STARHUB LTD
SGX:CC3
StarHub - New CEO Injects New Vigour
- StarHub will vigorously defend its base of high-value mobile subscribers despite increased competition.
- For pay-TV, it intends to work towards a variable cost model for content. Fixed enterprise is main engine of growth driven by cyber security and managed services, and enables cross-selling connectivity services.
- Management will formulate a transformation plan and will share more details after obtaining approval from the board.
- Maintain HOLD. Target Price: S$1.82. Entry price: S$1.64.
WHAT’S NEW
- StarHub organised a meet & greet luncheon with new CEO Peter Kaliaropoulos on Tuesday.
- Peter outlined strategic priorities and key initiatives to leverage on the combined strength of StarHub’s Consumer and Enterprise businesses.
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Profile & biography.
- Peter Kaliaropoulos came on board on 9 Jul 18. He has over 35 years of experience in the global ICT sector. He was previously CEO of Zain Saudi Arabia and Advisor to the Vice Chairman of Zain Group. He led Zain Saudi Arabia to its first-ever net profit in 2017 after 10 years of operations. He has also previously taken up senior leadership roles at BT (Asia Pacific), Telstra (Australia & USA), Optus (Australia), Clear (New Zealand), Batelco (Middle East) and Ooredoo (Kuwait).
- Peter was a key member of StarHub's senior executive team that launched commercial operations in the Singapore market in Apr 2000.
Mobile: Prepared for a tough fight.
- Peter Kaliaropoulos sees ARPU challenged by the proliferation of SIM-only plans. Concurrently, the regulator imposes stringent quality of service (QOS) requirements. Management sees room for consumption of data to increase as Singapore has not been hit by the video tsunami yet (management cited markets where average data consumption is 80GB vs 5GB in Singapore).
- Management treats competition from TPG Telecom seriously. StarHub will protect its base of high-value mobile subscribers against encroachment by TPG. It benefits from StarHub’s trusted branding in an environment where customers are confused by many new brands. Management sees industry consolidation in 2-3 years as smaller players burn cash rapidly and it is inefficient to have multiple duplicated 5G network infrastructure.
Pay-TV: Revamp of business model.
- StarHub is committed to provide content but will review its pay-TV business model. Management intends to adopt a variable cost model for content, subject to negotiation with content providers. StarHub could offer “skinny” basic bundles of popular content. On top of that, customers have the flexibility to add their preferred niche content on a B2C basis (direct from content providers).
- In the past, telcos leverage on content to attract more residential broadband subscribers. However, penetration rate is already high and there is no basis to continue cross subsidising pay-TV.
Fixed enterprise: Main engine of growth.
- StarHub is under-represented in the Fixed enterprise space. It will pursue growth by offering differentiated and bundled solutions, such as cyber security, managed services and analytics, while cross selling its connectivity services. It has acquired Accel Systems & Technologies and D’Crypt to beef up capabilities in cyber security and system integration.
- Revenue from Fixed enterprise (Data & Internet) grew 16.2% y-o-y in 2Q18.
Digitalisation.
- StarHub plans to differentiate through customer experience. It will transact and serve customers through digital channels. Dr Chong Yoke Sin was tasked to oversee the digitalisation effort.
Cost rationalisation.
- StarHub will embark on a cost optimisation programme in 2H18. Cost cutting becomes more important as room to generate revenue growth becomes limited. We believe network sharing would be explored as network quality is less of a differentiating factor in Singapore.
- Management expect capex to be 10-11% of total revenue for the foreseeable future.
Sensible approach to M&A.
- StarHub is open to acquiring companies in adjacent and complementary businesses, such as cyber security, managed services and ICT solutions, which helps cross-sell connectivity services (mobile and fixed network), data centre and cloud services.
- Management expects the telco industry to consolidate in 2-3 years. StarHub is totally focused on consolidating its lead in the home market. Management sees no synergy and has no aspiration to expand overseas through acquisitions.
Transformation and renewal.
- Management is cognisant of the industry-wide slowdown in revenue growth and pressure on margins. The management team is in the midst of formulating a transformation programme. More details will be shared with investors once its transformation plan is approved by the board.
STOCK IMPACT
On the defensive.
- We maintain our defensive stance on the telco sector as we brace ourselves for the impending entry of TPG as the 4th mobile operator. We expect competition to intensify nearer the date of TPG’s launch.
EARNINGS REVISION/RISK
- We maintain our existing earnings forecast.
VALUATION/RECOMMENDATION
- Maintain HOLD. Our target price of S$1.82 is based on DCF (COE: 9.25% and terminal growth: 1.0%). Suggested entry price: S$1.64.
SHARE PRICE CATALYST
- StarHub’s dividend yield is attractive at 9.6% for 2018 but could drop to 7.2% in 2019 and 6.0% in 2020.
- Secular downtrend for pay-TV business.
- Risk from entry of TPG Telecom as the fourth mobile operator.
Jonathan Koh CFA
UOB Kay Hian Research
|
https://research.uobkayhian.com/
2018-08-23
SGX Stock
Analyst Report
1.820
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1.820
