StarHub - Maybank Kim Eng 2020-11-30: Waiting For Stars To Align

STARHUB LTD (SGX:CC3)

StarHub - Waiting For Stars To Align

Reinitiate coverage of StarHub (SGX:CC3) with HOLD and DCF-based target price of S$1.32 (WACC 6.3%, long-term growth 0%).
We think the worst is over and ARPU should gradually recover back to pre-COVID levels. The enterprise business a bright spot, but near-term earnings growth may be capped by the cybersecurity division’s regional expansion plan.
Meanwhile, we see structural issues in its PayTV division. Forward 12-month dividend yield of 4.9% is unappealing vs StarHub’s historical yield support of 6.2%.
Upside risks include higher-than-expected DPS, and stronger-than-expected growth in the enterprise and PayTV divisions.

We think the worst quarter may be over for StarHub. That said, visible pre-paid ARPU recovery is unlikely until tourists return.
We project 1.9% FY20-22E CAGR mobile service revenue recovery, driven by gradual lifting of travel restrictions and initial 5G ARPU uplift of 2.8% in FY22E.
StarHub’s market share remains stable despite competition from MVNOs and we expect this to continue as telcos are offering highly competitive SIM-only plans.

StarHub's enterprise division remained resilient during COVID-19, achieving q-o-q and y-o-y growths for 3Q20, thanks to cyber security services. Going forward, we expect enterprise division to grow 3-year CAGR of 2.7% as growth in the cybersecurity division is partially offset by network solutions division.
Meanwhile, we expect the number of Pay TV subscribers and ARPU to continue to shrink, albeit at a slower pace, as it faces structural issue with the emergence of cheaper, original content makers such as Netflix.

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We are seeing positive developments in its enterprise business and 5G ARPU uplift should come in FY22E.
StarHub is trading at 15x FY21E P/E, 12% below its historical mean of 16.9x. That said, its forward 12-mth dividend yield of 4.9% is unappealing vs StarHub’s historical yield support of 6.3%. As such, we initiate with a HOLD as we wait for a better risk-reward to entry point.
A worse-than-expected competitive environment is the downside risk, while market consolidation offers upside potential to our view.
See 23-page PDF report attached below for complete analysis.

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-11-30

SGX Stock Analyst Report HOLD INITIATE HOLD 1.32 SAME 1.32