StarHub - CGS-CIMB Research 2019-02-15: 4Q18 Weak Results But In Line


StarHub - 4Q18: Weak Results But In Line

  • StarHub’s 4Q18 and FY18 results were largely in line with forecasts. StarHub cut FY19 DPS guidance to S$0.09 (FY18: S$0.16).
  • Mobile and pay TV revenue remained bleak, partly offset by robust growth in fixed enterprise.
  • Maintain HOLD with an unchanged target price of S$2.00.

4Q18: Results largely in line; FY19 DPS cut to S$0.09

  • STARHUB LTD (SGX:CC3)'s 4Q18 EBITDA fell 10.6% y-o-y (-9.7% q-o-q) mainly on lower service revenue. Core EPS dipped 33.4% y-o-y (-31.3% q-o-q), further dragged by higher depreciation and interest cost. FY18 EBITDA/core EPS formed 99.2%/100.2% of our full-year forecasts (consensus: 97.6%/98.9%).
  • As expected, 4Q18 DPS was $0.04 (4Q17: S$0.04).
  • StarHub’s FY19 guidance is for service revenue to ease 0-2% y-o-y, EBITDA margin to come in at 26-28% (pre-SFRS16) and capex-to-sales to make up 11-12%. FY19 DPS was cut to S$0.09 (FY18: S$0.16), with a payout ratio of at least 80% going forward.

Mobile and pay TV revenue remained weak

  • Mobile service revenue declined 13.7% y-o-y in 4Q18 (-9.0% q-o-q) owing to lower IDD/voice/data usage, higher amortisation of subsidies and a higher mix of SIM-only plans.
  • While postpaid ARPU fell 6.8% q-o-q, subs continued to grow, up 1.2% q-o-q. Pay TV revenue remained under pressure, falling 19.1% y-o-y (-4.4% q-o-q) due to 5.9% y-o-y ARPU erosion (+2.1% q-o-q) and a 10.7% y-o-y decline in subs (-3.3% q-o-q).

Broadband marginally lower; fixed enterprise growth still robust

  • Broadband revenue inched lower 3.2% y-o-y (-2.4% q-o-q), even though there was a pick-up in subs growth by 9k q-o-q (+1.9%).
  • Fixed enterprise posted relatively robust revenue growth of 12.0% y-o-y (+17.3% q-o-q) in 4Q18, driven by managed services and voice but partly offset by lower data/internet revenue.

Lower service EBITDA margin

  • The service EBITDA margin was down 1.3% pts y-o-y (-2.9% pts q-o-q) to 25.8% in the current quarter, mainly the result of lower service revenue, higher staff costs from Ensign’s and D-Crypt’s consolidation and higher marketing costs.

Maintain Hold with an unchanged DCF-based target price of S$2.00

  • Post 4Q18, we make only minor changes to our FY19-20F core EPS and now expect core EPS to decline 14.5%/31.5% y-o-y in FY19/20F due to the impact from more intense mobile competition, before recovering by 7.9% in FY21F.
  • Based on StarHub’s new dividend policy, its FY19-21F yield is now 3.0-4.7% p.a.
  • Maintain HOLD and DCF-based target price of S$2.00 (WACC: 7.1%).
  • StarHub is trading at FY19F EV/OpFCF of 14.0x, which is in line with the ASEAN telco average.
  • Key upside/downside risks: smaller-than-expected negative impact from TPG’s entry.

FOONG Choong Chen CFA CGS-CIMB Research | 2019-02-15
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.000 SAME 2.000