STARHUB LTD (SGX:CC3)
StarHub - Lower Costs Help 4Q19 Beat Expectations
- StarHub (SGX:CC3)'s FY19 core EPS was 13%/24% ahead of our/consensus forecasts. Opex was lower than expected while device sales were higher. 4Q19 DPS: 2.25 Scts.
- Mobile was fairly stable q-o-q; fixed enterprise grew at a slower pace y-o-y.
- Reiterate ADD; DCF-based target price raised by 9% to S$1.80.
4Q19 results were a beat; StarHub is keeping FY20F DPS at 9 Scts
- StarHub's 4Q19 normalised EBITDA (ex-S$17.1m in one-off provisions) rose 13.3% y-o-y (-8.9% q-o-q) mainly due to SFRS 16 adoption. Core EPS jumped 16.8% y-o-y (-15.4% q-o-q), bringing FY19 core EPS 13%/24% ahead of our/Bloomberg consensus forecasts. Key variance was lower-than-expected opex while device sales were higher.
- 4Q19 DPS of 2.25 Scts (4Q18: 4 Scts) was in line.
- StarHub guides for FY20 service revenue growth of 1-3% y-o-y, 27-29% service EBITDA margin and 6-7% capex-to-sales (ex-5G). Its guidance for 9 Scts FY20 DPS is also a pleasant surprise as we had forecast only 6.9 Scts (based on 80% payout).
Mobile was fairly resilient q-o-q; milder fixed enterprise growth
- StarHub's 4Q19 mobile service revenue fell 1.7% y-o-y to S$191m on the back of lower IDD, excess data usage, roaming, data subscriptions and value-added services revenues. q-o-q, it was up a marginal 0.5% and has been relatively resilient at c.S$190m since 4Q18.
- Pay TV and broadband revenue continued to decline 20.8% y-o-y (+0.7% y-o-y) and 10.3% y-o-y (- 5.1% q-o-q), respectively, as ARPUs were dented by promotions for the cable-to-fibre migration.
- Meanwhile, fixed enterprise revenue grew at a milder pace of 6.3% y-o-y (+6.7% q-o-q), led by cyber security (+37.0% y-o-y) and managed services (+15.4% y-o-y) expansion.
Service EBITDA margin was lifted mainly by SFRS 16
- StarHub's 4Q19 normalised service EBITDA margin widened 0.2% pt y-o-y to 26.0%, mainly due to the adoption of SFRS 16, lower content and staff (lower headcounts) costs, licence fees and impairment loss on PPE for voice equipment. q-o-q, margin eased 9.2% pts due to higher device sales and fixed enterprise revenue, both of which earns a lower margin.
Core EPS to fall 18.6% y-o-y in FY20F on stiff mobile competition
- We raise our FY20/21F core EPS by 8.5%/9.3%, mainly to factor in higher fixed enterprise and mobile revenue growth. Post-revision, we project core EPS to slide 18.6%/21.9%/5.2% y-o-y in FY20/21/22F as we have baked in a 7.5% p.a. mobile ARPU erosion in FY20-21F due to intense mobile competition.
Reiterate ADD with a 9% higher DCF-based target price of S$1.80
- After our earnings revision, we raise StarHub’s DCF-based Target Price by 9% to S$1.80 (WACC: 6.7%), and keep its Add rating. See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.
- Cost cuts in line with or above guidance may raise investor confidence in its earnings delivery, leading to a re-rating. Its FY20F EV/OpFCF of 11.1x is at a 15% discount to the ASEAN telco average.
- Downside risk: worse-than-expected competition.
FOONG Choong Chen CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-02-21
SGX Stock
Analyst Report
1.80
UP
1.650
