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.
- In our DCF valuation (WACC 7.8%, terminal growth 0%), we raise WACC from 7.4% to reflect higher market volatility and risk premiums. Our Target Price translates into 6.8x 12-month forward EBITDA at a 10% premium to 6.2x regional average, reflecting StarHub’s fixed dividend commitment and future capex savings from a joint 5G network.
- See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.
- Read more in report: Singapore Telecom Sector: DBS Research 2020-03-26: Re-setting Expectations.
Sachin MITTAL
DBS Group Research
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https://www.dbsvickers.com/
2020-03-26
SGX Stock
Analyst Report
1.40
DOWN
1.720
