STARHUB LTD (SGX:CC3)
StarHub - Not Bad Actually
Core profits in line. Maintain BUY.
- One-off expenses diluted what was an in line performance by STARHUB LTD (SGX:CC3) for FY2018.
- The reduced payout policy was in line with our previous forecast for 2019E DPS. We believe the stock has more than priced in the tougher wireless environment and profit pressure.
- Our marginally reduced forecasts and DCF based (WACC 5.7%, LTG -1%) Target Price of SGD2.18 offers healthy upside.
- The stabilization of the competitive environment is the key catalyst. Further escalation is the primary risk.
One off riddled results
- On a headline basis (Fig3 in PDF report attached), it appeared StarHub significantly missed estimates with a steep decline in EBITDA and reported profits for 4Q18.
- Management revealed 3 one-off items totalling SGD27m that distorted the picture. Adjusted for these, FY2018 core profits were actually 101% of MKE and FactSet consensus estimates. Revenues of SGD619m (+6% q-o-q; -10% y-o-y) also brought FY2018 to 100% of MKE/consensus estimates.
Guidance in line with outlook
- Management guidance of flat to -2% service revenues in 2019; 26%-28% EBITDA margin on the 2018 accounting standards; and 11%-12% capex to sales is in line with our expectations. We adjusted (see Fig1 in PDF report attached) total revenues by 1% in 2019E but raise our depreciation assumptions hence the -3%/-4% for 2019E-20E.
- The reduction in dividend payout policy to SGD0.09 or 80% of core profit is not unexpected; in our view.
Cost and efficiency upsides remain
- Management reiterated that the SGD210m in cost savings it has projected over 2019-2021 is a gross amount. Some savings will be rechanneled to investment opportunities or IT enhancements.
- We continue to only assume the staff reduction savings in our forecasts.
Luis Hilado
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-02-15
SGX Stock
Analyst Report
2.18
DOWN
2.210
