StarHub - Maybank Kim Eng 2019-02-15: Not Bad Actually


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 | https://www.maybank-ke.com.sg/ 2019-02-15
SGX Stock Analyst Report BUY MAINTAIN BUY 2.18 DOWN 2.210