StarHub - OCBC Investment 2020-08-11: Navigating Through COVID-19 Headwinds


StarHub - Navigating Through COVID-19 Headwinds

  • Weakness registered across most segments; bottom-line buffered by grants.
  • Encouraging 5G guidance, but some time before potential ARPU uplift from commercial launch.
  • Fair Value lowered from S$1.39 to S$1.13.

Weak quarter, but support through grants

  • StarHub (SGX:CC3)’s 2Q20 revenue fell 18% y-o-y to S$453.4m, with lower revenues across all segments excluding Enterprise Business.
  • COVID-19 led to lower postpaid ARPU due to lower roaming, VAS and data usage, while prepaid revenues declined with the drop in tourist footfall. Pay-TV saw lower APRU and subscriber base from the promotional activities associated with the cable-to-fibre migration last year, but encouragingly the q-o-q subscriber base has remained stable.
  • On the Enterprise side, managed services was softer due to slowdown of major projects by corporates and the government, as well as delays in issuing new tenders. EBITDA fell 12% y-o-y to S$129.3m while PATMI fell 5.6% y-o-y to S$37.3m, constituting 29.3% of our full year forecast.
  • We note that this seeming outperformance is largely due to the S$15.7m received from the government via the Job Support Scheme that has been recorded during the quarter.

5G capex guidance a relief

  • We were pleasantly surprised that management is projecting a somewhat modest ~S$200m in 5G capex over the next 5 years, with much of the spend likely to be frontloaded. Management has shared that this figure includes the 50% share of the radio network that resides in the JV co, core network that will be on StarHub’s books, as well as StarHub’s 50% share of 5G spectrum.
  • JV-related capital commitments will be recorded off balance sheet. Still, we note that there could be additional 5G investments in accordance to business demand.

Fair Value of S$1.13

  • In terms of dividends, StarHub has declared a DPS of 2.5 S-cents for 1H20, and projects that DPS will be at least the same in 2H20.
  • Management has shared that they continue to strive towards paying at least 80% of PATMI, excluding any one-off adjustment. We have trimmed our FY20F DPS assumption from 7 to 6 S-cents.
  • Management has also provided fresh guidance for FY20, and now expects service revenue to drop 10-12% y-o-y (up 1- 3% previously), capex commitment (excluding spectrum, 5G capex and IT Transformation capex) to be within 6-8% of total revenue (6-7% previously), while service EBITDA margin to be 27-29% (unchanged from previous guidance).
  • We note that another S$12m in grants will be recorded and this has already been reflected in the service EBITDA margin guidance.
  • Management has noted that the 5G era should bring about a slight ARPU uplift through careful bundling of services. While the experience of the Chinese telcos do seem to suggest that this is plausible, this will take some time to manifest as 5G commercial services are only slated to roll out from the middle of 2021. Following cuts to our estimates, our Fair Value drops from S$1.39 to S$1.13.
  • See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-08-11
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