StarHub - DBS Research 2020-03-26: Dividends Are Well Supported By Free Cash Flow

STARHUB LTD (SGX:CC3) | SGinvestors.io STARHUB LTD (SGX:CC3)

StarHub - Dividends Are Well Supported By Free Cash Flow

  • FY20F/21F earnings forecasts cut by 9%/4% due to COVID-19.
  • StarHub (SGX:CC3) offers an attractive 7.1% dividend yield which can be sustained from capex savings if StarHub- M1 can jointly secure a Natonwide 5G licence.



COVID-19 impact will be felt in 2020


FY20F/21F earnings forecasts cut by 9%/4% due to COVID-19.

  • The World Travel and Tourism Council has indicated that once the COVID-19 outbreak is over, it could take up to 10 months for the tourism industry to recover. A substantial and prolonged decline in inbound and outbound travel due to the prevailing COVID-19 situation is likely to result in a significant drop in the usage of roaming facilities.
  • Roaming revenue (which makes up 12-13% of StarHub’s mobile revenue) will be the biggest casualty, followed by prepaid mobile revenue (which accounts for 18-19% of its mobile service revenue).
  • Roaming revenue might drop by as much as ~50% in 2020 due to the sharp decline in the number of business and leisure tourists, while prepaid mobile revenue might decline by ~20% due to a lower number of foreign workers.

Dividends are likely to be sustained from capex savings if StarHub-M1 can jointly secure a Nationwide 5G licence.

  • StarHub’s 9-Sct dividend per share translates into S$156m in total payout. StarHub generated operating cash flow of S$400-450m annually over FY17-19F. The key to sustain dividends is to keep the annual capex in the range of S$250-300m.
  • A standalone 5G network would have cost StarHub S$450m in annual capex each year, making dividends unsustainable. However, we expect StarHub to incur an annual capex of S$250-280m as it builds a joint 5G network with M1.


BUY with a revised Target Price of S$1.40.






Sachin MITTAL DBS Group Research | https://www.dbsvickers.com/ 2020-03-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.40 DOWN 1.720



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