StarHub Ltd - OCBC Investment 2020-02-24: Still Some Challenges Ahead


StarHub Ltd - Still Some Challenges Ahead

  • 9 S cents for FY19.
  • Better mobile ARPU, but too early to tell.
  • Higher Fair Value of S$1.53.

In-line results

  • StarHub (SGX:CC3)’s 4Q19 results were in-line with our expectations. Revenue fell 1.8% y-o-y to S$608.4m; most verticals showed y-o-y declines with the exception of Enterprise Business due to the growth in its cyber security services (including Ensign and D’Crypt).
  • Pay TV and Broadband service revenues decreased, with lower ARPUs (as a result of promotional activities in respect of the cable to fibre migration) as the common factor for both segments.
  • Service EBITDA margin for the quarter came in 2.9%pts higher y-o-y at 26.0%, mainly due to the impact from SFRS (I) 16, excluding which service EBITDA margin would have been 22.8% (-0.3%pt y-o-y).
  • PATMI grew 75.8% y-o-y to S$34.9m on the back of better operating performance; adjusting for one-offs, we believe core PATMI would have been ~S$43.9m, or 25.7% of our full-year forecast.
  • StarHub has declared a final DPS of 2.25 S cents, bringing the full-year DPS to 9 S cents.

Guidance for FY20

  • Management has also provided its guidance for FY20. Service revenue is projected to increase 1-3% y-o-y, with service EBITDA margin to be in the 27-29% range (FY19: 31.7%). Service EBITDA margin is likely to be lower y-o-y due to the projected change in revenue mix, with higher contribution from managed services and cybersecurity which command lower margins, as opposed to the traditional carriage business.
  • While the existing policy is still to pay out at least 80% of NPAT (excluding one-offs and non-recurring items), management intends to maintain a flat DPS of 9 S cents for FY20, payable on a semi-annual basis.
  • Capex has been guided to be 6% - 7% of revenue, excluding spectrum and 5G.

Fair Value of S$1.53

  • Post-paid ARPU saw a slight q-o-q uptick from $39 to $40 in 4Q19, as management noted that they have observed more responsible pricing in the marketplace. However, it remains too early to conclude that the market has bottomed out, given that there are still a number of MVNOs that are potentially ready to launch, but delayed due to the COVID-19 outbreak.
  • While OTT service providers will continue to present a challenge, management believes that Pay TV ARPUs should stabilise, given that most customers who migrated to fibre are on new contracts.
  • We remain somewhat cautious on mobile competition, and also cognisant that capex would potentially increase quite materially should it (together with M1) win one of the 5G licenses. We roll forward our valuations and following adjustments, our Fair Value rises from S$1.42 to S$1.53.
  • See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.

OCBC Research Team OCBC Investment Research | 2020-02-24
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