StarHub - CGS-CIMB Research 2020-02-21: Lower Costs Help 4Q19 Beat Expectations


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

FOONG Choong Chen CFA CGS-CIMB Research | 2020-02-21
SGX Stock Analyst Report ADD MAINTAIN ADD 1.80 UP 1.650