STARHUB LTD (SGX:CC3)
StarHub - 4Q20 Cybersecurity Was The Star
- StarHub's FY20 core earnings per share beat our forecast by 11% on opex/depreciation; dividend missed.
- Mobile remained weak due to COVID-19, partly buffered by Enterprise growth.
- Reiterate ADD with an unchanged DCF-based target price of S$1.60.
StarHub's 4Q20 earnings beat our forecast but dividend was a miss
- StarHub (SGX:CC3)'s 4Q20 EBITDA (ex-job support scheme payout) fell 23.6% y-o-y (-12.8% q-o-q) due to lower revenue and margins. Coupled with higher interest cost, core earnings per share tumbled 44.7% y-o-y (- 30.1% q-o-q), partly cushioned by lower depreciation. FY20 core earnings per share was 11% ahead of our forecast on lower-than-expected opex/depreciation but missed Bloomberg consensus by 10%.
- StarHub's 2H20 final dividend of S$0.025 per share (2H19: S$0.045 per share) was also below our S$0.042 projection.
- For FY21, StarHub guides for stable service revenue, 24-26% service EBITDA margin, 9-11% capex-to-sales (additional 1.0-1.5% points for 5G) and higher dividend of S$0.05 or 80% dividend payout.
Mobile continues to suffer due to COVID-19 but Enterprise thrives
- As expected, StarHub's 4Q20 mobile service revenue slipped 27.4% y-o-y due to lower roaming/IDD, excess data usage and prepaid SIM sales/expiry (COVID-19 travel restrictions) but rose 3.4% q-o-q after most prepaid tourist SIMs expired in 9M20.
- Pay TV/broadband revenues were in line with expectations and flat q-o-q.
- Fixed Enterprise revenue climbed a strong 21.1% y-o-y (+16.2% q-o-q) as cybersecurity’s 63.5% y-o-y growth and Strateq’s contribution more than offset weaker data/Internet (-2.6% y-o-y) and managed services (-19.6% y-o-y).
- StarHub expects cybersecurity and regional ICT revenues to rise in FY21 given the former’s strong project delivery pipeline and Strateq’s maiden full-year contribution.
Fall in service revenue drove service EBITDA margin decline
- 4Q20 service EBITDA margin narrowed 3.9% points y-o-y (-6.0% points q-o-q) to 25.8% due to lower service revenue and dilution from Strateq (LBIT: -S$0.4m). This was partly buffered by the continued turnaround in cybersecurity EBIT (from -S$5.8m in 4Q19 to S$6.4m in 4Q20). StarHub said it has executed 82% of its 2019-21 cost transformation initiatives.
StarHub's FY21F core EPS to decline 43% y-o-y before recovering in FY22/23F
- We cut our StarHub's FY21/22F core earnings per share forecast by 9%/32% to factor in lower revenue across the board and higher net interest cost. We now see FY21F core earnings per share falling 43.1% y-o-y on COVID-19, mobile competition and cost normalisation before rising 14.1%/19.1% y-o-y in FY22/23F after COVID-19 subsides, aided by cybersecurity/regional ICT growth.
- We project S$0.05 per year dividend in FY21-23F (S$0.038/S$0.059 for FY21/22F previously), in line with guidance.
Reiterate ADD; DCF-based target price retained at S$1.60 (WACC: 6.7%)
- Our target price for StarHub is maintained as the earnings cut and higher capex were offset by adjustments for year-end net debt position.
- See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.
- Key re-rating catalyst: above-guidance cost cuts. StarHub's FY22F EV/OpFCF of 11.1x is 21% (-1.2 s.d.) below its 13-year mean, with decent FY21-23F yields of 3.9% p.a.
- Downside risk: greater mobile competition.
FOONG Choong Chen
CGS-CIMB Research
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Sherman LAM Hsien Jin
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-02-22
SGX Stock
Analyst Report
1.600
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1.600
