StarHub - Maybank Kim Eng 2021-02-22: Mixed Bag ~ Results Beat; Maintain HOLD On Lower Margin

STARHUB LTD (SGX:CC3)

StarHub - Mixed Bag

StarHub (SGX:CC3)'s FY20 PATMI was above our forecast but in line with consensus. This was mainly driven by higher EBIT margin due to its three-year cost saving plan.
Maintain HOLD with lower DCF-based (WACC: 6.2%, LTG: 0%) target price of S$1.25 after accounting for lower service EBITDA margin.
We remain positive on the Telco sector on potential 5G ARPU uplift and post-Covid recovery. We continue to like
- SingTel (SGX:Z74) (BUY, Target price: S$2.88, report: SingTel - Maybank Kim Eng 2021-02-10: Sequential Recovery; Maintain BUY On Deep Value), and
- NetLink Trust (SGX:CJLU) (BUY, Target price: S$1.11, NetLink NBN Trust - Maybank Kim Eng 2020-11-30: Immune To COVID Impact).

StarHub's FY20 revenue of S$2.0b (-13% y-o-y) was impacted by lower revenue from mobile (-24.3 y-o-y), PayTV (-24.2% y-o-y) and equipment sales (-22.3% y-o-y). This was partially offset by 12.2% y-o-y growth from its enterprise business, driven by a 51.4% y-o-y jump in Cybersecurity revenue and maiden contribution from regional ICT Services (S$33.2m).
That said, EBIT margin expanded to 11.2% (+0.3ppt) on its cost-saving initiatives and Job Support Scheme (JSS) grants of S$34m. Meanwhile, its mobile division saw an uptick of 3.2% q-o-q in 4Q20 on a pick-up in post-paid ARPU of S$30 (3Q20: S$29), while PayTV’s subscriber base and ARPU were also stable.
StarHub has declared a final dividend of S$0.025 per share, bringing total dividend to S$0.05 per share, or 3.9% FY20 yield.

StarHub has seen encouraging uptake of their higher-priced 5G plan, driven by the launch of popular 5G premium handsets. The group has also seen gradual resumption of business activities and its Managed Services segment has seen a recovery in orderbook as Enterprise customers commit to strategic initiatives in FY21 and beyond.
Meanwhile, StarHub has recently secured an exclusive distributorship of Disney+ content in Jan 2021.
On dividends, StarHub has guided for FY21E dividend of at least S$0.05 per share or 80% of its core profit. See StarHub's Dividend History.

StarHub has guided for lower service EBITDA margin of 24-26% (vs FY20: 31%) due to a change in sales mix, lower Job Support Scheme payouts and initial investments to be made relating to IT transformation, 5G infrastructure and data centre rollouts.
We have cut our revenue forecast by 2-3% as we believe roaming revenue will take more time to recover. As a result of lower service EBITDA margin guidance, our FY21-22E EPS forecast is reduced by 0-5% and we lowered our DCF-based target price to S$1.25.
See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.
We forecast StarHub's FY21E dividend per share at S$0.06, translating to a yield of 4.7%.

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-02-22

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.25 DOWN 1.320