StarHub - RHB Invest 2020-02-21: Executing Steadfastly


StarHub - Executing Steadfastly

  • StarHub (SGX:CC3)’s results were in line with our estimate, but trumped consensus. We expect the opex savings from its cost initiatives to be partially offset by continued cyber-security losses. FY20F-21F core earnings are raised by 9% and 13% to factor in stronger mobile ARPU and lower capex intensity.
  • With the improvement in operational execution, we lower our DCF risk premium, with our risk-free rate now aligned to the 10-year Singapore bond yields.
  • Competition remains the key risk.

In line.

  • StarHub's 4Q19 core earnings – adjusted for the disclosed provision for one-off operational maintenance costs – fell 10% q-o-q on seasonally higher opex and continued cyber-security losses, notwithstanding stronger service revenue. This brought FY19 core earnings to SGD187.2m (-15% y-o-y) – 100% and 5% our forecast and ahead of consensus estimates.
  • The sustained quarterly DPS payout reflects a 91% payout.
  • Management guided for service revenue to improve 1-3% in FY20 at the expense of service EBITDA margins (27-29%).

Mobile revenue was steady q-o-q

  • Mobile revenue was steady q-o-q (+0.4%), but down 7.2% YTD on dilution from SIM-only plans, and lower call usage and roaming revenues. It was partly offset by higher-plan subscriptions and reversal of customer loyalty reward accruals. Postpaid ARPU ticked up 3% q-o-q, while prepaid ARPU was flat.
  • Management believes competition should remain keen with more mobile virtual network operations (MVNOs) likely to join the fray, with stabilisation of mobility revenues still some quarters away. The focus is likely to be on higher value/more profitable customers.

Enterprise will continue to flourish.

  • Enterprise revenue was up 4% q-o-q – seasonally higher project billings across managed services and cyber-security businesses – but EBIT losses more than doubled q-o-q (FY19 EBIT loss of SGD23.5m).
  • Management does not rule out further M&A in the enterprise segment to drive greater value proposition and capabilities.

Pay-TV business may have found a bottom.

  • Management indicated the sustainability of pay-TV ARPU (+5% q-o-q) is contingent on the price rationality in the market, as the overall pay-TV industry has stagnated.
  • Of greater challenge is the cord-cutting phenomenon, with the flight to over-the-top or OTT providers and rampant content piracy. The downside impact should be mitigated by the contractual obligations of its existing base.

Still premature to comment on 5G strategy.

Singapore Research RHB Securities Research | 2020-02-21
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