STARHUB LTD (SGX:CC3)
StarHub - A Feeble Start In 1Q20; Guidance Withdrawn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
- See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.
- We lower StarHub's FY20-22F core earnings by 5-9%, mainly to factor in the downside risk to mobile ARPU from COVID-19, delays in enterprise billings and stronger competition.
- We do not foresee a meaningful recovery in roaming revenue anytime soon as consumers adopt a cautious stance and postpone non-essential travel even with authorities easing controls on the movement of people.
- Read also recent sector update: Singapore Telcos - RHB Invest 2020-04-30: 5G Spectrum Provisionally Awarded.
Singapore Research
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-05-08
SGX Stock
Analyst Report
1.51
DOWN
1.630
