StarHub - RHB Invest 2020-11-09: Gains In Enterprise & Cost; NEUTRAL


StarHub - Gains In Enterprise & Cost; NEUTRAL

  • StarHub’s 3Q20 results were ahead of our estimate (consensus: in line) on stronger opex efficiencies. Enterprise remains the proverbial growth driver, buffering mobile weakness, with stability returning to broadband and pay-TV. StarHub is hopeful of stronger ARPU from 5G, noting the positive response to its trial service.
  • At -2SD from the historical EV/EBITDA mean, the downside is priced in. Maintain NEUTRAL, DCF-based S$1.30 target price for StarHub, 8% upside with c.4% dividend yield.

StarHub's 3Q20 core earnings rebounded

  • StarHub (SGX:CC3)'s 3Q20 core earnings (stripping out the Jobs Support Scheme payout of S$7m) rebounded (+58% q-o-q) on stronger revenue/EBITDA. This brought 9M20 numbers ahead of RHB’s forecast (83%), but in line with consensus (72%). The key disparities, notably, are its lower opex and stronger cyber-security business.

Enterprise up 9% year-to-date, mobile business remains under pressure.

  • Overall service revenue recovered (+3.3% q-o-q) after two consecutive quarters of decline, as growth in enterprise (+13.5% q-o-q) more than offset the decline in mobile (lower roaming, usage and excess data revenue from the lockdown/border closures).
  • Postpaid ARPU appears to be stabilising, with higher adoption of its digital plan (giga) driving growth in the postpaid base.
  • Pay-TV revenue was stable on incremental ARPU growth, while broadband revenue saw the first positive y-o-y growth since 3Q18, with lower discounts extended.
  • Enterprise revenue included two months’ contributions (S$17.6m) from Malaysian-based Strateq (acquisition completed on 30 Jul) and higher demand for cyber-security services. While there were project delays due to the COVID-19 pandemic, managed services and cyber-security revenues grew 32% and 15%, off a 2Q20 low base.

5G adoption is encouraging.

  • StarHub's management highlighted the take-up rate of the Mobile+ plans (S$10.00 premium over regular 4G plans) have exceeded internal expectations since the launch of the 5G trial service (on the non-standalone (NSA) network) in September (widest population coverage of 70%). Deployment of the standalone (SA) 5G network on the 3500MHz band would commence by year-end, with commercial services slated for 2Q21- 3Q21.
  • We see the recent launch of the iPhone 12 5G as further piquing subscriber interest, given the earlier delay in the launch, due to the pandemic.

Corporate developments

  • StarHub hopes to fill the leadership void by 2Q21, with the list of potential candidates narrowed to < 10 (both international and local candidates).
  • Meanwhile, the new IT transformation programme which it started in 3Q20 is an extension of the S$210m strategic cost-out programme (FY19-FY21) that would see greater opex savings over the next 2-3 years.

Forecast changes.

Singapore Research RHB Securities Research | 2020-11-09
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.300 SAME 1.300