StarHub - CGS-CIMB Research 2018-11-10: 3Q18 Dragged Down By Pay TV Q-o-q


StarHub - 3Q18: Dragged Down By Pay TV Q-o-q

  • StarHub's 3Q18 results were largely in line; we expect a seasonally weaker 4Q18F.
  • Mobile revenue and pay TV remain weak; partly buffered by growth in Fixed Enterprise.
  • Maintain HOLD with an unchanged target price of S$2.00.

3Q18: Results in line; seasonally weaker 4Q18F expected

  • StarHub's 3Q18 EBITDA fell 6.7% y-o-y (+3.4% q-o-q) on lower service revenue and margin. Core EPS eased 6.4% y-o-y (+11.7% q-o-q), with the lower EBITDA partly offset by lower depreciation and effective tax rate.
  • 9M18 EBITDA/core EPS formed 78%/80% of our FY18F forecasts (Bloomberg consensus: 77%/80%). We deem this in line, as we see weaker 4Q18F earnings due to higher device subsidies. 3Q18 DPS was S$0.04 (3Q17: S$0.04).

Mobile revenue and pay TV remain under pressure

  • Mobile service revenue fell 4.3% y-o-y in 3Q18 due to lower IDD usage, higher device subsidies and mix of SIM-only plans. q-o-q, mobile service revenue was steady. Postpaid subs rose 0.7% q-o-q, but ARPU fell 2% q-o-q.
  • Pay TV revenue decline accelerated to 14.1% y-o-y (-11.9% q-o-q). Subscribers declined by a bigger 15k q-o-q (-3.4%), while ARPU sank 11.3% q-o-q (-7.8% y-o-y) to S$47 due to rebates given to Subscribers.

Broadband revenue inches up; Fixed Enterprise stays healthy

  • Broadband revenue inched up 0.9% y-o-y (+1.5% q-o-q) as subs rose 2k q-o-q (+0.4%) on steady y-o-y and q-o-q ARPU of S$32.
  • Fixed Enterprise revenue growth was up a milder 13.0% y-o-y (+1.7% q-o-q), as higher managed services revenue was partly offset by lower interconnection and international voice revenue.

Weaker EBITDA margin y-o-y from higher cost of services

  • This was due to higher cost of services (higher device, managed services and traffic costs), which were partly cushioned by lower content cost.

Maintain HOLD with an unchanged DCF-based target price

  • Maintain HOLD and DCF-based target price (WACC: 7.1%).
  • StarHub’s 14.0x FY19F EV/OpFCF is largely in line with the ASEAN telco average. 
  • Key upside/downside risks: smaller-/bigger-than-expected negative impact from TPG’s entry.

FOONG Choong Chen CFA CGS-CIMB Research | 2018-11-10
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.000 SAME 2.000