STARHUB LTD (SGX:CC3)
StarHub - Less Travel Hurts The Business
- StarHub (SGX:CC3) withdrew their FY20 financial guidance, including dividends.
- Revenue and EBITDA were below our expectations. StarHub's 1Q20 EBITDA fell 16% y-o-y. See StarHub Announcements.
- Mobile revenue was down 15% y-o-y due to lower roaming revenue and higher SIM-only plans. Post-paid ARPU at a historical low.
- Downgrade to NEUTRAL with a lower target price of Target Price S$1.45.
- We are lowering our FY20e EBITDA by 6%, as we cut our mobile revenue estimate. The outbreak has negatively impacted the business more than we had anticipated. The higher margin inbound and outbound roaming revenues virtually disappeared with this outbreak. Furthermore, the softer economic backdrop meant lower handset sales, longer sales cycle for enterprise business and a higher proportion of SIM-only plans.
Positives
EBITDA was stable on a q-o-q basis.
- Service EBITDA increased by almost 9% q-o-q. The company has been able to remove fixed cost that enabled margins to remain relatively stable despite the drop in revenues. There were declines in various operating expense including staff costs, repairs & maintenance, marketing and operating leases.
Cyber security turned profitable.
- Cyber security profit was $5mn against $11.4mn losses a year ago. Management remains cautious on future profitability because the business is still investing heavily in headcount and research and development.
Negatives
Collapse in post-paid ARPU.
- Post-paid ARPU was relatively stable at S$39 to S$40 for the past four quarters. It dropped 12.6% y-o-y to S$34 in 1Q20. Multiple reasons were given, but we believe the loss of roaming revenue and higher SIM-only plans were the key drivers for the ARPU decline. Even post-paid subscriber growth of 2% y-o-y was not enough to contain the 15% y-o-y drop in mobile revenues.
- Pre-paid also suffered from both ARPU and subscribers falling 10.7% and 15.3% y-o-y respectively. The disappearance of tourist arrivals hurt revenues.
FY20e guidance is withdrawn.
- Due to the uncertain environment, the management is withdrawing the FY20e guidance.
Outlook
- Whilst management has withdrawn FY20e financial guidance, we still expect dividend per share of 9 cents for FY20e (or S$155mn) to be maintained. We expect free-cash flow (FCF) of S$350mn in FY20e to sustain the dividends.
- 1Q20 FCF was S$119mn. Also, the job support grant from the government in 2Q20 will supplement cash-flows for this year.
- Apart from the mobile business, the outbreak also negatively impacted the enterprise business. The uncertain outlook has resulted in a longer sales cycle and corporates lowering their IT budgets.
Downgrade to NEUTRAL with lower Target Price of S$1.45 (previously S$1.70)
- We are lowering our FY20e EBITDA by 6%, as we cut our mobile revenue estimate. Our valuation is based on a 6X EV/EBITDA FY20e (previously 6.5x). Admittedly, such a target price values StarHub under a COVID-19 scenario where earnings will be depressed in the near-term.
- Worth noting, our target price implies a 5.5x EV/EBITDA for FY21e.
- See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.
Paul Chew
Phillip Securities Research
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https://www.stocksbnb.com/
2020-05-08
SGX Stock
Analyst Report
1.45
DOWN
1.700
