StarHub Ltd - OCBC Investment 2019-11-06: Saving Now, Spending Later


StarHub Ltd - Saving Now, Spending Later

  • Same headwinds.
  • Rationalizing capex.
  • Lower Fair Value of S$1.42

Investment thesis

  • StarHub (SGX:CC3) continues to face significant pressures on its traditional businesses given the increased competition in the telecom industry, especially for consumer mobile business with the TPG’s impending commercial rollout and continued MVNO pressure.
  • While StarHub has also built up its ICT capabilities over the past years and we have seen its enterprise fixed business gaining traction, we believe it is unlikely sufficient to offset weaknesses in other areas. StarHub is also rationalizing its near-term capex, as it conserves dry powder for its subsequent participation in Singapore’s 5G infrastructure rollout.

3Q19 In-line.

  • StarHub's 3Q19 results were broadly within expectations. Revenue fell 1.6% y-o-y to S$572.6m, due to softness from Mobile, Pay TV and Broadband, though partially offset by stronger performance from the group‟s Enterprise Business, in particular its Cyber security services. See StarHub Announcements.
  • Post-paid mobile ARPU continued to slide, dropping S$5 y-o-y to S$39 in 3Q19. On Pay TV, service revenue fell mainly due to the the effects of the cable-to-fibre migration, leading to a lower subscriber base and lower ARPUs.
  • Excluding the impact of SFRS(I) 16, service EBITDA margin for 3Q19 came in at 30.6%, or 1.8 %pts higher y-o-y.
  • PATMI came in at S$58.0m, representing a 1.7% y-o-y increase. Excluding the S$9.0m of „other income‟, which arose mainly from the recovery of tunnel fees from TPG Telecom, core PATMI would have been ~S$49.0m, or 25.1% of our full-year forecast.
  • StarHub has declared a DPS of 2.25 S-cents for 3Q19, and is guiding for 9 S-cents for the FY. Based on 5 Nov 19‟s closing price, this translates into a yield of 6.8%. See StarHub Dividend History.

Lower service revenue and capex guidance

  • Management highlighted that they have already achieved 60% of their S$210m of gross savings by 2021; we believe a good portion of the remaining savings will be for reinvestment. FY19 guidance has also been amended, with service revenue now projected to decline by 2-3% y-o-y (previously stable to -2%), accounting for greater weakness within the Pay TV segment.
  • Excluding S$282m of 700 MHz spectrum payment, capex commitment has also been brought down to 8-9% of total revenue (previously 11-12%), as StarHub takes a more clinical approach in spending less on business lines with less growth prospects, and investing more in its enterprise business and also conserving dry powder for 5G.
  • StarHub is currently in discussions with other MNOs to explore potential partnerships to bid for one of the two nationwide 5G networks.
  • Management has continued to signal that competition within the mobile service still remains intense, while its pay TV segment would probably only achieve revenue stability from 1Q20 onwards.
  • Incorporating adjustments, we reduce our Fair Value from S$1.52 to S$1.42. See StarHub Share Price; StarHub Target Price.

OCBC Research Team OCBC Investment Research | 2019-11-06
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.42 DOWN 1.520