StarHub - Phillip Securities 2019-12-16: Aligning & Shining Brighter


StarHub - Aligning & Shining Brighter

  • Expect pay-tv business to improve in FY20e due to the bottoming of subscribers and potential price revisions after the promotional period ends.
  • Mobile segment will be faced with greater competition, expect revenues to be resilient with strong MVNO partnership.
  • Cyber-security will boost enterprise revenue, anticipate cyber-security to turn profitable by end of FY20e.
  • Maintain ACCUMULATE with an unchanged target price of S$1.58. There are no material changes to our forecasts. Valuation is based on a 6X EV/EBITDA multiple.

StarHub - Background

  • STARHUB LTD (SGX:CC3) was listed on the Singapore Exchange mainboard since 2004 and is the 2nd largest telecommunications provider by market capitalisation in Singapore.
  • StarHub offers communications, entertainment and digital solutions through its extensive fibre and wireless infrastructure. StarHub develops and delivers to corporate and government client solutions such as artificial intelligence, cybersecurity, data analytics, internet of things and robotics. OpenSignal’s State of Mobile network awarded StarHub for the fastest 3G & 4G network in Singapore.
  • See StarHub Share Price; StarHub Dividend History; StarHub Announcements; StarHub Latest News.

StarHub - 2020 Investment Merits/ Outlook

Cyber-security could turn profitable.

  • Ensign grew revenue 135% y-o-y to S$39mn while losses narrowed S$0.7mn to S$3.7mn. We expect losses to narrow further and for the cybersecurity business to turn profitable by end FY20e. We expect gestation losses and one-off integration expense to taper off as it has been approximately one year since the incorporation of Ensign into StarHub. We believe Ensign will gain scale and ride on the wave of demand in cyber-security.
  • In addition to strong demand, Critical Information Infrastructure (CII) owners are obligated under the Cybersecurity Act to strengthen the protection against cyber-attacks. Such CII include Energy, Water, Banking and Finance, Healthcare, Transport, Infocomm, Media, Security and Emergency Services, and Government.

Pay-tv business bottoming out.

  • We believe that StarHub’s pay-tv business has reached a bottom and should improve in FY20e based on the following 3 reasons:
    1. the cable to fibre migration exercise accelerated customer attrition defining a bottom for the number subscribers, new customers are also locked in for two years;
    2. prices and average revenue per user (ARPU) could improve as promotional initiatives expire; and
    3. majority of content has transitioned into a variable cost structure.

Expect higher competition in the mobile sector to be contained.

  • We are anticipating the launch of TPG Telecom (TPG) and more Mobile Virtual Network Operators (MVNOs) to enter the mobile sector. Considering how ARPU have collapsed 19% vs two years ago we think StarHub’s mobile revenue could remain relatively resilient.
  • StarHub has three MVNO partners, one of the highest number of partnerships in the industry. We can expect some benefits from such partnerships as MVNOs target niche segments and wholesale revenue eventually flows back to the Mobile Network Operator (MNO). We believe TPG is unlikely to pose a serious threat given the inferiority of its 4G network.


  • Maintain ACCUMULATE with an unchanged target price of S$1.58. Our valuation is based on a 6X EV/EBITDA multiple. No material changes in our forecasts. See StarHub Target Price; StarHub Analyst Reports.
  • We like StarHub as its cyber-security business is at an inflexion point to profitability and improving pay-tv business. StarHub’s balance sheet and gearing remain healthy, Net Debt/EBITDA is at 1.9x.
  • StarHub generates a strong CFO to maintain its 9 cents dividend which equates to a 6% yield.

Alvin Chia Phillip Securities Research | 2019-12-16