StarHub - Maybank Kim Eng 2018-11-12: Restructuring Journey Continues


StarHub - Restructuring Journey Continues

9M18 in line. Maintain BUY.

  • StarHub’s 9M18 revenues and profit were 74%/74% and 82%/85% of MKE/consensus.
  • Given that 4Q is typically a higher expense quarter, we maintain our current forecasts and DCF based Target Price of SGD2.21 (WACC 5.7%, LTG -1%).
  • The revenue environment remains challenging but the cost and organizational restructuring efforts that we have only partly accounted for in our recent note: StarHub - Delivering On Restructuring are potential medium-term drivers for share performance into 2019E and beyond.
  • Irrational wireless competition is a key risk to our outlook.

Soft revenue profile; as expected.

  • Revenue in 3Q18 was softer q-o-q and y-o-y on the back of competitive pressure on wireless yields and the structural decline in pay TV that offset growth in broadband and enterprise businesses. However, this is not unexpected and will continue.
  • An exceptional SGD5m roaming expense in the quarter dampened profits but otherwise most expense lines were controlled and even declined q-o-q.

Structural changes being implemented

  • Management remains on track with organizational restructuring of costs (staff, procurement, leasing, etc.) and strategies (switch to variable cost model for pay TV, increase enterprise exposure) to be rolled out over three years (FY19-21E).
  • In face of overall uncertainty over how new wireless competitors will act, we believe management is rightly focussing on what it can control (costs) and foresee (pay TV model needs to be revamped).

Conservative assumption but still offers upside

  • Management reiterated that the SGD210m in cost savings it has projected over 2019-2021 is a gross amount. Some savings will be rechannelled to investment opportunities and there will likewise be marketing costs related to migrating cable broadband and TV subscribers to fibre based services. To recall, we have only assumed the staff reduction savings in our forecasts.
  • Given the timing of other savings and measures is not as apparent, we believe it is better to err on the side of caution. Even with this assumption, StarHub offers healthy upside to our Target Price.
  • Reiterate BUY.

Swing Factors 


  • Potential source of new revenues from enterprise segment targeting, including government contracts revolving around the Smart Nation initiatives. 
  • A strong contribution from leasing fees from the MyRepublic MVNO deal. 
  • A muted entry by TPG is a potential upside to valuation and market sentiment. 


  • Re-contracting/retention costs rising on the back of new smartphone launches and defensive preparation against TPG’s entry. 
  • Further wireless tariff package pressure on rates and/or data allocations possible due to new competition or from incumbents. 
  • Material investments in enterprise or content space that may have a lengthy gestation period before realizing returns. 

Luis Hilado Maybank Kim Eng Research | 2018-11-12
SGX Stock Analyst Report BUY MAINTAIN BUY 2.210 SAME 2.210