StarHub - CGS-CIMB Research 2019-05-03: Competition To Hit Earnings Harder From Here

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STARHUB LTD (SGX:CC3)

StarHub - Competition To Hit Earnings Harder From Here

• StarHub’s 1Q19 results & DPS were largely in line with forecasts.
• Mobile & pay TV revenue stayed weak; robust growth in fixed enterprise.
• Maintain Hold with an unchanged DCF-based target price of S$1.65.

StarHub 1Q19: Results largely in line; DPS of 2.25 Scts was in line

• STARHUB LTD (SGX:CC3)'s 1Q19 EBITDA rose 4.7% y-o-y (+17.7% q-o-q) due to the adoption of SFRS 16 and higher margin. Core EPS fell 7.6% y-o-y (+40.4% q-o-q) due to higher depreciation and effective tax rate. 1Q19 EBITDA/core EPS formed 31.2%/37.2% of our FY19F forecasts (Bloomberg consensus: 28.0%/28.9%).
• We deem this in-line as we see weaker 2Q19-4Q19 earnings due to more intense competition. 1Q19 DPS was 2.25 Scts (1Q18: 4 Scts).

Mobile and pay TV revenue still weak

• StarHub's mobile service revenue continued to fall 5.3% y-o-y in 1Q19 (-1.0% q-o-q) due to lower IDD/voice/excess data usage, higher amortisation of subsidies and larger mix of SIM-only plans.
• Postpaid subs grew strongly (+2.6% q-o-q) but was offset by a 4.9% decline in ARPU.
• Pay TV revenue stayed under pressure, down 12.4% y-o-y (-0.8% q-o-q).

Broadband down slightly; solid fixed enterprise growth

• StarHub's broadband revenue was marginally lower by 0.2% y-o-y (+3.1% q-o-q) in 1Q19, even as subs grew 13k q-o-q (+2.7%). Fixed enterprise revenue rose a relatively robust 14.1% y-o-y (-8.2% q-o-q), led by growth in managed services and voice.

Uptick in service EBITDA margin

• Service EBITDA margin was up 2.1% pts y-o-y (+10.6% pts q-o-q) to 33.8% in the current quarter, on the back of lower staff costs, marketing expenses and the adoption of SFRS 16 since Jan 2019, which reclassifies operating leases as financial leases.
• See attached PDF report for StarHub's y-o-y results comparison. 

Maintain HOLD with an unchanged DCF-based target price of S$1.65

• Maintain HOLD. Our target price is based on a 10% discount to our DCF-based fair value of S$1.84 (WACC: 7.1%), as we see a lack of near-term earnings catalysts.
• StarHub’s 13.7x FY19F EV/OpFCF is at a 15% discount to the ASEAN telco average.
• Upside/downside risks: less-/worse-than-expected negative impact from TPG’s entry.

FOONG Choong Chen CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-05-03

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.650 SAME 1.650