhub Ltd - OCBC Investment 2018-05-04: MVNO – Better Late Than Never STARHUB LTD SGX: CC3

Starhub Ltd - MVNO – Better Late Than Never

  • 1Q18 within expectations.
  • Partnering with MyRepublic.
  • Acquisitions lifted enterprise fixed.

1Q18 core EBITDA formed 26% of our FY17 estimate

  • Starhub Ltd’s (Starhub) 1Q18 results came in within our expectations as revenue declined 4.7% y-o-y to S$561.0m, driven mainly by the enterprise fixed segment (+18.0%), lifted by acquisitions of D’Crypt and Accel Systems & Technologies, but more than offset by lower mobile (-7.1%), Pay TV (-10.0%) and sales of equipment (-16.3%). 
  • 1Q18 operating expenses fell by a slower pace of 3.3%, mainly driven by lower cost of equipment sold due to lower handset sales and lower operating lease on lower duct lease rental, but partly offset by higher cost of services driven by higher enterprise fixed revenue. 
  • Consequently, stripping out one-off adjustments of ~S$10m, 1Q18 core EBITDA and core PATMI fell 11.0% y-o-y and 28.8% to S$142.2m and S$51.5m, which formed 26% and 23% of our FY18 estimates, respectively. 1Q18 service EBITDA margin came in at 0.8ppt y-o-y lower at 32.1%. 
  • Note that 1Q18 financials are post-adoption of SFRS(I) with 1Q17 financials restated to provide meaningful comparison.

Needs clarity over MyRepublic’s strategy

  • Separately, MyRepublic (MR) on 3 May 18 announced that it has formed a Mobile Virtual Network Operator (MVNO) partnership with Starhub enabling MyRepublic to utilise Starhub’s mobile network infrastructure to offer mobile services in Singapore. 
  • We believe this can be a positive development for Starhub, given MyRepublic’s already known presence in Singapore’s broadband space. That said, it depends on the segment targeted by MyRepublic based on the offerings to be launched, which need to be complementary rather than overlapping in order for Starhub to benefit. If the services offered by MyRepublic are complementary to that of Starhub’s, we expect having MyRepublic as Starhub’s MVNO will help support its post-paid subscriber base and mitigate against significant market share loss upon TPG’s entry.

Supported by 6.9% forward yield as at 3 May 18

  • With in-line 1Q18, we keep our forecasts largely unchanged and maintain our fair value estimate of S$2.20. 
  • Starhub also declared an interim quarterly dividend of 4 S-cents/share for 1Q18. 
  • All considered, despite decent traction at enterprise fixed, we expect the mobile business to remain under pressure with the impending entry of TPG.

Eugune Chua OCBC Investment | 2018-05-04
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