StarHub - RHB Invest 2020-05-08: A Feeble Start In 1Q20; Guidance Withdrawn


StarHub - A Feeble Start In 1Q20; Guidance Withdrawn

  • StarHub’s results were broadly in line, with 2Q20 likely to bear the full brunt of the COVID-19 impact. We lower FY20-22F core earnings, mainly to factor in downside risk to mobile ARPU and competition. At -1.5SD of historical EV/EBITDA mean, valuations are fair, supported by dividend yields exceeding 5%.
  • Reiterate NEUTRAL with lower DCF-derived Target Price of SGD1.51 from SGD1.63, 1% upside with c.6% yield.
  • Key risks: competition, weaker than expected results and dividends.
  • Prefer SingTel (SGX:Z74) (BUY, Target Price: SGD3.30, see SingTel - RHB Invest 2020-04-24: Risk-Reward More Favourable; Upgrade To BUY.)

StarHub's 1Q20 broadly in line

  • StarHub (SGX:CC3)'s 1Q20 adjusted core earnings rose 15.2% q-o-q (-26% y-o-y) on stronger EBITDA and lower depreciation expense, which offset a seasonally weaker revenue. Service EBITDA margin improved to 33.6% from 31.8% due to higher re-contracting activities and device sales in 4Q19.
  • At 25%/26% of our/consensus estimates, StarHub's results were broadly in line. Management has retracted the earlier FY20 guidance due to uncertainties caused by COVID-19 with more clarity to be offered post 2Q20.

Impact from the pandemic washing through

  • StarHub's mobile revenue fell 10.3% q-o-q (-15% y-o-y) (excluding one-off adjustments in 4Q19) as global travel restrictions hit roaming revenues and the sale/distribution of prepaid packs. Postpaid ARPU slumped 15% q-o-q as subs growth (+15k net-adds) was offset by higher take-up of SIM-only plans, lower IDD and roaming usage. Prepaid revenue fell a similar magnitude as subs base narrowed 10% q-o-q.
  • Meanwhile, StarHub's pay-TV revenue declined 17% q-o-q (-34% y-o-y) on lower base/ARPU following the completion of the cable to fiber migration in 4Q19. After three consecutive quarters of decline, broadband revenue grew 2% q-o-q on steady ARPU/subs.

Enterprise seasonality weaker but cyber-security turned profitable.

  • Enterprise revenue fell 2% q-o-q due to the high base of project billings in 4Q19. Cyber-security revenue however surged 41% q-o-q (+136% y-o-y) on stronger demand with the segment turning in a maiden profit of SGD5.0mn.
  • StarHub is not ruling out further acquisitions in the B2B/enterprise space to strengthen its overall enterprise capabilities.

Other takeaways

  • Management is of the view that the entry level SIM-only plan launched by TPG Telecom (SGD10 for 50GB) is not sustainable. To serve the lower ARPU market, StarHub believes its digital brand, “Giga!”, which thrives on a lean operating model is well positioned to compete.

Forecast revision

Singapore Research RHB Securities Research | 2020-05-08
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.51 DOWN 1.630