StarHub - RHB Invest 2020-08-10: 2Q20 Weak As Expected; 5G Capex Surprise


StarHub - 2Q20 Weak As Expected; 5G Capex Surprise

  • StarHub (SGX:CC3)’s results were a slight miss, supported by job support scheme (JSS) payouts. While revenue pressure should ease in 2H20, EBITDA margin may stay pressured from competition and project delays.
  • We lower FY20-22F core earnings by 7-14%, and roll forward our base year to FY21. At -2SD from the historical EV/EBITDA mean, downside risks are priced in.
  • Competition and execution are key risks.

2Q20 NPAT fell 8% QoQ

  • StarHub's 2Q20 NPAT fell 8% q-o-q (-6% y-o-y), reflecting the full-quarter impact of the COVID-19 pandemic on revenue and EBITDA, partially mitigated by the SGD15.7m in 2Q20 JSS payouts. Stripping this out, core earnings slumped 34% q-o-q (-33% y-o-y), a slight miss/within our (46%)/consensus estimates (50%).
  • A 2.5-SG cent DPS was declared, reflecting the 80% minimum payout guidance (core earnings).

An unmistakeably weak quarter.

  • Service revenue fell by 15% y-o-y and 7.1% q-o-q (1H20: -12% y-o-y) with broad weakness across all segments, save for enterprise (1H20: +8% y-o-y). The contraction in mobile revenue accelerated to 12.3% q-o-q (-25.4% y-o-y) as COVID-19-led travel restrictions pounded roaming and IDD revenues, alongside lower excess data usage.
  • Prepaid and postpaid revenues fell 9-12% q-o-q to quarterly lows, due to the lower subscriber (subs) base (-4% q-o-q). Enterprise business revenue declined by 7% q-o-q, due to the higher base of 1Q20 project completions and delays in the execution of new projects due to the circuit breaker.
  • Positively, pay-TV and broadband segments stabilised further, with q-o-q revenue expansion and ARPU uplift.

SGD200m for 5G.

  • The 50:50 equity share in the special purpose vehicle (JVCo) set-up with M1 will see StarHub committing SGD200m in 5G capex over five years (including core network investments), with > 50% to be front-loaded in the next 12 months. The amount is much lower than market expectations, but StarHub noted additional investments are contingent upon business demands.
  • The JVCo will share the radio access network (RAN), and maintain independent core networks for service differentiation and innovation (multi-operator core network configuration). 5G deployment will start by end-2020F, with commercial service in 2021F.

Management now guides for FY20 service revenue to decline by 10- 12%

  • StarHub's management now guides for FY20 service revenue to decline by 10- 12% with service EBITDA margin at 26-29% (unchanged pre-withdrawal), which implies weaker 2H20 EBITDA. Capex/sales is tweaked slightly to 6- 8% (from 6-7%), excluding 5G and spectrum payments, while DPS guidance is lowered to 5 cents (including the 2.5 cents in 1H20 vs 9 cents), reflecting the challenging macro-economic environment and to maintain sufficient buffer for investments (80% of recurring earnings).
  • We cut StarHub's FY20-22F core earnings by 7-14%, mainly to factor in 5G capex and spectrum payouts, and weaker revenue/EBITDA margin run rates, partially offset by opex savings.
  • NEUTRAL, new DCF-based Target Price of SGD1.30 from SGD1.44, 7% upside with c.4% FY20 yield.
  • See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.

Singapore Research RHB Securities Research | 2020-08-10
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.30 DOWN 1.510